Bloomberg Audio Studios, Podcasts, Radio News. Welcome to Merrin Drug's Money, the podcast in which people who know the markets explain the markets. I am meren' sumset Web and this week we welcome back Evy Hambroke, Global Head of Thematic and Sector Investing. I think it last one about eight months ago, right, Yeah.
It was definitely some middle of last year. Yeah.
Yeah, quite a few things have changed since then, right, So we've got a lot to talk about when it comes to the commodity markets. But listen, I want to start, and not everyone will agree that this is a correct place to start, but I know what our listeners hold in their portfolios, and it's an awful lot of gold.
And you know, I was speaking at the weekend at this thing called the Weekend of the Mistakes in hay on Y and I did an investment breakfast chat for the audience and I asked them to put up their hands if they held more than five percent of their portfolio in gold, which is a pretty unusual, right, The average of wealth manager will hold maybe two percent of
a portfolio in gold. At five percent, pretty much everyone put up their hands, So I'm like, okay, all right, ten percent, A lot of people still hands up, fifteen percent, a lot of people hands up, twenty still a lot of hands, twenty five, lot of hands, thirty, lot of hands around thirty it starts to go down. I'm actually beginning to like an auctioneer as well. But when I got to fifty percent of their portfolio, there were still
two people with their hands up. Wow. Yeah. And that's effectively what they call over it gave cal they call the Turkish portfolio half equities, half gold. So someone who has that amount of gold in their portfolio, even the people who have ten percent or fifteen percent, they would have expected over the last three weeks for that goal to have protected them from the volatility in particular of the markets over the last three weeks. So what we
around began absolutely hasn't happened. In fact, gold and silver have both behaved like volatile financial instruments, and they haven't done the job that I think a lot of people would have expected them to do. So we're going to start by me asking you to explain what on earth is going on.
That is the question that we are asking ourselves, and let's think about it in steps. I think the first step to think about it is if we go back to points in history where we've had similar heightened volatility and I don't know, shocks or surprises and so on, the first reaction for most investors is to raise liquidity, and so there was a rush for cash. And in that scenario, there's a very high correlation across asset classes as things are sold, and that would be a pretty
standard reaction in those environments. I think what's peculiar about this one, which would be the second point, is that going into this crisis, there was I think, as we spoke about maybe last time, an increased allocation to commodities within people's portfolios for many of the reasons that we discussed the ongoing devaluation of paper currencies, a positive view towards general commodities and materials related to cap expend and so on, so that if you had a commodity allocation
in your portfolio, it didn't have energy in it. And so what we've now seen is the commodity the desired commodity mix has a much higher energy component in it because of the disruption that we've seen in the Middle East. So there would have been a liquidation of areas that you would have had historical profit on from the allocation you would have had relative to everything but energy, and then the switch out of that into energy related exposures.
So you might be keeping the commodity sleeve the same size, but the components within it would have adjusted away from areas like gold and copper and other things and towards oil and gas and so on. So that's the second point that we would mention. I think the third thing is that there is, without a doubt, and you're a better expert on this than me, that there is going
to be ongoing disruption to energy markets. Even if there was a cease fire or a victory or whatever a standown today, there would be ongoing disruption to energy markets for a period of time into the future. And I think Iran probably doesn't want people to forget that they have the ability to disrupt energy supplies. So there might be even if there was a cease fire, there might be some form of provocation or some kind of reminder that they're still around and they have the ability to
disrupt things. So the premium that remains in the energy market, in oil premium or gas premium is likely to remain elevated and on that scenario, then we have to price in a higher degree of inflation prospects and therefore a higher degree of rates. So could he risk premiums will have gone up, and so in those things, then you've got the prospect of higher rates. If you've got higher rates,
that's normally negative for gold. So to us, without saying it's one of those three things, it's probably a combination of all of those three things. And then the last one is just probably some profit taking. People have made a lot of money in gold for a relatively short period of time. It probably got to an outsized level. You mentioned fifty percent in two people's hands going up at your event. If you used to have five and
it doubled, you would be at ten. If your model was five, maybe you'd probably kick yourself and not taking some profits and bringing it back down to five. So there's probably a fifth or fourth element as well to that mix. So those would be the things that I would explain when I think about the gold market. Though, looking forward into the future, in just about all time frames going forward from now, apart from the very short term,
the ongoing issues at government haven't disappeared. If anything, they're going to be spending more money on defense. They're going to have higher interest bills on their debt. They're going to require greater amounts of overall funding for everything that's going on, which means more indebtedness, it means more devaluation of paper currencies and better returns for real assets.
Let's look at some of those reasons for gold volatility. One of the things, and I think suggest is that you'd have a lot of effectively gold tourists have been in the market over the last little while. If you've had your long term gold holders who imagine they're going to be staying in this market, the hold for all the long term reasons that you and I've discussed, But then you have people who've come in quickly, they've made
a lot of money, and they've gone out again. And there's also maybe this time around there's more people using various instruments to buy gold, and previous gold ball markets people are being buying gold actual gold, and now we're buying gold ETFs and other instruments that represent gold. So maybe the market is a lot more financialized than it used to be, so it's less likely to work as a steady head for you.
Maybe I think you've definitely had financial additional sources of financial capital added to the market, so you've got greater leverage behind the scenes. So people would have been having a five percent waiting and then borrowing two and a half percent against it, taking it to seven and a half and whatever the mass might have been, and so that financial leverage would up to the exposure, which is good in a rising market, but obviously very bad in
a falling market. So the pressure a margin call or whatever might to be able to reduce your position would have prompted some action. I think algorithmic training as well would definitely have been a factor. When things fall or companies miss earnings or whatever. The computers got involved, and the volatility is normally far greater than you would have expect without that kind of part of the market being present, so I think that would have extended the returns.
Yeah, and there's always also a suggestion that the last few years, we've always had central banks as their last buyer.
There's always this backup from the central banks who've been buying and buying and buying, and that we might now be at a point where they might think, like lead, do you know what, Maybe that's enough gold, and particularly under these circumstances, is maybe we'll hold some different commodities as well, and also that perhaps that the central banks in them add least, might no longer want to keep buying gold when they've got an awful lot of other things to worry about.
So I think central I don't see central banks changing course in terms of adding to gold holdings. The ones that have been buying have got aspirations in terms of percentage weights far higher than their current holdings. So if anything, price weakness normally triggers that as an opportunity for them to be able to step up some activity. We won't know whether they've done so for a few months until the official data comes out, but I'd be surprised that
if you'd had that. I think the point about selling some gold or assets, or liquidating treasuries or equity positions to be able to fund spending on defense in the Middle East might be the case. And at the end of the day, these economies are not thriving right now. Your tourism's gone, the airport's are shut, the hotels will be empty, and you're not exporting a lot of the things that you were the foundation of your economy, which
is the petroleum revenues. So these countries are going to be really suffering and so for them to raise some capital to be able to cover their needs is probably a likely outcome. But I would have thought that won't just be gold specific. It would be across a range of different financial assets that they might have, and they will be obviously reaching for the liquid ones. They're going to be able to sell a port very quickly, or to sell a property in London or whatever it might be.
If you can't be selling a property in London these days, that's very a liquid stuff though.
That ship definitely sailed. But gold you can sell, yeah, well, you definitely can. And there clearly has been more sellers and buyers in the last few weeks. But it wouldn't surprise me if we saw more buyers and sellers at the end of the day. This is a very big retracement. We've dropped over one thousand dollars in ads in a number of DEAs and it wouldn't surprise me to see quite a lot of that put back on.
Yeah, and interest rates are a big deal, aren't they. I mean a month ago in the UK everyone was busily pricing and rate cuts through the end of the year, and now everyone's begun to price in rate rises, which may or may not be the correct strategy. But as is always the case in a crisis, our central banks will be busily fighting the last war. And they didn't
raise write nearly soon enough last time. And they're never going to utter the word transitory ever again, and probably never ever utter the words look through this inflation that these things simply can't be said again. So they're more likely to make a mistake on the upside than the downside.
Yeah, it is going to be interesting in the restoric this time. Remember all of the inflationary chat last time, and the government's had a control with the previous government being criticized by the current government inflation's crazy, look at what you've done. And I think was that Rishie Sunak was getting all of the jabs in the side and that was Ukraine related and now we've got Middle East related.
Does the current government get the same kind of pain verbally from the opposition parties on the back of what we look to see is high gas prices and so on today, I sh'd think.
So, now we're going to come onto energy in a minute, although it's your core area, but we must side swipe silver before we move on from prescious metals, which has been even more dramatically throwing itself around the place.
And gold right, yeah, I know. Silver's absolutely been a hell of a roller coaster prices as well, above one hundred and come back down again. It's definitely been one that's it was long overdue the industrial imbalances in the market, so we needed to see higher prices. The demand of supply situation was completely out of kilter. Did it get a bit too far? Probably, as it now come back
to levels which look very attractive again. Absolutely, and that's how we're certainly positioned in the portfolio for some kind of recovery there.
The dop ten shareholdings are very heavily weighted toward precious metals, and you appear to be completely happy with that.
Yes, I mean, across the range of funds we have different exposures, but in the world mining Trust be out with the core of Some of the absolute return that we generated in twenty twenty five, which was one of our record years, a lot of that came from precious metals,
but it also came from copper as well. That was another key contributor, and those two fat plus the gearing and some of the other things around royalties and other areas in our encoached sleeve delivered a lot of value in twenty twenty five.
Okay, So energy is such a tiny part of everyone's portfolios and about the three percent of the global markets for its absolutely nothing and as a proportion of the US market of any of the big markets against small of them. It's been for such a long time, so we can expect that to change, Right, where does that go?
Yeah? So I think this topic that you touch on with energy is one example, has a multitude of examples that could sit withinside that. So it's been fascinating for me to read the reports that have been written. I'm sure you've seen similar ones underneath the kind of title of this halo trade hard assets and low obsolescence. So that was in motion prior to the events in the
Middle East. And just to remind everybody, there's obviously a threat around AI and disruption of existing business models, and many of the existing business models that are under threat are areas where people have large amounts of exposure in their portfolios and have had for many decades. Because they've been consistent, high growth, high margin, successful tech companies and so on. There are some now question marks about the future value of those business models, and so there is
a rotation of capital. And as you completely rightly point out, if you looked at a pie chart of the global economy and broke it down into segments, there are areas that are stand out within there as being really important. Now when you compare that to the market cap of the world economy, the shape of the slices is completely different. So as you say, the market cap of energy is tiny,
but it's relevance in GDP for the global economy is enormous. Now, is it right that you've got a market cap that's so low relative to such an important part of today's economy. There's clearly an imbalance there, and so there is likely to be this rotation of capital back towards areas that are geopolitically important, industrially important, and like the backbones of the global economy, away from areas that maybe have some
threats to their business model. And people have made a lot of money in and so that rotation, that halo strategy rotation was in motion before the Middle East. I think the Middle East is an accelerator with a focus on energy. But I think the overall trend where you have a lot of the companies that sit in I would describe them as second and third order beneficiaries of the Hyperscala capex spend. That rotation again is going to
be part of that. So you've got a kind of high growth in those businesses that have been quite sleepy for a long time because of the capex spend and less probability of disruption to their business models, which means they might look relatively safe compared to some of the uncertainties that exist elsewhere.
Yeah, there's been a long period where there's been an assumption, both in stock markets and at a political level, that energy is available whenever you want it and in whatever volume you wanted, that you could trade cats for energy
at any point. And it's quite a wake up call for those who didn't quite hear the siren blaring during the beginning of the Ukraine War, who are now hearing it blaring very loudly now finally getting for a bit where everyone across the market understands those business of Ed Conway's wonderful phrasen. The difference between the ethereal world and the material world. Anyone who didn't get it now surely gets it now, so that rotation must be under away at some speed.
Yeah, he's fantastic and I love reading his book. One of the words that's missing in the conclusion part of that is complacency. There is a widespread complacency on supply of things that we take for granted, and whether that's agricultural products, whether it's commodities, whether it's energy and so on. The amount of work and effort that goes into delivering
these things for society. How dependent we are upon them, but how little we're prepared to pay for them is extraordinary, whereas we pay a lot more for something that's probably less essential to our daily lives. And I think that and as a result, you've seen the profitability of those industries decline through time, and therefore they've been disincentivized to invest in future supply opportunities, which means when events come along to disrupt supply, either because there's too much demand
or supply itself it gets physically disrupted. There's a significant price outcome. Because the world is set up to be very finely balanced between supply and demand, and so that kind of complacency both in how people will invest but also what people take for granted does play out with extreme outcomes.
Yeah, I mean fertilizer has been the other rig bit of that, hasn't it. Everyone suddenly realizing how you need sulfuric acid and those other inputs which I don't think anyone ever thought about before, and suddenly realizing that without the fertilizer inputs that come through the Middle East, maybe you won't have quite as much food as you thought you would have. And so the impact of these last three weeks will be seen in food prices at the end of this growing season.
That's what I mean when we said about inflation earlier on. There are going to be profound impacts from this, and whether it's through direct energy costs, whether it's through fertilizers, whether it's through the manufacturing of chips, in the availability of helium for a lot of these countries.
Been fascinating watching people learn that helium is the cooland and MRI machines. We too, I didn't know that helium was the cooland and MR. Yeah.
So there's a huge disruption across the kind of spread and It's not just barrels of oil. It's a whole bunch of things that come from that. And then you've got the disruption to the supply chain of all of the different fuels that we use and so on. So I think the inflationary impact on this is going to be around for a while.
I suppose shorter term all this is quite deflationary. It suggests if it goes on much longer. And I know we hum and heart between are we negotiating or are we escalating? We can possibly know. But if it goes on, it becomes a bit of a recessionary influence as well, and that presumably hits demand for commodities across the board and maybe at the very least delays the supercycle that you're.
Yeah, I don't think we necessarily thinking about a supercycle. I just think we're going to be in a period of time. You probably get the clue. I don't really like supercycle. We had a China cycle in the early two thousand.
I know, but everyone likes to talk about commodity supercycles. Remember the last time around, When was the last time we all got very excited about a.
Commodity two thousand and one to two eleven.
Two thousand exactly, and that was great.
It was good. It was good, and I think we do. We're definitely at the foothills of a cycle now, and it's a cycle link to capex spend and you know, and they're the same foundations are there about the under investment into supply and the price elasticity that this doesn't exist to be able to turn the ups and produce more of these commodities. And we've got a decade plus of if high spend. I think it's say one caveat to that would be if equity prices fall too far.
I'm sure that some of the hyperscalers are going to say, look, it must make more sense to buy shares back again now, and maybe there's a little bit of reallocation of capital towards that. That would be one of the kind of only risks I see to that hyperscale spend generally. Absolutely, we're at the foothills of a cycle. It's very exciting.
As I mentioned, the sector trades on low multiple and it's completely out of balance relative to its kind of geopolitical significance, and it's significance too extand of living and in the overall economy.
I'm just sticking with the negative brief shocation. We have to do that. We have to do that. The other possible thing that could hit demand, the demand that we talk about so much, and when we talk about rare earth metal, then we talk about copper, and we talk about silver. We're very awful talking about the energy transition. And there are two views here on where the war in Iranch should make people head on the energy transition.
One is further faster and the other is, for heaven's sake, slow this down and keep using the oil and gas that you've got, or focus on that, etc. So there are two views, either slow it down or speed it up. And I suspect that the slow it down view is gaining traction here. So if the energy transition drive slows, that also affects demand for a lot of the things that you're quite bullish on.
Yeah, potentially, But I actually think the answer is the third scenario, which is all of the above, because we do have a changing energy demand graph. We've been flatlining for years and we've now it's now. I guess it's pretty consensual that demand for energy molecules is going to rise. We've got higher use cases across, whether it's robotics, electric vehicles, DEATA centers, etc. So we have got a change ahead
of us. So we're going to see rising consumption and fossil fuels can't meet that demand all on their own. Renewables can't meet that demand on their own. You can't build the nuclear reactors fast enough as a seven year waiting list for the gas turbines, for the gas plants. In the near term, it's going to be an all of the above answer to be able to meet that rising energy need for the growth that we think is
built into the global economy. Over the medium to long term, there's definitely going to be some kind of transition, and I'm sure as we get more competent, more efficient, more reliable when it comes to alternatives, they will have a bigger and bigger role to play. I'm sure the nuclear is going to come out and maybe replace coal as that kind of base load power, and so you will see some stuff phased out. But I don't think we're I think we spoke about it last time. I don't
think we're in a kind of transition as such. I just think we're just in a phase where things are changing to be able to meet the need of rising consumption.
Yeah, so we're talking about just a general admission that this is an addition, not a transition. Correct, absolutely on that matter of the not transition but addition coal. Suddenly people are talking about coal again and there are some minds reopening. Is there any coal in any of your portfolios and how would you express that?
Yeah, so we have indirect exposure to coal in the portfolio. So we have some large cap diversified mining companies that still have thermal coal assets and metallurgical coal assets in the portfolio. So definitely we have exposure, but we don't have any pure play coal exposure in the fun And I think that's a legacy of what is the future as one point, and the second is where is the value?
And when we looked at the value, you could see huge amounts of value in the goal equities and precious metals equities, in the copper equities, in aluminum and so on. So there was a lot of obvious value there. The coal was less obvious. And then when you think about future pricing outside of this event, coal prices were on their knees and so the outlet was pretty bleak and I think this tragic event in the Middle East has said we do need this stuff, probably longer than we thought.
And when we see higher gas prices coming through, that translates directly into thermal coal because you have that parity pricing.
Yeah. Okay, so coqualities as a whole, the ordinary investors portfolio at this point, at this stage in the cycle that I won't call a supercycle. Just to hear you this stage in the cycle, how much for a portfolio should make it up? You shouldn't make up? And how let's say that you've got a default position of five percent pure gold in your portfolio. Just the sake of arguments, I think that's probably where mootht wealth managers will be heading these days, and that's in an ETF or something
like that, exposure to gold. What about the.
Rest, I can answer, from my personal point of view.
Will be fine, and from what I what we really like, we'd like to hear a personal view and then your professional views so we can compare them. That will be great.
Okay, So this is too. So one is my view and one is the view that I hear from clients. And so the first one personal point of view I look after my own pension plan that for my wife, my three kids, and we have an allocation of a typical allocation of about twenty percent invested in gold equity. It's not physical gold. In gold equities. That number is now thirty because it's outperformed the rest of the portfolio, like all professional fund managers that are really bad at running their own money.
So I haven't Actually, you never rebalanced. You can't do the admin clear.
Any obviously, the bureaucracy of the firm you work for gets in the way as well and stuff. So I haven't rebalanced, and it's done a little bit of natural rebalancing. But I think if it came back a bit further from where we are today, even though I'm above my threshold, I'll be looking to add to that, and that would be my kind of thing. And now why do I have so much is because I think it's a lovely
natural foil to the rest of the portfolio. But I also have exceptionally high conviction on the ongoing loss of purchasing power paper currencies, and therefore real assets will outperform government bonds and things through time. What do I see from clients? Clients have a range of outcomes. Now, going back, I don't know ten years from where we are today, allocations would have been close to zero. You know, they're way above that number. I would say most people that
I encounter aren't as high as five. I'd say they're in their kind of two to five bucket that kind of range. I do occasionally encounter some people who have a more kind of turbocharged view of ten plus, but those allocations will typically been split between physical gold via gold ETF and gold equities, so they will have some
kind of higher beta within there. And in fact, most people who have that kind of two to five range typically have a larger waiting to gold equities because then they get that higher bang for their buck, yeah, for the gold move than they do in just having the physical gold, and they get the dibben ends and the growth and the M and A and all the things we like.
Yeah. And what about commodities as a whole, I think, and commodities.
Tend to equities, Yeah, it tends to be separate to that. And I think that we again, that number would have been very low, So that would have been one percent or so. I think, what because people are now starting to better understand the need to look to the second and third order beneficiaries of this kind of capex spend and this energy change in the global economy, that increased
digitization and so on. There is a reason to have more old economy, more industrials, more suppliers of kit, more producers of commodities, to be able to build the kit from to be able to satisfy the spend at the end of the day, to build the kind of final outcome, whether it's the robots or the data centers or whatever you might think about in that regard. So that's a growing number, but it's still very small, single digit, low single digits.
Yeah, yeah, but it should be more like twenty twenty five percent.
FOROO, if it matches the shape of the global economy, it's going to be high single digits. So it's some number between there and where it is today. But I would have thought five percent somewhere in there. Four or five percent would be a decent number. And then you've got lower you've got a good balance. If you've got that kind of five percent towards gold, you've got that kind of four or five percent towards broader materials. As long as you're not overlapping and double counting by having
gold within the material slice. I think that's a decent thing. Then you'd have some energy on top, and then you can have your high growth and consumers and everything else to make up your mix.
Yeah. Yeah, and valuations. As you say, last year was one of your best years ever. So there's been the a lot of movement in the sector and the valuation to the big miners that have aversified minus they to look.
Okay, yeah, when you look at the historical multiples that they used to trade on, they're all substantial discounts. Those historical multiples. They continue to be at discounts to the broader market. The one thing that's lagging is the dividends. The company's made a lot of money last year, but
they didn't have a full year of high prices. This year, today's commodity prices, it's going to be a full year of good prices, which should result in good cash flow and good earnings, and so we should see that dividend bump start to come through. So the only metric that looks a little bit expensive today is yield, but that's because it's lowering the payments.
People don't really do people really expect high yields from that part of their portfolio.
I do.
I know they did, they hold them? You do?
Yeah. I think dividends are a fantastic discipline and I hate it when companies just don't reward the equity investor, because everybody needs to be paid. I think the equity shouldn't come for free, and without a dividend, it's basically free. And then the second thing is it's like a handbreak
on a management's desire to spend. So if they know they've got to pay the dividend and they've got to be able to have that as a kind of core thing that they do for their shareholders, they can't just charge off and spend loads of money on building stuff and buying stuff because they've got that anchor that they need to do, which is pay the dividend. And so I think it's really healthy.
What are you buying in the portfolios at the moment.
Well, we're taking advantage of some of the weakness we've seen, so we're leaning into a few of the names that have fallen the most relative to their own fundamentals, and at the moment for the last kind of a few days or bit of last week. That's been painful because they've fallen further.
Listen, I know this is in your area. But the other thing that hasn't really performed as a lot of people would have hoped this year is bitcoin. And we've talked about bitcoin before, and I know you're not a believer, but after all this time, any changes to your mind.
So rather than narrowing it down just to one coin, if we just talk about the kind of digitization, tokenizations, stable coins and so on. So I'm a big believer in what has been achieved by some of the stable coin companies. I think the efficiency they bring to the mark get to areas of the world which didn't have access to hard currency and would beholden to their domestic currencies which often had trouble, I think is actually a really great tool for society as long as it's managed.
There's no fraud, there's no corruption, et cetera, et cetera, and so far, so good on that front. So I think the digitization of these assets, whether it's the tethers or the state, or the circles or these other things, I think it's a really great tool. But I do think we're going in the direction of people being able to spend digital currency much more efficiently than paper currency. And I think that we will get to a time
when we're already seeing it. I don't know how many coins you have in your pocket or cash, but probably a lot less than you would have had twenty or thirty years ago. And so everyone's touching their telephone or going pay things, and you happen to be spending a pound or a euro or a dollar. What's wrong with spending a digital item instead of that? And so I
think that's going to happen with far greater frequency. And so whether that digital item is a bitcoin, or whether it is a tether US T bill token, or whether it's a circle item, I think that is absolutely coming. And then the next logical leap beyond that is to spend equities. So if you're saving in equities and you have a fractional ETF that's tokenized to be able to spend that, so spend a little bit of S and P five hundred or a little bit of footsie one
hundred or whatever it might be. It's not a small jump. Sorry, it's a very small jump to be able to get to that. It's probably a lot of administration that I don't know about to be able to do that and then have a CGT statement at the end of the year. But it means that your cash isn't sitting in cash in a digital form, it's actually sitting in an investment.
And if you wake up in the morning and you set foots you one hundreds up three percent, your coffee costs three percent less in terms of your money because you're able to bring that forward and spend it that way. And I think that's a logical next step in terms of the kind of increased digitization of the global economy.
That'd be fascinating. But all that when you talk about that kind of thing, and whenever I hear anyone talking about stable coins and how much more faces they're becoming, and how the rise of a AI, of course I mean that the stable coins will be used much more
in that area. That always sounds to me like an argument against bitcoin as an asset, because most of the arguments that we've heard over the years, all the stories that we hear about the constantly moving story about where bitcoin will be the asset, they're all done by the stable coins.
Yes, but the stable coins is a format, so it's an ability for you to be able to spend the item, and the item can be.
Right, I understand that, But nonethless, when you've been told about bitcoin, it's very often about exactly that. It's important because of people who can't hold dollars in their home countries. For example, it's important to give people in emerging markets access to an easy way to transact across borders. All these stories, Yeah, they're very much taken care of by a stable coin. Yes, it is probably without the extreme volatility that you get.
With I think with the stable coin you wouldn't want any volatility because you just wanted as flat, as close to one as much as possible. But I think the underlying but.
You have the volatility of the doll you have VOLTI dollars different.
Yeah, so I think whatever use whatever sits behind the stable coin is going to have the volatility, and that could easily be bitcoin. If you don't believe in dollars, when you believe in bitcoin, then that's how you're going to choose to have the item that sits behind. Some people might decide to have treasury bills or gold or silver or perhaps probably not pounds, but it lots of
other things that might sit behind it. I'm fully of the view that we're going to go into this much more digital economy.
Interesting, let's go back to the hyperscalers briefly. While we're
talking about modern exciting technology stuff. One of the things that I have heard several times recently, and I will do I've asked someone on to do a separate podcast about this in a couple of weeks, is that the current model isn't working and as hit a ceiling, and that it may be that a lot of the work and energy being put into giant data centers and the energy that they require and all these things is entirely unnecessary, and five years out we will all realize that we've
gone down the wrong road, and the alternative road about which I so far know almost nothing, is much less energy intensive, much less metal intensive, and has no need for giant building full of servers. If that is the case, that does have a knock on effect quality board.
If that was to be the case, it would have an impact, But it's a question of time. All I can reference is what I've read and consumed and started to understand, and so when I listened to some of the podcasts by some of the hyper scalers, Masks and so on and so forth. They see no letup in spend based on improvement, which is effectively just one word to describe what you've said for many years to come.
Even Elon Musk when he talks about this, references with the building of solar panels in space and data centers on the mood that's years away into the future. The AI arms races today and if you listen to the quotes that they will say, you know it's about it's not about chips. It's about power and property and power. That's effectively everything we've spoken about in relation to rising energy demand and I will be associated materials consumption growth
that comes with that. Property is about the construction of these things, which again is materials in So you look at that journey for the next five plus years into the future, it's a very exciting time. Now that's mispriced by the market after the volatility that we've seen. Five plus years from there, it's probably still going to be the case. You're not going to rely on everything in space. There's also a limit on terms of how much you
can get up there improvements. There's definitely going to be improvements. The world is constantly improving in terms of technology, and we will get more energy efficient et cetera, et cetera into the future. But again that's far away, and people don't want to lose the race in the short term. So I think the spend is going to be resilient many many years into the future, and then there might be some kind of step change and so on and
so forth. And if that's the case, that's great, because then we've got an enormous amount of capacity that's built that's going to be able to do things even more efficiently. So therefore there's going to be more token to consumption and they're going to be more tokens is going to be generated, which means to still need more capacity. And when you look at the amount of tokens that people
need for certain tasks, it goes up pretty exponentially. So you and I sitting there playing on Oi Home and building an app, that's one thing, But a robot trying to replicate what a human does, the amount of tokens that you need there is just simply extraordinary. And so that change in token consumption is very far from being built. So I think the amount of capacity that we need to add globally, even with efficiency and improvement, is massively underestimated, is what I'd say.
Okay, so exciting times for investors in mind.
I think it's exciting times for some parts of the economy. I think it's very scary for other parts of the I think it's very scary for employment. I think it's very scary for society. I think it's very scary for government tax receipts. I think it's very scary for lots of different things. When we look back into the past, when technologies come along, there have been periods of interruption, and then things tend to bounce back from that period
of interruption. But this is this does feel like a big one.
Luckily you can hedge all those downsides by holding a nice portfolio of copper, tin and zinc.
Yeah, we'd like to think so certainly the foundations are there for that heavy Before you.
Go, there was one thing I wanted to ask you, What are you reading at the moment?
I have got to answer to your question, but it's not one you probably expect. My daughter is likely to be performing in Cold Comfort Farm, and I've never read Cold Comfort Farm, so one of my books that I'm reading this holidays is Cold Comfort Farm, so we can talk about what roles he's going to play in the autumn. So that is definitely on my list.
Yeah, that is exciting.
Yeah, it's a very different one and all the business and biographies, but that's this is going to be the real departure.
Excellent. We'll talk about that next time we meet.
Thanks very much.
Okay, thanks, thank you for listening to this week's Merrin Talks Money. If you like us, share, rate, review, and subscribe wherever you listen to podcasts, and keep sending your questions or comments to Merror Money at Bloomberg dot net. We'd love to know how much of your portfolio is in gold. You can also follow me and John on Twitter raw x, I'm at marinnurs W and John is John on Just Gorge Steppe. This episode was hosted by Me Maren Sunset, where it was produced by Somersidi Roses
And and Eleanor Harrison dan Gage. Sound designed by Blake Naples and Aaron Casper, and special bank of course to Heavy Hambroke