Famed Economist Nouriel Roubini on the Economic Future of Interest Rates, Bond Yields, Nvidia, Crypto and More

Nicole Lapin
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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. Doctor Nouriel Robini 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 Doctor Doom himself.

In 2006, Doctor Roubini started banging the drum to warn of coming financial crisis, which of course, it did. And that's how he first got his nickname, Doctor Doom. 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 doctor Doom 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 Doctor Roubini can get wonky at times, but I promise, stick with it because he spews so many financial gems.

Nouriel Roubini
Doctor Nouriel Roubini, 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?

Unknown
Well, every year is not easy to read. You know, Jogi Berra, your Yankee coach, 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 so, and say most economists. Economists got it wrong. The rise in inflation we had after COVID, most thought was temporary, turned out not to be.

Most economists predicted that the Fed raising rates is going to lead to a severe recession. That did not happen. So 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 slowdown 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 not going March, and 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. So instead of three at best two, there are some scenario in which inflation remains above three rather than falling towards two. And if we're going to be not just high for longer, but higher because some people start 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 than the Fed is to raise rates.

And this year the consensus was that probably we do achieve a soft landing and soft landing means we achieve going towards 2% inflation without a recession. But if the Fed were to stay higher for longer and then hike rate, 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. And 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 the 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. If interest rates are going to fall. So you think they're going to cut twice this year? At best. 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 oil prices going up, say Brent, from eight 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.

Nouriel Roubini
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? So the first estimate of first quarter growth was inflation was slightly higher than expected. And compared to fourth quarter of last year where growth was 3.4, the initial estimate was 1.6. So less than half.

Unknown
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. It's much harder because service inflation is more sticky and depends on wage growth. Because 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 rents because demand is rising, but the supply is constrained. Car insurance is rising for a number of reasons. Healthcare inflation has been rising rather than falling. And until recently, actually growth last year was above potential before this. Q.

One number even the International Monetary Fund expected that us growth this year will be strong, 2.7, even higher than last year. And 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. And of course, like the dollar bond yields, gold, they're all connected, they're all reacting 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 ten 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. And having to buy and pay 7% is nobody wants to do that.

Or if they don't buy and they rent. Rent have been increasing for many reasons. So 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 higher interest rates, even if the interesting thing is that the short term interest rates have gone from zero to 5.5 the Fed. So 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%. And instead, both for demand deposits and for how to say, savings deposits, interest rates have gone higher, maybe towards two ish, not towards five ish. So those benefits have not accrued even to savers and those who actually hold long term bonds. The point is, for existing long term bonds, when the yield goes higher, the price is lower.

So 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, the higher interest rate, 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 say, from credit default risk, but they're not safe from the market risk. And last year, when a bunch of banks, when bas starting with Silicon Valley bank, the reason was what technically people call duration risk, is that if you hold lots of long term government bonds and the yields goes higher, the market to market value of those bonds collapses, and then you could become bankrupt. It happened to Silicon Valley bank and 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, long term bonds.

Nouriel Roubini
Tenure. Yeah, exactly. Those are massive losses. In 2022, when Fed increased rates, the S and P 500 went down by about 15%. The rise in bond yields from one to 3.5 implied that the price of the ten year treasury fell by 20%.

Unknown
So the asset that traditionally is supposed to be safe and defensive, that these long term bonds lost more money in 2022 than s and P 500. Something that people never thought about. And why didn't think about. Because we're in a world for almost decades where tenured treasury yields were close to zero. They're one and they're not going up.

And actually some, if anything, they were falling. And as the yield was falling, the price was going higher. When the yield goes from one to 3.5, 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 away from ten year treasury to three months, six months, one year t bills. Well, but if you hold a ten year treasury bonds or a 30 year, you have to wait ten years, or you wait to have 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.

So 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 ponds, that they give you lower return, but they're less volatile. But as you reach 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.

And 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. And 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. So when the economy is growing or we're in risk on, and people are optimistic, the equity prices go higher.

So 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. And instead, suppose there is a recession or people are risk averse, there is panic. Then prices of equities go lower, but the yield goes for the bonds goes lower, so the price goes higher. So 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 they higher discount factor for the dividends of the stocks means that stocks go lower.

So in 2022, you lost 15% of ZNP, you lost 20% of your safe treasury, because the correlation between the prices 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, mimi, stocks, spacs, crypto fell more 60, 70, 80%. So that was a blood bat.

Nouriel Roubini
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.

Think it's going to fall? What's going to happen?

Nicole Lapin
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Unknown
You know, 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 seconds.

Using bitcoin, visa network allows you to 50,000. It's not a stable store of value because it can go up 10% one day and can go down 1030 percent a day. You know, if you look at the volatility, say, of bitcoin, 1718 went from five to, say, 20, then it fell from 20 to three. 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. And 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 it's just the opposite. You buy high in, 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. Initial coin offering 80% of them were a scam, little as 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 ten, the others are down 80% from the peak.

And even the top ten, with the exception of bitcoin, 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, you know, when 97% of an entire asset class is either a fraud or goes to zero. Actually, it was offensive to call them shit coins, because actually manure is actually productive, because you can use it as a fertilizer in agriculture.

While these shit coins 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. With your respect, they're much worse than shit coins. They're toxic coins of some sort.

Nouriel Roubini
That toxic, but not bitcoin. Or would you say bitcoin is excluded? I'm skeptical of 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 sixties.

Unknown
But then a few days, even recently, it's fallen ten to 20% from that peak. And the idea that bitcoin over the long term is going to go. The prediction actually in the last few years was that by now many people were in the industry. They were not speaking about 69, they spoke about 200,000, 300,000. A bunch of them said by 25 is going to be 500,000.

Right. So if you compare to the hype was there, this is a rally that goes above no, close to the previous peak is nothing. It's really nothing. And by the way, you know, we talk about huge amounts of these crypto assets, but, you know, the value right now in the market of these crypto, call them assets, they're not currencies in my view. They're not even assets, is maybe 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 houses are holding. So suppose bitcoin was going three times in value, say 200,000 over the next few years. Okay, from 1 trillion is going to be 3 trillion.

But in a situation in which actually the value of the other asset has gone up probably by another 1020 percent. So right now it's 1 trillion. It's going to be 3 trillion out of 120. Spare change. It's frankly, spare change.

Nouriel Roubini
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, toxicoins 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 there's a country in the world that decided actually to make bitcoin a legal tender. This is El Salvador.

Unknown
So if you hold bitcoin and you go to a store in the US, you cannot buy any goods. It's not legal tender. I mean, if the vendor really wants to, who 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 at the current price and use bitcoin. The vendor is obliged, legal tender, obliged to accept the same way. If I go to a store, I can pay in dollar, I cannot pay in euro or yen because they're not legal tender us, but the dollar is. So 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. So, you know, we forced to use it as a legal tender, and people don't want to use it as a means of payment. So it's not a currency. Certainly it's not the 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. Stocks 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 housing services, appreciation appreciates.

And as housing services are useful commodities, you know, we use food, we use oil is useful, and so on and so on. So 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 it's been a store of value for a long time.

The price of gold has gone up. And whenever you actually high inflation is 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 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 gold first of all, and they look so ugly. And if they're not made of gold, they're worth nothing and then doesn't have other utility or use or whatever.

So 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 so 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. And it's a coupon that gives you the value. In the case of bitcoin, let's run out of crypto asset, there's no way to measure what's the fundamental. Is the fundamental value 10,0000, 50,100?

It's impossible to say. Now, people say the benefit of bitcoin is its scarcity is scarce. And since the supply can grow only up to, I don't know, 21 million, if demand increases, then it's going to be worth a fortune. First of all, we don't know how much demand is going to rise. And then it's a self referential, it says because there is limited supply, demand 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 are in x amount of supply and are worth nothing unless you use them for cement or whatever, but there is a cost of extracting them. So it's not as if people say is the scarcity value, but tons of things in the world are scarce and are not worth anything. 1st .2 bitcoin is probably one of very few crypto something that is truly limited supply, because the, 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. So people say the Fed can debase the dollar because they can print as much dollars as they want. And 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 and there is political backlash against it. So the idea the Fed will have high inflation is totally far fetched. And say inflation went higher, the Fed raised rates and now from eight has gone down to three.

So this debasement of fiat currency in civilized country, because there are basket cases the zimbabwe of the world, but those are exception is not happening. But in the space of this ico, the debasement was just ten times more than anything the Fed has done in the last 20 years. I mean, they kept on issuing new ones. They were just a piece of junk worth nothing. And each one of them, you could increase the supply as much as you wanted.

So if you were about the basement of the dollar that's controlled by fed, that is a responsible and politically responsible actor, because they have to achieve a target. And if they don't, their mandate is going to be punished by political system and the public. So there are forms of discipline on what the Fed can do. There is no form of discipline. I mean, these guys were scammers who printed this crap.

And what they did with money. They bought mansions, they bought boats, they bought their, you know, Maseratis or what was the Lamborghini, sorry, Lambo was their favorite sports car. They went to Puerto Rico with the no income taxes and they totally evaded taxes. And actually, if you look at Miami, there is this famous strip club called eleven. It's big.

It's huge. And at the peak of this bubble in 2020, the revenues that came to this strip club from crypto, guys who are 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 1,000,002 years before. And then, of course, when the bust of crypto occurred in that winter the next year, the revenue were only 500,000. So they were essentially spending money on anything, including essentially lap dancing and lavish parties in these strip clubs that was happening. And guess what?

Fraud to a scale like we have never seen before. Take FTX and SPF that. Then as an out in jail, take Binance was just fined 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, criminal scammers and so on, huge.

And you were doing, by the way, the money to go and lobby people in Congress not to regulate it. And they paid money, again, 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, you know, 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, you. Know, is there a club index?

Nouriel Roubini
Like, 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.

Unknown
But they said there are, you know, it's not your typical strip clubs. They have hundreds, lap dance or whatever. You know, in the seventies there were shady practices. You know, the banks would invite their clients to gentlemen's clubs and then deducted as a business expense. And then the SEC said that's not acceptable.

But in the crypto world, you know, 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. But I think that example about eleven in Miami is just a proxy of, and as I said, whether you buy boats, whether you buy planes, whether you buy lambos, whether you buy, you know, stuff and you use the proceeds of something that you are supposed to take the money of investor to invest into something, and then 2030, 40% of it is kind of 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.

Nouriel Roubini
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 negatively correlated with other assets like equities, so does well when equity goes down and so on. That's not true.

Unknown
It's actually more than correlated. When equity go higher, they go higher more when equity falls, so on. So it doesn't give you the description 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 interest rates are going higher and 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 it did not. 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. So if it had that negative correlation with other assets, you could say it's hedge against inflation, against risk of. But it's not like we've seen it for historically, gold and color. You can say something, but it's not true.

Nicole Lapin
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It's my favorite price. And now for some more money rehab.

Nouriel Roubini
Okay, before we go, Nouriel, I'd love to do a quick lightning round with you. Bullish or bearish? I'm gonna list out some things. You tell me if you're bullish or bearish. Ready?

Unknown
Yeah. Okay. One month treasuries. You know, I'm bullish in the sense that yields are going to remain higher so you can get your five percentage or so on those things. Ten year treasuries.

I'm bearish because I believe that inflation, other factors imply higher rates than implies a lower price. S and 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 earning ratios are to hide that if the economy weakens, if Fed stays higher for longer, if bond is slightly higher, it could correct. I don't expect a bear market a correction for a severe 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 hand, chips are using AI. The price in the short run was a little bit, maybe overpriced.

Even with all the covets about the long term stuff. Peer ratio may be excessive. And again, in 2022, when rates went higher, Nasdaq fell by thirty s and P only 15 because those are long duration assets that are more sensitive because the stream of dividends is farther out in the future. So when rates go higher, they fall more than traditional stocks. So 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 over the long run. The only other caveat on Navidia 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 chipmakers that are the TSMC in Taiwan or Samsung in Korea, are going to catch up. And if there's going to be more competition over the next 510 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 run. Tesla. Tesla.

I'm similarly a little bit giving aside the short run, where one day goes up 15%, the next day can fall 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 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 ev's in Europe. In the US, we don't have that problem right now because they slapped a few years ago a 25% tariff on chinese EV's. So we've 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 EV's are going to be exported.

Maybe there'll be restrictions also in Europe and US, but there are all the emerging markets, the global south and so on, where the competition is going to be between cheap EV's that are highly quality of China and more expensive EV's of Tesla that have actually not the same quality. So Tesla is going to do fine. And they'll be european producers of EV's, they'll be also in the US. The big three are all investing. So I don't see a medium term where Tesla is the major global player in visa.

There's nobody else. There'll be definitely chinese, definitely Europeans and definitely other Americans. It'll take time. Now, they're ahead on some things. They're expensive.

So in that scenario, the current price earning ratios seem high for a firm is going to do well. But they've gone up so much, even in spite of the recent correction, that I'll be cautious. Gold, you know, I'm moderately bullish on gold. And in the last year or so, actually gold, as I predicted, it's gone significantly higher, 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 rivals of the US can have their foreign asset seized. We saw in Russia it was not just their dollar assets, foreign reserves, but also the euro, the yen, the pound, and the Chinese have over trillion dollar of treasuries that if there was a significant escalation, could also be seized or frozen. So if you ask yourself, and it's not just the strategic rivals of the US, China, Russia, North 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 sanctions, we can also punish Brazil.

So there's a whole range of countries right now getting nervous about the 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. Banks hold euro, dollars, pound, yen, whatever.

They also hold gold. So if you're in China and you ask yourself which is the only asset that cannot be seized by the US, if there was a war or escalation, treasury can be frozen. So 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 seize it. Gold bullion in the basement of the central bank of China and 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're financial assets by the US. So the safe asset is just gold digged in the ground somewhere in China or Russia. And the reason, actually, why gold has gone higher. Part of these concerns about inflation. But people who attract this data see that central banks in the world, not just the strategy rival, but other ones, are increasing their allocation onto 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 and this and that. So when the price of gold goes higher, supply goes higher, but it takes many years of investing in new mines, while demand can go higher faster. So my point is, you want to be overweight.

If in your portfolio gold will be five, maybe want to be 10%, so you should be slightly overweight. Okay, Nuria. Geopolitical risk also imply that gold is safe when there's a financial crisis or panic and tensions. Okay, Nuria. We end our episodes, as you know, with a tip that listeners can take straight to the bank.

Nouriel Roubini
It sounds like the only thing that people should do with their money right now are buy gold bars, in your opinion, and bury them. No, 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.

Unknown
So you want to be less. In the old economy, stocks of firms that probably gradual over 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 entropic and inflection, the Google, the meta, the apple and so on.

So the way you want to be exposed to AI is going to do well. It's just go for, if not the Mach seven, Mach five, and you want to be there. And even if they are a bit, how to say hype 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, was ten year treasuries. My point is, you don't want to be in ten year treasury because the yield goes higher, the price is going to fall, but you want a combination, one of short term treasuries where inflation goes out.

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 fixed supply is a hedge against inflation, rents go higher. The only covet 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. And 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. So you want to be into reits? Reits are public equities that invest into real estate assets, not just housing, but also a 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 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. So you want reits that represent real estate assets. Where is that list? I want to see it. Well, I've been working on a project that's going to be launched as ETF sometime in the summer.

And one of the assets in this portfolio, as I said, gold, short term 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 reit has excessive concentration in parts of the US that are going to be damaged by climate change.

Nouriel Roubini
And talk about it when it comes out. Yeah, when it comes out right now is 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 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 210 year, treasury will be at eight by the end of this decade.

Unknown
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.

Not just gold. Gold has one piece of it, but it's not the only one. Thanks, Noriel. Great being with you today, Nicole. Money rehab is a production of Money News Network.

Nicole Lapin
I'm your host, Nicole Laffen. Money rehab's executive producer is morgan lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do.

So email us your money questions. Money rehaboneyoneynewsnetwork.com to potentially have your questions answered on the show or even have a one on one intervention with me. And follow us on instagramoneynews and TikTokoneynewsnetwork 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.

Famed Economist Nouriel Roubini on the Economic Future of Interest Rates, Bond Yields, Nvidia, Crypto and More

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1: Introduction

2: Economic Forecasts and Fed Policies

3: The Impact of Interest Rates

4: Cryptocurrency Analysis

5: Final Thoughts and Advice

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