David Collum: Hyperinflation Risk is Higher Now Than Ever
Tom welcomes Professor David Collum of Cornell University to review the markets. He explains why he prefers to write about niche topics.
Actual wealth creation involves making life better, and the 1870s to 1940s are a good example. Since the 1940s, wealth creation has become much more gradual. GDP today does not consider inflation or planned obsolescence from cheap consumer goods.
David discusses the discontinuities that occurred in the early 1970s with the ending of the gold standard. The corrections over the past thirty years have not caused investors to change their behavior. The last real corrections occurred back in 1967 and 1981. Investor complacency today can be traced back to Greenspan’s actions in 1987.
He believes we are living in the “Dumbest Bubble in History.” Bubbles tend to be sovereign-backed and usually have a great story behind them. However, today’s bubbles and the recent real estate bubble are not based on anything but the faith in 12 Fed idiots who supposedly have your back.
He always looks for the counter-narrative, which usually means doubting the experts. The media today has been forced to become prostitutes to earn a living. Stories today are there for a reason. It’s all political and meant to move the needle on some topic.
For David, his lack of faith in central banks and concerns around inflation make gold an excellent investment. 2020 taught him that the Fed has no limits. They believe they can add multi-trillion-dollar flows into the system without repercussion.
The guys counting the inflation are lying to us, and true hyperinflation comes from losing faith. The odds of this occurring are increasing due to political instability and uncertainty.
Energy is a good market because there is always a need, but he is betting against many alternative energy ideas. Today, climate science is primarily about money. Wind and solar are not going to replace fossil fuels anytime soon.
He believes the gold equities are finally in a better place after a long period of being dismal. Companies seem to have finally figured out how to make money again. He looks for low valuations, cash, dividend yields, and ideally projects in politically safe jurisdictions.
David argues that price discovery is completely broken and now largely controlled by algorithms. Today’s markets and democracies are primarily the wisdom of crowds which breaks down when everything becomes correlated to one side. This is why price discovery no longer works today.
HODL’ers are underestimating the savage-ness of central banks and governments. He respects what Crypto enthusiasts are trying to achieve. They may win in the end, but it’s not going to be fun. He argues that institutional investment is unlikely to be good for cryptos as this smart money will pump and dump these markets.
Time Stamp References:
0:00 – Introduction
0:30 – Year-In-Review
2:23 – Wealth Creation
6:21 – WTF in 1971
9:56 – GDP & Reversion
16:02 – Dumbest Bubble
20:05 – Questioning Experts
23:25 – Faith and Gold
27:44 – Inflation
29:28 – Gold Equities
35:26 – What to look for
37:25 – Gold/Silver Ratio
41:07 – Price Discovery Broken
43:08 – Crypto HOLD’ers
48:15 – Silver Enthusiasm
49:48 – Authoritarianism
51:51 – Wrap Up
Talking Points From This Episode
- Reviewing the 1970s and then end of the gold standard.
- Why we are living in the dumbest bubble in history.
- Faith in the system and holding gold.
- Cryptocurrencies and why institutional investment is bad.
David B. Collum is an American Chemist and professor at Cornell University. He currently teaches a graduate Chemistry and Chemical biology course.
He also runs the Collum group, which focuses on how aggregation and solvation dictate the reactivity and selectivity of organolithium compounds commonly used by synthetic chemists in academia and the pharmaceutical industry.
David has a Ph.D., Columbia University, MA Columbia University, and a BS from Cornell University.