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And if you're new to the side hustle game and you're anxious about getting started, don't worry, because you're not in this alone. Airbnb makes it super easy to host. I mean, if I could do it, you could do it. And your home might be worth a lot more than you think. Find out how much at airbnb. Com/host. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. It's an election year here in the United States, and that means we will all be scrutinizing the recent past and trying to predict the near future. My guest today has built his whole career around being quite a bit more of a fortune teller than the average person or even the average economics professor. Dr. Nouriel Rabini is perhaps the most famous economist out there. He's a Professor Emeritus of the Stern School of Business. He's the CEO of Rubini Macro Association, a macroeconomic consulting firm, and most famously known as Dr. Doum himself. In 2006, Dr. Rubini started banging the drum to warn upcoming financial crisis, which of course it did, and that's how he first got his nickname Dr.

Doum. He also predicted that China would be able to manage its financial troubles in 2016 and come out stronger, which of course it has. Today, we talk about his 2024 predictions, where Dr. Doum thinks the economy is now heading, and one you won't see coming: why strippers are a leading indicator of a recession. And I know Dr. Rubini can get wonky at times, but I promise stick with it because he spews so many financial gems.

Dr. Norela Rubini, and welcome to Money Rehab.

Great being with you today.

You recently said in an economic outlook piece, One must, therefore, approach any 2024 forecast with humility. Why with humility? Why is 2024 harder to read?

Well, every year is not easy to read. Jogibera, your Yankee quote said, It's very hard to make forecasts, especially about the future. And there's a joke that says that God created economies to make Whether men and astrologers look good when it comes to predicting. Say, most economies got it wrong. The rising inflation we had after COVID, most thought it was temporary, turned out not to be. Most economies predicted that the Fed rising rates is going to lead to a severe recession. That did not happen. Economics is not a precise science. I'll give you one example. At the beginning of the year, markets were expecting that the Federal Reserve would start cutting rates in March. And by six times this year, because inflation had dropped very sharply in '23, so they said, If it continues, then with lower inflation and slow down of growth, you're going to see Fed cutting six times starting in March. As of now, market expectations are that the Fed is not going to start cutting rates in June because the Fed had told us it's not going to be in March. The Fed had told us at the beginning of the year that this year there will be three rate cuts rather than six.

Now, markets and even the Fed are signaling, we're not going to start in June. Most likely we're not going to start in July. We're lucky if we start in September. We're lucky if we have another cut in November. Instead of three, at best two. There are some scenario in which inflation remains above three rather than falling towards two. If we're going to be not just high for longer, but higher, because some people tend to say, Hey, the next move by the Fed is not going to be a cut. By early next year, it could be hiking rates. Now, if you have that scenario happening because inflation is sticky and doesn't have to go much higher, it's to be above three, then the Fed has to raise rates. This year, the consensus was that probably we do achieve a soft landing. Soft landing means we achieve going towards 2% inflation without a recession. But if the Fed were to stay higher for longer and then high, create, say, next year, the probability that not this year, but by next year, we have a big-time recession at the beginning of whether a Biden or a Trump administration, that likelihood becomes larger.

If the US were to end up in a recession, there are other effects. Higher interest rates in the US means higher interest rates in the world. Higher interest rates in US means a stronger dollar that has negative impacts for the rest of the world. Higher dollar implies that the dollar price of many commodities falls, and if interest rates are going to fall.

You think they're going to cut twice this year?

At best. If everything goes right, they don't cut three times. They start in September and do another one in November. That will be a baseline. But that assumes that, say, tensions in the Middle East don't imply all prices going up, say, Brent from 80-ish to 100. If that happens, inflation is higher, growth is lower, and the Fed will not cut rates, and they may even consider raising them.

Well, speaking of growth in April, the latest GDP report came out, showed that the US economic growth slowed to 1.6%. Why do you think there was already a slowdown?

The first estimate of first-quarter growth was inflation was slightly higher than expected Compared to fourth quarter of last year where growth was 3.4, the initial estimate was 1.6, so less than a half. I think that what's happening is there's a lot of persistence of inflation. The last mile, it's easier to go from eight to three. Going from three to two is much harder because service inflation is more sticky and depends on wage growth because the labor intensive and wage growth has softened, but not that much. There are some sector of the economy where inflation remains quite high. One of them is shelter, housing, rent because demand is rising, but the supply is constrained. Car insurance is rising for a number of reasons. Health care, inflation has been rising rather than falling. Until recently, actually, growth last year was above potential. Before this Q1 number, even the international monetary fund expected that US growth this year would be strong, 2.7, even higher than last year. If growth is above potential, the tightness of the labor market, the tightness of goods market, the imbalance between strong demand and weaker supply implies that those inflationary pressure may continue.

The labor market is tight by any standard that might lead to more persistent wage inflation.

Of course, the dollar, bond yields, gold, they're all connected. They're all reacting to to each other. So what would your forecast be? The inflation and the dollar question, where bond yields are ultimately going to be this year?

My view is that, at least for this year, since the Fed is going to cut less than expected, both short term interest rates that are directly controlled by the Fed and longer rates because the path of short rates affect what 10-year treasury yields are. And given any treasury yield, then mortgage rates are something above that. So higher for longer means also mortgage rates are now 7%, and people maybe have to move from one part of the country to another, find a better job, and they cannot sell their homes because if they sell it and they want to buy a new one, when they sell it, maybe they were paying only 3% on their old mortgage. Having to buy and pay 7% is nobody wants to do that. Or if they don't buy in the rent, rent have been increasing for many reasons. What happens to interest rates has impact not just on the cost of money for the government, but mortgage rates, interest rates on car loans, interest rates on credit card, interest rates on any other consumer loans, let alone interest rates for the corporates and the businesses that borrow. Everything is higher, more costly, and that damages the economy.

But also it's higher for savers.

It's higher for savers. That's correct. You get a higher interest. Even if the interesting thing is that the short term interest rates that come from zero to 5.5, the Fed, You would have expected that, say, banks, at least on their saving deposits, instead of paying you zero, they would pay you something closer to 5%, instead, both for demand deposits and for How to say, savings deposits, interest rates have gone higher, but maybe towards two-ish, not towards five-ish. Those benefits have not accrued even to savers. And those were actually all the long-term bonds. The point is for existing long-term bonds, when the yield goes higher, the price is lower. Actually, higher yield make you lose money. They make you lose money, not gain money. It's only when then you buy a new bond, they are interested, you get five. But when it goes from one to, say, five or four and a half, you're losing 30, 40% on the price of that bond, something that people sometimes don't fully understand. They think that government bonds are safe. They're safe from credit default risk, but they're not safe from the market risk. Last year, when a bunch of banks, when BAS starting with Silicon Valley Bank, there The reason was what technically people call duration risk, is that if you hold lots of long-term government bonds and the yield goes higher, the market-to-market value of those bonds collapses, and then you could become bankrupt.

It happened to Silicon Valley Bank, and it happened to a whole bunch of other banks. So these impacts are actually things that you have to think about when you say higher interest rates are good for savers. They're not for those holding long-term bonds.Long-term.

Like 10-year duration.Yeah, exactly.

Those are massive losses. In 2022, when Fed increased rates, the S&P 500 went down by about 15 %. The rise in bond yields from one to three and a half implied that the price of the 10-year treasury fell by 20%. So the asset that traditionally is supposed to be safe and defensive, that is long-term bonds, lost more money in 2022 than S&P 500. Something that people never thought I thought about, and why I didn't think about? Because we're in a world for almost decades where 10-year treasury yields were close to zero. They're one and they're not going up. Actually, if anything, they were falling. As the yield was falling, the price was going higher. When the yield goes from one to three and a half, the price falls by 20%, something that any basic economist knows, but I don't think that any basic investor...

But like 26 week T-bills are fine.

Yeah, short term T-bills don't have the same... When interest rates go higher, they don't have the same price impact of long-duration bonds, and you get the higher yield. So when inflation is rising, the right thing to do is should move You can move away from 10-year treasury to three months, six months, one year at the bills. But if you hold a 10-year treasury bonds or a 30-year, you have to wait 10 years or you have to wait 30 years until that. And suppose that you're becoming old, you're retiring, you have to sell those things, then you would face the mark-to-market loss. It's only if you can buy and hold forever or for a long time, you don't. And one of the typical investment advice that most people follow is this rule. When you're younger, put 60% of your savings into equities that are more volatile. And put 40% of your savings into long-term bonds. They give you a lower return, but they're less volatile. But as you reach a retirement, you want to be less in stuff that is highly volatile and stuff that is more safe. But again, the point about long bonds is that they are safe in terms of credit risk if the government doesn't go bankrupt.

For now, let's not worry about that. But they're not safe if a rise in interest rates drops the value of this stuff. The other thing is important is that the idea of 60/40 is based on the negative correlation between the price of equities and the price of bonds. When the economy is growing or we're in risk on and people are optimistic, the equity prices go higher. You make money on your equities, but the yield on the bonds goes higher and the price falls and you lose money on the bonds. But you more than make money on the equities compared to the losses. Instead, suppose there is a recession or people are risk averse, there panic, then prices of equities go lower, but the yield for the bonds goes lower, so the price goes higher. You lose money on the equity leg of your investments, but you make money on the bond because there is this negative correlation. That negative correlation assumes that inflation is low and stable. Because when inflation is rising, like 2022, bond yields go higher, so you lose money 20% on the bonds, but the higher discount factor for the dividends of the stocks means that stocks go lower.

In 2022, you lost 15% of the ZMP, you lost 20% of your safe treasury because the correlation within the price became positive rather than negative. And the Nasdaq fell not by 15, by 30. Many of these tech and growth stock lost more like 40, 50. And of course, all the other bubbles, meme stocks, SPACs, Crypto fell more at 60, 70, 80 %. So that was a bloodbath.

Well, let's talk about your favorite asset class. Last time you were on the show, you did not mince words about your feelings on crypto. Talk about that correlation cluster. You know what? Bitcoin has, though, been on a run lately, up 82 % this year. You think it's going to fall? What's going to happen?

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I remain skeptical, first of all, on crypto as an asset class because they call cryptocurrencies currencies, but we know they're not currencies. Nobody's pricing anything in crypto, not even Bitcoin. It's not a scalable means of payment. You can do only seven transactions per second using Bitcoin. If a net value of 50,000. It's not the stable store of value because it can go up 10% one day and can go down 10, 20% a day. If you look at the volatility, say, of Bitcoin In 17, 18, it went from 5 to, say, 20. Then it fell from 20 to 3. Then you had this big rally until 21, reached 60. Then it fell to 16, and then went up now to much higher than the previous high, but then it's corrected every time there is something. The point about Bitcoin is that since you have FOMO, Like in many asset prices, the guys who are the suckers who buy at 60 are the retail guys. And once reach the peak, the big guys, the whales sell. So when the price falls by 60 to 15, then the suckers panic and then they sell at the bottom, and then it goes up, there's FOMO, they buy the top, and then again.

So it's the worst situation Because in investments-You buy low, sell high. Exactly. And instead, there's just the opposite. You buy high, you sell when it's low, and you lose money. So most people lose their shirts. And by the way, this is Bitcoin. There were 20,000 ICOs where these coins were issued, the initial coin offering. Eighty % of them were a scam, a little a scam in the first place. Another 17 % have lost their value have gone to zero. So 97 % have gone bust. So the only left are 600 out of 20,000. And of those 600, excluding the top 10, the others are down 80 % from the peak. And even the top 10, with the exception of Bitcoin and Ethereum, are way down from the peak. So you have to look at the universe, not just pick and choose.

Well, last time you called them shitcoins. You still believe that? Anything besides Bitcoin and Ethereum?

Yeah, because when 97% of an entire asset class is either a fraud or goes to zero, actually, it was It's offensive to call them shitcoins because actually, manure is actually productive because you can use it as a fertilizer in agriculture, while these shitcoins use a huge amount of energy. They damage the planet, so they're actually having negative productivity while manure can be used for something productive. So it's offensive to manure to call them shitcoins. You're With your respect. So they're much worse than shitcoins. They're toxic coins of some sort. They're toxic.

But not Bitcoin. Or would you say Bitcoin is excluded?

I'm skeptical of a Bitcoin. I've spoken two years ago, had gone from '69 to '15, and the narrative would have been different. And now it's gone up to '60s, but then it's a few days, even recently, it's fallen 10 to 20% from that peak. And the idea that Bitcoin over the long term is going to go... There's a prediction actually in the last few years was that by now, many people were in the industry. They're not speaking about '69. They spoke about 200,000, 300,000. Bunch of them said by '25 is going to be-How do you would?500,000, right? So if you compare to the hype was there, this is a rally that goes above, not close to the previous peak, is nothing. It's really nothing. By the way, we talk about huge amounts of these cryptoassets, but the value right now in the market of these crypto, call them assets, not currencies. In my view, they're not even assets. It's maybe a trillion, trillion plus, depending on the day and whatever not. In the world, there are about $100 trillion of financial assets, stocks, bonds, and so on. That doesn't even include the real estate that is one of the biggest assets that Hauzer are holding.

Suppose your Bitcoin was going three times in value, say 200,000 over the next few years. From one trillion, it's going to be three trillion. But in a situation in which actually the value of the other asset has gone up, probably by another 10, 20%. So it's Right now, it's one trillion, 1100. It's going to be three trillion out of 120. It's a spare change. Frankly, it's a spare change. It's a spec in the financial universe. Yeah, exactly. And as I said, Bitcoin, let alone any other of these crypto something.Toxic coins.Toxic coins. Is never going to be a currency because the whole idea was they become a currency. And I'll give you an example of why. It's a country in the world that decided actually to make Bitcoin a legal tender. This is El Salvador. If you hold Bitcoin and you go to a store in the US, you cannot buy any goods. It's not legal tender. If the vendor really wants to, we could accept bitcoins, but the number of points of sale where Bitcoin is accepted means of payment is just less than 1%, nothing. But in El Salvador, they say, no, if you go to a store and you want to buy something with Bitcoin, of course, the price of the good is not in Bitcoin, local currency, but then you can convert in the current price and use Bitcoin.

The vendor is obliged, legal tender, obliged I'm not going to accept the same way. If you go to a store, I can pay in dollar. I cannot pay in euro or in because they're not legal tender US, but the dollar is. They make a Bitcoin legal tender. It's been two or three years now, and the amount of transactions in the economy that are in Bitcoin is less than 1%. This is in a country where you forced it. We forced to use it as a legal tender, and people don't want to use it as a means of payment. It's not a currency. Certainly, it's not a currency. Now, people say, It's not a currency, but these crypto things are assets. Now, if you look at the definition of an asset, an asset gives you, usually income, A box to give you dividends, bonds give you a coupon, a bank account gives you an interest, real estate either gives you a rent, if you rent it, or if you're using it for your personal use, gives you a hundred servitudes.Appreciation. Appreciates and has housing services are useful. Sure. Commodities, we use food, we use oil, it's useful, and so on and so on.

Every asset has either income or as a stream of utility of some sort. Now, Take gold. Gold doesn't have income, fair enough, but has been a store of value for a long time. The price of gold has gone up, and whenever you're actually high inflation, it's a good hedge against that type of inflation and is used both in industry, gold, silver, in lots of goods and services, but it's also used as jewelry. Forever people have worn gold, and it has that It's a psychic value of jewelry. Jewelry is something that forever has been used and so on. Now, Bitcoin doesn't have income, doesn't have industry use. They do have these tacky Bitcoin pieces of jewelry.

Which is made of gold.

Made of the gold, first of all, and they look so ugly. And if they're not made of gold, they're worth nothing. Then it doesn't have other utility or use or whatever. For every asset, you can measure what is the fundamental value by giving the discounted value, say, of dividends or the discounted value of certain uses or of utility, whatever not. That gives you what the fundamental value of that asset is or long-term bonds are the discounted value of short rates and so on. It's a coupon that gives you the value. In the case of Bitcoin, let alone other crypto asset, there's no way to measure what the fundamental... Is the fundamental value 10,000, zero, 50,000, 100? It's impossible to say. Now people say the benefit of Bitcoin is its scarcity. It's scarce, and since the supply can grow only up to 21 million, if demand increases, then it's going to be worth a fortune. First of all, we don't know how much the man is going to arise. Then it's a self-referential. It says, because there is limited supply, the man has to go higher, and that's going to be worth more. There are lots of things in the world, sand or rocks on a beach, that that are in X amount of supply and they're worth nothing unless you use them for cement or whatever, but there's a cost of extracting them.

It's not as if people say it's the scarcity value, but Tons of things in the world are scarce and are not worth anything. First point. Two, Bitcoin is probably one of very few crypto something that is truly limited supply because the production of many of these toxic coins or shit coins, whatever you want to call it, is decided for most of these other things randomly by whoever is the issuer. People say the Fed can debate the dollar because they can print as much dollars as they want. If we print too much, we have inflation, the value falls. But there are constraints to how much the Fed can do that because if they print too much money, there is inflation. Inflation is bad for everybody. There is political backlash against it. The idea the Fed will have high inflation. It's totally far fetched. Say, inflation went higher, the Fed raised rates, and now from eight has gone down to three. This is the basement of fiat currency in civilized country because there are basket cases. Zimbabwe is of the world, but those are exception, is not happening. But in the space of this ICO, the basement was just 10 times more than anything the Fed has done in the last 20 years.

They kept on issuing new ones. They were just a piece of junk worth nothing. Each one of them, you could increase the supply as much as you wanted. If you're about the basement of the dollar that's controlled by a Fed that is a responsible and politically responsible actor because they have to achieve a If they don't, their mandate is going to be punished by political system and the public. There are forms of discipline on what the Fed can do. There's no form of discipline. I mean, these guys were scammers who printed this crop What they did with the money, they bought mansions, they bought boats, they bought their Maseratis or what was the Lamborghini, sorry. Lambo was what their favorite sports car. They went to Puerto Rico with no income taxes, and they totally evaded taxes. Actually, if you look at Miami, there is this famous strip club called Eleven. It's big, it's huge. At the peak When you think of this bubble in 2020, the revenues that came to this strip club from crypto guys were doing these big parties with spending hundreds of thousands of dollars on big bottles of champagne and so on.

They were something like $15 million just in one club, gone from $1 million two years before. Then, of course, when the bust of crypto occurred in that winter, the next year, the revenue were only $500,000. They were essentially spending money on anything, including essentially lap dancing and lavish parties in these trip clubs. That was what was happening. And guess what? Fraud to a scale like we have never seen before. Take FTX and SPF, that then is an out in jail. Take Binance, was just find 5 billion and CZ end up in jail. And this is just two examples. By the way, most of them have not yet ended up in jail. But the amount of people that are crooks, real crooks, criminals, scammers, and so on, huge. You were doing, by the way, the money to go and lobby people in Congress not to regulate it. They paid money in a form of correction for media stars and celebrities and sports. Stars and top actors, again, to go and say this crypto junk is worth. And that was also total criminal behavior. So people say whenever there is a new technology, say like the Internet bubble, there were lots of stuff that went bust.

But that's capitalism.

Is there a strip club index? Is there an economic index? I think there's some truth to this.

I don't know about the index, but Miami was the place where a lot of these people moved. It's huge. I don't know. Never been. But they said there are... It's not the typical strip clubs. They have hundreds lap dance or whatever. In the '70s, there were shady practices. The banks would invite their clients to gentleman's clubs and then deduct as a business expense. And then the ICC said, That's not acceptable. But in the crypto world, paying for lap dancers and escorts was considered standard business operation.

I think it's a leading indicator. I think if you talk to strippers, they'll know when bankers come and tip, things are going well.

I don't know if anybody has done a survey, so I have only one example, I think that example about 11 in Miami is just a proxy of... And as I said, whether you buy boats, whether you buy planes, whether you buy Lambo, whether you buy stuff, and you use the proceeds of something that you are supposed to take the money of investor to invest into something. And then 20, 30, 40% of it is really stealing the money and escaping. That's criminal activity. Guess what? A few of them finally were indicted, arrested, convicted, and luckily, a few of them are in jail, but not enough.

I think that this should be your next book, Toxic Coin.

Well, luckily-I also think that there's another value that they could have offered, which was a hedge, and they didn't offer that either. No. And by the way, people say crypto is negative, correlated with other assets like equities. So it does well when equity goes down and so on. That's not true. It's actually more than correlated when equity go higher, they go higher more when equity fall, so on. So it doesn't give you the desiccation benefits. And then they say crypto does well when inflation is higher because avoids the basement of fiat currency. Again, that's not true because when interests are going higher, because inflation was higher, crypto was collapsing Bitcoin from 60 to 15. And instead, when inflation started to fall, that again, Bitcoin went higher. So the hedge doesn't exist. It really doesn't exist.

But in theory, that would have been helpful.

If it was, but it's not a hedge. If it was. If it had that negative correlation with other assets, you could say it's a hedge against inflation, against risk of, but it's not.

Like we've seen it for historically gold and dollar.

You can say something, but it's not true.

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Okay, before we go, Nouriel. Love to do a quick lightning round with you. Bullish or bearish? I'm going to list out some things. You tell me if you're bullish or bearish. Ready? Yeah. Okay. One month treasuries.

I'm bullish in the sense that yields are going to remain higher, so you can get your 5% or so on those things.

Ten-year treasuries.

I'm bearish because I believe that inflation and other factors imply high rates that means rise a lower price.

S&p 500 index funds.

I would say over the short term horizon, I think that this year may go slightly higher, but it's gone so much higher. Price earnings gratios are Too high that if the economy weakens, if the Fed stays higher for longer, if Mondis are slightly higher, it could correct. I don't expect a bear market, a correction for the year of, say, 5% or so, I would not rule it out. So slightly bearish.

Nvidia.

Nvidia is long term is bullish because I think that the AI revolution is going to change the world. For now, NVIDIA as a near monopoly on the higher-end chips that are using AI. The price in the short run was a little bit maybe overpriced, even with all the coverage about the long-term stuff. Peeration may be excessive. Again, in 2022, when rates went higher, Nasdaq fell by 30, S&P only 15, because those are long-duration assets that are more sensitive because The stream of dividends is farther out in the future. When rates go higher, they fall more than traditional stocks. It could correct, but I would take a correction as maybe then an opportunity to buy from values that are currently too high and buy and hold over the long run. The only other caveat on NVIDIA that is important is that right now they have a monopoly on the high end. But I think, first of all, the Chinese Then the other big chip makers that are the TSMC in Taiwan or Samsung in Korea are going to catch up. If there's going to be more competition over the next 5, 10 years, and they're not going to be the only provider of these chips, then their margin will be lower and they're going to lose some market share.

So that's also something to keep in mind. People assume that they'll be the only monopoly provider of these chips, and probably that's not going to be the case in the long Tesla. Tesla, I'm similarly a little bit giving aside the short run where one day it goes up 15%, the next day it can of all, 15. I think the price-earning ratio is high. I think that while recently Elon Musk went to China and met with the Prime Minister and he said, You're welcome here, and you could even, over time, build the semi-autonomous vehicles. In the Chinese market, even today, the Chinese electric vehicles car are cheaper and they're actually better than even Tesla. So much, the Chinese are now exporting them all over the world, and even the Europeans are becoming nervous about too many Chinese EVs in Europe. In the US, we don't have that problem right now because they slapped a few years ago at 25% tariff on Chinese EVs, so we have not seen the same onslaught like in Europe. I think that Tesla is going to face massive competition within China, and it's going to lose market share. It's going to also face competition in other parts of the world where the Chinese EVs are going to be exported.

Maybe there'll be restriction also in Europe and US, but there are all the emerging markets, the global south and so on, where the competitions are going to be between cheap EVs that are highly quality of China and more expensive EVs EVs of Tesla that have actually not the same quality. Tesla is going to do fine, and there'll be European producers of EVs. There'll be also in the US, the big three are all investing. I don't see a medium term where Tesla is the major global player in EVs, and there's nobody else. There'll be definitely Chinese, definitely European, and definitely other Americans. It'll take time, not their head on some things, but they're expensive. In that scenario, the current price-earning ratios seem high for a firm that's going to do well, but they've gone up so much, even in spite of the recent correction, that I'll be cautious.

Gold.

I'm moderately bullish on gold. In the last year or so, actually, gold, as I predict, has gone significantly higher. It was around 18 1900, recently has been as high as 24. It's been a good rally because I believe one, in a world where gradually over time there'll be more inflation and gold tends to do well. Two, because of geopolitics, strategic arrivals of the US can have their foreign asset seised. We saw in Russia, it was not just their dollar assets of foreign reserves, but also the Euro, the the pound. The Chinese have over a trillion dollar of treasuries that if there was a significant escalation, could also be frozen. If you ask yourself, and it's not just the strategic arrivals of the US, China, Russia, or Korea, and Iran. But there are other countries, they worry about their dollar also being frozen because if US imposes, say, on China, some financial sanction, and Brazil doesn't follow those financial sanction, we also punish Brazil. There's a whole range of countries right now getting nervous about their holding of treasuries, and that's the risk of, unquote, de-dollarization over time. Again, it's not going to happen tomorrow, but there is a risk.

Which is the only asset is a liquid asset, is a reserve asset that central banks are already holding. The banks hold Euro, dollars, pound, ¥, whatever. They also hold gold. If you're in China and you ask If you sell, which is the only asset that cannot be seised by the US, if there was a war or escalation, treasure can be frozen. You want to switch to gold because gold bullion, and gold bullion not in the vaults of the New York Fed, because the New York Fed in New York holds in its basement tons of gold for lots of people. If you leave it there, they can seise it. Gold bullion in the basement of the Central Bank of China. Gold bullion, not gold financial, because you can buy gold with this ETF like GLD. If you buy gold financial, again, those assets can be frozen because they are financial assets by the US. The safe asset is just gold dig in the ground somewhere in China or Russia. The reason actually why gold has gone higher, part of it is concerns about inflation. But people who track this data see that central banks the world, not just the Stobeghi Rival, but other ones, are increasing their allocation to gold.

Gold is not in fixed supply, but the supply depends on mining. Gold is slightly polluting in terms of like many other minerals. So there are environmental constraints, this and that. So when the price of gold goes higher, supply goes higher, but it takes many years of investing in new mines, all demand can go higher, faster. So my point is you want to be overweight. If in your portfolio, gold will be 5, maybe you want to be 10%, so you should be slightly overweight. Okay, Nouriel. And geopolitical risk also implies that gold is safe when there's a financial crisis or panic and tensions.

Okay, Nouriel, we end our episodes, as you know, with a tip that listeners can take straight to the bank. It sounds like the only thing that people should do with their money right now or buy gold bars, in your opinion, and bury them.

No, I wouldn't say that.

What would be more No, I would say the following thing.

First of all, I'm optimistic that the tech stocks over the long term are going to do better. So you want to be less in the old economy stocks of firms that probably gradual over the time are going to be weaker. You want to be overweight in high technology. Now, you cannot buy today OpenAI is private, but Microsoft owns 49% of OpenAI and all the other big magnificent seven on some They've invested into Anthropic and inflection of the Google, the Meta, the Apple, and so on. The way you want to be exposed to AI is going to do well is just go for, if not the Mac7, Mac5, and you want to be there. Even if they are a bit, how to say, hyper right now, long term, I think those are going to be the winners. But the traditional safe asset, in case there is, again, a correction in equity It was 10-year treasuries. My point is, you don't want to be in 10-year treasuries because the yield goes higher, the price is going to fall, but you want a combination, one, of short-term treasuries where inflation goes high, you get the yield, not the price adjustment.

Inflation adjusted treasury that in US are called tips. Gold, some gold, and some types of real estate that are also protected from climate change. Real estate, usually when inflation goes higher, does better than equities because in fixed supply is a hedge against inflation, rents go higher. The only coverage is in large parts of the US, the South, the coastlines, there's going to be a huge amount of stranded assets. Because of sea rise level, droughts, heating, climate change, and so on. There are already many of the insurance companies today are not insuring anymore. Homes in part of South Florida, parts of California, and in Louisiana, there are lots of people leaving the Bayou because their homes are going to be underwater. You want to be into REITs. Reits are public equities that invest into real estate assets, not just housing, but also variety of commercial that are, how to say, environmentally proof. A number of people, including myself, are now working on taking data for all the REITs in the US US, and at the zip code level, figuring out which REITs in which part of the US are more at risk of climate and which are not.

You want REITs that represent real estate assets.

Where is that list? I want to see it.

I've been working on a project that's going to be launched as a ETF sometime in the summer. One of the assets in this portfolio, as I said, gold, show them treasury tips. The other one is we take data using now big databases and using also machine learning, that the Zip level of each US Zip level, you can measure how much that particular Zip code is subject to climate change, flooding, warming, hurricanes, droughts, and whatever not. So you can have a proxy for how much of a reed has excessive concentration in parts of the US that are going to be damaged by climate change.

Can you come back and talk about it when it comes out?

Yeah, when it comes out. Right now, it's not yet launched. And when you talk about it, of course, there are constraints of what you can say and not say. Right now, I give you the idea. When we launch it, I think that's something that definitely... As I said, there are $20 trillion of treasuries that in my scenario are going to be... If inflation is six and real rates are two, 10-year treasury will be at eight by the end of this decade. Right now, they are at four-ish. When they went from one to three, you lost 20%. If they go from four to eight, eventually, you could have another 40% losses on stuff that's supposed to be safe. That's why the 40 leg of your investment has to differ from the past. That's the investment of not just gold. Gold has one piece of it, but it's not the only one.

Thanks, Nouriel.

Great being with you today, Nicole.

Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoy. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your moneyquestions, moneyrehab@moneyrehab. Com. @moneynewsnetwork. Com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.