What do they mean when they say there is a carry cost on gold? “We need another trade to pay the carry on gold”

Hi Raoul, What can I say other than THANK YOU for yet another stimulating interview/discussion and extremely high-quality piece of content. I am such a happy subscriber. My question is merely from the point of 16:12 remaining - after you ask him "What about your old trade?" Didn't quite understand how your proposition is a response to Paul's concern about the moments where gold acts like a FAANG stock. How does your hypothetical portfolio with long gold/short Russell 2000 with the two "wing" trades address this? A gold long and Russell short both take a hit in the moments where gold acts like a FAANG and corrects. The wings were what, extremely-out-of-the-money S&P puts and a US government debt butterfly? Yah the two wings would do better but neither could outdo the hit that your core would take. Just seems like a highly costly hedge to me that would be a weight around your neck during the core position's rise and too weak to save you when the core position falters. Also I am a relative novice so please don't think I'm speaking from any level of authority. Would love a response but understand if you're busy or inundated with other comments; maybe a fellow subscriber could help me understand. Thanks again for the great content!!

Thank you RV - brilliant lads. I found it interesting that Raoul's instincts kicked in mid discussion when rather than commenting on the "morality" or "correctness" or the MMT response, he rather saw an opportunity for a trade. For me, seeing these instincts and skills from "traders" in the video-interviews is invaluable. Another example - Hugh wanting to be "pushed over the edge" (of the deflation cliff). Thanks again.

Pretty enjoyable out of the box thinking. One thing took my notice. Hugh referred to the Weimar Republic Niall Ferguson warning analogy from previous recession. Now related to the recent Kyle Bass interview and the dollar strenghting hypothesis, I really start wondering if there could be no probability of a current upside-down analogy. Germany debtor as being China Creditor, EU Allies creditor as being US debtor as the third party US lender of last resort as being the 3rd world debtor of last resort. Untill 1929 came along, respective to the US dollar prop up now during Corona and no money printing possibilities in the already distressed countries. Perhaps this hypothesis could be studied along with it's outcome probability.

Can someone summarize the trade here? Step1: Long gold Step2: Short Russel? if so what time frame? (I am assuming atleast 12 months out? if so whats the guarantee that that time frame will work?) Step 3 : Long on SPY for 4000/5000? if so, what the time frame? Anything else?

Brilliant. Hugh’s track record may not be the Best but that does not mean he is wrong. Early is hard. Being non correlated is a tough way to manage. You are paid to bring buoyancy in bad markets. Usually you underperform during good markets. Spitznagel is another example. Buying insurance for tail risk. Costly until you need it. . The US stock market has averaged about 4.5% over the last 20 years. Very few have impressive track record. Sometimes in the market you can be smart and can see the future. You don’t know when though. It’s about betting correctly. Size it wrong and you are hurt.

This was a great discussion. I appreciate Real Vison bringing it to me. I have been thinking about a "safe way" that will allow me to to finance my bets on gold, the dollar and even the S&P. What do you think about using possibly the most predictable player's actions to carry the costs? I think that there is a very high probability that the Fed will support investment grade bonds (LQD for example). Those bonds should also be the safe yeild for pension funds, that will really need it in an environment where 10 year treasuries yeild 0.6%. How about selling a put spread on LQD or an iron condor skewed to the upside to finance those trades? I am a complete newbie in the field with absolutely no financial background, but I am fascinated by it and I'd appreciate anyone's feedback.

I used to think the “voices” were Schiz. Nope. Just neurodiversity. I have adhd - happens 24/7, constant thinking when not driving, listening to music or watching TV. Deep consciousness - that’s all. A feature of a creative and hyper intuitive mind.

It is worrying when non monetary plumbing experts comment on monetary plumbing. For example M2 is an obsolete money measure yet used in the analysis. In fact the whole equation of exchange MV = PT which became the basis for the quantity theory of money is no longer relevant. Believing it is is why so money confuse QE with money printing. Should get Jeff Snider, Perry Mehrling and Nathan Tankus on. People who really understand money and it’s plumbing. Nevertheless - love RealVision

Can't wait for Hugh to fall down the bitcoin rabbit hole. He's going to make R. Pal and Dan look like bears one day.

seen the princes of the yen on youtube. It's brilliant

Not aware of Hugh's performance numbers but really enjoyed the back and forth between the two. Loved the look on Raul's face when his thesis was challenged. Really good stuff gentlemen.

I am a little surprised (and disappointed) that Raul and Hugh have only recently heard of Richard Werner. He known for having coined the term Quantitative Easing...

I am sorry, and I see all the positive comments here, but I have never taken to Hugh Hendry and considering his fund failed I just can't see the attraction. There is no doubt this was a very real "to and fro" discussion but it was so disjointed and Hugh Henry seems to just love his own voice. Someone below contrasted this discussion with the one undertaken by Grant Williams with Tony Deden and I couldn't agree more. I suspect a real winner like Tony Deden would avoid Hugh Hendry at all costs.

Looked at his 2003-2009 performance was fabulous. Got the gains in 2003, hit the shorts in 2008. Then messed up after 2009 and the new super easy money era as were many smart people (and regular people:). He admits to his personal angle on the bailouts after 2008 that cost him. No hubris just raw honesty imo.

I get it. Risk adjusted returns are what everyone is trying to achieve with minimum risk attached. How you get there in my opinion doesn't matter. The end result does. Whilst Hugh has charisma and I really like to listen to him there seems to be an unfortunate amount of hubris which is not warranted or reflected by his fund performance. But, he is sitting in St Bart's, filthy rich for knowing not performing...

This will be a classic, lots of information, interesting but also just fun

I've started to understand the trade better. Correct me if I'm wrong/share your input/ignore me if you think I'm not worth your time. Here goes. Core position: 1) long gold 2) short US equities (Raoul suggests short S&P or Russell, more on this later) Wing bets: 1) deeply out-of-money US equity calls - extremely cheap (gotta remember to roll them over when they expire) - protects you from big losses in your equities short in core position 2) US treasury debt derivative butterfly - I have no clue how to construct it - both of them say it's also super cheap - protects you from sharp nasty corrections in gold position when interest rates go negative - WHY? Why would an derivative butterfly becomes profitable by rates going negative at the same time when gold drops? What is the linkage here? From above re: short US equities. If this part of your core position is to profit from falling US equities, why short the S&P or the Russell? Why not short the absolute most overvalued? The concentration in the top 5 S&P holdings is like never before, why not short those? Or the FAANGs, alternatively? (specifically the NYFANG index)

This interview is devaluing the real vision brand. Hugh Hendry is hardly credible with his trackrecord post 2008. This ultimately led to him leaving the business. Having grand macro ideas is easy. Having grand macro ideas that turn out to be right must be extremely difficult. Hugh Hendry’s background and his performance in this interview lead me to believe that at some point, when he was a young, fresh and quirky man his talents for self promotion helped him a great deal, markets and Crispin Odey did the rest. He is scruffy and no longer fresh. Markets have been hostile towards his ideas for the best of the last ten years and Odey is no longer there to guide him. He lost tens of millions of $ of his clients’ money and left the business because it was no longer fun. Just the smugness of it. He is now dabbling in property in St Barths. Nuf said.

Signed up for RV for this "amazing" discussion. Couldn't be more underwhelmed... guy is focussed on talking his book of speculative real estate and can't answer or confront any question/topic affecting those of us in the Lumpenproletariat. High absence of self awareness by Mr. Hendry but "great trade bro" so all good.

great minds, exactly why RV is RV

Fantastic Thank you

Hugh's recommendation of "The Princes of the Yen" is vital. This is the first piece of content I have found which gives anyone with a macro view an explanation of what may actually be taking place in the US. The "why" seems to be much more elusive than the "what" and the "how" at this point. The author of the original book, Richard Werner is on twitter here: https://twitter.com/scientificecon I also highly recommend recommend reading the CARES Act https://www.congress.gov/bill/116th-congress/house-bill/748/text#toc-H25CA409D9D2844399CF965A38F83F6C6 Keep up the good work RV!

Mr Pal you fucking genius I think I have finally worked out why you are so positive on bitcoin!

Incredible interview, real value adding perspectives. Thank you RV for doing what you do. Also found Hugh's recommendation over here. Simply eye opening. Princes of the Yen: https://www.youtube.com/watch?v=p5Ac7ap_MAY

Not sure if others are experiencing this. But for me using AirPods, anytime I increase video speed above 1x, the audio cuts out after a while and I have to pause and start to get it back. Please look into this tech fix, cheers!

Thank You so much Hugh for mentioning the youtube Documentary "Princes of the Yen" . I watched it and OMG, blown away. A great follow on after one reads the book "creature"

I am a complete newbie here and recently signed up to RV to hopefully learn something. This conversation was way above my head, so could someone explain to me why someone who could probably afford to probably buy a 5M home in cash would still borrow the money if the interest rates are so low.

Outstanding! Such different vibes during the interviwe between Raoul and Grant..very complementary.

Rubbish.... Hugh has a TERRIBLE LT track record (even a broken clock is right twice a day) and if you think that owning a "Gold Box"in the islands is the key to financial well being??...than this is clearly the opinion of someone who has lived and died by investing OPM for a long time....total respect to Raoul....clearly articulated framework and quite frankly put (supposedly) his personal asset allocation out there (1/4 USD,1/4 BTC, 1/4 Gold, 1/4 trading)....would like to see all of the guests come on and post their positions clearly with no financial psycho babel obfuscation....just, "this is how I'm positioned and I'll let you know when/why I changed"....I've been an advisor (in the US) for 33 years and have practiced a sustainable global asset allocation discipline with retail products that the PEOPLE can utilize to capture real returns....I'm sick of hearing this shit passed off as investment insight....plenty of great stuff on RV...this isn't it.

Thank you RV. Surprisingly educational. refreshing.

As good as it can gets!

To summarise, their idea was to a) of course long gold, and b) simultaneously short and long S&P? So buy puts + buy crazy calls at 5,000 S&P? One of the best interviews I've ever seen. I'm in the middle of exams but still spend most of my time on this haha

I am a complete newbie here and recently signed up to RV to hopefully learn something. This conversation was way above my head, so could someone explain to me why someone who could probably afford to probably buy a 5M home in cash would still borrow the money if the interest rates are so low.

Excellent discussion, felt like I was behind a two way mirror, or a fly on the wall. Thanks Glenn O

Is the driver of his SPY call position purely inflation based? or is there something else underlying the these for a higher equity market a year + from now?

Anybody know a broker that offers USD/SAR or USD/AED ? Preferably with Margin

Biggest risk to the deflation/insolvency trade idea is that the gvmt can change the rules of the game. Take the restaurant example, instead of merchant insolvent, reduce rents until merchant is solvent. Property owner if leveraged will default, debts gone, restart. For long time the gvmt has been active in backstopping the rentier class, providing ever more debt to keep the whole thing afloat. Deleveraging this whole thing just means that the rentier class takes a huge haircut. Big worry of a deleveraging event is that foreigners will purchase the defaulted assets - just forbid them. Same for all the offshore money - just forbid from repatriation. This upcoming insolvency event will have little impact on the working class, but it will give a massive haircut to the rentiers. That's a positive. Rentiers are an economic parasite which detracts from productivity, so removing them is necessary if you want to be globally competitive. And being globally competitive is pretty darn important when you are competing with China or Japan. It's not an option. If instead the gvmt inflates the debts, it doesn't solve the rentier problem (in fact it rewards the rentier), all it does is crush the bonds in the pension funds, and that's not enough. A society which rewards rentiers, is a society in which the best minds will gravitate towards being a rentier instead of being productive - that is a massive misallocation which has devastating long term consequences. Regarding the high unemployment checks, that essentially is a minimum wage increase b/c it creates a labor shortage, something again that ultimately must be dealt with by reducing the rent paid by the merchant in order to be FCF positive. Hugh has actually built himself not a golden box, but instead a highly negative convex trade that is about to be wiped out by the very real destruction of the rentier classes. He might as well have been a contemporary art dealer, because they are going to be wiped out also for the same reason.

Love how Hugh thinks you can give dishwashers double universal credit/unemployment in a world where Rand Paul and Mitch McConnell are in government. In America, we only give free money to corporations with lobbyists. Anything given to working people is abhorrent and needs to be vilified. I have to listen to CNBC talk daily about how the extra $600 dollars going to these folks a month is going to end capitalism. We won't give people the money to shelter in place because they simply don't want to. We would rather open things up again and risk their lives to ensure that asset values don't fall. It is these actions that have me convinced that Raoul is right. We could avoid a coming collapse by doing something sensible, but we will force the issue by pretending that nothing is wrong as they try to reinflate the bubble of a market being carried by FAANG and a bunch of zombie companies.

I came away from this with the idea that it is neither gold nor bitcoin which awaits its day in the sun. If you have access to 0.25% money from Central Banks, you leverage your cash to buy assets from poor middle class workers and small business owners. Lesson of the GFC, Wall Street bought up single family homes and are now the biggest landlords in America. This will just be another asset grab. You puke up your St Barths villa with a 5% mortgage and Hugh grabs it at next to zero carrying cost. Explain to me again why you want to leverage your capital buying a rock or a digital entry on a computer.

Awesome Hugh/Raoul....thx

Here's all you need to know .. not a really impressive record..... average at best. https://www.valuewalk.com/wp-content/uploads/2016/03/TEF1602.pdf

The Eddie Irvine of Finance

owning a property in an island is long volatility? how? Thanks for the explanation.

Has Raoul elaborated in another videos/mediums that butterfly trade he talked about during this interview?

"Experts are always wrong" Beautiful!

This was one of the best pieces I have ever seen on this service. I second the comments below on the "unscripted" nature, the free flow, the routine collapse from idea back to underlying principal. I would subscribe to Hugh reviewing his monthly letter on what he thought, what happened and what he learned. Just tell me where to click! And just tell me that Hugh Hendry will be presenting and hanging out at the next Black List summit.

Hugh operates on a different wavelength. You could almost see his brain processing Raoul's comments - yes, yes, no, maybe, You had to work to get the meat out of this one. Well worth it. Most enjoyable interview in a long time, and that's saying something. MO

Hedge Fund Auteur

I believe gold does well regardless. If all goes well, the S&P puts go up in value while deflation becomes obvious to the masses and the market falls. Then, when that has become obvious, I plan on flipping it and buying deeply out of the money calls on the S&P 500 expecting inflation.

Had to downvote. Have a hard time taking advice from investors who dismiss BTC these days. Always feels too lazy, lacking DYOR and the corresponding open mind and analytic approach to the past 11 years of hard Bitcoin data. And too much unfocused shilling of StBarts. RV needs to focus harder in the future and less on the present. BTC is both.

Interesting views, thx

Most interesting interview I've seen yet :)

I loved this... Best interview in a long time... Thank you both

I believe the book that Hugh was referring to is 'Thinking in Bets'

Two questions: 1) What do you mean when you talk about gold convexity? 2) TIPS and gold look highly correlated recently. If we have a strong deflationary environment, real rates will go higher, and TIPS will fall. Isn't it likely that gold will fall together with TIPS after it had a year or so of bull market? Thanks for the great interview!

Roaul epic mate! please look into getting Peter Schiff on

Crazy how shutting off the machines and noise and sitting in your own thoughts for a few years can bring immense clarity, peace, and confidence. We all watch with amazement how Hugh and RP digress...but the real takeaway from this is the delivery and clarity Hugh brings. Last time I saw him publicly speak he seemed to be defeated. Hugh thanks for putting yourself out there. Macro investing is an art and you are a fantastic artist.

This is a great piece, thanks RV! Would be also great to invite prof. Richard Werner for an interview in RV

Brilliant, loved the informal, unscripted chat bouncing ideas off each other.

Followed on Insta. Best Interview so far!

Honest conversation... glad to be a fly on the wall for this one.

Princes of the yen is absolutely an incredible book (and YouTube video)

Debt to GDP is going to be well over 200% in the USA....No-one is looking at the GDP and how destructive that lack of Government Income jacks up the Debt/GDP % massively....How can you control the USD under this scenario. You can't. 120% today is not realistic....No Tax revenue!...its drops to dam near fucking Zero. This narrative around MMT assumes everyone and I mean everyone feels comfortable with Debt that will never get paid down....The Bankster's can do it but everyone else can't...PERSONAL DEBT is the Elephant in the room and it's not in the FED's Models....Given that 65% of the real GDP is from Consumers, the Bankster's are wrong! They ignore the role of personal credit and that right there is the BIGGEST problem, and the % ROC is also ignored, and to top it off the ROC of velocity of Money rolls back to no Government Income.

Fantastic video, really enjoyed it. Just watched Princes of the Yen...wow amazing stuff. Real Vision please interview Prof. Richard Werner, would love to see a discussion with him and Raoul. Tks.

Ooof! This was outstanding. Thank you Hugh, thank you Raoul.

I can't make up my mind whether this short Euro long luxury Caribbean real estate trade pair is genius or folly.

Stuff like this always makes me wonder about the “quants”. Quants I guess are mostly either high frequency or month to month time horizon. These guys talk about 5 year time horizons so I guess it’s either that Macro is like that or those at the professional end, of still basically human traders, have found they need to be way out past where the machines are playing and out past where their brokers can be bothered hedging their positions. Make any sense?

Can someone help me figure how to construct the Butterfly 5yr trade?

Raoul, I am not knowledgable about much of anything, but I thought it was a very different Hugh at the end of the discussion than at the beginning. Wonderful job at bringing him out from his past introspections.

loved it

What a great conversation. Very different than what I’ve heard. More comparisons on Japan’s bubble is interesting to learn more about. Great entertaining character.

This is golden. Very very valuble to watch pro's working through the macro puzzle for those just starting out. Thank you.

The Princes of the Yen documentary can be viewed here: https://www.youtube.com/watch?v=p5Ac7ap_MAY&feature=youtu.be

Fantastic discussion and exactly the sort of stimulating macro thought that I was seeking from RV.

The Mad Hatter of RealVision. Through the Watching Glass.

Fantastic interview! I believe this is the Princes of the Yen video referred to: https://youtu.be/p5Ac7ap_MAY This document on 8 centuries of real interest rates is quite enlightening too: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2020/eight-centuries-of-global-real-interest-rates-r-g-and-the-suprasecular-decline-1311-2018.pdf?la=en&hash=5197703E8834998B56DD8121C0B64BFB09FF4881

he left the industry because it was a joyless activity... didn't he leave because his clients pulled their money?

IMO...this is the best exchange I've heard in the few years I've been an RV subscriber. Encouraging investors to push the boundaries of their thought process, projections and financial acumen is the best favor an experienced macro investor can provide another investor. This conversation was gritty and real. It took me to a better place...and a primary example was the gold trade..."hey, this has a 70% chance of going to X marks the spot, but it has a 30% of imploding!" That's brilliant...with macro we can get too focused on the long term outcome without actively reassessing along the way. And I'm still long gold in this ongoing currency regime change! Great job boys...AND keep Hugh coming back to add more!

Loved this discussion, thanks 😊

Ok shit! This was actually A LOT better than I expected! The good stuff really comes in from about 35-40min left in the interview. When Raoul & Hugh start going back and forth and start fleshing out a trade construct in real time. Amazing! I love Hugh but sometimes he tends to babble off script. If you find that off-putting just try to soldier through the earlier bits. It's bloody worth it!

T try r TG re t TG r TG try Iiuiiuuuuiii ciu

If you read or watch The Princes of the Yen, you will learn far more about macro than listening to Hendry in this RV interview. Ironic that Hendry is such a fan of it, wish he would talk through the ideas more rather than 'GOLD!'. Richard Werner (author of PotY) makes it very clear that the way forward is: CB's take bad assets from banks, then banks are restricted to loans for productive purposes, and consumption/speculative lending done only from the non-bank sector. He calls this Credit Guidance, which was/is the system used by Germany, Japan, RoK, China which created their incredible growth. Essentially the CB/MoF determine which productive sectors will get credit and banks act as the loan officers for those sectors. Credit Guidance is non-inflationary, however it will be asset price deflationary from the current Anglo-American system. Finance folks who are not deeply schooled in geopolitics fail to understand that the Anglo-American system is only possible b/c it sits at the pinnacle of an Empire. That Empire is being unraveled, and so the system it maintains is unsustainable. TLDR: there is no place to hide asset-wise. GOLD will not save you. All that will happen is a mad scramble of bubbles in different 'assets' as speculators jump from one failing asset to another. The first in will win, everyone else will lose. The only winners will be the productive assets - the technical ability in your head/hands to produce something of use to others. Look around, how many productive assets does your country have which can head to head compete with Japan, Germany, China, RoK?

Everyone is on the same side with gold consensus up for everyone . is there a gut check or are you saying there is no more downside liquidity risk or gut check with gold ?

Enjoyed every minute of conversation. Fantastic!

Fantastic interview. I am having trouble wrapping my head around gold being a short vol trade, though. While gold’s inverse correlation with equity markets is spotty at best, I would have associated it with long vol as it typically does well in turbulent times ( understanding it’s tightest correlation is movement of real interest rates). Can anyone help me see what I am missing? Thanks in advance.

No wonder Hugh has been off the grid. Pretty genius to get funding at these low rates to build a getaway for the rich on an island and carve out a piece for yourself. Such low visibility cocoons may be highly prized in this "gilded depression".

You are both going to be right. There is going to be a deflationary crash (stocks down with GDP), then even more desperate measures taken by the fed who is going to generate the inflation hoped for 20 years. But the inflation is imo even less controllable than growth. So there is going to be a lot of inflation who is going to profit from stocks. Like always, the timing is uncertain, depending on political development, covid development and the rate of panic of the fed.

If we get deflation first, does that mean the markets will correct another 20-30% or even more? If that is the assumption, everything will be sold - including gold, silver and the miners. Some say Gold will hit 800-900 Dollars. I don't care about that, I still own physical Gold and I'm not selling even at that price. With the miners, however, isn't it to early to jump into it? Any thoughts?

Great interview back and forth - would love to see more exchanges like this. Well done.

This gentleman has no respect to Raul, real vision viewers. Take shower & straighten up for an interview. He is looking for $50M to do Real estate business in Cayman. If he was so smart, why don’t he do it??????

"Princes of the Yen: Japan''s Central Bankers and the Transformation of the Economy" is a book by Richard Werner. There is also a 2014 documentary titled "Princes of the Yen: Central Bank Truth Documentary", which you can find freely available on Youtube.

Raoul, it would be interesting to see you run your thesis with Lacy Hunt. See what are the matches and discrepancies, if any. Cheers!

Love these trade construction conversations between pros.

Thoroughly enjoyable !!! Thanks Guys...

Fantastic insight into portfolio construction... one of the best pieces for this.

Interesting chap and his appearance on Newsnight with Jeffrey Sachs is perhaps one of my all-time favorite skewering of a pompous ding-dong from the Ivory Tower, but, with respect, and if I may say this gently, his returns aside from 2003 and 2008 were decidedly mediocre. Don't get me wrong, I like his spirit and life story, but the returns simply are not there. Not going to invest 78 minutes on this one.

Loved it, thank you guys

With gold as the base of the macro bet, isn’t an easy option just playing the gold miners (eg GDX / GDXJ with currency spread in the bet) for the big run potential (ie open ended call option on the price of gold going up). Love the macro chat, gets the brain wizzing. Keep it up RV.

Not Hughs best. Couldn’t understand much of what he was trying to say.

Incoherent mumbling, can’t complete a coherent thought

Just fucking brilliant! Except trying to get the thought of Hugh in a bikini out of my mind.

Amazing discussion. Wow.

I love Hugh but don't you need to reign him in? Keep him on point?

wonderful interview, TV. Thank you.

I've thoroughly enjoyed this conversation. Great vibes.

I never knew Mark Lanegan had so much insight into finance. Kidding aside, this is great and extraordinarily helpful. I have considerable respect for the views of both Hugh and Raoul.

Awesome. Taking us through the rough sketch of the next big trade.

Apparently Hugh and I have the same barber during the media-induced panic.

Instant classic!

Great piece, thank you RV. Love Hugh and how his mind works. I'll happily swap some insight on FinTech/Crypto (non-BTC) in exchange for some carry trade advice ;)

Charter subscriber: I've watched countless awesome interviews. THIS one makes the Top Three of all time. Insanely informative and entertaining as hell. BRAVO!

This is my first comment on RV. Rapidly, the video was great to watch because this is the first time that I’ve heard an opposing view on the market in one of your videos. I follow the “unfolding” hypothesis but it is great to hear an opposite perspective. It would be great if you had additional interviews with others who disagree with your hypothesis. Hope you can make it happen. Again great video due to the diversity of the macro view.

Great conversation- one of the best videos you’ve had in a long time - love the back and forth and also the gold discussion!