Research and Writing

At one end of the spectrum is gold and uranium, where the hot money has pushed prices to levels that are a little spicy, but still more or less consistent with underlying fundamentals. And, in both markets, there is a steady drumbeat of price-insensitive structural demand that will keep buying. Nuclear power plants aren’t going to stop buying uranium and global central banks aren’t going to suddenly decide that lending their surplus dollars back to the US government is attractive. In those markets, we think the longer-term thesis is intact, even though we expect more short-term volatility.

In the middle of the spectrum is copper, where prices have disconnected from supply/demand forces, but at least part of that is a “rational” stockpiling demand from folks worried about the Trump administration reversing course and slapping tariffs on refined copper. In the absence of those tariffs, we see tough times for copper over the next year as outsized inventories need to worked through - even if the longer-term picture still looks bright.

At the far end of the spectrum…the VERY far end…is silver. The price of silver at this point is more or less the same as the price of a meme stock or a meme coin, set pseudo-arbitrarily by hot money chasing recent returns.

Like any speculative frenzy, there is a narrative that traders are hanging their hats on, and that the performance-chasers use to justify jumping onboard. Specifically, that 1) the “debasement trade” - particularly in China - is causing buying and 2) there is a shortage in the physical silver market caused by solar panel demand. I wrote a piece in August (available on our website) titled “Plausible Nonsense.” That phrase comes to mind here.

Let’s look at 1). First, let’s get something out of the way - silver is mostly a functional industrial metal. The market is way too small to matter as a “storehold of wealth.” The IMF excludes silver in their definition of reserve assets, and basically no global central banks hold any. The chart below shows government participation in the silver market. No one has done anything for more than 10 years.

That could be ok (maybe) if you had a sustained capital flight into silver from smaller investors worried about their local currency. That is a big part of the narrative around the explosion of Chinese retail buying. We think that explanation is just wrong. Chinese investors almost always pile into the thing that just went up the most. That’s true for real estate, bank products, gold, silver, the stock market, etc. They rarely start market rallies, they just come in later and exacerbate the rally and the subsequent selloff. Silver buying in China is just pure retail performance chasing, like they always do, and has nothing to do with currency debasement. The chart below shows the story in equities (the example with the cleanest data). When markets have recently ripped, households lever up and buy, and vice versa. It’s not that deep.

On 2), the physical silver market has been balanced or in surplus from a supply/demand perspective for many years. We think the idea that solar demand has suddenly exploded to such a degree that it is causing an acute shortage is farfetched. This piece is already long so I won’t dive into the minutia, but there are physical market indicators that would be telling us if this was happening, and they aren’t. Instead what we are seeing is the opposite - a start of substitution away from silver because of the high price, and chatter around higher scrap supply. As always in commodities, the cure for high prices is high prices.

So are we telling you to short silver? Definitely not. In these newsletters we talk about what we believe and what we are doing, but you need to decide for yourself what you should do. And what we believe is that the dogecoin comparison in the title of this piece is apt. A lot of people made money in dogecoin (on both the long and short side), but a lot of people also got taken out on stretchers (again, on both the long and short side). This is the same journey speculators are on with silver. Do with that what you will.

When you buy a foreign financial asset, you get two things - of course you get the financial asset’s return, but you also get the change in the exchange rate between your currency and theirs. For example, the Norwegian Krone (NOK) currently has an exchange rate of about 10:1 with the USD. If you take a dollar to Norway, you can trade it for 10 NOK, or vice versa. Now imagine you want to buy $100 USD of a Norwegian stock. You convert the $100 USD into 1000 NOK, and buy a single share of stock that has a price of 1000 NOK. Consider the following two cases:

• The price of the stock goes from 1000 NOK to 2000 NOK, and the USD/NOK exchange rate stays constant. Now you can sell your position for 2000 NOK, and convert it to $200 USD. You doubled your money.
• The price of the stock stays constant at 1000 NOK. But this time the USD weakens, and the exchange rate changes from 10:1 to 5:1. Now you sell the stock for 1000 NOK, and convert that to $200 USD. You again doubled your money, just in a different way.

The table below shows the change in exchange rates between the US and a sampling of countries in 2025. Positive numbers mean the USD got weaker against that currency. The USD fell against almost every currency in the world in 2025, which was a tailwind for Americans investing internationally.

What does this mean for you? If you believe, like we do, that the USD is likely to weaken against global currencies over the medium to long run, you are giving yourself a tailwind by investing internationally. The long-term strategic portfolios that we build for clients are typically 60-70% outside of the US, in part for this reason.

Remember when Spain and Greece were ridiculed on a daily basis for being so fiscally irresponsible that they almost took down the Euro? That wasn’t very long ago! According to the IMF, South Korean RGDP growth for 2025 was an unimpressive 0.9%. South Africa has the worst income inequality in the world as measured by the Gini index (and Colombia is 7th worst). And yet all of them crushed the US, which has the largest and most profitable companies in history. What is going on?

The answer is that profits are not the same as equity returns. It matters what you pay for those profits. If you pay rock-bottom prices for mediocre companies operating in mediocre economies, you can do great. And vice versa. When we run our equity process on some of the glitziest companies in the US, our assessment is that prices are so high that not even their incredible profitability can hope to produce satisfactory long-term returns.

Here’s a simple thought experiment that illustrates the point. Imagine I invent a game. You flip a coin. If it’s heads, you win 100 bucks. If it’s tails, you win 10 bucks. What a great game for you, it reliably throws off cash just like the darlings of the US stock market. The only catch is that you have to pay to flip the coin. If it costs 10 bucks to flip it, you are going to get rich. If it costs 60 bucks to flip it, things are going to end badly for you. It’s the same stream of cash flows in both cases, but the price you pay for that cash is everything.

Shameless plug: identifying where you can underpay for earnings is not easy, but it is not impossible. It takes a sharp pencil and a deep understanding of the drivers of returns. In our equity strategy in 2025, the countries we were overweight had a weighted average return of 41% and the countries we were underweight only made 23%, so we materially outperformed US and Global indices. Our strategy will be available to the public soon as an ETF, please let me know if you want more info.

For funsies, let’s apply some consultant tactics to a question that I get often: “is the rally in gold over?” Obviously nothing below resembles anything that happens in our actual investment process. It’s just a semi-reasonable way to figure out how many digits there are in a potential answer.

We’ll start with the following chart that FT published a few months back:

The recent buying spree (and price effect on their existing holdings) has taken central bank gold allocations back to where they were in the mid-to-late 1990’s. What if they wanted the level to match the late 1980’s? It’s not a huge mystery why foreign central banks are choosing to hold more of the wealth in an asset that isn’t someone else’s liability, so that seems eminently reasonable. Doing so would involve roughly doubling their gold holdings as a % of their reserve assets from here. Let’s do some consultant math to rough out what that implies for the returns.

Method 1: Global central banks have added that much to their reserves twice before, in the early and late 1970s. The chart below shows the rolling 3-yr return of gold. You can see that previous buying sprees have corresponded with rallies that are 2.5-3x the current one.

Method 2: Central banks added about 10% to their holdings over the last 3 years, and the price doubled. If they wanted to get back to their gold allocation from circa 1990, they would have to add 10% twice more. So doubling twice is a 4x return.

I just want to reiterate what I said at the top - nothing like this is actually in our investment process. But it directionally agrees with what our investment process produces as a synthesis: if central banks keep acting like they have been, and we believe they will, more of the gold rally is in front of us than behind us.

Why? Well first off, the oil industry in Venezuela is a mess. Despite sitting on the largest reserves in the world - larger than the US, Canada, and Mexico combined - Venezuela struggles to stay in the top 20 of global oil production. It’s not a big mystery why. They run their national oil company (PDVSA) like a mix of Dunder Mifflin and the Fyre Festival. Since the late 90’s their oil production has fallen by ~70% even though oil-producing technology has gotten radically better during that period.

This means that no matter what happens in the short-term to Venezuelan supply - whether it is slightly higher from a relaxation of sanctions, or lower from some kind of unrest, it won’t change the global supply and demand synthesis. Right now the world is producing much more oil than it is consuming, and the difference is being made up by strategic stockpiling, mostly by China. Nothing in Venezuela will change that.

Obviously in the longer-term, unlocking such a large pool of oil could be a huge deal. My advice to you is to not hold your breath. Iraq post-Saddam Hussein isn’t a perfect comparison, but it is a helpful frame of reference. It took several years to just stabilize the situation enough to start meaningful investment and repairs. Then it took several more years for the infrastructure improvements to reach a level that output could start to really grow. The sweet spot of Iraqi production growth was 11 years after the regime change. So while there are ways this could go somewhat faster, and there can be smaller improvements along the way, nothing is going to change overnight.

Interestingly - while oil opened flat, and the US stock market opened flat, gold did not: it is up 2%. As we enter 2026 we think the secular shifts that caused gold to rally ~65% in 2025 are still very much intact, and incidents like this reinforce that.

The book covers the most spectacular hedge fund blow-up in history, LTCM. For those not familiar with the story, go read it. But the short version is that they made a bunch of trades that relied on tomorrow looking like yesterday, and leveraged them to the sky. Then the world changed, as it always does, and they went busto. This in turn meant they couldn’t honor their contracts with their trading counterparties, creating a massive domino effect of losses, and they might have taken down the entire financial system if the Fed didn’t step in. You can see their performance below in a table from Yahoo Finance. A -92% year is really incredible — even Madoff didn’t ultimately lose anywhere close to that much of his clients’ money.

But the fun of the book is not just in the schadenfreude. It is learning from the amazing breadth of investing mistakes that genuinely brilliant people (two Nobel Prize winners!) make throughout the tale. I have told more than a few young people that if they can read the book cover to cover, and genuinely appreciate and understand everything that is happening, they have the right to start managing money.

The book is timeless in its lessons, but I think really deserves a re-read in today’s environment. Like I said, the LTCM investment process was a complex web of math that all boiled down to the same core assumption: that tomorrow would look like yesterday. There was little to no thought given as to why yesterday looked the way it did and zero wrestling with whether tomorrow could look different and what that would mean.

In the era between the global financial crisis and 2025, betting that tomorrow would look like yesterday worked well. Liquidity was abundant, globalization and free trade were in full effect, the world was at peace by historical standards, and the US role in the world was a well-known and well-understood stabilizing force.

Now, the tectonic plates that underpin and shape markets are shifting. Geopolitics and the role of the US in the world has changed. Trade policy has changed. The growth in US labor supply via immigration has changed. The tradeoff between cheap supply chains and secure supply chains has changed. The Fed’s response function to economic conditions has changed. Valuations have changed. And alongside all of these macro shifts, AI is starting to reshape nearly every aspect of modern life in ways that we can’t yet anticipate or even appreciate.

I don’t know what 2026 will look like for markets. No one does. But of all of the possibilities, the most surprising outcome for me would be for things to continue to look the same. Don’t bet the farm on tomorrow looking like yesterday.