Brian Hirschmann: Higher Inflation and Rates Will be Good for Gold
Tom welcomes Brian Hirschman back to the show. Brian is Managing Partner of Hirschmann Partnership which is occasionally referred to as the “World’s Most Bearish Hedge Fund.”
Brian expects inflation to persist for longer than most investors expect due to massive government debt. Inevitably, the U.S. government will default which will send miners and gold far higher. We could expect some benefits from labor and supply chains improving but inflation has many causes. At some point, government debt will matter, and much higher inflation will result.
Investors shouldn’t be too concerned about interest rates as the bigger driver of gold will be risks of default and inflation. Markets are different today due to the enormous size of the global asset bubbles. Gold will move higher when investors realize that inflation will be here to stay.
Crypto remains a much smaller asset class than gold and therefore the impact of crypto is likely not that significant. Many crypto investors are more speculative and most aren’t that interested in metals. Gold is the ultimate low-risk asset whereas cryptocurrencies remain risky speculative assets.
Over the long term, the gold price will drive the mining equities much higher and we’re starting to see this occurring. Gold miners should go up much higher than the returns on gold when the bubbles start to burst.
All governments have too much debt and are trying to keep rates low thru regulations. Banks now own four trillion in debt securities issued by the Fed. Should foreign debt holders realize the risks then they will start selling their treasuries. This could easily trigger a crisis since we can’t control other countries with regulations.
Marginally higher interest rates today will likely not have much impact on inflation but could impact default risks. Brian compares the status of the U.S. with that of the last European debt crisis.
China’s real estate bubble is even worse than that of the United States. When it pops we will see severe impacts on global markets.
Time Stamp References:
0:00 – Introduction
0:33 – Inflation Continues
4:06 – Gold, Inflation & Rates
7:15 – Crypto Impacts
9:56 – Mining Stocks
11:40 – Rates & Regulations
15:09 – Fed Trapped?
18:04 – Rates Vs. Inflation
19:00 – Yield Curve Control
20:58 – Demographics & Savings
23:59 – China Bubbles
26:57 – Wrap Up
Talking Points From This Episode
- Continued inflation expectations and risks of government debt default.
- Global asset bubbles, interest rates, and investor risk.
- The outlook for gold and the miners.
Brian Hirschmann, CFA, is the Managing Partner at Hirschmann Partnership (HP) launched in 2014. Since its inception, HP has outperformed its benchmarks by a substantial margin despite being the “World’s Most Bearish Hedge Fund,” according to ValueWalk.
Previously he was an associate at Goldman Sachs Principal Strategies (GSPS), a multi-billion dollar hedge fund whose alumni include Robert Rubin, Tom Steyer, Daniel Och, and Eddie Lampert. After GSPS, Brian returned to Los Angeles to join Hotchkis and Wiley Capital Management where he was an equity-owner and made over $1 billion in long-term investments.
Brian graduated with distinction from Yale, where Professor Robert Shiller strongly influenced his investment philosophy. Robert is one of the few to predict both the dot-com and housing bubbles. Robert was also influenced by Professor David Swensen, Yale’s legendary endowment manager.