ReSolve Riffs returns with a deep dive into the world of alternative assets, featuring Mike Philbrick—CEO of ReSolve Asset Management and co-founder of Return Stacked® ETFs, and Rodrigo Gordillo, President of ReSolve Asset Management and co-founder of Return Stacked® ETFs, both of whom are recognized voices in asset management and diversification. In this engaging episode, Mike and Rodrigo explore a broad range of topics, including gold’s structural fundamentals, bitcoin’s emerging role, portfolio diversification techniques, behavioral biases, and the macro trends shaping global investment strategies.

Topics Discussed

• Structural fundamentals and the historical role of gold as a monetary asset
• Institutional shifts and the public adoption phase in gold investing
• Comparative analysis of gold versus bitcoin in today’s market
• Portfolio diversification through equal risk contribution and return stacking
• Behavioral influences and challenges in market timing and allocation
• The impact of central banks, emerging markets, and global macro trends on gold demand
• Leveraged products, futures, and the risks associated with volatility drag
• Strategic portfolio construction using non-correlated assets for enhanced returns

So build up your intuition and your tolerance.

2

How, because it's gonna be,

some days you're gonna look at

3

it and go, this thing's stupid.

4

And then other days you're gonna be

like, oh my gosh, wow, look at that.

5

And you're gonna get a sense for that.

6

And then it allows you to build and

this is both at the institutional

7

level and the retail level.

8

This is across all things.

9

When you don't have an intuition

for an asset class, 'cause

10

you haven't dealt with it.

11

I would assume, most people are,

of the age that a lot of times

12

they don't have a lot of experience

with gold in the markets today.

13

So they're gonna have to

build up that intuition.

14

So start small, like, but start.

15

And, look at how it interacts

with your portfolio.

16

Rodrigo Gordillo: All right.

17

welcome everybody to this.

18

this gonna be a fun episode, about gold,

bitcoin, precious metals, all the fun

19

stuff that came out of this unique report.

20

But before I get into it, for those who,

are new to new listeners here, I got Mike

21

Philbrick, CEO of Resolve Asset Management

and co-founder of Return Stacked, ETFs.

22

Myself, I'm president of Resolve

Asset Management and co-founder

23

of Return Stacked ETFs.

24

And, today we have a special one for us,

something we've talked about a lot in the

25

past, Mike, since the day we met, we've

26

gold is, very near and dear to my heart,

given the lat Latin American angle and,

27

you know, US immigrating to Canada because

28

Man, do we wish we had

owned some gold back then?

29

so tell us a little bit about the

report that we're gonna cover.

30

'cause it was the first time I've read

it and, you know, you have all these

31

beliefs and, and it's always been part

of my portfolio and client's portfolios,

32

but seeing the numbers that they put out

and everything that they, that they talk

33

about was actually quite awe inspiring,

especially given what's happened recently.

34

So why don't you tell us a little

bit about the report, the authors and

35

Mike Philbrick: Yeah.

36

Again, it's in gold we trust

and, the report is done annually.

37

It's in its 19th year.

38

It's published by Increment Ag, which

is a Lichtenstein based asset manager.

39

started in 2007.

40

It's in four languages, and it really has

become the global industry Bible, on gold

41

and hard asset themes, across the world.

42

And probably because it's,

it's such an in-depth report.

43

So there's a 400 page report.

44

there's a sum rate report of 40 pages.

45

40 pages, and then there's

a video summary as well.

46

All of which, you know, depending

on where you are and, and how you

47

wanna, uh, how much you wanna dig

into it and how much time you wanna

48

devote to it will give you, some ideas

on, on how they think about gold.

49

And I think what's interesting is the

track record that they have from just

50

going back and looking through, if we,

51

we Trust report, that's when I started

really paying attention to the report

52

just because it was such a good, summary

of what was going on in the world.

53

And they were calling for a $4,800 gold.

54

you know, they talk about how a a bull

market or a market, evolves and, and

55

you, you and I know this, we've been

around to know that generally you

56

get a, an accumulation phase where

there's some buying, but it, it's

57

kind of ridiculed by peers, right?

58

It's, it's frowned upon.

59

And I would say really that's been

the case up until the last year.

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you know, even, even central banks were

selling up until the last couple years.

61

Institutions have fairly sta

small allocations, but I think

62

we've transitioned into the, the

public participation phase in the

63

last year where you're starting

to see some people pay attention.

64

And I, I evidenced that from some of

the ETF flows we're seeing in North

65

America finally coming into the asset.

66

Whereas I remember us talking

about it last year where gold was

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on quite a, quite a run and having

reasonably good performance and

68

AUM in the large ETFs and, uh,

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Rodrigo Gordillo: Yeah, it was going down

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Mike Philbrick: was going down.

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Right?

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It, it, it's insane.

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That, that was part of that stealth,

stealth market where you, you get

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that sort of interesting buying.

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that's sort of, there's

a transition happening.

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There's people that are sick

of holding it, and there's

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the new people that are in.

78

and so that was interesting.

79

And last year's theme was the new,

gold Playbook, which was the idea that,

80

you know, emerging markets are gonna

start to demand this, they're gonna

81

demand alternatives to the US dollar.

82

And, you know, we saw that over

the last year, we saw countries

83

like Poland becoming a major buyer.

84

2023 was a thousand tons, I

think, of gold bought by central

85

banks, which was the highest ever.

86

and gold, ETF outflows reversed in

sort of that second half of the year.

87

So we're starting to see, the public and,

you know, the, the, the public writ large,

88

both institutional and retail catch on.

89

So this year's report, is called The Big

Long, which is a, an homage to the Big

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Short, obviously refers to the same sort

of, the Big Long is like well be long

91

Gold because there's a loss of, loss of

trust in fiat currencies and institutions

92

and global monetary systems, right?

93

That, you know, long-term assets like,

gold and Bitcoin are, somewhat of a

94

contrarian bet, but we're probably now

in the, in the fifth inning, if you will,

95

in the middle, in the middle innings,

and, you know, institutional allocators,

96

family offices, pensions and um, retail

investors remain heavily underweight.

97

And so, by the way, In Gold We Trust

report, if you put that, just Google that

98

you can get this report, from, Incrementum

and it's free and there's no obligation.

99

They don't take your email

or anything like that.

100

So it's, uh, quite a, quite a good report.

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Got lots of great stuff that we're

gonna dig into and, uh, encourage

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people to take a look at it.

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Rodrigo Gordillo: so let's, um.

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Let's start with just, let's

start from the beginning.

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Okay.

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Because I, this is some, something

that I get asked a lot and it's, I

107

think it's an important starting point

because as investment professionals,

108

we are often asked to think about

investments from the cashflow perspective.

109

What are, what are you investing

in, what are the cash flows,

110

what are the dividends?

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What's the yield that you're

gonna achieve from these?

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And that's ultimately what you

end up getting paid for, for

113

taking the risk and whatnot.

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Yet, gold is not any of those things.

115

You know, you, gold is just this thing

that, that just doesn't seem to go away.

116

For thousands and thousands of

years, we have used it as a society.

117

it shouldn't have a positive

real rate of return.

118

And yet is ex exhibited pretty

robust, real rates of return,

119

especially in the last 40 years.

120

why is gold a thing that

we should care about?

121

Like, like how, how did we get here?

122

I.

123

Mike Philbrick: It's a, it's a

very interesting question and, and

124

one that's, that's hotly debated.

125

To some degree I look at it and say,

well, does the Mona Lisa create cash flow?

126

Does it have value?

127

So if you look at it from the perspective

of the Australian, Australian Austrian

128

School of Economics, that, that the

idea of cash flows is something that's

129

looked at a little bit differently.

130

So I guess I'm not, I'm not actually

sure, I'm not here to make that

131

argument, from the standpoint of, Hey,

it doesn't have cash flows, or it does.

132

What we do see though, is it's a monetary

asset and it's a monetary asset that

133

seems to be in demand by central banks,

which are running our monetary system.

134

It is an asset that over the last

5,000 years has represented an

135

interest, an asset that does not

allow an interest of somebody else.

136

It's not rehypothicated.

137

If you own it, you hold it in

your own hands, it's yours, and

138

it has some value of transaction.

139

And that transactional value is

happening between governments, between

140

people, been around for a long time.

141

so I, I guess I'm just not gonna

fight it and die on the rock that

142

says, well, it doesn't have cashflow.

143

There's a lot of things that we

buy in this world that don't have

144

cashflow that we perceive to have

value in some way, shape or form.

145

Yeah.

146

Rodrigo Gordillo: Yeah.

147

And it seems, look, it's, there's

a, I think I remember having Michael

148

Green on the podcast and having him

lay out the case originally why gold.

149

'cause we've had many stores

of value in the past, right?

150

We've had salt and, and you know,

silver and different types of metals.

151

But gold ended up being one

that was plentiful across the

152

whole crust of the planet.

153

So it seemed to pop up everywhere.

154

So if you were anywhere in the world,

you somehow mined this beautiful metal.

155

And then when trade began, that was the

one common area that people could kind of

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see that was an ex, a medium of exchange.

157

And then when you have every culture

have gold, part of their ethos, right?

158

We can just go back to the

history of Latin America, India.

159

it, I think has just, it became

ingrained as a store of value.

160

And, and we have now created a

whole financial system around it.

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Central banks own it.

162

And every single time in our, in

what we studied gold, it seems

163

to be a very important hedge for

global macro, volatility, right?

164

That like, that's number one.

165

And then currency debasement.

166

Those are the two elements that you can

kind of count on when, when governments

167

screw up from a fiscal perspective

or if when there's war or chaos.

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Globally, we have seen a run to gold.

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normally it's a run to the US dollar.

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The reserve currency used to be

the, uh, used to be the, uh, UK

171

currency and before that many

other nations that, that existed.

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But.

173

That, that took, that,

reserve currency dominance.

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But when it became, when the

government itself started losing

175

control of their expenditures, gold

was always a place that seems to,

176

you know, be there for investors.

177

So from, from my perspective, it's

just something that we have observed

178

that does well, when I look at

portfolio construction, I want things

179

that make money over time, but act

differently and create some sort

180

of hedge for different scenarios

that bonds and equities can't do.

181

and we are, you know, it, it, it

was stealthily making money for a

182

couple decades and now people are

starting to pay attention, which

183

is interesting, this accumulation

phase that you were talking about.

184

Right.

185

now let's, let's get into,

why the recent run up in gold?

186

You talked a little bit about it, right?

187

But there, there's, there's a

structural reason and then there's,

188

there's some fundamental reasons.

189

I just talked about some fundamental

reasons, which is global macro volatility.

190

That's certainly been an important

thing that we've seen in the

191

last couple of years, right?

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With the Ukraine war and what

we're seeing now with Donald Trump.

193

But then there's also the structural

area that you were, you were

194

about, that you also address.

195

And the structural area is how

much, like it's the, almost

196

like the stock to flow idea,

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Mike Philbrick: Mm-hmm.

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Rodrigo Gordillo: right?

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Like there's only a set amount of gold.

200

There's one and a half percent of

gold being mine year over year.

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Mike Philbrick: Yep.

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Rodrigo Gordillo: and then, you

know, there's another stat that I saw

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Mike Philbrick: And it costs

money to mine that gold.

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Rodrigo Gordillo: and it costs

a lot of money to mine the gold

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and the price, that, the the, it,

it's a 10 year cycle to mine it.

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And the incentives to mine it were

the prices of 10 years ago when

207

they're like, okay, what's the price?

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Now we'll start the process

of opening up this mine.

209

And, from a structural perspective,

it's just been interesting to see.

210

You know, I didn't even

know this from the report.

211

I'll, I'll push it up here.

212

what percentage of, let me ask the

audience here, what percentage of people's

213

portfolios, of investors' portfolios

do you think that gold represents?

214

If, if anybody wants to guess?

215

Anybody have an idea?

216

We got a three lance

lance nut and it says 3%.

217

Then we got a one and a five.

218

All right, I'm gonna share my screen here.

219

yeah, it's actually around 1%

according to this gold report, right?

220

So you're looking at, out of the

alternative sleeves that you got 42%

221

of the whole alternative asset class,

private equity, private real estate.

222

The infrastructure, art and commodities.

223

Gold is just 1%.

224

Right.

225

And there's a lot of room to run here,

if given that that, that we have had

226

zero adoption for all this time and

people are waking up to, I mean, it

227

really is the only class, asset class

that has done really well this year.

228

Right

229

Mike Philbrick: Yeah.

230

And I, I think, you know, there was, I,

I, I, there was that whole, process where

231

there was gold trading at a different

price in London versus Shin Zhang, China.

232

And you saw gold moving from the east to

the west or I guess from the west to the

233

Rodrigo Gordillo: on the, yeah.

234

Mike Philbrick: from the

west to the east rather.

235

And so, that's, that was where

we had that stealth buying.

236

Right.

237

And now you're seeing it more proliferate

into, and, and we didn't see it in

238

AUM on ETFs like GLD for example.

239

but now you've seen that.

240

And I was talking to a reporter, with the

Globe & Mail in Canada and we had done

241

a review last year on this very topic.

242

And it was just interesting to go

over it again and see this Yeah.

243

This change in, in regime from the

standpoint of central bank buying,

244

of, of the, the assets because

245

Rodrigo Gordillo: the one, this is

the one that you talked about, right?

246

This is the, the cumulative

gold ETF holdings

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Mike Philbrick: Right.

248

Rodrigo Gordillo: going flat.

249

And then all of a sudden, you know,

you have this demand, like the price

250

of gold going up, and only now it's

starting to pull retail demand for it.

251

Mike Philbrick: yeah.

252

So, so the point is it's

not too late, right?

253

So if you only have a 1% allocation or

you have a zero allocation, then, you

254

know, this is something to consider.

255

And, you know, at, at the moment as we

sit and chat about this on May 23rd,

256

you know, we've got a little bit of

digestion going on in the gold market.

257

So it sets up the opportunity to

start to think about how you might

258

add assets, hard assets, like, uh,

Bitcoin and gold and, and, and how

259

they might compliment the portfolio.

260

but yeah, it's, it's astonishing

how low the exposure across, the

261

asset allocators it has become.

262

Rodrigo Gordillo: Here's why.

263

It's

264

Mike Philbrick: in spite

of the performance, in

265

Rodrigo Gordillo: Yeah.

266

Here's why it's astonishing, right?

267

Because this, this is a chart that got me.

268

Where I'm like, if I would've shown

anybody, this is just, for those

269

listeners where I'm going, I'm looking

at the performance of gold against

270

different currencies from 2000 to

today, and it's just a sea of green.

271

It's not like other non-correlated

asset classes that tend to have, you

272

know, 50% of the, like commodities.

273

80% of the time they're losing money.

274

20% of the time when there's inflation,

they're making a lot of money.

275

Like gold has had a phenomenal

run, fairly consistent.

276

Volatility sim, similar to

equities, 15% annualized volatility.

277

It's actually lower than equities.

278

And yet, you know, if I'd shown you

blind these returns, you would've

279

jumped at this opportunity until

the moment I say it's a, it's gold.

280

Mike Philbrick: Mm-hmm.

281

Rodrigo Gordillo: There's just this

stigma, about gold in spite of the fact

282

that we had ETFs, central banks buy it.

283

Everybody knows about it.

284

There's just, there's none

of it in people's portfolios.

285

So that

286

Mike Philbrick: Well, well we're,

the interesting thing is it is

287

gonna be neat to watch the narrative

for investors change, right?

288

Because now we're in the public, public

phase of it actually creeping out into

289

institutions, creeping out into retail.

290

And then the question is, of

course, how do you, how do you

291

put it into your portfolio?

292

How are you gonna build

it into your portfolio?

293

What are the steps you

might take to do so?

294

And, um, what other assets might you

use that have similar characteristics?

295

Rodrigo Gordillo: Well, it's

terrifying right now, let's be honest.

296

Right?

297

You got two, you got a,

a 25% return last year.

298

Another 20 plus percent return this year.

299

You know, it it, this is, this

is why I like the report because

300

it just, you always want some

framing, okay, where are we?

301

Is it over?

302

Is it now like a 50% bear

market for the next 10 years?

303

and so, you know, some of the key elements

about the report was how even like the

304

US 30 year yield is higher than, you

know, we've seen it in a long time.

305

And then the, and then Germany, the last

holdout of prudence when it came to fiscal

306

spend just finally threw in the towel.

307

And you've seen German bundts

yields just pop through the roof.

308

And, and so

309

Mike Philbrick: And, and what do

we know or what have we perceived

310

about the relationship between

real returns and the price of gold?

311

Previously, higher real returns

meant lower gold prices, right?

312

Because the, you could get a real

return, but in the face of rising

313

yields, you have gold strength.

314

That, to me, signifies

a kind of regime shift.

315

That this asset, and they refer to

it a little bit here and there, and

316

the report is like, are you playing

offense with this asset or are you

317

playing defense with this asset?

318

And previously you were

playing defense, right?

319

This is a defensive asset that

would actually score a few goals

320

for you, but now it looks like it's

turning into an actual asset that

321

can create returns for the portfolio.

322

It's shifting and there's a regime

shift afoot as we change into

323

the public, participation part.

324

Rodrigo Gordillo: So let me show

you a chart that I was updating

325

today that we used to use a lot.

326

You and me, Mike.

327

I'm actually, I'm actually gonna

block off some of it first 'cause

328

I, I'll show you what I used to do.

329

'cause I was, I was quite, again, I

know this, it's just when you see it.

330

Right.

331

It becomes a little bit surprising,

but I used to always, when I talk

332

to investors, look, you should

be as diversified as you can.

333

You're currently in equities and

bonds, you should probably be invested

334

in, um, as, as many non-correlated

things that are fairly liquid.

335

Right.

336

And so I would show I would show

a chart that showed equities,

337

gold, commodities, and currencies.

338

And, let me see if I can bring it up.

339

I'm gonna bring up an old chart here,

but, it was, they all ended up at

340

the same spot from 1990 to today.

341

Okay.

342

Let me,

343

yeah, there we go.

344

So we have, this is from 1990 to 20.

345

It wa 20 21, 20 23.

346

You can see how, you know, they all

kind of ended up at the same spot.

347

That dark blue line is an equal

risk portfolio of all of them.

348

But, since then, the, the treasury

component has just plummeted.

349

Right?

350

it has been like, this is,

this is the next chart here.

351

Like that blue line has just, this is a 30

year treasury, just absolutely plummeted

352

and flatlined from 2023 to 2025, and

the winner ends up in the, in the most

353

recent period to be almost to be gold.

354

Right?

355

Mike Philbrick: Right.

356

Which follows a period 2011 when Gold

peaked in its last run right to, what

357

was it last year at, at probably around

this time that was a, a 14 year, 13 year

358

sideways market in gold and maybe we're

on a 13 year sideways market in bonds.

359

Rodrigo Gordillo: Yeah.

360

I mean, it, it has happened before, right?

361

And few people know this, but how,

what was the largest drawdown for,

362

in real terms, for treasuries?

363

This is a, my favorite, Meb Faber quote,

is like, like 65% drawdown in real terms,

364

Mike Philbrick: Mm-hmm.

365

Rodrigo Gordillo: right?

366

Absolutely bonkers.

367

And, and what did well at the time,

you know, this is way back in, in the

368

1900s, but at the time you could have

invested in gold minoring mining stocks.

369

I actually did it in analysis.

370

'cause gold was pegged.

371

But if you invested in gold miners,

it did, they did fairly well.

372

which is something that the report

also talks about, and an interesting

373

kind of transition away from gold.

374

Like what did you, what did you

garner from the, the gold miners part?

375

Mike Philbrick: Well, it kind of,

that old Don Cox saying right?

376

When those who know it best, like it

least you got a buying opportunity.

377

And I mean, if there's something that

hasn't disappointed more often over

378

the last few years as Gold has actually

appreciated, and to see whether you're

379

looking at, you know, broad-based ETFs,

GDX, GDXJ, the juniors in in gold, they

380

really have not felt that participation.

381

You know, there's this old, you know, if,

if you get this gearing from, gold stocks

382

that, you, you sort of get like a three

to one leverage, when you buy gold stocks

383

versus, you know, just owning the gold.

384

And we haven't seen that.

385

We've seen sort of one-to-one

participation with a lot more

386

volatility over the last year, call it.

387

And if you go a little bit further

back and say, well, let's go back,

388

three years, what you see is, you

know, the large cap gold stocks

389

are up 65% and Gold's up 80, right?

390

So the stock side of it has

absolutely underperformed,

391

the the physical metal side.

392

But there's a lot in there when those

gold companies are producing, they sell

393

a lot of the production forward in order

to make sure they can make ends meet.

394

And when the price is kind of

395

up selling a lot of your production

forward just to kind of get by.

396

And then you start to getting,

get into a period where, like you

397

said, Rod, it's that 10 year cycle.

398

You gotta build a mine in

order to build the mine.

399

You wanna take some of that,

financing risk off the table.

400

So as you're building and producing,

you're selling forward your production in

401

order to make sure you've got that locked

in so you can run your, run your business.

402

So very interesting.

403

And it seems to me that, I don't

know, maybe that set, that set that

404

area is due for some catch up, but

that's always a bit funny too, right?

405

And you and I know that there's

the beta in gold stocks and then

406

there's the gold in gold stocks.

407

And when you mix the two, you know,

again, I think Increment did a great job

408

on here's an interesting portfolio of

how you might incorporate commodities

409

and gold and silver and thinking like

silver and gold stocks, and silver

410

stocks are more of these kind of

more offensive, like higher geared,

411

opportunities, which they absolutely are.

412

Which means they have

more downside risk too.

413

Rodrigo Gordillo: Assuming you can't

lever up the thing, you wanna lever up

414

the most, like this is the basis, the

basis risk that you, that you take.

415

Like do you believe in gold

and what it's gonna do?

416

Well, yes, you could trade all

these other things because you

417

get more volatility outta them.

418

But for guys like you and me that love

futures contracts and, and want to

419

get, in order to get a better portfolio

construction, we can gear it up.

420

I'd rather gear up that

main, that main asset, right?

421

So

422

Mike Philbrick: Yeah, the, the,

the main factor, right, if you

423

like, like you've got, you've got

operational risk, so you're gonna

424

buy a co, a company that mines gold.

425

Well, there's operational risk there,

you know, tailing ponds go wrong.

426

The shit's not

427

Rodrigo Gordillo: how much, how much

of their gold exposure did they hedge?

428

Mike Philbrick: Yeah, exactly.

429

Rodrigo Gordillo: and so you're

not getting the upside, it's just,

430

it's, you're taking on, you're

taking on pro-cyclical risk that is

431

correlated to the, the economic cycle.

432

So I'd rather just buy the

pure gold, even silver, right?

433

Again, I think it's more about

gearing, but silver ends up being

434

more of an industrial metal,

435

Mike Philbrick: Yes.

436

More economic sensitivity, right?

437

Yeah.

438

So, so you want that

unique orthogonal nature.

439

Rodrigo Gordillo: yeah, and I think.

440

For, let's, let's kind of transition

a little bit toward Bitcoin, right?

441

Because they, this is kind of

what, what's been termed as the

442

new gold and the debates have, I've

been part of many debates, people

443

saying it's a hundred percent gold.

444

No, it's a hundred percent Bitcoin.

445

Bitcoin has the same qualities, but

you know, you can transfer it, quickly.

446

you can have it in low

quantities if you want to.

447

So you can have, you know, partial shares.

448

You can travel with it without anybody

having to, having to declare you can

449

walk through borders with all this

money in your pocket, in your brain.

450

Like all these benefits of the new gold.

451

so what are the similarities and

where, where is the risk there

452

Mike Philbrick: Oh, it's a,

it's a great, and you and I are

453

largely yes and people, right?

454

I, I don't think it's

an OR question, right?

455

You can incorporate both, quite honestly.

456

But as you say, so, so does Bitcoin

have central banks around the

457

world buying it in mass amounts?

458

Starting but not yet,

459

Rodrigo Gordillo: Well, that's another

thing they covered in the report that,

460

Mike Philbrick: Yeah.

461

You're starting

462

Rodrigo Gordillo: you have

the crypto of, uh, what's his

463

Mike Philbrick: yeah.

464

El Salvador and

465

Rodrigo Gordillo: David Sachs.

466

El Salvador.

467

Buying, making it as you know, some.

468

Mike Philbrick: Yep.

469

So it's happening, right?

470

So if we, if we set the table,

so the market cap on gold is,

471

call it 15 to 17 trillion.

472

The market cap on, Bitcoin is 1.3

473

to 1.5

474

trillion, so call it 10 x.

475

So gold represents 10 x.

476

It's been around a lot longer, probably

makes sense that that's the case.

477

There's just different features to

these two asset classes and a different,

478

sort of track record or, and I mean,

by track record, I mean, historically

479

Gold's been around for a very long time.

480

Bitcoin is the new kid on the block,

and I think they both offer some very

481

interesting and unique characteristics.

482

One is that gold, you know, has

a historical volatility of 10%.

483

You know, it moves around a

bit, but it's not like gold.

484

Yeah.

485

Where it's like 80.

486

So volatility is just how

much it goes up and down

487

Rodrigo Gordillo: Well, that's,

that's my framework for it.

488

All right.

489

I'm not fully, like, I, you know, you

are a, you're a lot more sold on this

490

being a wave of the future than I am.

491

I gotta be honest.

492

But let's, let's just go

through the similarities.

493

So it seems to have that same idea

that it's widely distributed around

494

the globe, so anybody can get it with

anybody, with a computer, which is

495

most of the population now can get it.

496

it is a, an asset that every four

years, the, the amount that can

497

be mined gets cut in half, right?

498

Until there isn't more to mine.

499

And so it becomes this asset, a

scarce asset that will go up and

500

down depending on whether humans

actually care about it or not.

501

Much like gold, right?

502

We couldn't have, we couldn't quite

pinpoint anything for gold except for the

503

fact that we want it and humanity uses it

and everybody's got broadly distributed.

504

some gold.

505

So, but, but 5, 6, 7 years ago,

the volatility of Bitcoin was 120,

506

Mike Philbrick: yeah,

507

Rodrigo Gordillo: is 15, golds

been 15, then it's gone down to a

508

hundred, to 80 and most recently going

down to 75% annualized volatility.

509

Now, that is a lot, right?

510

But this is, this is my framework for it.

511

So I like to use it in my portfolio as,

as a currency debasement trade, but I'm

512

always willing to have that go to zero.

513

I do an equal risk approach, and,

and we can talk about, I, I'll show

514

you some slides that I've shown

already in the ReSolve Riffs Podcast

515

back in the, the Christmas episode

with Meb, Corey and, and Wes.

516

But if I'm, if you're right, the

volatility of Bitcoin will con is it gets

517

more and more adoption, the volatility

of Bitcoin will get lower and lower and

518

lower, and if you're managing that kind

of currency debasement portfolio and

519

equal risk, then that Bitcoin portion

will get higher and higher and higher.

520

If I am, like, I'm not saying that I want

to be right about this, but let's say

521

that the other side happens and Bitcoin

becomes less and less of an option, that

522

there's some issues that gets attacked.

523

The volatility of that asset is gonna

go up and up and up back to where

524

it was in the beginning until it

goes up so high that from an equal

525

risk contribution perspective in my

portfolio, it becomes a non allocation.

526

Right?

527

So the volatility to me, gives me

all the information I need to require

528

an asset that I, I think is very

interesting, very, very interesting.

529

But we can manage the risk by not having

a static allocation, hopeful for the best.

530

You know what I mean?

531

Mike Philbrick: Oh yeah.

532

And, and also your initial allocation

or let, so in your context you say,

533

well, I want some hard assets in

my portfolio because I, I see a

534

lot of what's happening in debt.

535

I see debt monetization.

536

I see fiscal dominance, and I see some

things that are, are somewhat concerning.

537

And I'm getting the confirmation of

strangers through price, both price

538

and Bitcoin, and price and gold.

539

I, I have confirmation of

strangers in that more people

540

are buying and selling it.

541

That's why the price is rising.

542

So I like all, all of that makes sense.

543

And then to say, well then how

much, so if you have some position

544

in your portfolio, let's say you've

got 10% is kind of an easy one.

545

People say 10% in gold.

546

I dunno, I don't know how we got

there, but that might be right.

547

Might be not right.

548

But if you got 10% in gold, then okay,

what does that mean for a Bitcoin holding?

549

Probably something in the neighborhood

of, why wouldn't we do 10% to the both

550

assets where you've got 8% in gold

exposure and 2% in Bitcoin exposure,

551

thereby equalizing those two exposures.

552

So you've got equal risk coming from

them and incorporating that, both the

553

old and the new into the portfolio.

554

From the standpoint of diversifying

the portfolio, I think at this point

555

we can probably suggest that Bitcoin

is a bit more of an offensive player.

556

Right?

557

So

558

Rodrigo Gordillo: Well, I mean,

559

it didn't do what gold did, right?

560

Gold went up, uh, in

561

And so, but, but this year it's

acting interestingly, right?

562

It's actually doing offsetting gold

and gold has a bad, bad period.

563

So it's, let me show you the, um,

564

Mike Philbrick: And, and gold and

gold having a trend while Bitcoin

565

was kind of languishing around

the highs and having pullbacks.

566

So they're very complimentary

to one another as well.

567

So again, I, I think it's, it's not an OR.

568

And then the next question is, you know,

as, as we are purveyors of the I concept

569

of Return Stacked Portfolio Solutions.

570

Well then, you know, why, why do

you want to even give up your stocks

571

and bonds that, you know, love and

572

Rodrigo Gordillo: but before, before we

get into that, let, let me just kind of

573

Mike Philbrick: Well that was just a

574

Rodrigo Gordillo: address, yeah.

575

Let me just address kind of the, the

concept of kind of equalizing risk here.

576

And I, and I did this at a time

when everybody was saying, I, I, you

577

should either be your Bitcoin or gold.

578

And I was just showing people

how unfair that comparison is

579

given the volatility, right?

580

So this is, I started a reasonable

period where, you know, Bitcoin

581

wasn't absolutely insane.

582

So 2018, just to show that yes indeed

Bitcoin has done 20% return versus gold

583

during that same period had done 10%.

584

So this is, this is a little, this

is back in, December of, of last

585

Mike Philbrick: Still relevant.

586

Rodrigo Gordillo: Sharp ratio.

587

Sharp ratio around 0.6

588

for both of them though, right?

589

So what does that mean?

590

It means that if I were to scale goal

up to the same level of volatility

591

of Bitcoin, which can be done

with a futures contract, right?

592

This might seem a little insane,

but it's, it's insane to invest a

593

hundred percent of your assets in an

80 vol product in the first place.

594

If you're that type of person.

595

You can also just easily lever

up a gold futures contract, 5.7

596

times, I think, is that

what I ended up doing there?

597

to hit the same level of fall as

BTC, and now we're looking at, better

598

returns from gold during that period.

599

In fact, if I were to like, we

600

gold's actually killing it.

601

Um, so, so the question is,

yeah, maybe gold, right?

602

And of course my answer

is, well, not both, right?

603

If you were to equal risk this,

again, you're equal risking,

604

you're grabbing instead of 5.7%,

605

you, you just buy 50% of Bitcoin and,

um, 285% of, of a gold, futures contract

606

and equal weight it and rebalance.

607

And guess what happens?

608

Because the correlations, what's

interesting is that they're both,

609

they both seem to be good for currency

debasement stuff, but the, their

610

daily correlations is some, it is

on average zero, sometimes negative.

611

And as you and I both know from

Shannon's demon and the rebalancing

612

premium, that when you have two

negative correlated assets that in

613

this case and both making money and

you're able to rebalance from them, you

614

create this, this rebalancing premium.

615

And so what's interesting is that by

putting this portfolio of equal risk

616

together, your volatility goes from 80 to

61, but your returns go through the roof,

617

your returns are significantly higher.

618

'cause of that rebalancing,

premium sharpe ratio goes up.

619

Right.

620

So again, this is a portfolio

construction over ethos or, you know,

621

a gold religion or a Bitcoin religion.

622

It's just be you like 'em

both put 'em in equal risk.

623

Now, I am not gonna invest

in an 80 vol anything.

624

I'm not gonna, I'm not gonna invest

in this portfolio I'm showing you.

625

Right?

626

And so, what an average investor could

do is what you just described, right?

627

Instead of levering up your gold, lever

everything, lever Bitcoin down to equal

628

risk to your, to your gold allocation.

629

So we could, you could do that by just

looking at the market cap of gold versus

630

Bitcoin, which I think is like bitcoin's,

what 10% of you mentioned it earlier.

631

Mike Philbrick: 10 to one.

632

Call it.

633

10 to one.

634

Rodrigo Gordillo: 10.

635

So, so 10 to one.

636

So that's, you know, nine, nine 90%

in, uh, in gold, 10% in Bitcoin.

637

When you do equal risk contribution, it

used to be like 7% when it, when you start

638

doing this with Bitcoin in the beginning

and now it's like bumping up to 15,

639

to 20 to 20%, and it'll vary depending

on like, volatility is expanding,

640

contract correlation, expand contract.

641

But I think that that, given that

they're in around the same theme,

642

I like that they're non-correlated.

643

Even if you like the people talk about

silver and miners, they're too correlated

644

to be able to benefit from the non

correlation if you can get the leverage,

645

if you want it to from just using this.

646

I like the, the fact that it's Bitcoin

and gold being so non-correlated that

647

they're creating their own return stream.

648

Mike Philbrick: on a

day-to-day basis, right?

649

Rodrigo Gordillo: Yeah, yeah, yeah.

650

Mike Philbrick: they really, really are.

651

And it, it stems from the fact

there are very different buyers

652

that own both of these assets still.

653

Bitcoin is going through

the institutionalization.

654

I mean, gold has been

institutionalized many, many moons ago.

655

And, um, so it's an interesting,

juxtaposition of both the new and the

656

old, but both have, you know, finite

supply building new supply is hard.

657

Costs money, whether you're, whether

you're mining Bitcoin or you're mining

658

gold, whether you're trying to, you know,

get the machines to solve the problem

659

or get a, get a a contract approved

to, uh, develop a, a site to mine gold.

660

These are, these are hard things

and uh, they cost money to do so.

661

but again, I also think there's

a different, a very different

662

group of buyers for each of those

if we look right down to it.

663

And the individual investor doesn't really

have to think through that in the sense

664

that they have access to the products.

665

Right.

666

You

667

Rodrigo Gordillo: In a way

they didn't a few years back.

668

Right?

669

Mike Philbrick: correct.

670

Right.

671

You've got, you've got, financialized

Bitcoin products, whether they're

672

through ETFs, whether through the

futures markets, all allowing you

673

to build in this unique asset class.

674

We've had that in gold for some time.

675

but again, combining those two together,

bringing both the old and the new

676

together and thinking through, not

letting the maniacs run the asylum.

677

Right.

678

If you, if you say, well, I'm gonna

give you a dollar of gold and a

679

dollar of Bitcoin, that's fine too.

680

But you know, you're largely gonna

be dominated by the higher volatility

681

asset, which is gonna be Bitcoin.

682

but if you're thinking through an

allocation from the perspective of,

683

well, I've got some gold and I, you

know, I'll sell a little bit of my gold

684

and buy a stack of gold and Bitcoin,

well, then you've got your Bitcoin

685

stacked on your gold, which you could do.

686

Rodrigo Gordillo: You, you

know what's interesting?

687

I, I just remembered and pulled this up.

688

When we, when we wrote the paper

on, um, the rebalancing premium,

689

like something about risk parity.

690

In the beginning we did an analysis on

the correlation between just three assets.

691

Gold stocks and, treasuries.

692

And so you can see the correlation

is very low just within gold.

693

And, and what's interesting here to

point out is that if you just do the

694

compound returns of the portfolio, like

the, just an arithmetic addition of what

695

they would do in a portfolio without

rebalancing, you're looking at a 6.7%

696

rate of return.

697

The rebalancing between gold stocks and

treasuries, which are not, you know,

698

the, the correlation is pretty low.

699

You're looking at an extra 1.2%

700

per year in that portfolio.

701

So that portfolio with daily rebalancing

compounded an 8% rate of return.

702

Now, now add a, another hyper

non-correlated asset 'cause it's

703

also, you know, low, it still has low

correlation to treasuries and, and stocks.

704

You're just adding more

rebalancing premium, which I love.

705

Mike Philbrick: And that, that's a, that's

a really interesting time period too.

706

June 82 to 2020.

707

So you've got gold peaking at that point.

708

You've got rates peaking, so

you get a great bond bull run,

709

but you get a pretty, pretty vi

vigorous, gold bear market, right?

710

So it, it's still, even though those

were more persistent trends throughout

711

that period, that 38 year period, you

still came up with wonderful rebalancing

712

opportunities between the asset classes.

713

And that's, that's such a wonderful thing.

714

Rodrigo Gordillo: And here's

why this is important, right?

715

Here's why it's important.

716

This goes back to, um, Antiel and

when he, when we brought him in to,

717

to speak about commodities, right?

718

This, this view that commodities

is, is a, has a zero, uh, real

719

rate of return on their own.

720

But when you create a commodity

portfolio and you weigh them

721

appropriately, and you, you capture

that rebalancing treatment, guess what?

722

Now you have a real return because you've,

you've basically extracted a yield from

723

non-correlated asset classes, right?

724

So in a, in a way, like, yes.

725

We just, we started the

conversation by saying, what type

726

of yield does gold provide us?

727

What type of and yield

does Bitcoin provide us?

728

And they don't.

729

But if you structure your portfolio the

right way, if you include 'em in your

730

portfolio just a little bit, you're

already gonna be capturing an excess

731

yield that is, you know, this idea of the,

that one plus one equals three, right?

732

Like this is the, the, whole is

greater than sum of its parts.

733

Mike Philbrick: And, and the

systematic nature of that, right?

734

You don't, you don't have to be super

smart, to just do your rebalancing.

735

I would say the, the challenge, I guess on

the behavioral side is it's uncomfortable

736

to rebalance sometimes because you're

selling what's working and, uh, and

737

buying what's not working a little bit.

738

but that does work over time.

739

and if you're, if you're gonna sin a

little as I think Rob Barnett says, if

740

you're gonna sin a little, go for it.

741

You know, let

742

Rodrigo Gordillo: Let's talk

about setting, staying a bit more.

743

so let's go into other ways of

doing portfolio construction.

744

I think ultimately what we discovered

in trying to get people to add

745

diversifiers to their portfolio

is that they don't want it.

746

It's too different, it's too hard.

747

Even as I showed that incredible run

748

still resident to own something that

different when that they can't understand.

749

Right.

750

So I think the advent of, of Return

Stacking and all the things, all the

751

different, products that are coming

out that allow to stack things on top.

752

Give people an out.

753

Right?

754

You gotta, you, you now have an

option to possibly not have to sell

755

your favorite toys, sell your core

stocks and bonds in order to make

756

room for these weird diversifiers.

757

you can now actually just get,

keep your 60 40 or 80 20 and

758

just add the diversifiers on top.

759

Yes, in this case, you know, prop

volatility is likely to increase

760

a little bit, but you don't have

to go a hundred percent right.

761

You add a 10%, 20% allocation

depending on how, what your view

762

is on, currency debasement and

continued global macro spheres.

763

It's a great way to, you

know, yes and the problem.

764

Mike Philbrick: I totally agree, and

I kind of think that if we are honest

765

with ourselves, the math makes sense.

766

The returns are better in gold.

767

They were last year,

yet no one gave a Why?

768

Well, there's a huge

behavioral aspect to this.

769

Are my friends doing it?

770

My friends aren't doing it, and I'm

not feeling the pressure of that, of

771

those peers and that the, what do they

call them, sort of, best practices.

772

Then it's okay that, you know, we didn't

hear it from anybody that, oh my god,

773

gold did X and you're your diversified

funded Y and that was less than X.

774

No one ever says that.

775

Right now the darling in

the room is the S&P 500.

776

you know, we've been around

for a couple market cycles,

777

so it hasn't always been that.

778

Brick's been '08 and then the US back

779

82 and it was gold and gold stocks.

780

So there's this huge behavioral

tax that people pay waiting for

781

that, that public adoption, right?

782

They're not in, when there's a stealth

opportunity, when you could be in,

783

if you were just simply rebalancing

or stacking or doing something

784

that allows you to participate in

the markets that your friends are

785

participating in so that your tracking

error's lower, so that your behavioral

786

biases don't undermine your success.

787

You know, versus taking the big

plunge we just talked about, you

788

know, the numbers from 1982 for

crying out loud, like it makes sense

789

to have some gold in your portfolio.

790

Yet the allocation by pension funds,

family offices, large, sophisticated

791

asset allocators is a sub 1%,

792

Rodrigo Gordillo: Yeah.

793

Mike Philbrick: right?

794

We're we, we all are humans.

795

Lemmings,

796

Rodrigo Gordillo: I mean, I must admit

the, the coal community is a little weird.

797

You know what I mean?

798

Like, it's those

799

Mike Philbrick: But I'm not talking.

800

This is the funny thing,

801

Rodrigo Gordillo: I'm not gonna.

802

Mike Philbrick: we get, we get

painted as the gold community.

803

I'm, I'm a centrist here.

804

I'm not a gold guy.

805

I'm a centrist.

806

I'm like, you should have some, 'cause

it's different because it adds value.

807

Rodrigo Gordillo: That's it.

808

Like from a, like, I, I can get behind it

from a portfolio construction perspective.

809

I just, this, you and I have met a

bunch of advisors that are, have been

810

all in on gold and good for them.

811

They, but they've been all in on gold.

812

Like a hundred percent of

813

Mike Philbrick: a long time.

814

Rodrigo Gordillo: do is

around precious metals.

815

I mean, we grew up with Eric Sprott.

816

Mike Philbrick: Oh yeah.

817

We're, uh, being Canadians,

818

Rodrigo Gordillo: Yeah, right.

819

Like that's all that

820

Mike Philbrick: and, and you're,

you're Peruvian from, from the, the,

821

you know, so, so natural resources

in gold are, are well ingrained.

822

They're probably more acceptable

to us as investments than, you

823

know, a lot of people in the US.

824

And, and we do see that, like,

we see that in the numbers.

825

And I guess that this is, we're in that

public stage where you're, it's gonna

826

start to be okay as an allocator and

advisor to start incorporating gold.

827

Get this, it's gonna start to be okay.

828

You're gonna be able to actually do

that and not suffer the slings and

829

arrows of being considered a weirdo.

830

So that's something to consider.

831

The, the pendulum, the

behavioral pendulum is swinging.

832

It's a little bit more centrist.

833

The gold has, has some

returns that back it.

834

It's, we've got a number of concerns

that gold can respond well to, whether

835

those are geopolitical concerns, whether

those fiscal dominance, monetary,

836

there, there's some things that, that

evolve to make gold sort of a key

837

part of the portfolio, especially as

bonds start to potentially falter.

838

So it's going to garner some acceptance.

839

So now how are you as an allocator

or an advisor gonna start building

840

that non-correlated source

of returns into portfolios?

841

Bitcoin's going through the

same evolution, starting from

842

a much smaller base, obviously.

843

but again, how are you gonna

think through allocating to these

844

types of things in your portfolio?

845

Do you wanna take some of the

things that you know, love and

846

trust out, sell some of your stocks

and bonds, and do diversification

847

through subtraction possible?

848

Or do you wanna do diversification

through addition where you

849

Rodrigo Gordillo: Well, let's talk

about that, the difference between

850

those two from a behavioral perspective,

because I don't think that gets enough

851

airtime in terms of when you, let's

say, everything Trump solves everything.

852

we have, we take care of the debt.

853

the US becomes a reserve currency again.

854

Everybody starts behaving.

855

No more wars.

856

You know, that's obviously

gonna affect gold negatively.

857

And if you've just chosen to have an

allocation of gold, you'll, if you've

858

made, sold your equities in order to get

gold, you are not only losing whatever

859

the 20% that gold might give you, you

are losing out an opportunity cost of

860

that equity component that may be up 30%.

861

Right?

862

So you're getting a double whammy by, in

terms of allocating when you make room

863

in your portfolio for these diversifiers.

864

Whereas when you stack 'em on top,

you're at the very least not having

865

that opportunity cost of owning the

equities in case they go up 20%.

866

You're still having a little bit

of tailwind, but you're cer you're

867

certainly cutting it by a lot.

868

Right?

869

So in terms of wrapping your mind

around adding weird things, you

870

know, you, I think everybody here

knows that, that we think that a

871

good solution here is stacking.

872

and, and, yeah.

873

And then you gotta decide when, right?

874

Like we, that's right now, even though

I've been an advocate of gold from the

875

beginning of my career, when people come

to me now and they say, should I allocate?

876

And I'm like, yeah.

877

Yeah, you need to allocate.

878

And, and then I have to go

back to these reports and be

879

like, okay, what's happening?

880

Like, why, why is this still,

why should I not be timing this

881

as much as, uh, as I want to?

882

And just the evidence is so like even

the Chinese government with the, the

883

capital controls, you know, nobody's

gonna invest in like a few people

884

invest in the stock market unless

they're really gambling in inside China.

885

Like apparently the only thing

that they can invest in without

886

a lot of control is gold.

887

And that's a large part as to

why all of this is happening.

888

And as it become more insular, I think

that's another interesting secular trend.

889

La Latin America, emerging markets

are buying more and more gold.

890

Mike Philbrick: Well, that, that was the,

that was the theme from last year, right?

891

That that would start to happen.

892

And the theme this year is now, now

we're, it's, it's the big long, right?

893

Rodrigo Gordillo: yeah,

now it's broad acceptance.

894

Now it's, I mean.

895

Mike Philbrick: is the part where

you, when you get the broader

896

acceptance, you're now gonna

start to get the green light.

897

Whether you're an allocator, working

with an institution or pension fund,

898

or you're an advisor working with,

individual families, you're gonna

899

start to get the green light to be

able to incorporate this and not sort

900

of compromise the, the relationship.

901

Right.

902

Not call into question the relationship

for doing something that's too weird.

903

And that, that's a real challenge in

managing assets on behalf of other

904

people is, you know, you wanna do

the mathematically correct thing and

905

the preferences of the individual

investor sometimes get involved and

906

don't allow for that to take place.

907

That, that's, that's about

as common as anything in this

908

Rodrigo Gordillo: And, and one thing

that I've learned quite a lot from, with

909

the com when it comes to macro cycles

is, Bob Elliott, who constantly reminds

910

us about how long it takes for macro

cycles to actually play out, right?

911

They take years, if not decades, to

fully play out to their maximum extent.

912

When, like, even, even the, the recent

disinflationary growth period where

913

equities kept on going up, right?

914

It was like there was a straight line

with a low volatility bonds, 40 years.

915

Like these are long secular

cycles that we've seen and bonds

916

have finally broken, right?

917

And it took 40 years for them to, to

break in any meaningful way whatsoever.

918

And so when you think about.

919

Just the concept of,

okay, price of gold is up.

920

Well, there's gonna be all this demand.

921

Where are we gonna get

the, the supply from?

922

Nowhere.

923

It's gonna take 10 years

to build more supply.

924

You know, we still, we're not, I'm

not seeing any commercials to, to

925

sell my, my gold jewelry to get gold,

926

Mike Philbrick: Not yet.

927

That will be a sign though.

928

Rodrigo Gordillo: that will

definitely be a sign right.

929

When you like, these are the,

930

Mike Philbrick: melting down the

silver, uh, the silver forks and spoons.

931

Rodrigo Gordillo: Yeah.

932

So when I think about it that

way, I, I got, that gives me,

933

okay, I need to have this as part

of my core strategic portfolio.

934

Right.

935

It's not gonna be a fun ride on

its own, but it is a portfolio.

936

Mike Philbrick: yeah.

937

And allocate.

938

This is the nice thing.

939

You can allocate it.

940

into the portfolio over time.

941

Like, you do not have to take the

approach that today is the day where I'm

942

gonna allocate the full X amount, right?

943

So let's say you, you come to the

conclusion that, well, alright,

944

this is an asset class I probably

should have 10, 10% in the portfolio.

945

So what are the steps I'm gonna take?

946

Well, let's buy 1% today.

947

Let's get it on the books,

let's get, let's get started.

948

Because when you own it, you watch it

and you get familiar with it, and you

949

get some intuition as to how the asset

responds in different circumstances.

950

And that's always something that's,

that's a bit challenging and unique.

951

When something has gone to, through

the process of becoming a 1% allocation

952

across investors' portfolios, they're

really not paying attention to it, right?

953

So build up your intuition

and your tolerance.

954

How, because it's gonna be,

some days you're gonna look at

955

it and go, this thing's stupid.

956

And then other days you're gonna be

like, oh my gosh, wow, look at that.

957

And you're gonna get a sense for that.

958

And then it allows you to build the,

and this is both at the institutional

959

level and the retail level.

960

This is across all things.

961

When you don't have an intuition

for an asset class, 'cause

962

you haven't dealt with it.

963

And I would assume, you know, most people

are, are of the age that a lot of times

964

they don't have a lot of experience

with gold in, in the markets today.

965

So they're gonna have to

build up that intuition.

966

So start small, like, but start.

967

And, and look at how it

interacts with your portfolio.

968

And then, you know, in, in our, as you've,

as you've mentioned so eloquently already,

969

our perspective is you don't need to

sell what's in your portfolio to add

970

these diversifiers to stack them on top.

971

And that will help alleviate some of the

tracking error that comes from those times

972

when those main assets are doing great.

973

Rodrigo Gordillo: Yeah, I mean, I think,

I think we're moving the needle, Mike.

974

I think we're gonna take

this from 1% to two.

975

Mike Philbrick: Let's do it.

976

Rodrigo Gordillo: I'm

feeling it this time.

977

It's crazy because we literally have

had this conversation in every room that

978

we stepped in since the day I met you.

979

Mike Philbrick: and I know, and I feel

as though, like, I get painted as a

980

gold bug I'm just, I'm a gold centrist.

981

I'm not a gold bug.

982

I

983

Rodrigo Gordillo: we're not, we

don't have outrageous weightings

984

of gold in our portfolios.

985

Mike Philbrick: at all.

986

Rodrigo Gordillo: just not zero.

987

It's not zero.

988

Mike Philbrick: Exactly.

989

Exactly.

990

Rodrigo Gordillo: still have a bunch

of people waiting, um, and watching.

991

I'm just curious if

anybody has any questions.

992

I'm just gonna go up and

see if there were any.

993

There are some things

we can't discuss here.

994

Uh, volatility drag a problem

with UGL on daily reset.

995

Okay.

996

So UGL is the double bowl, I think, right?

997

Yeah.

998

so

999

Mike Philbrick: Yeah.

00:50:26,144 --> 00:50:26,774

So that's, yeah.

00:50:26,774 --> 00:50:27,314

Let you go.

00:50:27,314 --> 00:50:27,524

Go

00:50:27,584 --> 00:50:30,074

Rodrigo Gordillo: we've, we've

discussed volatility drag quite a bit.

00:50:30,104 --> 00:50:31,964

There's a couple articles

on the return stack site.

00:50:31,994 --> 00:50:35,384

If you look up volatility drag, you'll,

you'll get to understand a little bit

00:50:35,384 --> 00:50:40,761

more about, whether it's even a thing

that, uh, you need to worry about from

00:50:40,761 --> 00:50:42,171

a portfolio construction perspective.

00:50:42,171 --> 00:50:47,601

Like there is no shame in using 2x levered

anything as long as you are rebalancing

00:50:47,961 --> 00:50:51,081

and you are, you are rebalancing it

against other non-correlated stuff.

00:50:51,621 --> 00:50:58,001

Volatility drag, is, is basically,

you know, when you, when you 2x an

00:50:58,001 --> 00:51:04,301

asset class, what tends to happen

is your variance goes up by 4x

00:51:04,521 --> 00:51:09,650

and your, compound rate of return

is the variance of the portfolio.

00:51:10,070 --> 00:51:13,980

It's half the variance of, uh, is your

arithmetic rate of return minus half

00:51:13,980 --> 00:51:15,090

the variance of the portfolio, right?

00:51:15,090 --> 00:51:18,390

So what you end up getting

penalized if you are just owning

00:51:18,390 --> 00:51:20,820

that asset at 2x of volatility.

00:51:20,820 --> 00:51:26,760

But that doesn't just apply to 2x S&P

or 2x gold, it applies to 2x anything.

00:51:26,820 --> 00:51:31,980

If you are increasing the volatility

of your portfolio, whatever it is,

00:51:31,980 --> 00:51:35,970

you are increasing the variance

and you are getting a drag from the

00:51:35,970 --> 00:51:40,020

compounding of, or negative compounding

of that, like that variance drag.

00:51:40,530 --> 00:51:45,645

But if you are increasing

leverage in order to have a

00:51:45,645 --> 00:51:47,325

more diversified portfolio.

00:51:47,535 --> 00:51:51,049

We, we use the example in one of the

podcasts that we did, where you talk

00:51:51,049 --> 00:51:55,699

about the 2x S&P 500 versus stacking

a hundred percent S&P and a hundred

00:51:55,699 --> 00:51:56,989

percent trend following, for example.

00:51:57,589 --> 00:52:02,599

When you stack a hundred percent S&P, your

volatility is actually, you're, you're

00:52:02,599 --> 00:52:06,772

getting, you're not getting twice the

return, and your volatility is, doubling.

00:52:07,522 --> 00:52:11,122

When you are stacking a non-correlated

def, what we call defensive leverage

00:52:11,122 --> 00:52:15,889

on top, you're stacking the return,

but because it's non-correlated to

00:52:15,889 --> 00:52:19,789

the underlying asset, you're not

increasing your, necessarily the,

00:52:19,909 --> 00:52:22,639

the standard deviation and therefore

your variance drag is much lower.

00:52:22,909 --> 00:52:23,269

Okay.

00:52:23,899 --> 00:52:27,319

And so it just, the, the answer

is it depends on how you use it.

00:52:28,279 --> 00:52:31,969

Okay, so, so use it for

portfolio construction.

00:52:31,969 --> 00:52:33,499

Use it to create robust portfolios.

00:52:33,499 --> 00:52:37,069

Make sure you're rebalancing and if

you do it, it's a great instrument.

00:52:37,069 --> 00:52:40,579

It's volatility that you can use

to, to create rebalancing premium.

00:52:41,280 --> 00:52:44,830

Mike Philbrick: The, um, those,

those, I would, I would add one final,

00:52:44,920 --> 00:52:48,100

you know, UGL, that type of thing,

where it's two x at the same asset.

00:52:48,160 --> 00:52:52,000

Those are, those are often trading

assets, so you should be engaged in

00:52:52,000 --> 00:52:54,040

the, in the trading of the assets.

00:52:54,040 --> 00:52:57,730

As, as you've mentioned, they regear

up every day, so if you make 10%,

00:52:57,730 --> 00:52:59,170

they're gonna regear that up tomorrow.

00:52:59,770 --> 00:53:03,675

At some point you get, you know, lots

of leverage built into your position

00:53:03,855 --> 00:53:08,355

and you have a correction, and that's

where you get that volatility drag.

00:53:08,625 --> 00:53:12,015

But if you were harvesting that and

saying, well, no, I'm, I'm, I'm gonna

00:53:12,015 --> 00:53:15,525

trim a little as it goes up, and

then I'm gonna add a little when it

00:53:15,525 --> 00:53:19,935

goes down, you can attenuate that

and, and you might do that with cash,

00:53:19,935 --> 00:53:21,195

you might do that with other assets.

00:53:21,200 --> 00:53:25,305

It, it, it's all fine, but it does

require, the leveraging is daily and

00:53:25,305 --> 00:53:27,285

the asset is somewhat volatile at times.

00:53:27,285 --> 00:53:30,105

So it can require adjustments daily.

00:53:30,315 --> 00:53:32,925

If, if, if you're doing that

type of thing, it, it's fine.

00:53:33,225 --> 00:53:36,345

Certainly when we're looking at

futures contracts and things like that

00:53:36,465 --> 00:53:39,705

in portfolios that we're managing,

those are reviewed daily and are

00:53:39,705 --> 00:53:44,175

rebalanced, you know, brought back in

line on, on a regular basis because

00:53:44,175 --> 00:53:48,335

the volatility with the, the leverage

and the other pieces of the puzzle.

00:53:48,395 --> 00:53:48,605

Right.

00:53:48,605 --> 00:53:49,955

The other positions in the portfolio,

00:53:50,510 --> 00:53:53,270

Rodrigo Gordillo: Look, when it comes to

leverage, we always talk about internally

00:53:53,270 --> 00:53:56,990

that, that you don't want, when it comes

to leverage, you don't want LICE, and LICE

00:53:56,990 --> 00:54:02,630

stands for leverage that, is illiquid,

concentrated or excessive, right?

00:54:02,630 --> 00:54:06,770

So in this case, we're talking about a,

a liquid product, but it is concentrated

00:54:06,770 --> 00:54:09,440

and it can be excessive depending

on how much you put into it, right?

00:54:10,070 --> 00:54:12,470

And so you just wanna avoid

LICE when it comes to leverage.

00:54:12,680 --> 00:54:17,210

And, and what you really want it to be

is, is, is part of a portfolio, or you

00:54:17,210 --> 00:54:19,760

want to stack it with other things.

00:54:20,300 --> 00:54:23,960

And, and if you're gonna use leverage,

use what we call defensive leverage,

00:54:23,960 --> 00:54:27,380

things that are non-correlated to

the thing that the, the main stack

00:54:27,380 --> 00:54:29,300

that you are, that you're gonna use.

00:54:29,300 --> 00:54:33,260

So if, if you keep that in mind, you are

gonna minimize the chances of blowing up.

00:54:33,757 --> 00:54:34,207

All right?

00:54:34,777 --> 00:54:35,767

We're coming up to an hour.

00:54:35,827 --> 00:54:38,347

Mike, anything that, that we may

have missed that you want to chat?

00:54:38,789 --> 00:54:41,969

Mike Philbrick: Uh, no, I think, I think

we've covered just about everything

00:54:41,969 --> 00:54:43,709

that we wanted to, uh, discuss.

00:54:43,709 --> 00:54:45,689

I think the report is well worthwhile.

00:54:45,779 --> 00:54:51,159

Um, we've got one of the, portfolio

managers at Incrementum that's gonna

00:54:51,159 --> 00:54:55,029

join us in June, and we'll take a

little bit more into the report itself

00:54:55,029 --> 00:54:59,259

and talk a little bit more of the,

uh, the intricacies of, of the gold

00:54:59,259 --> 00:55:02,229

market itself, things that, that what,

where we'll learn some stuff as well.

00:55:02,529 --> 00:55:06,009

So look forward to that and, uh,

look forward to tuning in with that.

00:55:06,009 --> 00:55:09,895

And I think, you know, the other thing

is every year that he was, um, in

00:55:09,895 --> 00:55:13,345

talking with the, the guys over there,

they've noted that every year when they

00:55:13,345 --> 00:55:15,445

launch the report, gold is, goes down.

00:55:16,960 --> 00:55:17,230

Rodrigo Gordillo: now what

00:55:17,305 --> 00:55:17,727

Mike Philbrick: It's just, it's just

00:55:17,830 --> 00:55:18,610

Rodrigo Gordillo:

Because they launched it.

00:55:18,610 --> 00:55:20,620

They launched it into

a poor seasonal period.

00:55:20,620 --> 00:55:25,900

Or like we, we do seasonality and I think

gold is entering a poor seasonal period,

00:55:25,900 --> 00:55:27,520

which is gonna be a great entry point.

00:55:28,000 --> 00:55:28,600

Mike Philbrick: Exactly.

00:55:28,840 --> 00:55:31,780

Starting start, start

your allocation today.

00:55:31,780 --> 00:55:34,090

Go slow, go steady, get the intuition.

00:55:34,330 --> 00:55:36,587

You're gonna see that, public opinion.

00:55:36,797 --> 00:55:39,767

This is, you know, for what

it's worth, from my perspective,

00:55:40,097 --> 00:55:41,357

public opinion is changing.

00:55:41,357 --> 00:55:42,947

We're entering that public phase.

00:55:43,157 --> 00:55:46,487

We're seeing that in the

AUM growth in, in the ETFs.

00:55:46,727 --> 00:55:48,407

So it's something to look at and consider.

00:55:48,407 --> 00:55:52,964

And how you might allocate to that there

are many ways to, to slice that, sandwich.

00:55:53,384 --> 00:55:56,174

Uh, we would, we would encourage

you to look at the idea of return

00:55:56,174 --> 00:55:57,764

stacking as a way to incorporate it.

00:55:58,304 --> 00:56:00,974

And, uh, if you have any questions

as always, reach out to us and,

00:56:01,079 --> 00:56:02,909

Rodrigo Gordillo: You know, we've got a

couple minutes and they, there's a couple

00:56:02,909 --> 00:56:04,139

of questions that I do want to answer.

00:56:04,189 --> 00:56:04,379

sorry.

00:56:04,519 --> 00:56:06,344

So they were talking about

borrowing costs, right?

00:56:06,344 --> 00:56:09,044

So the, you know, it

depends on how you borrow.

00:56:09,044 --> 00:56:12,814

You can get, again, if you're using,

There's a bunch of product out there

00:56:12,814 --> 00:56:16,624

that is, that is helping you create

capital efficiency by making revenue

00:56:16,624 --> 00:56:21,404

on your portfolio, by giving you

like, WisdomTree as a 90 60, right?

00:56:21,404 --> 00:56:24,974

You're getting, you're getting

leverage at the cheapest possible level

00:56:25,364 --> 00:56:27,664

of, on the futures markets, right?

00:56:27,664 --> 00:56:28,264

So yes.

00:56:28,684 --> 00:56:32,734

What you're gonna need to de decide

is what you're stacking, is it

00:56:32,734 --> 00:56:35,224

likely to do better than cash?

00:56:35,554 --> 00:56:35,854

Right?

00:56:35,944 --> 00:56:42,034

And what, what we've seen, what we've

shown you from gold, is that gold has

00:56:42,334 --> 00:56:44,044

had positive real rates of return.

00:56:44,044 --> 00:56:48,344

So when you think about creating

portfolios, especially in the

00:56:48,344 --> 00:56:51,644

context of return stacking, it

really is like, the way I think

00:56:51,644 --> 00:56:52,964

about it is Lego blocks, right?

00:56:53,624 --> 00:56:57,224

See if I have different colored Lego

blocks here you have your equity.

00:56:57,484 --> 00:56:59,744

let's assume that this is, you

got your equity risk premium.

00:57:00,299 --> 00:57:04,409

That you are going to buy and get

exposure to, you're gonna get your bond

00:57:04,469 --> 00:57:08,195

risk term premium that you're gonna

eventually over the long term get, you

00:57:08,195 --> 00:57:09,965

know, paid for taking duration risk.

00:57:10,445 --> 00:57:12,785

And then let's say that's a

hundred portfolio, then you gotta

00:57:12,785 --> 00:57:15,695

decide, okay, what excess returns

can I count on to be there?

00:57:15,725 --> 00:57:17,765

Well, it turns out the gold

has had pretty decent excess

00:57:17,765 --> 00:57:19,955

returns in the last 40 years.

00:57:19,955 --> 00:57:23,435

So then you're whatever excess returns

that end, that's you're stacking

00:57:23,435 --> 00:57:27,875

that return on top, and then you find

another, thing that you want to stack,

00:57:27,875 --> 00:57:32,939

whether it's, uh, know, managed future

trend or, merger arbitrage or, you

00:57:32,939 --> 00:57:36,959

know, market neutral portfolios that

you can, you can literally decide

00:57:36,959 --> 00:57:39,809

to stack all of these different risk

premiums that are non-correlated to

00:57:39,809 --> 00:57:44,519

each other, to the level of portfolio

volatility that you can stomach, right?

00:57:44,519 --> 00:57:47,099

So yes, everything costs, to stack.

00:57:47,159 --> 00:57:48,419

It's always the risk-free rate.

00:57:49,199 --> 00:57:53,309

But every asset that we've

discussed today has had a

00:57:53,309 --> 00:57:55,589

long-term excess return above cash.

00:57:55,979 --> 00:57:59,969

And if you feel like you can count

on that over a long enough time

00:57:59,969 --> 00:58:04,979

horizon, then really you're just

stacking excess returns plus the cash

00:58:04,979 --> 00:58:07,319

premium you get on your core holdings.

00:58:07,499 --> 00:58:07,739

Right?

00:58:07,769 --> 00:58:09,539

So, hope that answers your question.

00:58:09,649 --> 00:58:14,059

and yeah, if you guys ha want to reach

out and ask any further questions, you

00:58:14,059 --> 00:58:17,602

can reach out at, RodGordilloP on Twitter.

00:58:17,742 --> 00:58:19,722

Mike, what's your,

what's your handle, Mike?

00:58:19,722 --> 00:58:20,202

99.

00:58:20,202 --> 00:58:20,952

Is it still?

00:58:21,762 --> 00:58:24,372

Yeah, Mike, that's his,

his, uh, football jersey.

00:58:25,002 --> 00:58:25,982

Mike Philbrick: MikePhilbrick99.

00:58:26,592 --> 00:58:27,462

Rodrigo Gordillo: MikePhilbrick99.

00:58:28,189 --> 00:58:31,639

And, uh, please, you know,

this is not investment advice.

00:58:31,639 --> 00:58:34,219

This is just a couple guys talking

about some research that we

00:58:34,219 --> 00:58:35,689

thought was interesting to share.

00:58:36,099 --> 00:58:39,909

and be happy to, to discuss further

offline for anybody who wants to do that.

00:58:40,209 --> 00:58:43,969

And, uh, looking forward to that gold

conversation continuing June, Mike.

00:58:44,779 --> 00:58:46,729

Thanks for, thanks for

it was your initiative.

00:58:46,729 --> 00:58:48,109

I, I really enjoyed this conversation.

00:58:48,109 --> 00:58:48,589

Thank you for that.

00:58:49,229 --> 00:58:49,509

Mike Philbrick: Absolutely.

00:58:49,899 --> 00:58:50,989

Stay diversified everyone.

00:58:51,829 --> 00:58:52,069

Rodrigo Gordillo: All right.

00:58:52,369 --> 00:58:52,879

See y'all.

00:58:53,009 --> 00:58:53,619

Mike Philbrick: See ya.