NCI: Warsh, Iran, Gold, and the Death of Everything You Thought Was Safe

NCI Warsh, Iran, Gold, and the Death of Everything You Thought Was Safe

Speaker1: [00:00:00] Welcome, welcome everyone. It's Angelo Robles and welcome to At Family Office and the Angelo Robles podcast Today, warsh Iran Gold ai, Bitcoin first company to a hundred trillion and everything, the death of everything that you thought was safe, the conversation, honestly, that Wall Street should be having, but they're not.

Our special guest today is Ram Alia, CIO of Lumida for the fifth time in the last two years. Rahm, it's a pleasure to say my friend. Welcome back,

Rahm. I cannot hear you. 

Speaker2: It's great to see you again, Angela. It's a real pleasure. I always enjoy these. You're a first rate critical and global thinker, always on the right trends and [00:01:00] asking the right questions, so thanks again for having me. 

Speaker1: You are very kind. And for my audience that's newer rom is not only one of my favorite guests, perhaps my most of my intellectual long form, two hour plus discussions, geopolitics, macroeconomics, investing, ai, Bitcoin.

We have a lot to cover and rom. Without further ado, let's get right to it. I'm gonna start with something. That seems to die down then rears up quick. I think broadly, investors and family offices underestimate the impact of what we loosely define as the yen carry trade. So in some ways, it's been a free money machine.

Now, for context, the yen carry trade lets investors borrow, let's say at 0% in Japan convert to dollars buy off in US assets yielding four to 5%. It's become a 20 plus trillion [00:02:00] dollar monster propping up everything I would argue from US treasuries to tech stocks. I don't know rom what could go wrong here.

Speaker2: So I'm actually not really concerned about the yen carry trader, the rising yen and yen borrow rates. Okay? The reason why is that it's so heavily discussed that markets and market participants adjust around these risks. What hurts Markets are left hail surprises that are not anticipated.

The Mack truck coming at you 20 miles an hour from two miles away doesn't hurt you. So I actually don't think there's much risk around this, around the un carry trade. So that's my first non-consensus view for you here. 

Speaker1: Oh, okay. You're getting right to it. I'm gonna give you a little pushback there.

Sure. Japan's 0% rates effectively, I think, aren't they subsidizing US asset prices for what? A decade of free money flowing into, let's say, [00:03:00] Silicon Valley Treasury auctions and real estate. Like where is this? Just because it may not be a black swan does not mean if it unwinds, it's not gonna get messy.

Or do you think it's simply is short term? If it does, 

Speaker2: The US dollars also run up quite a bit relative to the end, despite the fact that US dollars down relative to other currencies too. You know that effect is offsetting this and not. I think that the usage size and scope of the yang carry trade is overblown relative to pac.

Vanguard's not involved in this. The vast majority investors are not involved in it. Very specialized investors, including Warren Buffet, are involved in this. But like even in the case of Warren Buffet, he's doing permanent capital, non callable carry trades. Tho those won't have day to day impacts.

And the [00:04:00] nature of how you set up that financing, it's not gonna create much risk 'cause it's non call. We can't get a margin call. So it's fun to talk about, but I do think it's a nothing burger. 

Speaker1: Ramm, if Japan holds more US debt than any other nation, of course, outside of our own country, meaning with treasuries, and they run the Incar trade because they trust the US will stabilize the currency.

And might they have a little too much trust. Now we could get into the politics of it. Recent elections in Japan, very aligned broadly with Trump. I guess Japan is a tremendous friend of the us but they have a lot of treasuries. I guess you're more comfortable swimming in these dangerous waters.

It makes me a little nervous. 

Speaker2: Yeah. Let me share with you this is a chart of the USD versus JPI, and again, you can see that the US dollars actually rallied relative to the Japanese yen, since may of last year. If you're borrowing in one currency [00:05:00] and paying another, there are a lot of ways to manage that risk too.

I just don't, I just don't see much risk around this. I just don't see, what you highlighted there is more like sovereign risk. If sovereign does something, I, and you just pointed out, there's a lot of alignment there, so it's hard to even see the sovereign policy change.

I don't see much risk. I do see a lot of opportunity in Japan as well as international markets. We have several points of exposure, at least in Japan. We have high single dig digit exposure in Japan. So we like that market. We like that in a lot of international markets too. But I don't, I think this is much to do about nothing.

Remember Kyle Bass in Texas? Of course you've been talking about the unwind of this for what, 10, 12, 15 years waiting for something to go bump in the night and paying premiums to get some convex exposure if something blows up. And then I, here we are, 10, 12, 15 years later,

Speaker1: A broken clock is right twice a day, I guess they say.

Speaker2: Yeah, in August of last year we had this many y carry trade unwind, but markets learn from that [00:06:00] too. So risk committees get together, PM sit down the risk committees, and they say, okay, here's our framework. And they monitor every day. And it's such a slow moving phenomena that it doesn't create risk.

It doesn't create real risk. Here, 

Speaker1: Rob, we're gonna come back to US. Debt, the deficit, the. Dollar versus the world. But there's a subject that I haven't covered that I think you have really deep thoughts on that I think my audience, investors and family offices would benefit from. I'm loosely gonna define our next section, probably three or four questions around what I call the sword.

And the sword is Iran. So precision weaponry, huh? What do I mean by that? Instead of bombs or boots on the ground, the Treasury collapsed Iran's economy with keystrokes. Isn't this the evolution of statecraft achieving strategic objection [00:07:00] without yet true kinetic warfare or American casualties? 

Speaker2: It's sanctions as instrument of foreign policy.

And the US has been doing this quite a bit for decades. Really the USA Patriot Act I argue it stepped up, right? The USA Patriot Act played an important role in prime open Swiss banks and end ending the privacy safeguards that customers of Swiss banks have. And then you add to that the K-Y-C-A-M-L regime.

But the Ukraine War, the Russian invasion of Ukraine also elevated the visibility of sanctions. And you had the Brix countries attempt to formulate some. Common currency response to this, which was nonsense, wasn't go anywhere. 'cause they're not natural trading partners. And and yeah, now you see some of this in, in, in Iran, but I think in Iran there are other issues too that are coming to the surface.

You've got a very young population in [00:08:00] Iran relative to most countries and young people looking for opportunity. You know what started those protests were when the was, when the Iranian government had steamy checks go out in a, in an area that had very high inflation in an era of high inflation, steamy checks go out and the steamy checks were nothing.

And that started promo provoking protests and riots. So I think that's like the proximate cause for the issues you have here. This deep seated resentment by the young against unelected leaders and they want change. 

Speaker1: If I could build upon a little bit of each of our comments relative to that.

So I believe it's pronounced real hyperinflation creates immediate pressure for regime change or negotiation in some ways. Isn't that more human mean than decades? Long sanctions that often in the end achieve very little or nothing. 

Speaker2: Yeah, it's self-inflicted. No, you're right. Look, [00:09:00] inflation leads to regime change.

We've seen that with Weimar hyperinflation. We saw that in the most recent election, Trump won in no small part due to elevated inflation. He ran on a kitchen table, groceries, bread and butter kind of meat and potatoes campaign. The bills are too high, the gas bills are too high. Inflation's too high.

Yeah, it is interesting to just see how, just how powerful inflation is and that, that I do believe is a primary driver in, in of what's destabilizing around. Now, 

Speaker1: a little bit back to my first question relative to that, by controlling dollar clearing, the US has structural leverage that probably is impossible to replicate.

Now, this goes down to being the world Reserve currency. The US I guess, unless you're a nuclear power country, will do everything in our power, including militarily to [00:10:00] protect that. Yet it still has gone down and down a little bit over the recent decade or so, how important is this coupled with a social unrest and change and arising younger generation that you describe, and this becomes a powerful one-two punch.

How do you think this could end? 

Speaker2: I don't think much is gonna change, right? There's no good alternative to the US dollar, oil still settled in US dollars. Our primary trading partners, Canada and Mexico, notwithstanding the recent trade wars and issues dollar still relevant there.

You saw that there was an exemption on tariffs as it relates to Taiwan Semiconductor, you're gonna see the same thing with Canada. Mexico would not be surprised to see a resurrection of the free trade agreements. We had, they won't call it free trade, but it'll be very similar. They'll be I don't think there's any alternative.

There's no alternative, it's not the euro. Yeah, I think the dollar's position is [00:11:00] pretty secure. Now they haven't, the current administration hasn't made it easy for holders and use of the dollar, and they're they're international players and even US players are dur line away from US dollar denominate assets.

That's true. But it's still the primary settlement currency of the world, and nothing's on the horizon that might change that 

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