Andrew Auerbach (00:09) All right. Hello, everybody. Welcome to another edition of Beyond the Bank. I've been looking forward to this one. The guest today is David Obront. David, as you are all going to see, is certainly one of the most interesting people I know. David is somebody who brings tremendous perspectives on the financial markets, but so much more than that. He's a private investor. He's a serial entrepreneur.

And as he describes himself a polymath, you know somebody interested in everything and how it connects he loves to read He is very informed in particular about technology as you're gonna find science politics Of course financial markets and how that all weaves together a few disclosures before we jump in David is one of my closest friends. David is also my cousin and has

strong opinions. And so this is a podcast where that's what we want. I assume most of the audience listening now are advisors who cover the markets closely. David is one of the best strategists I've ever dealt with. I love our long walks when we talk about all the topics I just mentioned in the intro. And so this podcast is kind of a walk except that David's in a different country at the moment. So David, welcome, really appreciate you joining us.

David (01:34) fun to finally be here.

Andrew Auerbach (01:35) Yay.

So before we kind of jump in to more macro view of the world, a very interesting place right now, maybe if you could just walk us through a little bit of your journey. I mean, you've been a student of the financial markets your whole life, basically, but I think it'd be helpful for people listening just to kind of know where you're coming from before we jump in.

David (01:58) Okay. Yeah, I like to read. like history and science and philosophy and politics and everything. MBA from Western and I was in corporate finance and stuff like that. I ended up falling into the car business, which was a consulting gig for three weeks that I turned into running and bought them out and did that for a decade. Not at all where I thought I would end up. And so I wanted to get out of that and...

then had the capital to do what I love, which is speculate on my opinions, which originally was real estate. I did a lot of real estate from 99 when I sold my businesses and venture capital and some advisory stuff. But now it's mostly public markets because like, as you said, I'm traveling and kind of retired. I don't have staff. I don't have inventory. I don't have any ties.

And so public markets is easy because I can push a button and buy something or sell something and go play golf. But I'm very active. I read thousands of articles and have lots of opinions about everything. So that's kind of my background. I'm not sure what more.

Andrew Auerbach (03:12) You also have a really

fascinating network. know, I think that given your savvy around technology, social media, communicating, I've always found your network is kind of a global one. Can you describe that in terms of how you synthesize information? You're not reading the major dailies every day informing an opinion. yeah.

David (03:16) Ahem.

Yeah, virtually never.

No, if I want to know what's going on in Iran or South Korea or Japan, I mean, it's easy to read the local newspaper and have a sense of their view on politics, which is very different than, you we all get the view of the person who got to write the article in the Wall Street Journal or the Globe and Mail or whatever media we read. And that's where there's a big gap in misunderstanding, a misunderstanding of, you know, what Putin thinks, for example.

You know, we have a sort of monolithic view of Putin as you know, character on the world stage, but certainly that's not the view of the Russian media. And it may or may not be the view of the Polish media or the Iranian media or whatever. So it's interesting to me to read about that. And when I see a big disparity between what our mainstream view is, and you know, we control capital markets really, most of the money is the Western world. And now these days trading mostly in the US.

So there's a gap between what I perceive as reality and what the market perceives as reality. That's what I like to play. When I started, when I was younger, I looked for great businesses. So I invested in, when I was 40 years ago, applied materials, a semiconductor business. So a great business that was in a lull in an industry. I didn't really care what was going on in the world. Politicians didn't have that much impact. Fed wasn't suppressing interest rates.

So was really more about picking a business. Apple, you remember long before Apple was Apple, before the iPhone, you could buy Apple for the cash value, liquidation value of the business. I thought the brand name was good enough that if they put it on toasters, that business could be worth something. People hated them and I didn't. So that's another example. Uranium is a good example. Fukushima destroyed, turned off all the reactors. So you have to pay attention to the politics of Japan.

where are they going to turn it back on? But it's a long contracting cycle. And so the uranium was continuing to come to Japan and they just were stacking it. And so there was a huge excess supply. Every uranium miner, virtually all of them went broke. know, Cameco, the big Canadian supplier, managed to hang on, but you know, at a fraction of its value. And you know the demand is there. You know that they're gonna turn the reactors back on. Otherwise, it's a billion dollar paper.

So that was a good example of, know, people hated it, but it was inevitable that there had to be new supply and the price of uranium, know, pound of uranium went from $150 to $18. And then it's gone back to $80. Now it's some, know, somewhere low 70s. There has to be a price that's economic for them to go mining. So that's really what I used to do. Now the world's shifted to more macro. The governments and the Fed, central banks in general had...

way more influence, especially through COVID, fiscal spending and monetary policy. And so all of your interest in a mine in Botswana, it doesn't matter if the Fed is printing or not printing, if the government spending or not spending is far more important. And passive flows is the other thing that has become a big thing. Probably most of the people, you listen to this podcast, are involved in passive flows. You buy an index. So you buy the spy or you buy...

Andrew Auerbach (06:45) sure.

David (06:55) the TSX or anything else, but you can see what's happened is it's all just accumulating with the Mag-7. They're the biggest part of the S &P. The proportion that the US represents of the globe now is at record epic levels. Nobody wants to invest in anything else. There's no other story that's relevant. China is having a difficult time with a housing bubble burst and they're...

capital investment model is kind of broken now. They're still, I mean, they're a huge player, but nobody wants to invest capital because risk of what happened with China or whatnot. So everybody's putting money. That's why you end up with these crazy multiples and nobody cares because it's the only party in town and it's going to end. It's going to end harshly. I hate to sound like such a bear, but I could have made the same case a year ago or really virtually since the middle of COVID, know, after the fiscal was spent.

there was a real case to be made. Okay, what are we gonna do for an encore? And yet these have been the best times to be a quiet passive investor in S &P. So the question for your audience and for investors in general, not people like me who wanna trade stuff, but people who wanna just quietly have their money work for them in a responsible way is, you can get four or 5 % on a T-bill. What are you buying?

stocks at 40, 50 times earnings, you know, what do you really know about their business prospects? What, what Trump is going to do? What's fundamentally, I think the biggest risk right now is what's going to happen with interest rates. Everybody's sure they're going to go down. think they're like a beach ball held underwater. think long rates, not short rates, short rates that, you know, the, think are where they're going to be, unless we have a recession, in which case they could go down. But the long rates,

have a long way to go up and that breaks a lot of things if that's true. If you know it starts being five, 6%, 7 % on 10 and 30 year money. So that was a long enough ramble. Shoot.

Andrew Auerbach (09:01) That was superb. And I've got a whole bunch of questions coming from it. Before I jump

in though, if somebody were to peg you down and ask you to describe your investing style, how do you describe yourself as an investor?

David (09:07) Ahem.

So as I said, I used to be a stock picker. I used to really like to find a business that I thought was a fantastic thing and really put all my eggs in a very few baskets, like I said, apple or applied materials or uranium and watch those baskets carefully. I like that idea and less macro. I certainly had no interest in earning an income per se. So I've had different times where preferred shares or convertible debentures or mining, energy.

Biotech, shipping, I've learned about each of these sections because when I say, oh wow, like I didn't know offshore oil was trading at these prices. the whole, as I said about uranium, the whole industry went bankrupt. When Volaris came out of bankruptcy, they did it at a price that was like 10 cents on the dollar of the value of the rigs. But the rigs have no use, nobody wanted to use them. So the question is, is offshore gonna come back? Is oil prices gonna come back? Remember, oil was negative at one point.

people were pretty sure they weren't gonna start drilling, but offshore has, you there's a case. There's a whole world of people who pay attention to this. And when I stumble across that, go, I should learn about offshore. I should learn about shipping. Because when I look at values that are, you know, three times earnings, it's like buying, you know, the tobacco stocks. It would have been a great investment if you just said, I don't care about the moral argument. I just care about the cash flow in business. Those businesses have continued on for 50 years since people thought that they were.

going to be forced out of business and smoking was going to get banned everywhere. So I feel like I'm assuming that we're going to use energy and need oil. Offshore oil rigs is super cheap. And yet after they're run, they're now falling because the expectations push back a year. So that's an example of today. You could really focus on that. But I think the bigger thing, what's Trump going to do about drilling oil? What's Saudi Arabia and Iran going to do? And Libya and Venezuela like...

Canada, our oil sands is potentially a huge supplier if we had a government that was motivated to unleash that as opposed to restrict that. So the same way that we're Canadians and we pay some attention to what the policy is here, but in each of those other countries that I mentioned are very relevant to global energy supplies. And of course, China's demand is a big issue as it's perceived to be a very weak situation right now. People are worried about their imports of all commodities and that's...

suppressed prices. Commodities are epic cheap, but that doesn't mean they're going to bounce until the market perceives a change in some of those variables, particularly China and Trump's belligerence to them.

Andrew Auerbach (11:54) So before we jump into some of the things you just covered off, are great to kind of, could just spend the whole time talking about them. What about your overall worldview right now? So you've made the case very clearly that macro matters perhaps more so than it ever has around just a pretty fragile world with a whole bunch of things going on that you really can't predict which way things are gonna go with a whole number of factors. Curious sort of how you see

David (11:58) HMPH

Mm-hmm.

Andrew Auerbach (12:22) the world right now and how that relates to an investing strategy. You've kind of alluded a little bit that, you you can get a pretty decent cash return if you just actually don't want to participate at all in any of this, but curious sort of how you think about the world right now.

David (12:33) Mm-hmm.

There are great opportunities and great risks. And I think for passive people who've done very well with SPY in particular, they miss how lucky it has been that the confluence of events has allowed that. And I think if you had said to anybody how rates were going to respond, the long rates going way up since the surprise 50 point cut in September, people would have expected the stock market to have a tough time.

but it's being completely ignored right now. So can it continue to get ignored? Yeah, maybe, because people are very enthusiastic about Trump and pro-business thing. I can't imagine, it can be very positive for certain businesses, but on a macro level, he's got an incredible challenge. is a problem every government in the world has racked up huge debts. It can't be continued. They can't keep suppressing interest rates. They're going to be needing to borrow a lot of money.

And the question is, does that money come out of the stock market? Do other countries, like Japan is a huge source of capital to the whole world because they had zero interest rates for a long, long time. If they start allowing those rates to come up and they decide as a conscious policy, there's a guy, Russell Napier, who's a great advocate of this concept that I think is correct, that Japan, all they have to do is say, we'd like our capital back in our country and have some incentives and motivations to that and reasonable interest rates and whatever.

and their stock market will fly, but the rest of the world, the bond markets of the world are supported by Japanese capital because they're starving for yield. They can't get it in their own country. They convert to other currencies. This Japanese yen is at record cheap prices. Their stock market is reasonable. Like that would be a better place, in my opinion, to look for value than the US market. But that's not how people think. Yeah. Yeah.

Andrew Auerbach (14:27) And your comment about passive flows, you know, David, that's

a, that's a particularly us phenomenon, much more than Canada. Canada certainly is growing with passive ETF, but, nowhere near. And in fact, what's happened because of the concentration in our market, it's still overwhelmingly active management. Even the new issue of ETFs, believe it or not, 25 % of them are active, active ETFs. Yeah. As opposed to passive, very different than what we've seen in the U S but

David (14:47) Hmm.

I did not know that. Wow.

Andrew Auerbach (14:56) What I find when I talk to people and I think you've highlighted one of the dangers of, you know, markets that are as prolonged as this one has been where it gets detached from valuation and it really becomes so momentum driven is this perception that this perception that the S and P 500 is a proxy for the overall US market. Like this lack of real understanding that what actually is the S and P 500 and basically, you know, 35 or 40 % of it is, you know, eight companies or whatever.

David (15:15) Mm-hmm.

Andrew Auerbach (15:25) the concentration is right now. So I'm hearing you say even from a macro point of view, the US as a market, you would actually be thinking about profit taking if you've been one of those very successful kind of passive investors.

David (15:26) Mm-hmm

well, certainly I have no interest in the Mag-7. I think they have all sorts of risks, primarily valuation. They're great businesses, but they have some valuation risk. They also have a lot of political risk. They're the target of, you know, it's hard to know if the Steve Bannons and Bernie Sanders of the world start agreeing on what should be done to businesses, what could be done in terms of breaking these guys up or restricting their ability to profit. And certainly there's

Andrew Auerbach (16:03) Right. Right.

David (16:09) lots of populism on both the left and the right that could attack them. So I think there's gonna be a shift from benchmarking to your point, the S &P, to shifting to like a Russell 2000 as a benchmark, which is much more of a broad index of like the... Yeah. Yeah. Correct.

Andrew Auerbach (16:24) So get more broad market exposure, the small and mid caps that, you know, basically have not participated the way the mega caps have.

David (16:32) And like, you know, but you're not gonna make 10 % tomorrow like you could if you were in the max heaven. you people want, you know, the proportion of trading that's zero day options, it's now 50 % of the volume on the CBOE exchange is zero day options. It's people buying and saying, if it's not, you know, it'll be this price by the close of business today. And that used to be relatively small. Obviously things are expiring and things are, so there's always a volume that's zero day, but it's...

Andrew Auerbach (16:39) Alright.

Wow, wow.

David (17:02) out of control and also the number of ETFs and stuff that are double and triple levered single stocks. that if you want and so a lot of foreigners, I mean if you're a kid in you know Mexico or Japan or whatever, you don't want to play some boring stock that could go up 1%. You want to say I think Nvidia or Tesla or whatever is going to be up big on this news announcement and I'll risk a buck to make 10. And it's the same as crypto. None of these things have

Andrew Auerbach (17:07) Yeah. Yeah.

David (17:28) Nobody reads financial statements. I don't mean nobody. mean, what's driving the market? And so old guys like us who sort of think that this is supposed to represent a share of a business are kind of left going like, okay, well, if you don't own the spy, you underperform this year, you're gonna lose your capital. And people are gonna say, and the guys who are the smartest value investors have just been pounded for a decade or two. They're smart guys. They're doing what makes sense. Wrong place, wrong time. But...

Andrew Auerbach (17:32) Sure. Yes.

Yeah. Yeah.

Yeah.

Yeah.

David (17:56) So the ones that have survived, and there's maybe a couple of them, could have a great time in the next decade. This is going to be a stock picker's market after we have what I think is going to be a bond market riot. people are going to be, and at some point that's going to affect capital values of stocks. So I think it's going to be a very tumultuous year. And I think it's going to ebb and flow. People are going to rush into commodities and out of commodities, into bonds and out of bonds, into

tech stocks and out like depending on what the mood of the week the tweet of the week the tweet of the hour and so there's a lot of stuff up in ours but i would say that the rest of the world has been become very cheap compared to but i know i'm looking at europe see i and i friends i have debates about this all the time europe is very cheap but i think i think deservedly so i think that what's going to happen in in germany is a disaster they cannot form a majority government there because they all refuse to work with the afd

Andrew Auerbach (18:29) Yeah. Yeah.

David (18:54) which is considered a outrageously right-wing party by the other parties. I don't agree with that assessment, but I'm not German. Let me step back just for a second and make the general statement. Everything I look at, this is just, it's like reading history or observing a situation of tribes in Africa. I'm not expressing a political opinion about whether I think Germany would be better or worse with AFD. I'm just saying that if they can't form a coalition that's coherent, if the...

right-wing centrist party needs to ally with the Greens in order to they don't agree. They don't agree on Ukraine, they don't agree on energy, they don't agree on economic policies, they don't agree on immigration. So it's incoherent. As soon as they have coherence, that's a cheap market. I will buy Europe with both hands if I see an opinion emerging that's tight.

Japan also is having political problems. South Korea is having political problems. So unless you're going to try to front run those things and say, I'm sure that this one will work out well, which some can, I think a lot of people are looking at Canada and saying, cause probably have so ahead in the polls, you can start betting on that outcome, that he'll be good. But I think we have a ton of pain to go through before here and there. But first, I don't think the election is coming so fast. Obviously it's coming this year, but it's not coming so fast. Maybe summer or possibly fall.

And then even then, who knows who the leader is gonna be and who the winner is gonna be. So I'm certainly not frightened. Because I think we're going to have increasingly bad reality, economic reality, that's gonna take over the headlines from the excitement that we could have a more pro-business government. But I do predict I could be wrong for the coming weeks.

you know, where every tweet and you know, really, think the biggest news in the next couple of, don't know how quickly this podcast gets turned around, but January 20th is the beginning of a new world and everybody has an opinion about, you know, day one actions. And certainly tariffs are going to be the biggest thing that everyone's going to watch. And he can go full bore the way he's predicted. He could turn out to be a pussycat, which virtually nobody predicts, but you never know with him. Or he could do phased in.

He could say, I'm gonna do these crazy things. You're gonna have 25%, but I'm gonna start with five and I'm gonna give you some time to do what I tell you to do. So each one of those things make up your own reaction, how the market will react. I just told you that if you told me that long, I was certain long rates were going up. knowing that I would have said that that would have been the end of the market. And I've had this debate with friends and I was of the opinion nothing happens till after January 20th.

That's when people say, okay, we had a lot of hope in Trump. Now what's he going to do? And we'll trade every, people will trade every tweet, you know.

Andrew Auerbach (21:47) So another

thing you mentioned, David, you know, about this, let's stick with the U S this very, cause you know, it is sort of driving everything else as it always does. And perhaps more so now than ever, you made a comment that, you know, with the tightening cycle, saw long bonds, you know, dramatically, go up in, yield and they haven't come down. And so to your point about your sort of thesis that everybody's expecting kind of sustained drop in rates, you think it could go the other way.

David (21:52) Yeah.

Yep. Yep.

Mm-hmm.

Andrew Auerbach (22:17) Can you talk about this dysfunction right now between the bond market and the equity market momentum that we see and kind of why you see the bond market being stubborn and perhaps even going up on the long side?

David (22:21) Mm.

Yeah.

I can tell you more why I think this is the reality for the bond market. When equity investors take that into account will be when the consensus shifts from rates are clearly peaked and are coming down to, maybe they could go up or maybe they could go down till there's some doubt. Right now, there's no doubt. Everybody's confident in that. I believe the opposite, which means I have a chance to position myself for that.

The Fed is not raising rates. Central banks are not going to raise rates. The question is, what does the bond market take to absorb the supply that's coming? There's ridiculous quantities in every country. So there's, it hasn't mattered. Yellen, who's a very crafty treasurer secretary, contrary to US policy in the past was that they would borrow money.

of know, everything from T-bills and notes and bonds. So they'd have some five-year and some 10-year and some 30-year. She moved it from 20 % two-year and less to something like 84 % I think it is that's two-year and less. So she was trying not to disturb the long end of the market. So all this excess supply wasn't affecting long rates. And of course the Fed can control the spot rate. And so that's how they managed to keep it down into the election.

But now, Besant, Trump's new guy, has a very, very tough situation. He's got trillions that need to be borrowed. He's an advocate of balancing the portfolio. So he's gonna wanna borrow across the spectrum. And the bond market could go nuts if he comes in and says, I need too much on 30-year paper. So as long as people are chill with that, yeah, they think, and this comes back to inflation.

It comes back to what fiscal is gonna be. People don't think, you know, he's gonna be able to get things through Congress or whatever. And so each of the things that trigger that, this is like the biggest issue of this year, is how does the bond market handle in every country, in the actual fight? The Fed is kind of powerless. They're gonna kind of stand on the side. They're not going to raise, they're not going to cut, I mean, in any significant way. I think their narrative is over unless we get a huge shift in employment.

Andrew Auerbach (24:42) Sure.

David (24:50) then they'd have to come to the rescue or inflation either way. But I don't think that they're the relevant actor. I think the relevant actor is the treasury needs to borrow an enormous amount of money. They're not gonna do it anymore, doing it in bills. They're gonna do it in notes and bonds, longer terms. Where along the curve and how much and how does the world react to that? you know, because it's not just Americans. mean, a lot of this capital comes from around the globe.

So if they're scared of their home country situation, they want to have capital in the US, they're scared of the US stock market, I think they could supply the bond market. I have friends who think that the peak of MAG7 will be the peak of American exceptionalism. And then all the money will flow somewhere else. That's a really, really great debate. I don't hear virtually anybody talking about it. But by the end of this year, I think we're going to have a story that

Andrew Auerbach (25:40) You

David (25:45) American exceptionalism has peaked or it's on its way to a whole new peak. And, you know, yeah.

Andrew Auerbach (25:50) And so what what of that

the underlying issue about government debt? You haven't talked much about that and would love just your perspective on why that's so ignored. I mean, we saw an election where virtually nobody wanted to even go anywhere near a discussion about how to get debt under control.

David (25:57) boy,

Yeah.

Yeah.

Yeah, well, there's a great theory. Marco Pappek is a big advocate of this idea of the median voter controlling the narrative. Politicians are just trying to sell themselves to the public and the median voters concerns matter. So the median voter did not care one iota about the budget. The percentage of people who were fiscal hawks is small single digits. And frankly, like even if it's their number one issue, they also care about abortion or immigration or.

Andrew Auerbach (26:27) Hmm.

David (26:38) whatever other hot button they have. So the issue where, you know, a couple of decades ago, it was a big issue became irrelevant. Inflation kind of got some interest back in it. Some politicians trying to say inflation is a monetary phenomenon. You know, they're spending too much money and printing too much money. Other people saying it's all transitory. Don't you worry. It's all under control. So we'll see. I think there's deflation coming from China. Their currency is weak and their economy is weak. They need to export.

That's their business model is, you know, certainly now with cars, they have unbelievable cars at unbelievable prices and the world is going to try their best to stop them from building plants. But you could see, you know, in Hungary, they're building a plant and they're inside the EU. And so I don't know what Germany does about that, but that's why I say you can follow the politics and see how the battles go. But that is the source of deflation that and or, you know, if we ever get a recession, which doesn't seem imminent.

on a global stage to get worse. So I think that's the big question. And nobody knows the answers to any of these things. Everybody has an opinion. And I think it's gonna become clear. That's why I say this, perhaps this is good time. Either express your opinion very strongly, maybe with options, like, sure, on FX, FXVol is very cheap. People don't expect, like if you were, one of my friends was advocating switching a.

Andrew Auerbach (27:45) Yeah.

Yeah.

David (28:06) Japan long yen thesis to options because they're so cheap. I think that makes a ton of sense. But again, I don't really want to be that active all the time trading that stuff, but big things are going to happen. this isn't a year, this is either a year where you're gonna jump in and out based on which way the wind's blowing this month, or you have a core thesis and you stick with it. But I think the people who just say, I'm gonna dance with the one that brought me,

these last decades, it's been good. I understand a lot of your audience, you know, can't be too far away from the benchmark because you get fired for underperforming and you don't really get rewarded for overperforming. So there's kind of not an incentive. This is really the problem. And the average person, how could they, could they even understand this conversation, the stuff that I'm talking about? People always ask me opinions, but I could see their eyes glaze over when I start talking about the Japanese finance ministers conundrum with, you know,

Andrew Auerbach (28:54) Mm-hmm.

David (29:04) long bonds and capital flows, et cetera. People just want their money to work for them, so they hire somebody to do that. But that person sort of has to stick to the index. And so maybe the healthiest thing would be as if we all agreed that the index was broader and more global instead of just being spying.

Andrew Auerbach (29:08) Yeah.

Yeah, yeah. And I think the additional issue when we get to Canada is we also just are so home market biased. And so, you know, for such a tiny market, our clients are overwhelmingly invested in a very small breadth of Canadian companies, because there aren't that many Canadian companies.

David (29:33) Yep.

interesting, has that

shifted at all in the last decade? Have Canadians become increasingly...

Andrew Auerbach (29:44) So what has shifted, what has shift? Absolutely.

It shifted very significantly. Obviously the U S market is where it shifted to, but still, and we're going to get there in a moment, David, the view that the safe Harbor, for example, is the Canadian banks. And so, you know, the dividend paying consistent, you know, and we've never really seen any kind of a banking crisis per se, the way, you know, we saw an eight with a financial crisis in the U S.

David (30:00) yeah, yeah. Dividends never stop,

Mm-hmm.

Andrew Auerbach (30:11) We kind of sailed through. mean, obviously it was a scary time, but it was nothing like what we saw there. One final question on the U.S. and then I think Canada has a good pivot. And this is a bit of a tricky one, but notwithstanding the momentum mania we see in the U.S. equity market, the biggest winner last year was gold. And so I'm curious for how you reconcile that one as to how we could see actually the best asset class being gold.

David (30:32) Mm-hmm. Mm-hmm. Yeah, yeah.

So all of the demand for gold has been foreign investors and substantially China, India. So as their currencies have declined, their domestic, for them speculating on gold is like speculating on Mag-7. It's a foreign asset that they can buy in an exchange-traded fund or something.

Andrew Auerbach (30:45) Mm-hmm.

David (31:01) But you can see that Western investors have no interest in gold because gold stocks, the GDX or the GDXJ, the junior gold index, are at record cheap prices compared to gold. Now that might be geopolitical risk because the mine could get expropriated. There's certainly cases of that. But generally it indicates also the inventory level, the number of shares of GLD, which is just holding gold, gives you an indication of how many

Americans or Westerners want to buy gold in non-physical form and those things are very weak. Nobody really is interested. When you can make so much money on crypto or zero-day options on things, gold just has not got the interest of people, but gold itself has. The other indication is that silver is very weak relative to gold because central banks don't buy gold stocks and they don't buy silver. They buy gold.

They stack gold in a, that's the reason, you know, it's so expensive is that it's compact and they can stack it. Nobody stacks silver or certificates of gold stocks. So when you see those things start to perform, that would indicate that Western investors are getting interested. Gold stocks can have a real bull market. I think that that's a reasonable bet, but you got to watch out for geopolitical risk because in a lot of countries, anybody who's making, any foreigner who's making money is a good target for

the government to say, give us a bigger share. They all need money, including our government. So there's some danger there. And that's why I think what China does with their currency and what they do with their policy of gold will have a bigger impact than anything else. And if you're a believer that they're going to move away, when Russia was sanctioned and their capital frozen, that was a turning point.

of the Western world, the US could no longer be trusted. And if you were a foreign central banker, if you didn't wake up saying, time for me to move my money into other currencies or gold. Well, what other currency? know, the Chinese bond's not tradable. The Euro, they could break up. So, you know, and the other, know, Canada's not going to be, you we're too small. And so it really leaves the US dollar. Everything has kind of worked out that way. The US dollar is epic over value.

Andrew Auerbach (33:10) Hmm.

Yeah.

David (33:26) but I don't

Andrew Auerbach (33:26) Yeah.

David (33:27) predict that that's gonna end. But again, many people do. There's a lot of people on both sides of that. USR is epic overvalued. That doesn't mean it can't get more overvalued. And I'm in the camp that says I'm okay being in the US. I think it's, yeah.

Andrew Auerbach (33:34) Yeah.

And yeah, and

in these scenarios, we haven't talked about Bitcoin. And so how do you think about Bitcoin vis-a-vis other asset classes where it's going to go? Is it actually going to be more legitimized where if you buy into that argument, then, you know, we are just in the very early innings.

David (33:46) Mmm.

Yeah.

Yeah.

Yeah, there was no question that blockchain has now established itself and crypto as a reality. there was a, know, certainly the SEC was opposed to it and whatever. Now there's a change in government. These people are going to support innovation on blockchain. That doesn't speak to what the value of the coins are. And certainly the momentum in the shitcoins and all the mean things that people just make up that are almost a joke, right? Like Doge.

Andrew Auerbach (34:28) Yeah. Yeah.

David (34:30) That's just trading momentum. It's just, people gonna buy it more, you know, it's tulips. It's nothing to do with, right. But Bitcoin and Ethereum are really digital equivalents of gold. You either think they have value or they don't have value. We all buy gold, I was saying before, like thousands of dollars for an ounce. It's a rock. But as long as we all agree,

Andrew Auerbach (34:32) Yeah.

purely a speculative asset. That's it.

David (34:57) Gold's had a long history. If I say that to people who are gold believers, you may get some heat mail. But I believed in gold my whole life because as long as we all agree, it's like a religion. As long as we're agreeing, inflation goes up, gold goes up, great, we're all on side and that's kind of what's happening. And if you're the Chinese central banker, you say, are we agreeing that this rock is worth a of money? We have to have our own. They need to separate their monetary system.

Andrew Auerbach (35:03) Yeah

Yeah. Yep.

David (35:27) West and gold is the universal thing. I would say maybe a basket of other commodities would be a smarter thing for the world to agree on, you know, that we need lots of copper and we need lots of, you know, platinum and, but gold is gold has, you know, 5,000 years of history and crypto is the exact same thing for young people. They think old people are crazy paying thousands for a rock and old people think you're crazy putting your money into something that is

Andrew Auerbach (35:58) Is that a bullish point of view then on Bitcoin?

David (36:02) I can't get bullish on the price. I do. am. I mean, if you said to me, if you were going to buy something, would say Ethereum and Bitcoin are real crypto assets. The other ones are games. you, know, the like optimism, for example, is a coin my son's involved in because he's involved in the, in helping them program and code and set the whole thing up. He believes that they're doing some, some innovative things. This is not like, no, no kids know about this. It's not like traded like,

I don't know who's that guy who was sitting on a toilet and he wouldn't get off the toilet until his shit coin went up to a certain price. And he was live streaming it on Twitter. And I think he's somewhere between an idiot and a genius. And if he's a millionaire at the end of the week, he's a genius. Well, that's why you and I aren't making any money.

Andrew Auerbach (36:39) my god.

I think he's closer to an idiot, I have to say. Yeah, we measure it more than financial. I don't care if that

trade worked. Sounds like an idiot, but that's great. That's really, really helpful. So now let's go to home country. And just your perspectives on Canada right now and a lot of the people who are asking you for opinions.

David (36:59) Yeah.

Yeah, let me start with how much I

loved being a Canadian and growing up in Canada. We have the greatest setup in any country in the history of the world. We have natural resources beyond any amount we could possibly exploit. We have a smart, educated population. We have proximity to the biggest, most innovative country in the world.

Andrew Auerbach (37:12) Mm-hmm.

David (37:33) that we're well integrated with, except we get to make our own rules and systems. This is, no military, you if you look at what's going on in the world now, every country has enemies that are, that they want justice, you know, hundreds of years ago of conflict, Southeast Asia and, and, East, virtually every part of the world, there are lots of small countries, they're adjacent to each other. And I fear that that guy's coming after me. I better arm.

Maybe I should attack him first. I mean, literally, this is the risk. Canada has none of this. So we have the perfect, perfect setup. But we ended up enjoying that too much. Our GDP per capita has stalled since 2015. I'm not gonna get into the politics of what happened and who got elected in 2015, but there was a huge change in this country. We were in lockstep with the US behind them, but like lockstep, whatever percentage that was behind them.

for the entire, my entire life, GDP per capita, till 2015. We go flat line for a decade and they continue to grow. The gap between Canadian and US wealth now is unbelievable, impossible if you had told me 10 years ago that we would be on average, that for our entire country, our average is equal to Alabama. That's like, that's, I never mean to insult any people from Alabama, but that's not the...

aspiration of Canadians. We don't see ourselves as a poor backwards place. And we have more natural resources and more smart people than Alabama has. Again, no insult, but how could we have played it so badly that our people have trouble paying their rent, have trouble living their lives? Two people working full-time can't afford a 500 square foot apartment in the city of Toronto. We've done something very, very wrong. So I...

Andrew Auerbach (39:02) Yeah. Yeah.

David (39:29) I'm angry at how we've ended up in this situation, but I'm hopeful that things can change because the basic facts are still there. We have no enemies on our border. We have natural resources to spare, and we have smart people. So I'm very worried about what comes next. We don't have 30-year mortgages like the US has. So we're very susceptible to these higher rates. I don't know.

See, I didn't think that if they pushed interest rates to zero, that people would really bid up the prices of houses to what they could afford at 2 % and ignore the fact that it's not gonna be 2 % for their whole lives. But how do people don't know? The newspaper said to them or their friend said to them or their advisor or whatever, yeah, low rates will stay here forever. And they went and made a multimillion dollar decision based on that. And now reality is gonna come. And the other thing that's very scary about Canada is twice as much of our population works in construction.

as the US. And we've had a boom that's gone on for a long, long time. And it seems inevitable that this is coming to an end. If you speak to anybody, you like you were saying before, I know people in different businesses. I have a friend who's a condo builder in Toronto. He's very successful guy. He's done a lot of great projects. And so I get a sense from him, like it's over. They're not building anything new. They're trying to finish their projects. They're trying to pray.

that the people who bought them close because they're underwater. They're already worth way less than what these people signed up for. And when all this supply comes to market, the prices are going to go way down. I'm scared for the reality for these people. And yet, if you speak to people, Canadians, I can't find Canadians who agree with me. So this is a crazy man's opinion. But I've been short the Canadian dollar and I'm...

Do I continue to be short the Canadian dollar? I think that's the outlet for they're going to need to reduce interest rates. The gap between Canadian and US interest rates is gonna have to widen in order to prevent a real estate collapse. And everybody I speak to about real estate says, well, the government just won't allow it. But I think what tools do they have aside from reducing interest rates or forcing the banks to give generous terms? In both cases, I wouldn't wanna be along the banks.

and I wouldn't want to be long real estate. And those are key drivers of our economy. And so I'm just very worried. I'm also extra worried because nobody seems to be worried. And even when I speak to smart guys, you guys who are, you know, again, I have a friend who's like a senior guy at a bank, you know, trading FX, and he's never bearish on Canada the way I am about the currency. And obviously, you know what the currency's done in the last year. So far, it's really only

Andrew Auerbach (42:04) Yeah

Your short

call has been a good one for the last five years.

David (42:23) Yeah, no, but most of that

has been the US dollar being strong. We could have been just as strong as the US if we were more aligned with them economically. the US did a huge amount of stimulus. There's a complicated question about that. But I think that the coming year is gonna be about Canada underperforming its expectations, which I'm certain of, in my opinion, that people don't understand.

how bad things could be. When these construction projects stop, I don't know what those people are going to do. It used to be the case that, you know, this is a young couple and earning a decent income, having trouble affording it. Now their payment on their mortgage is gonna go up substantially and the ability to earn this great income if they're in the construction field is gonna be diminished. And so I don't see, yeah, go ahead, sorry.

Andrew Auerbach (43:16) Now something, yeah. Something you

and I have talked about a fair bit though is because of the oligopoly structure in Canada, the banks, particularly the big six banks are basically the entire lending market, right? In terms of particularly residential, but certainly commercial as well. Your view of how you look at the banks, I know you've looked at the banks a long time. One of the things, having grown up in the banks,

David (43:31) Yeah.

Andrew Auerbach (43:43) They're well run. I'm certainly not suggesting there's going to be, you know, bank failures, but there is a huge disconnect between the way you described gold and the way Canadians think of banks, which is somehow or other, we've sort of forgotten what banks do, right? They lend money and they offset it with funding of deposits. And that's basically the calculus. And that calculus didn't work so well for some of the regional banks. You know, we saw that and I thought, well, maybe here people will see

David (43:55) Yep.

Hmm.

Andrew Auerbach (44:11) You can't just presume, I mean First Republic as an example, a bank we used to admire a lot, lot of high net worth clients, all these things, and you look and you say, ooh, that changed very, very quickly based on the balance sheet reality of banks. How do you think about the banks in terms of Canada?

David (44:21) Mm-hmm.

Yeah, well, I you know much more than I do. You're one of the people in my network that I speak to about banks. I don't see the bull case and yet I see the bull attitude. Like in the market, the prices are very confident in the future and I'm not confident. So it's not my forte and I have no position. It's just, I wouldn't...

Andrew Auerbach (44:35) Yep.

David (44:51) It's not where I would ever consider at these prices. Same thing, know, Apple is a great example. I think I mentioned before how much I loved Apple when it was almost a liquidation business, right? Just because I thought they had a brand name. They actually had $12 a share of cash and they were trading for $12.50 or whatever. yeah. So, but there was a time, you know, in 2018 they sold for like two and a half times sales. And then

Andrew Auerbach (45:08) I remember you built a Mac. This would go back into the early 80s.

David (45:20) in 2022, they were at, and people hated them, wouldn't touch it. And then it was at five and change time sales in 2022. And they were neutral, nobody really cared. Now the stock trades at 10 times sales, their sales are not growing. all the facts have shifted, their sales are not growing, their margin is not growing, their prospects are not growing. They haven't come out with a new product in a decade or other than that vision thing, which is not really a product.

Andrew Auerbach (45:47) Thank you so much.

David (45:48) They're such a huge company, it's hard for them to move the needle. They have geopolitical risk. China's trying to replace, China's a huge market for Apple and the government there would like to replace them with Huawei and domestic companies. And yet people are paying the highest price, 30 something times earnings and 10 times sales because they're comfortable. that's exactly how, now the numbers are not as egregious, but that's how I would describe the Canadian banks.

I think all the oligopolies in Canada, one of the things we could really do, Canadians pay huge prices because we don't allow competition. And that's very good for stability. We didn't, as you mentioned before, we didn't have a banking crisis, but it's not very good for Canadians' opportunity to get cell phone service or groceries or banking at the lowest price and best service, know, all the benefits of competition. So it's possible that a future government will say, you know, we've enjoyed our...

relationship, but we're gonna open it up a little bit. You know, and this is for the cell phone companies as well. I wouldn't be long them. I have no idea actually what multiple they're treating at or I haven't paid any attention, but it's like from a top down as I was saying before, like I used to go from bottom up, now I go from top down and I just say there's a lot of political risk that things change. That the new government says, know, Canadians need lower prices on cell phone service. CRTC that protects all the Canadian stuff, like what for?

That's not how people are watching TV anymore. If people want to watch global, good for them. If they don't want to watch global, what does that have to do with the country? Why should we have rules and committees that establish that? I don't have a strong opinion on this. I'm just saying is I could see that becoming a marketable meme for politicians. So I'm not interested in investing in those space, but commodities, I think that it could go the other way. I think that the governments could say, let's start exploiting our...

potash and oil and natural gas and everything else.

Andrew Auerbach (47:47) Absolutely. So David, the time has flown by. I love the conversation like the thousands of other conversations you and I have had. hope the listeners enjoyed it as much as as much as I did before we sign off to two questions. One, anything we didn't cover that you think is worth throwing into the mix.

David (47:48) Yeah.

Yeah.

No, think rambled a lot.

Andrew Auerbach (48:10) No, no rambling. was awesome. Second,

you often come out on social media with some great stuff. If people are interested in following you, how would they do that?

David (48:20) I've toyed with doing that, but I just never do. I just talk to a lot of people all the time. I don't really post. Yeah, on Twitter sometimes. Yeah, on X, yeah, yeah. I think it's at Oberon. But I haven't, okay, terrific.

Andrew Auerbach (48:25) But you're on, I do see you posting from time to time on X on Twitter. Okay. Yeah. On X.

great. I'll put it in the comment section. But but

yeah, I mean, I think, you know, I often have said to you having, you know, kind of grown up in this industry, that, you know, your perspectives are always so clear, you know, and what I love about your approach is it is always with a strong foundation of an opinion that you're not declarative. The reality is you've said so well,

David (48:59) Mm.

Andrew Auerbach (49:02) is there's thousands of factors for next year. You don't know what's going to happen next year, but you certainly are aware of what the playing field looks like. And, you know, these are the things that I think are so, are so helpful. So before we close, just thanks so much for, for the conversation and maybe just the final question. Cause you get this question a lot. What do you suggest to the average investor that isn't reading thousands of pieces of information?

David (49:17) It was a pleasure.

Ahem.

Mm-hmm.

Andrew Auerbach (49:30) that isn't as educated, the glazed over people you described who come to you asking you for advice, but then realize maybe I can't quite process what the advice is. What do you say to people in terms of what to do? Find a good, find a great advisor.

David (49:35) Yeah.

Mm-hmm.

Finding

a great advisor is the number one thing, but how do you assess what a great advisor is? If you're not in the game, it's really hard to know. you're going to tend to get a... If someone said to you today, I'm whole hog on commodities, for example. So they could have made money or lost money over the years, but they certainly didn't do as well as a spy. And this year, maybe yes, maybe no.

But I think over the coming decade, there'll be a better place, emerging markets and all these things. So there's a bit of timing. If I could find someone who plays the game the way I do, I'd like to give them some money. If anybody's listening to this and says, and I don't mean that they have to agree with all my views. I mean that they're thinking and reassessing. I really, I'd like to play golf more.

Andrew Auerbach (50:23) That wants to go. Yeah.

Yeah, you are a unique client though, but I think this notion

of finding the right advisor is something that I'm that I'm often stressing too. And to your point, the calculus, because most people are not technical or interested, they can't assess a benchmark. They don't really understand, you know, how to assess benchmark. And I think it's more about people who can say, look, I actually don't know what's going to happen next year, but I know how to build portfolios in a way.

David (50:51) Yeah.

Andrew Auerbach (51:02) that over the long term, can structure it that we're going to be probably right in terms of getting what you need to accomplish the goals you've got. It's not glitzy, but you know, I'm always very wary of the people, particularly in a market like this one. I just saw somebody recently who started the financial plan with, look, don't show me anything less than a 10 % a year return because you know, that's what I need in order to accomplish it. And so this is the kind of world we're in right now. And so I think the great advisors

David (51:02) Yep.

Mm-hmm.

Hmm.

Yeah. Yeah, yeah.

Andrew Auerbach (51:31) are the ones that can stand back and help educate, you know, just how unlikely that is, you know, and, just what, you know, the timing matters over the last five years, it's been very, very fun, but you know, I often pull out my, my trusty chart and I show what an investor looked like in 2000, you know, that same investor that for the first time came to the markets in 2000, because of how great everything was, it was 2006 before they saw a positive return again in the S and P 500.

David (51:35) Absolutely.

Mm-hmm.

Mmm.

Andrew Auerbach (52:00) And that's painful. And most of those people,

David (52:00) Mm-hmm.

Andrew Auerbach (52:02) because I was there, they're not going to stay invested for six years watching quarter after quarter after quarter. They're going to throw in the towel and they're going to crystallize losses. So it actually wasn't six years. You lost money if you were, you know, if you were an investor anywhere in 2000 to 2005. So very interesting times. David, thank you so much as always. You're one of a kind.

David (52:07) Mm-hmm.

Mm-hmm.

I look forward to our next walk. Cheers. Thanks.

Andrew Auerbach (52:26) Thanks again. Yeah, me too. Cheers.