In PodCasts
  • Lila Murphy – “You must know the community in the company you invest in”
  • Doug Noland – “You must know the signals of the credit markets”
  • Be a fly on the wall for the McAlvany Wealth Management team discussion

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About Our Guests:

Doug Noland:

Doug has 25 years of investment management experience. With 16 years at the Prudent Bear Fund, which followed nine years working with short-biased hedge funds, Doug has deep expertise in all aspects of managing short exposure. After beginning as a trader, Doug worked as an analyst, portfolio manager, senior PM and then senior VP and head of alternative equities management at Federated Investors. Doug was also PM for the Prudent Dollar Income Fund, with broad experience in fixed income, currencies and commodities.

Doug graduated summa cum laude from the University of Oregon (accounting and finance) and received his MBA from Indiana University. Prior to investment management, Doug was a Price Waterhouse CPA, and Treasury Analyst at Toyota USA.

Doug has been a long-time student of macro economics, assisting with The Richebacher Letter (1996-2001) and authoring the Credit Bubble Bulletin since 1999.


Lila Murphy: 

Founder of Intrinsic Value Partners, LLC., an analytical and due diligence consulting practice focused on hard asset securities. She also sits on the board of Dundee Corporation, a TSX listed diversified holding company with investments in natural resources, real estate, wealth management, and agriculture. Prior to August 2018, Lila was a Portfolio Manager on the Alternative Investment Team at Federated Investors, where she was responsible for capital allocation, stock selection and portfolio construction for a 40 stock hard assets strategy.

Prior to Federated, she worked for David W. Tice and Associates on several products including two hedge funds (Prudent Global Gold Fund, Prudent Global Natural Resources). She also provided due diligence on the resources portfolio within Prudent Bear Fund.

She graduated with honors from New York University and has earned the Chartered Financial Analyst designation.


The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick

Getting Paid To Own Real Things
September 17, 2019

“There is such a deep level of satisfaction getting to work with professionals, but it speaks to who we are as a group, who we are as a team. Professionalism demands our very best. And that’s what we want to do. We want to offer our very best to a client base, to work our tails off and put a product, or a number of products, out there that serve their needs, that answer that question – quid deinde? What is next?”

David McAlvany

Kevin:We have two special guests in the studio today, Dave, but before we go to them, I think we should probably point out, this is the first Weekly Commentary since the European Central Bank went to negative nominal rates. They are literally telling people that they are negative. And this is the first Commentary that we have ever had where Trump has tweeted that he wants negative rates, as well.

David:Talk about competitive devaluation, talk about trade wars, what do we want? We want to compete on the downside with rates, we want to compete on the downside with … if you adopt a policy like that, as Carmen Reinhart said a few weeks ago, you are adopting a policy that is intentionally picking the pockets of savers. It is a remarkable period of time. But as you and I have talked about it, you have pointed out, and I totally agree, that it suggests a period of desperation.

Kevin:Dave, I have flown airplanes and I have also turned autopilot on and gotten up and done other things. You can sometimes fool yourself when you are on autopilot that everything is under control. I was thinking as I was listening to you all talking before we started doing the recording, if you look at the world, and we have 13, 14, 15 trillion dollars’ worth of negative rates, and now the central bank is going negative – is it more than that?

David:17 and climbing.

Kevin:17. Okay, so we can’t even keep up with this. So that would be a signal to me, if I was flying a plane called The Economy, I would say that sounds like there is something terribly, terribly wrong. So I was thinking about it. Who do you want in the cockpit? We have had passive investing all these years. Passive investing basically says you do just fine if you just put it in the funds, they will always go up, it’s like typical Wall Street, just leave it in and you’ll do fine over the next 10, 20, 50-year period of time. But the plane is crashing. We may not know it because of negative rates. Now we’re saying we need an expert in the cockpit. Who do you want in the cockpit? I was thinking, Doug? Lila? Dave? These are people I think you want in the cockpit when things really do need a pilot again.

David:The processes that we go through on a weekly basis, this is a part of why this team, I think, is a highly functional team, and a highly professional team. In the case of Doug and Lila, they have had a decade to work together, and the reason we are sitting down to talk with them today is because this last week we were gathered to talk to clients. Our annual Wealth Management Conference in Durango, Colorado was happening. We had folks travel from all over the country. We will be able to share with you some of the highlights of things in that program from Durango and give you a flavor for the kinds of thinking and the kinds of issues that we are talking about on a routine basis.

Kevin:Just to build a picture of who is in the studio right now, I’m going to start with you. Two weeks ago there was a program that we aired with you and your dad talking when you were in Europe. Most of our listeners know who you are, but you come from a family that has an almost 48-year-old company that has been in the hard assets, especially gold and silver, for years. But the last ten years you have also moved into money management.

When you manage money, you have to have two things definitely going on. You have to be able to look at the macro. This is Doug Noland’s specialty, probably one of the best in the world. And you have to have the micro, somebody who can take the time to look at the details of every company. That’s Lila Murphy. So as you are listening to this Commentary, Listener, picture those elements as they speak.

David:Every year since 2008 we have had a client conference meeting here in Durango, Colorado for our Wealth Management Clients, and this last week we were able to gather with folks from all over the country here in Durango. So for the portfolio managers, analysts who make McAlvany Wealth Management what it is, I just want to be able to unpack a little bit of that for our listening audience because I think it is a very solid opportunity to have your mind on things.

Let me tell you what we typically do. On a Monday and on a Wednesday, we are doing our portfolio manager meetings, and on those meetings we have Doug Noland, we have Lila Murphy, we have Robert Draper, and we have myself. So the four of us are on and discussing what is happening in the market. So I thought today we might look at one of those kind of portfolio manager meetings, the kinds of things that we talk about and what is top of mind.

Doug, you are always covering the macro for us, and so I think we should, before too much time passes, reflect on last week, reflect on the central bank there in Europe and some of the decisions they made. I’m sure you have some opinions. Give us a little bit of the macro perspective, things that have changed, things that remain the same. Work us through some of the statistics that you think are important for us to bear in mind, and give us a flavor, perhaps, for how we spend our Mondays and Wednesdays as a team.

Doug:Sure, David. Let’s start by going back to December and January. The markets were unstable, we saw indications of re-risking, de-leveraging. Very quickly markets turned illiquid, I think, back on January 3rda lot of our indicators were showing acute stress starting to unfold in markets. Not a big surprise, the next day, unscheduled, Chairman Powell comes out and does the Fed U-turn to dovishness.

That was followed by central banks globally, and we saw last week the ECB restarted QE, which is rather amazing if you think about it. They expanded their balance sheet by 2.6 trillion dollars. They finally ended that program and not that many months later they restarted. Sure, there is some weakness in Germany, but the Eurozone economy continues to expand. Equity prices have posted huge gains. We have seen very loose financial conditions throughout the European credit system, the bond markets there. But they restarted QE.

We have seen this year, also, the Chinese have hit the accelerator yet again. Credit growth in China is running approximately 20-25% above comparable 2018 levels. The Fed will see another rate reduction this week, so they are stimulating. What is dramatic to me, David, is that we are seeing extreme monetary stimulus with equity prices at all-time highs, the economy is plugging along. These are the types of measures you would expect in a crisis environment. Now they are using these measures to keep the market strong. So I find it all rather troubling. Under the surface of the markets we are seeing a lot of instability, the so-called quant quake. We have seen a lot of hedge fund long/short strategies basically blow up with some of the biggest losses in a decade, even longer in some cases.

So we’re seeing a lot of signs of instability. I think policymaking in the markets, right now the optimism is that China and the U.S. are coming to some agreement to try to put some type of trade deal together, even if it is a limited agreement, and the markets are in a bit of a melt-up. So, not an easy environment to navigate, but we just come in every day and do the best we can.

David:So last week we had Draghi, and this week we have Powell. To what degree do you think the Draghi announcement and the ECB move is to just kind of smooth the transition to Lagarde, make sure that you have the best case scenario for an easy baton being passed. Draghi is done this year, Christine Lagarde takes over. Are they really looking at the same kinds of things that the Powell Fed would be, this vague notion of uncertainty and maybe we should be proactive in getting out in front of a crisis versus being responsive? Let’s just not let it happen at all in the first place.

Doug:Yes, and what I didn’t mention before, we have had this historic collapse in safe haven yields. German bund yields made it to negative 75 basis points, with Swiss yields negative 110. I think with Draghi, after eight years the last thing he wants to do is, in his second-to-the-last meeting, is disappoint the markets. Yields have collapsed and there is a lot of pressure on, not just the ECB, but the Fed and the Bank of Japan, to accommodate these markets and continue to stimulate, and I think central bankers are, candidly, really scared to disappoint markets because they have seen how quickly things can unravel.

David:Particularly if Draghi is handing out his resume again. He might be going back to the private sector, maybe re-hired by Goldman perhaps? It would be nice to offer something to the “gods of the marketplace.” (laughs)

Doug:And the market reaction was not that positive, and we learned that there was a lot of dissention in that ECB meeting, and I think there will be a lot of dissention in the Fed meetings. There is just a disagreement on how to deal with this environment. There are central bankers that don’t believe that negative interest rates are helpful. They don’t believe they should continue to stimulate the markets. They don’t want the markets to dictate monetary policy. But they are kind of stuck. And I think with Draghi, he just takes it upon himself to push through the policy he wants.

David:It was only three years ago that we had a conversation with Carmen Reinhart at Harvard, and her opinion was that negative rates represented a form of picking the public’s pocket. And there was actually something of a moral tone in the conversation where she really didn’t think it was the right thing to do, not just because it wouldn’t functionally get an economy going again. I guess that case has been made in Europe if you’re looking at negative rates there for a couple of years. And really, they’re not lighting anything on fire, in a positive sense.

But what we see, last week the Fed is now categorically boneheads. Their president says they are boneheads because they won’t put rates in negative territory. Shed some light on this. Negative rates – the number keeps on growing. At the same time, perhaps not by coincidence, gold keeps on marching higher. We were at 6 trillion, and then at 8 trillion, then at 10 trillion, and then at 13 trillion in negative yielding bonds. Now we’re at 17 trillion. I don’t know that there is a limit to it, particularly if the Fed jumps on board. As you said, it’s not a uniform decision at the Federal Reserve, but now you have political pressure from the President, too, saying we should be at zero, we should be negative, it just makes sense.

Doug:Right. And I think a lot of this is just built on this belief, this perception, that central bankers have this all under control. They want to give the message that they have plenty of ammunition. And at this point, what ammunition do they have? I guess, negative rates and more QE. So I think they are very hesitant to not go forward with rate reductions, even if they are negative, and they feel a lot of pressure to continue with QE, just to continue this view that they have things under control.

At some point the markets are not going to respond favorably to this and then we will find out that central bankers don’t have a lot of ammunition left and don’t have global markets under control. Everything works fine as long as the markets are going up, as long as bond prices go up, yields collapse, as long as equity prices go up, it seems like it all works and everything is well under control. As we saw in December again, when risk-off unfolds, quickly, things look less than manageable.

David:A couple of weeks ago we had that reversal of trend where all of a sudden rates are moving up a bit and bond prices are coming down, and as you say, it all works as long as the plan is followed. But what if the market doesn’t cooperate? What if yields do go up, bond prices do go down in this leveraged environment? What did you take away from the volatility of the bond market a couple of weeks ago?

Doug:My view is that bond markets have been in a dislocation and the collapse in yields has forced a lot of derivative players to take leveraged long positions in the derivatives market to hedge their exposure, and it has just been a melt-up in prices, a collapse in yields. It is a speculative dynamic. It’s a bubble. I don’t believe that there won’t be consequences from that.

And we saw a taste of that as you mentioned, a couple of weeks of sharp reversal in yields, and all of a sudden a lot of money that has gone into bond ETFs found out how quickly safe bonds can lead to losses. So I think we have seen maybe an important inflection point, at least a recognition now that there is significant risk in bonds and it is not just a one-way market with easy money to be made by all.

David:We do this every week. We have the macro overview. Sometimes we will bring in a third party, a technical analyst to give us some insights, and also some perspective that might represent almost a risk management tool. What are we missing as we look at fundamentals? Is there something in the technical picture that can help?

Lila, one of the things that you focus on, too, is fundamentals relating to specific companies that we are interested in, that we are going to make allocations to, and your work as an analyst is digging into the details. I wonder – we’re talking about the macro environment being a challenge in this sort of melt-up environment – explain perhaps our mode of operation in a melt-up environment.

Lila:Thank you, David. Doug talked a bit about the collapse in safe haven yields, and there has been some unwind of this, but from a top-down perspective, clearly, this is good for gold and precious metal stocks as the Fed is obviously a friend of the gold price. But we have seen how quickly this can change. And you alluded to negative rates picking the public’s pocket, and I think that has broader implications for…

David:Every asset with an income component.

Lila:Yes. Anything, particularly in our universe of hard assets, particularly infrastructure or specialty real estate. Those stocks have seen an unbelievable melt-up year-to-date. We did see some unwind of that last week. We saw how quickly the environment could change. But as a result of this we have not been particularly aggressive in putting new money to work and have taken a very incremental approach to migrating portfolios toward our model.

David:So if you would, make the case for hard assets, for real assets, your elevator pitch on why that even makes sense. Assume that I don’t know anything about anything as it relates to monetary policy, fiscal policy, the world gone wild, the credit markets run amok as Doug has described them accurately. Why do you want hard assets or real assets? Why not just own some Tesla, Facebook, and Apple and call it good?

Lila:Well, in a world of global negative real interest rates, whether it is here or in Europe, investors need inflation protection, and they need assets that have physical and stable value. But also, the ability to generate income above and beyond what you can get in T-bills, but they can do so in a defensive way that has dividends that are well covered. And it’s a total return proposition. So you have the upside of cash flow growth, but you also have a store of value, you have the physical. Gold is great, gold is money, but in a world where the Fed is propping up all asset prices, diversification of the definition of a hard asset, we think, is important.

David:One of the challenges of gold is that it generally doesn’t pay a dividend, certainly not the commodity.

Lila:Nor the stocks (laughs).

David:Very rarely. And when they do, it’s a pittance.

Lila:Returns on capital for mining gold have been so poor over the cycle, and frankly, argue for a higher gold price.

David:Yes. And there is an argument to be made for a broader definition of hard assets, and real assets. So when you say infrastructure, when you say specialty real estate, you are talking about real things, just that have a natural cash flow component to them. If it is infrastructure, the infrastructure that we know, whether it is electricity or water, there are lots of things that you have to have if you have a functional culture or society, and there is cash that is exchanged for those services. And you are talking about the real asset itself, but some income of cash flow component with it. So that is a key distinction between a hard asset in a more general category and a precious metals category.

Lila:And as long as the company has the ability to pay out those cash flows based on their balance sheet and their other capital needs, whether it is sustaining capital or obviously the dividend is a fixed cost for the company as well.

David:So part of the work that you do is digging into the balance sheets and saying, “All right, well, how stable are those cash flows?” They can make a payment today and you can get excited about a dividend yield of X today, but is it going to be the same tomorrow? Do they have the resources? Do you have enough visibility on that company where this is a fairly predictable proposition as opposed to having a negative surprise waiting in the wings because you didn’t do the research?

Lila:That’s part of the reason that gold companies, and really, any company with any sort of commodity cyclicality, really, is not going to have a high dividend payout ratio because part of the definition of a stable dividend is the ability to fund it out of existing cash flows. So if they can’t do that, then they are either going to have go raise equity or issue debt in order to meet that other fixed cost.

David:When you look at this environment, is this the easiest environment you have ever operated in, the hardest environment you have ever operated in, the most boring environment you have ever operated in?

Lila:It’s definitely not boring.


Lila:No, it has been a real challenge because as these portfolios are being built out, the key challenge, really, has been the desire to mitigate any commodity price volatility inherent in more cyclical, whether it is timber or copper or whatever, the ability to mitigate that volatility with the more stable income parts of the hard assets area is largely nullified because those valuations have gotten so extreme. And it makes capital allocation a real challenge.

One place I see it not really being as big a challenge is gold stocks because those stocks are largely still at cyclical lows, even though they have had, in many cases, big year-to-date runs, so that has been a research focus for us. But this recent rotation away from stable income after we saw the unwind of the yield trade last week, hopefully will present an opportunity for us to get more invested.

David:Doug, you are our in-house master of the spreadsheet.


David:And I think we actually call you the king – what’s our nickname for him?

Lila:I actually have him saved in my phone as King Spreadsheet.

David:King Spreadsheet.

Doug:Thank you.

Lila:You’re welcome.

David:And so, the details matter. Every cell matters. And we appreciate that about you. There is a lot of work that goes into managing a short position, not only the analytics side of appreciating the context that you are in, but experience has taught you that there are also many pitfalls that even an experienced professional investor can fall into being on the short side of the market.

Now, I am happy to say that in recent weeks as we have seen some volatility, what you have done has stood up very, very well. I think as we have talked about some of our competitors, I am surprised they still have a franchise, literally, after the last two weeks. It has been unbelievable to witness, and unbearable, I am sure, for their investors, but they are not managing risk the way you are. The process must be different because the result is different.

I don’t how much detail you want to shed on that, but how is it that your results are so different than the competition? Is it just a question of risk indifference? Is it a question of having different parameters for risk mitigation? What is going on and how you end up – you have often said you wear the dunce cap. That’s not true. I’m looking at half our competitors. I know where the dunce cap sits.

Doug:Shorting is tough, David. This is what I have been doing now, going back to 1990, so I have the gray hair to prove it, a lot of scars along the way, and as I have said in the past, learning a lot of hard lessons the hard way. Shorting is different. It is not the opposite of being long. In shorting you have a different risk profile. Stocks can go to zero, but the upside is unlimited. The risk of shorting is high. In certain environments it can be extremely high.

What we do at MWM with Tactical Short is we really focus on risk and reward. We look a lot at the macro environment, a lot at the market environment, and we are trying to gauge how risky it is to be short. If it is a high-risk environment then you have to position to be able to get through that type of backdrop. We know it is a high-risk environment for shorting, and it has been. Market tops are notoriously very difficult on the short side because you get a lot of this volatility.

I remember back in the first quarter of 2000 when you could see industry fundamentals throughout technology deteriorating rapidly. Well, that didn’t matter, the stocks went on one last parabolic run, the shorts got squeezed, there was an unwind of a lot of various derivatives and the NASDAQ hit an all-time high in March of 2000 in the midst of an industry downturn. Of course, the markets quickly reversed and went into a bear market.

But it can be really tough to try to call a top on the short side, again, because of the squeeze risk. Right now you have a lot of hedge funds shorting, you have a lot of long/short strategies. You have a lot of trend-following trading activity. All of that creates a backdrop where you can get these short squeezes where all of a sudden bearish positions are a crowded trade, and if they start to go against the people that are short then you can get panic covering, especially if a lot of these short portfolios are part of long/short strategies and all of a sudden the longs are going down when the shorts are going up and some of these strategies lost 5, 6, 7% in a day.

So there has been a major short squeeze. We have avoided that because we knew the probabilities were high for a short squeeze. So in this type of an environment we are happy to get our market exposure away from popularly shorted stocks. We are happy at times to be short the S&P 500 as our hedge. So this has been a good environment to avoid being squeezed by a lot of these individual company shorts.

David:Lila is itching to say something. Let’s come back to the upside beta problem when she is done.

Lila:I was just going to make the point that in the energy market that has been particularly true, where we saw a massive short squeeze this past week but the stocks that went up most were the worst quality companies where your good quality balance sheet, good management, good asset base, those stocks really didn’t make much of a move at all, it was really, the move was concentrated around what I have been referring to as zombie companies – companies that really don’t even have a reason to exist.

Doug:Right. And in a speculative market environment I don’t think there are too many ways to make money easier or faster than in a short squeeze. We saw one of our competitors, one of the bearish mutual funds – I think they lost 12% in eight trading days. So if you are on the right side of that squeeze, if you are buying those stocks ahead of a short squeeze, you can make a lot of money, so that gathers a lot of attention.

And what happens on the short side? You can build a portfolio of individual company shorts, and you can be very careful. You can have them across the industry groups, and you can believe that it is a highly diversified portfolio. And then all of a sudden if there is squeeze, the correlations turn. All the positions are highly correlated. It doesn’t matter if it is a retailer, an oil services company or a bank. All of a sudden they all go up together because that is where the short positions are.

And David, you mentioned the upside beta. What that means is you have a portfolio where, in a normal market environment – let’s say you manage your beta carefully where, let’s say if the market goes up you might lose 100% on that move on the short side, or if you have a lower beta you could lose 80% of the upside move in the S&P. Well, all of a sudden in these short squeezes in this upside beta you all of a sudden can have a beta of a -3.

As we saw with the Goldman-Sachs short index and one of our competitors, the S&P went up 4%, the Goldman-Sachs short index went up 12, and one of the bearish funds lost 12%. That is something that you have to navigate around, you have to manage that, because we’re not going to manage money for investors and lose 12% in eight sessions. That is unacceptable.

David:(laughs) So again, back to the details. Back to King Spreadsheet. Back to the cells matter, and the risk mitigation matters, and the process matters. And one of the things that we have benefitted from – we starting managing money in 2008, McAlvany Wealth Management did, and we are coming into our fourth year with you, Doug, and Lila just joined us this year.

There is more and more influence as time goes on from you, Doug, in terms of that risk mitigation, and in terms of the process, an overlay. It is helpful, not only on the short side because that is where you spend the majority of your time, but also as a market strategist for the Multiplier, Accumulator, Protector, and the other styles that we manage, you also play on that side, too, helping give a risk management overlay.

Lila, again, this is not your first rodeo.

Lila:To be clear, this is my first rodeo in this kind of forum, so you’ll have to forgive me for being quite a bit nervous about it.

David:(laughs) No, but not your first rodeo in terms of your third decade in the financial markets.

Lila:And I, too, have the gray hair to prove it.

David:Oh, two of them, maybe. But when you look at this, there are challenges, obviously, in what we are doing, but we wouldn’t be doing this if we didn’t think there was also a significant opportunity. And to engage in the financial markets today is not just for entertainment value, we think there is real opportunity in what we are doing, both with the MAPS strategies focused on hard and real assets, and on Tactical Short, looking at what is an overblown market, both in terms of valuations and also the structure of the market.

Doug, you mentioned earlier, everybody is buying bonds and loves to do it through ETFs, but doesn’t realize that five lanes of traffic go in when you are buying, but it’s like a goat trail coming out. There is not quite the liquidity, the structure is different. It doesn’t work in reverse.

Lila:And the bond proxies have been very much the same thing, the infrastructure stocks, the specialty real estate, which I call bond proxies because they have a stable income component. It has been exactly the same thing where there was a rush to the exits last week and all of a sudden you had stable income stocks that were down 3, 4, 5% in a day.

David:Either one of you can jump in on this and maybe articulate, what is the opportunity? Why are we doing this?

Doug:I’ll jump in, I’ll go first. You know, David, I’ve been following macro analysis. My obsession, I guess, started back in 1987 with the stock market crash, and the late 1980s Japanese bubble, and I haven’t given up. I just look at this, we’re at very late stages of a multi-decade credit bubble. It has gone global. It has gone to the heart of money and credit.

I think there are major changes coming soon. I think the bull case for precious metals and hard assets is extremely compelling, and I think the opportunities to provide a vehicle to hedge against declining risk markets, to provide a place for people to protect their wealth, I think that is one of the great opportunities I have seen during my career.

So I am excited about what we are doing. It’s not easy right now, of course. Market tops are not easy and I think this is a multi-decade market top and it is dragging out for a lot longer than I would have thought. David, we wouldn’t have started Tactical Short when we did if we thought it was going to drag on this long, but I’m more excited than ever about the opportunities.

Lila:We talked about this a bit earlier in the office. The truth is, we don’t really know how long the Fed, global central banks – we don’t know how long they can keep balls in the air. It has gone on a lot longer than I ever imagined it could, or Doug ever imagined it could, and giving clients the ability to have assets with physical intrinsic value, but at the same time can also generate cash and diversification, as well as pretty low correlation to the broader market, that is a compelling and attractive proposition.

In some areas of the market the valuations are actually quite good, particularly on some of your materials companies such as timber and agriculture, even industrial commodities, and frankly, precious metals, I think there are great opportunities in precious metals stocks, as well, even though we have seen a tremendous run-up year-to-date. So even though markets are trading near all-time highs, I think there are still great pockets of value in areas where we can really add some value for clients and help their portfolios generate stable and growing cash flow.

David:I’m going to answer the question a little bit differently and say that the greatest opportunity I have seen in my adult life is sitting right here at the table, where we are talking about, in my opinion, a world class team, and developing world class products. There is this Latin phrase, quid deinde, which asks the question, what is next? We have been in business for 50 years, we have placed billions of dollars into the precious metals markets, we have tens of thousands of clients across the country who have participated in a move from gold at $300, $400, $500, $600, $700, and $800, to the present levels, and I think we have a little bit of headroom here.

But what is next is sitting right here, a world class team developing world class products that add value for folks that want to know what is next. And I think for many of those clients it is a question of, we have done a good job hedging ourselves, and we see that the insurance component of gold is paying off, and now we are to a point in life where we need income, we need to have a broader diversification, we need to look at our life needs, and how we are going to meet those.

Politically, we have determined that we can’t eat iPads. I think that was in the debates, I forget which Fed president said – I think it was Bill Dudley. He was talking about inflation and iPads. We can’t eat iPads. Well, we can’t eat gold either. And I think that is one of the things that we look at and we say, what is next? This is what’s next.

So to me, the opportunity is sitting right here, refining processes, refining the team, over time adding just the right people. And you know, for me this has been a ten-year journey to finally have what I consider to be the A-team. There will be more people on the team as time goes by, probably different products that we offer of a varied nature, complementary and philosophically compatible, values-driven, compatible with who we are and how we see the world.

But when I see the big opportunity, I consider it a privilege to work with the two of you. To me, full stop, there is such a deep level of satisfaction getting to work with professionals, being in meetings where, listen, I may be the boss, but it doesn’t mean that Doug is not going to chew me out.

Lila:We all got a taste of that last week, didn’t we? (laughs)


Doug:You’re kidding, you’re kidding. What are you guys talking about?


David:But it speaks to who we are as a group, who we are as a team. Professionalism demands our very best, and that’s what we want to do. We want to offer our very best to a client base, work our tails off, and put a product, or a number of products out there, that serve their needs, that answer their questions, that answer that question, quid deinde? What is next?

Lila:Doug and I have worked together in the past for well over a decade and in any team environment there is always going to be – I don’t want to say conflict, that is way too strong a word – but there are always going to be disagreements, and how that is handled and how it ultimately makes process better, is what we are looking to achieve. And having those disagreements, I think, has made us all better, because what comes out of it is better ways to handle process.

David:The only way I can say that we are developing a world class suite of products is by coming back to – how high is the bar set? That is where (laughs) the wrath of Doug may be on display.


David:But it is because the bar is set high.

Lila:So you get roasted in this environment – I think that’s fantastic.

Doug:Wait until our next meeting.

David:Yeah, I don’t know.

Lila:(laughs) I’m out next Monday.

David:Okay, so that’s Monday and Wednesday, and it is a look at the macro fundamentals, and it’s a look at the micro fundamentals, bottom up, from a company perspective.

Lila:And from a top-down industry perspective, too. I think there are enough people in this room that have a lot to add on the macro side, but from a top-down, industry fundamentals, I think that is also my sandbox.

David:So we are at this every week, it is the process we follow. We do love having outside voices come in and from that technical perspective having a different set of insights to complement, and even challenge assumptions or directions or decisions that we are in the process of making. The end result is allocation choices and a gradual process. Those shifts are occurring every week, and it’s a beautiful thing to behold. It’s a lot of work

Doug:Yes, David, what we’re doing is rigorous, bottom-up meets top-down, with a technical overlay. It’s group management, a team approach, where we all come in with our own opinions.

Lila:Group management, though, without groupthink.

Doug:Oh, no groupthink. We all have our own strong opinions, and that’s what makes a dynamic meeting, a dynamic discussion, and that is how you come to the best decision-making.

Lila:And I also think we all know what the other person is really good at, and I have absolutely nothing to add on macro analysis.

David:I don’t know, you ask some pretty good questions.

Lila:(laughs) And I think my history with Doug is that he asks some really good questions on the micro analysis side, but also has largely left the granularity and the details to me to deal with.

Doug:Yes. I’m happy to do that, Lila. You are a diligent analyst – thorough, diligent and obsessive, which I love.


David:I will say, if you wanted to pull out characteristics that we all share in common, there is an obsessive nature to all of us, in varying degrees, and with particular focuses, and I think that is one of the reasons we are passionate about what we do, we care about what we do. This is not a passing fancy, it is something that has a deep level of dedication. It taps the core of our curiosity and our drive.

Doug:And David, thanks for bringing us together, because we’re going to build something special here. It’s a special group of people. I’m honored to be part of the organization, and thanks for putting us together.

David:The honor is mine.

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