Frank Holmes #01 - The Red Dinosaur

e of its unique DNA of adaptability, even though all of the G20's finance ministers and their central bankers are functioning like a currency-defacing cartel. He was one of the first fund managers to make use of digitisation, scientific processes and a systematic approach towards investment decisions rather than the historical norm of reputation and bluster. Investors could learn a thing or two from this.

Homes thinks a vaccine for COVID-19 would be a game-changer for market sentiment, but he doesn't think it would change the current bull run gold is on. If Biden wins, taxes will be raised and "radical left politicians" will put Biden under immense pressure. All in all, it will be bad for the stock market. We will have to "see what happens." A lot of people won't admit they are voting for Trump, hence the polling numbers VS Clinton last time out. Since the gold peak in 1980, the definitions of inflation and Consumer Price Index (CPI) have changed 3 times says Holmes. If one was to use the CPI number in 1980 today, gold should be US$7,000/oz. Inflation has gone up, rendering the old indicator meaningless. The algorithm for the old CPI number is no longer relevant.

Driven by maths and quantum, Holmes looks at the centre deviation moves over a rolling 12-month period, going back over a decade, and he looks at 60-days going back 5-years. We are up "two standard deviations over 60-days," and we are up "one deviation over a rolling 12-months." Mathematically, this means there is an 80% probability that we will have a 10% correction over the next 60-days. It is likely to trackback to c. US$1,800/oz, but Holmes thinks the long trend will continue.

We Discuss:

1. 3:21 - Red Dinosaur: A Backstory
2. 4:12 - The Route to Investing: Frank's Background
3. 11:50 - The Beginning of U.S. Global Investors: Goals and Progress
4. 20:04 - Understanding History: The Tools for Better Investing
5. 27:44 - The Geopolitical Situation: What Could've Been Different?
6. 36:17 - Sentiment and Millennials: Will Gold Remain a Safe Haven?
7. 48:00 - Price of Gold: Are Lessons from 1980 & 2011 Still Relevant?
8. 52:08 - A Realistic Approach: Headlines Screaming "$10.000 Gold!"
9. 55:13 - U.S. Election: Trump's Legacy and Potential Future
10. 1:00:53 - Focus on Banning TikTok: Conversations Behind the Scenes

Matthew Gordon: How did you get to where you are today. How did you get into this crazy world of investing?

Frank Holmes: I think, when you're a child and you're the oldest there's different pressures on you, and quite often the oldest and the youngest are the big entrepreneurs. I think that spirit of being an entrepreneur, I was the oldest of seven, a big family. And I also think that my mother was a nurse and then becoming a social worker and politician for the education system of downtown Toronto. My guardian father, my mentor was a true scholar: spoke many languages, played the organ, harpsichord so I was steeped in history and social and cultural changes and why history is an important predictor. Just the characters change, and behaviour of human beings is quite similar. Whereas my mother was all about sciences, and science is so important for the safety of people. I was going to be a doctor and I realised quickly that socialised medicine in Canada was going to cut my income and I'd have debts until I was 50. I made a switch and went into economics and finance, and I found it very easy after all that pre-med studies I'd take it

Matthew Gordon: What sort of pressure did you feel at the time and did that affect the way that you looked at life?

Frank Holmes: I think that you learn how to deal with the challenges of being a leader of the oldest and all the issues of growing up in a family in the inner city. You are highly educated, but you're in an area that's not as educated. You have different motivations, recognising that at a young age. I always wanted to be financially independent. Something I just was always, since I realised whatever light bulb went off when I was a child. And so, I pursued that entrepreneurial spirit. I had a newspaper then in the area of downtown Toronto for 17 clients. I grew it to 270 and I learned about collection. I learned about people that are good people, but they don't have the money to pay you this week and how you have to basically fund the accounts payables and receivables. And so, you're 12 years old and just learning about those things. I think all those lessons just help mature you, but you have to be curious, you have to be ambitious, but you have to have good ethics and values if you're going to be ambitious.

Matthew Gordon: Was that need and entrepreneurial drive because you didn't have much money growing up as a kid or was it you had to prove something else?

Frank Holmes: I think it wasn’t something to prove, I just realised, seeing how people that lived in the best areas of Toronto, the best universities, I was always going to the universities as a child. And so, I was ambitious to go to school. I was ambitious to go to university and I liked being around these very smart, capable people. I think that was an important part. I also was asthmatic as a little boy and I slept in that chair until I was eight. And you don't realise it, but that adversity was great because to this day I still run, and I'm running probably about a marathon a week. I'm 65. I know that if my lungs stay strong, the wheezing doesn't come back. And it allowed me to all of a sudden realise there was competition and I started competing in sports and letters in high school in many, many different sports. You just don't realise an adversity, if you have good family support, love, that you can find ways to overcome it compensate for it.

Matthew Gordon: Talk to me about then university years, obviously you started, did you complete studying to be a doctor or did you stop halfway through?

Frank Holmes: No, I switched halfway through, went into it and I switched universities from McMaster to Toronto, Hamilton and went to Western University to Huron college, which is a second oldest Anglican college in Canada. And it was basically where the Genesis board university of Western Ontario is today, started at Huron college. I had a great tradition. It was that Anglican church process of learning and thinking.  I enjoyed that and I jumped into economics and psychology, behavioural psychology, and I found it all very enriching. I could always apply chemistry. I could apply my studies of biology and recognise that the biological models relate to innovation. Biological models of survivorship relate to entrepreneurs, and then groups and how people behave in group settings was behavioural psychology. In recognizing that I really enjoyed Western University. To this day, I've given back a lot to the school. I have a large scholarship for kids for inner city kids predominantly that need capital. They have to play a Varsity sport and maintain a B average. It's not just the super A student academically, it's the rounded individual that has those good sorts of the values. And I get beautiful letters back for each year as a boy and a girl that gets this money and they can stay; they still play varsity. They still maintain that B average and I help fund their education. That gives me my sort of legacy of giving back to my college and also where I grew up in downtown, what's called Cabbage Town, scholarships there for the kids that are good readers, excellent readers and excel in math, they get money for books for going to high school.

Matthew Gordon: US Global Investors, when did that start? How long have you been running that and what was the lead up to getting there? Why did you go on your own?

Frank Holmes: I was so fortunate. I got hired by many larger firms and I went with a small group of entrepreneurs who are highly successful. Toronto is the mining capital of the world and my original job was a research analyst. And I looked back, I had a quantum approach of looking at different things, stocks. At the same time, mining was a big part of the culture of Toronto. To this day, Toronto is still 60% of all mining finance in the world. Like Singapore is with shipping. You get these clusters of intellectual capital and money that come together. And we say that software is Seattle and San Francisco. Biotechnology is Boston and San Diego. So, it's recognising that London was the sort of epicentre for all financial intellectual capital insurance or reinsurance of the world, and in particular Europe.

That sort of takes you on that sort of unique job, a journey of going with this group. And I ended up building out learning research, building a trading desk for the Gold funds in America, and each step was able to involve in my first financing. I didn't really know how great it would become, but I knew there were smart people. And that was my first public company that I worked on, taking public as a young investment banker which has become one of those superstar investments all the way to the year 2000, merger with Newmont 8 years later, spun out. Once again, it becomes the largest Royalty company in the world.

Matthew Gordon: When was US Global get formed? What was it that you set out to do day 1?

Frank Holmes: In that journey, I moved to, they were a client and they stubbed their toes and became an opportunity. Canadian taxes went through the roof. They just brought in a GST, which was pushing 15% on top of your income tax, which was over 50%. All of a sudden you realise; you're working so hard and all the money is vaporizing. I said, I'm going to run my own show. I left. I was a senior partner at MERIT, and we were doing phenomenally well. I moved to Texas. I bought control of US Global Investors and moved here in 1990. I've been here 30.5-years, living in Texas. I like to say that I'm a ‘Texcan’ - y'all come back!

Matthew Gordon: What did you set out to be? You wanted to run your own show, but I guess why?

Frank Holmes: You had partners and you wanted to see what would happen if you put up your capital, be a CEO, wanting to get out of high taxes. I love the heat and I love warm weather. I love the culture of Texas. Texas is a country within a country. When you first meet, when you're traveling abroad an American from Texas, they don't say they're American first, they say they are Texans. It's really a great pride in the state of Texas. They also lead in the number of sharp shooters and in special forces. They have a CIA training program, the university of Texas, AUM, it's a very unique loyalty to the flag and the country at a very high level, but at the same time, they're most proud of being Texan. I've found this journey very rewarding and it's very entrepreneurial. You're seeing more people leave California to come to Texas for business and just for their own retirement, because of this sort of entrepreneurial setting.

Matthew Gordon: Why is that important to you?

Frank Holmes:  When you look at the great nation of America, as you go back and we were talking earlier about the history and when the British empire ruled the world and had the most powerful media in the world, it was significant to have a strong military and people were very loyal to the government, the King, the Queen, it didn't really matter, but they were loyal and they wrapped themselves in the British flag. When you go to countries in Europe, the only time you see that so often is when it's a sporting event, but Americans do it all the time. They are very proud of their country. And you find that in the universities; that competition between universities, getting 80,000 kids over for a football game. Their scholarships - talk about entrepreneurial. If your son or daughter are not the gifted athletes, but they're good in gymnastics, so they can become cheerleaders, and that's a full scholarship. Or they're in the band because they play an instrument because the marching bands compete, the cheerleaders compete, the football, the basketball, whatever, so there's this whole ecosystem of competition innovation to compete that shows up everywhere in the culture. It's very strong in Texas, that's what I find.

Matthew Gordon: What were you going to do different with US Global that wasn't being done elsewhere?

Frank Holmes: The first part was basically let it run itself and map out a strategy of changing the funds. 1999 came along and everyone wanted to be a tech person, not a resource in Gold. And my CEO had left. I became the chief investment officer and started bringing in the disciplines that I learned from my world science and investments and understanding how chemistry plays a role, how biology plays a role. We started to win many awards. We ranked as the top Gold fund in the world, top resource fund. We won Mining Journal of the year awards, in Canada we had Top Gun awards. I think that methodology, bringing that dynamic processing from science into our culture changed. And then we had a bull market, nothing helps better than a bull market and knowing how to scale it quickly.

That's what really led to our big boom. We created a fund because I was aware of the history and the EU being formed. I grew up in Toronto and also lived, later in my life, in downtown Toronto, another area which was dominated by Ukrainians and Poles. And you learn about this culture and this problem, my best friend was Ukrainian, his grandparents. What happened was realising how educated Poles are and Czechs are and Hungarians, and the movement into becoming part of the EU would create something great, created a fund and went from 4 million to 12 million. Russia defaulted on its debt in ’98, went back to 4 million. Then it went to 1Bn in assets.

That vision was okay, and it took me several years before it actually crystallised. The same thing happened recently, my ETF world, with my Jets ETF being the only global airline ETF and a quad approach at picking those stocks, it went sideways for about 5-years and then exploded from Corona virus with USD$1Bn coming into it.

You just realise you have a vision; how do you position for it? And you have to have the financial wear out, and you have to have the discipline of educating people why this is a unique asset class.

Matthew Gordon: What type of environment you were in?

Frank Holmes: The appreciation is to take that quantum approach, and the operative word today is called ‘quantumentals’, and really a fundamental analyst, you are applying quant tools. One of the things I did see is, it is not applied to macro forces. One of the big parts in all our perspectives is that we believe that government policies are precursor to change. We believe it's important to look at history, such as 1920 was the Spanish flu, go back to 1820. You have this every 100-year cycle and you have something like a pandemic that goes global. What drives it as different is recognising what that is and be curious.  I think the education I had in Toronto was very much caught up with the importance of ethnicity and history of it, and then helping you project with that.

We started doing that 2002/2003. Then I started publishing every week by Investor Alert and the Frank Talk blog. It grew to tens of thousands of people in 180 countries. It has to deal with these macro forces, so I've really tried to simplify complexity. When we look at government policies, they're either monetary or fiscal. Monetary is money supply and real interest rates. Fiscal is tax and spend. Regulations is a subset of taxation, because it’s a form of taxation.

Then we can talk about Chindia. Chindia in 1840 was the strongest part of the global GDP. It became down a couple of percent and now 1% of the world's population but becoming a significant factor in consumption. The GDP per capita has changed dramatically in the past 30-years that they are 1, 2 and 3. America is right up there. 1, 2, 3, China and India on purchasing power parity. What does that mean for consumption? It's really simple: if they're doing well, demand for Gold, the love trade, is doing well. Consumption of food, consumption of any type of product is doing well.

Then take a look at macro forces of trade, who are the two biggest GPS trading? China and America. They get into a punching contest, guess what? It will have ramifications, and we immediately saw that with the purchase manufacturers index unravelling. I like to apply those historical macro forces, where are they today, stick with them, and then look at the factors that drive the stock picking.

Matthew Gordon: Are you saying that human behaviours don't really change over time?

Frank Holmes: It’s all emotion.

Matthew Gordon: How do you bring that into your business and why is that any different from some of the other big firms which are now sort of launching onto this, thinking that you came up with originally?

Frank Holmes: I think more people became interested in macro-economics in the past 8 years when Obama became president. I started noticing more macro research, more macro things in questioning, etc. I think you can’t ignore that. But at the same time, the cloud has changed everything. The cloud has allowed the Bitcoin to become digital money. It allowed artificial intelligence, which was basically in a decade of being in the winter, become very viable, and all the data up in the cloud, all of a sudden you can apply algorithms and look at it and understand that thinking is inductive thinking. How much is deductive versus inductive? Dr. House versus Sherlock Holmes? And the cloud has allowed Dr. House's way of thinking to evolve inexpensively and use of day to day data.

And I think that it’s really important to recognise that the quants are using the data. They're agnostic to Trump versus Biden, or this person, that person, they're analysing all the government filings all day long. They can quickly go back and look at the 8K filing and compare it to a thousand other 8K's in a minute. They can turn around and look at word choice in semantics and how that impacted a stock. I've really been able to identify and show that in the Gold space, in Gold equities in particular. I think you have to really appreciate now, you're a fundamental analyst. How do you use these tools? And I think that a lot of fundamental analysts have dismissed these tools, don't appreciate those tools.

When I went to create my Jets ETF, what I recognised is that you apply it. When you're looking at this quantum world, what's important is, is that there's two major forces: there's electromagnetic force, a force of gravity, and there's a force of momentum. Force is equal to mass x acceleration – that is what a force is. If you are a big economy and it starts accelerating, it has a big force on global impact. And that's what we have either population, or we have military, we have the highest GDP per capita America innovation drives that. It's recognising those basic laws of physics.

When it comes to mean reversion, which is very important for the world of quants, stocks will always, or commodities or currencies, revert back to the mean, and it could be rising long term, but it'll go above and below, above and below or falling above and below. It'll revert back to this long-term mean, and it is recognising that a portion of your portfolio should be mean reverting, it's a very powerful tool. The moon goes around the earth, the earth goes around the sun, the sun goes around the galaxy. It's just recognizing the sort of vortex of movement.

When we come to what are the individual drivers that we look for, the most important when it comes to momentum is growth and revenue. GDP is growth of the economy's growth and revenue. What is the last quarter for the past four quarters? If that's growing, and the cashflow last quarter is also growing with that revenue line, those stocks will perform, and it shows that management is doing a great job in deploying that capital. If they have free cashflow, free cashflow yield, that means they can increase their dividend, they can buy back their stock and they can spend money on expansion or acquisitions. It's recognising that so many stock screens are good for screening stocks like debt to equity ratio, but not good for picking stocks. Revenue momentum and cashflow momentum are important tools so that's where the quant approach and stock picking became critical.

Matthew Gordon: Where do you think the US is now? Is this a pivotal moment in the global economy or will we get through this?

Frank Holmes: We'll get through it because America has this unique DNA of adapting, as Winston Churchill said, the politicians will always have the greatest punch out, but that wisdom of crowds, that final decision is usually the best decision because they really punch it out. I believe in that. Coming from Canada where everything is, ‘yes, sir. No, sir. Please and thank you.’ Politically Correct. Everything you say in America, you just call it as it is. I really think that the freedom, the culture of America, still has a lot of longer legs to stand on than a lot of gloom-sayers stand on.

I think it’s important for us to talk about COVID. I believe it's World War III, when you have a world war and the enemy today is invisible. It's not visible and it's everywhere around the world. What's happened since Obama's day, if you go back to the year 2000, the G20 countries got together and they all talked about global trade, global trade, global trade. They dropped barriers to entry, dropped barriers to entry. Along comes Obama after the crisis of ’08 and it's now synchronized tax and regulation. And today is World War III. This Corona virus and how different people are adapting and changing, is the data collection correct? It has been weaponised as a political issue in America because it is big election year. But push that aside, all the G20 finance ministers and their central bankers are functioning like a cartel; they are not competing with each other like in the ‘70s. The Italian lira versus the French franc versus the British pound versus the US dollar.

No, it's basically all shaking hands. Okay. We're all going to debase the currency on a relative basis. And the formation of capital is all totally morphed. In the past 10 years, you can really see, who would ever think that Japan would all of a sudden raise money, zero interest rate, no-one buys it. The government buys themselves. They great this funny money and they buy 50% of their stock market. They buy real assets and they're buying it through an ETF. Switzerland does the same thing. They float all this money. No-one's buying it so they create the money because a dividend yields higher than what they have to pay to service their own position. They're buying Microsoft and they're buying Apple. This is a game changer. The Federal Reserve cannot buy directly shares in public companies, but they can stabilise markets or the futures market and they are turned around by ETFs now.

We saw in March, all of a sudden rate collapsed, but banks wouldn't make loans. The second tier of financing, Mezzanine Funding went to 14%. That's not good for the economy. Immediately the Fed comes in and starts buying ETFs. They're buying muni ETFs to get the burden off of States, rolling over their tax-free bonds. They take the burden off of corporates. This is a very, very different world.

Greenspan leaves and people complain about him and the Federal Reserve owns 6% of the GDP. Today, under Powell, it is now over 30% of the GDP. And he says, we're going to forcibly, proactively and aggressively, basically print money. He said this three weeks ago. This is very, very different. I see Gold rising in all currencies. I just see it slightly different than the other. As all these different countries have different ways of fighting the Corona virus.

I think that Gold as an asset class is rising, and we're also seeing real estate, the real estate in San Antonio was up 73% in sales June over July. In May, it was up against April. Who would think that? You can't go visit the houses, we are in lockdown, but people were buying on the web like they're buying their food on Amazon. We do have this currency debasement and that's what makes Gold this beautiful, unique asset class.

Matthew Gordon: What else should they have done/ could they have done to not put the US in this position?

Frank Holmes: It's so difficult because it's all election year. I've seen things weaponised so easily in America to capture the imagination of the media. Every year I'm so blessed, I get to go to Harvard with 180 other CEOs from 50 different countries, and we study cases. We become kids again. We stay in a dorm. We have these class studies, and two years ago it was on the growth of healthcare during Obama. Everything was Obamacare and attack, attack, especially from the right side of the fence. And not being their way is just an assault. You would think intuitively, all those negative news and healthcare to be free, what a burden that would be, that this would be the worst industry, and the insurance stocks and the hospitals took off at a 45 degree angle. Some of these stocks were up 500% and 800% during that 8-year run under President Obama, totally contrary to thinking.

I am just working on a new paper on Russia, ever since the Crimean war, and all of a sudden, Russia is being weaponised against Trump and there has to be collusion. There's no way Trump could ever win. And this assault is going to blame Russia. The Russian stock market as outperformed America during President Trump's term. There's such pervasive, negative news.

Oil went up or oil crashed, and oil is 50% of their cash flow for that country, it is an important part. It's interesting that you have to sit back and say, okay, what are they weaponising? COVID 19 has become the weapon to dethrone President Trump from a second term. And you can see no matter what he says, good or bad, it is always going to be negative, and it will be spun that way, but the quants don't care. That's what I love about it. It's agnostic. It's politically agnostic. It's religious agnostics, and where they look at just the patterns, the momentum of the data, the extremists of the data, and they buy the stock market. In a sort of zero interest rate environment and the stock markets make a new high.

Don't fight the Fed is something I heard 4-years ago when I got in the business, and the Fed is printing lots of money. So are other bankers around the world. The formation of capital has morphed. Zero interest rates, buy stock to pay dividends, buy stocks that have the ability to pay dividends increase. And what's thrilling about this journey is Gold stocks, for the first time in a decade, at the end of March, 100 producers we follow around the world had free cashflow view as an average - very important. In December they didn't. September last year, June of last year, no, but now they do. June is even better.

The generalists, the non-Gold stock buyer, just buying free cash flow, applying momentum and revenue, et cetera, are buying the Gold stocks. When we take a look at our ETF Au, coming over March lows, has far outperformed more than double Gold bullion’s rise. I think that you're seeing this everywhere. The other indices: Barrick and Newmont advertise now in their press release that they have free cash flow yields so they're attracting a new set of eyes.

Matthew Gordon: I get that, Frank, but before we leave the political scene, I do want to talk to you about, you're very well-read guy, and we had a great chat before the show started. But the market is driven by sentiment. I think we talked about it, whether it be wars or natural disasters or fiscal and monetary policy, or there are lots of reasons why sentiment is important to the stock market. In the case of Gold, the old cliché: Gold is a safe haven. Basically, saying when people are frightened or scared, they go to Gold. That's what happened. And you can see in this current economic climate with quantitative easing and printing of money dropped from helicopters from 35,000 feet and no end in sight to that and no resolution to the COVID position at the moment, people are frightened. Price has been driven up and a lot of the Gold stocks, quite frankly, some of them they've done nothing, but they're doubling and trebling their market caps, share price is going through the roof. Can I just talk about a what if scenario in terms of changing sentiment? What happens when, you're the scientist, when the vaccine comes along and it works? Does that change sentiment hugely or is it just the fundamentals of Gold are just too overwhelming?

Frank Holmes: First of all, for me as CEO of US Global Investors, that's great for my Jet ETF. A year ago, they were processing 2.7 million people a day. It fell down to April 14th, down to 89,000. Now it's pushed to 800,000 and that's excluding international travel. A vaccine would be a game changer. But sitting back on the world of Gold, no, I don't think it changes this, and there's a couple of fundamental reasons for that. Macro forces, and I mentioned GDP per capita. If we go back 30 years ago, Chindia 30 years ago had a global footprint for Gold consumption of 10%. Most of that was Indians. Indian women today wear 3 x the amount of Gold than Fort Knox, and that's the love trade. If you look at the consumption of Gold over the past 30 years, it's risen on a steady basis or 3% a year for love. As China became a significant GDP, Copper growth and wealth of the middle class, we saw more Gold consumption for jewelry demand. If it is the year of the Tiger, you'll see all of Asia, in all the windows, 24 carat Gold tigers. That's just the reality of what is taking place. Southeast Asia has been on a boom since ’97, that financial disaster, it takes about four years. What's interesting is that the crisis of ’97, bottom in 2001. For Asia, ‘98 was when Russia defaulted, it bottoms in 2002. And we had this big run up and then we have the correction and now we have this next run. I think it's important to look at this love trait.

The other factor is, is as high quarterly GDP per capita is, they're still rising in these countries is if you go back in date of 30 years ago to today, today, China and India are 53% of all Gold consumption, 53%. What happens when their GDP per capita grows faster than the rest of the world and they have a cultural affinity towards Gold, I think it is going to grow. Over 60% of all demand on the world is for love. 40% is fear.

Now, out of that fear, it gets triggered when you have a tsunami of a pandemic and you have this incredible currency debasement, so Gold takes on this new life because it is the fourth most liquid asset class in the world. And all of a sudden it becomes this new definition of money.

I also want to show you the third key factor has been peak Gold. There was peak oil until the refractors came along, and that was a game changer. America, all of a sudden changed the supply-demands. Oil fell below $100 and crashed then went up at each time. It gets up here over USD$60. The refractors start turning it on, and there is a such a surplus rate now in the US. There is no Superman that can see through rock to find Gold. I think that this peak supply in Gold is real. I think they're printing money at an unprecedented rate globally. And I think we're in the sector bull market for the next six years.

The very last thing to come of this macro forces, what Ray Dalio said so well, he said, yes, there is a social society. There is a big gap between the top 10% and the bottom 10% income earners in developed countries, huge difference. But there's a bigger gap in the political policies and politicians. And because you have such a big political gap with solutions to problems, that's why they're not being fixed. I believe that whenever you have a big imbalance between monetary and fiscal policies, then Gold becomes extremely attractive. I've had this for 18-months now, a big imbalance and that started off when the 50 day went above the 200-day moving average, everyone was bearish on Gold. And just recently they become bullish as short term. It could easily correct 10%, but I still think it maintains that bull cycle.

Matthew Gordon: Will Gold continue to be close to them? Will it be, what are you calling – love Gold?

Frank Holmes: Love trade.

Matthew Gordon: It'd be interesting to see how those economies change over time and as a percentage, what love trade continues to be.

Frank Holmes: Something happened brand new for me, brand new experience: in March, we started to see money. It was an unprecedented 70-days that came into our jets ETF. Every day, a billion dollars. There's never been where an ETF would fall half in price, and all of a sudden, a billion dollars. Where was this money started coming from? There were some hedge funds shoring the airlines and wanted to balance their decision by going along with jets. Then there were these millennials, Schwab and TD Waterhouse announced that they open 600,000 online accounts in the month of March - wow, what's happening here? Robin Hood was millions, Robin Hood cost nothing to open an account. You can have fractions of shares. And when we started exploring to find out, then the data allows you to see how many Robin Hood investors came into our Jets ETF, there was over 20,000 that came in at the bottom, and they kept buying all through March, April, and then May. And then Buffet comes up and says the airlines is bad and the airlines take off. The total number is about 25,000 of these retail investors put probably a couple of hundred million dollars, and then Jet took off. The first one was up 50%.

They made money, but all the media was how bad it is. Millennials are there, they're stuck at home so now become day traders, I believe has been very important to the ecosystem; that we need to have minerals along with sharks, tunas, whales, to have a healthy ocean. We need the same in the financial world. But when you go to Robin Hood's website, the toolbar has Gold as an asset class. Schwab doesn't. Fidelity, doesn't. TD Waterhouse doesn't have it. You have an asset. Now, Robin Hood has spoiled the value to a billion dollars as a unicorn. And so, they're very big and caught up with looking at history. And these young millennials are much smarter and savvy at looking at these cycles you and I have been talking about, going back in history.

One of the things that were buying Jets, I found out was that after 9/11, the airlines of the world shut down for a week then six months later, they were up 80%. After SARS in Asia in 2003, they were up 120%, 6 months later. After 2009,, bottom March 2009, 6-months later, the airlines were up 80% again. This is history at work, they're piling in, speculating that we're going to get this bounce. They're looking at Gold. And I think that that's probably healthy that there's a game changer happening, the positive outcomes of this lockdown.

Matthew Gordon: Can I talk about the price of Gold? I want to see how you feel about this.

Frank Holmes: By the way, it reminds me of the ‘90s. When I first moved to Texas people discovered mutual funds, and all the baby boomers piling into mutual funds with a 401k. It was incredible mutual fund growth. Today they don't buy mutual funds, they buy ETFs. It appears to me that we've got another new wave coming in it is millennials.

Matthew Gordon: A lot of data about that same group suggest that they're perhaps borrowing money to invest and that's obviously not healthy.

Frank Holmes: It's a good point you make - there's just so much negative about them. That's a shock to me. And I'm looking at my own data and saying, 25,000, I made a lot of money

Matthew Gordon: I do want people to make money.

Frank Holmes: I'm going, is that stupid or bad? But I'm experiencing something else. And I'm seeing the same thing with my Gold ETF; GoAu every day, they're just buying it as Gold has been rising. There's something happening that is changing. And I think you're right about the data, did you know that over 70% of the cheques they got from the government went into the stock market? Did you know that?

Matthew Gordon: I did read that.

Frank Holmes: The total dollars that as a group they've been investing is greater than the stock buybacks in 3-months.

Matthew Gordon: I'd love to have another conversation with you about quantitative and qualitative data and the points at which you measure data.

Frank Holmes: They learned like we're doing now, they're YouTubers, they are podcasters, they've learned from podcasting, YouTube.

Matthew Gordon: What are the lessons that we can learn from those two big peaks, 2011, 1980, which apply today, or has the world completely changed in 10 and 40 years?

Frank Holmes: It’s a very good observation that you make this because the definition of inflation, of the definition of CPI has changed three times since 1980. And if you were using the CPI number in 1980 today, Gold should be $7,000. You're seeing that if you look at the inflation for buying food, the inflation provide a host of products has actually gone up. And I've written about this several times: look at the old indicator and the new indicator. If the governments are smart and get together and say, okay, we got to modify this CPI tool, and inflation looks better and if we can make it this way, it makes you suspect. But I just know that if you can take the algorithm for the old CPI number, run it through and Gold should be substantially higher.

The other thing that shocked me is the number, after all the traders were charged for Libor and the investment banks were charged for manipulating Libor, they fell, and the same thing was pooping Gold and Silver. Markets in particular, the first week of October, India is celebrating Gandhi's birthday, the 1st is Chinese Communist day. And then you have the Chinese New Year, that swooped in and knocked the price of Gold down. They got charged, the judge found them guilty, and they still have not put them away.

Matthew Gordon: What lessons do we learn from history that we apply today? And do we also recognise that Gold may fall back, it may come back. Do you think it does?

Frank Holmes: Mathematically, I'm very quant-driven, and I look at the standard deviation moves over rolling 12-months, going back over a decade, and I look at 60 days rolling over five years, we were up 2 standard deviations over 63 days. And we're up over 2 standard deviation over a rolling 12-month. Mathematically it says that there is an 80% probability that we have a 10% correction over the next 63 days - easy. There's no doubt. And we've had that three times throughout the beginning of this bull cycle in Gold. We had it in March, and then Gold fell below the 50-day, the 200-day and then bounced right back up. I think it's extended short term, but I do not believe that there's anything to dismantle this currency debasement globally.

Matthew Gordon: How do you feel when you see someone quoting these large numbers without necessarily going, oh, USD$4,000 Gold in 3 years, USD$10,000 Gold eventually. What's the message you would rather get out there to Gold investors, which is less sensationalist, but a little bit more realistic?

Frank Holmes: I've been saying it now for many months, I think my first piece of writing 4,000 was after analysing how the debt markets and the GDP and the federal reserve balance sheet changed 2008/2009. In that analysis back in May, when I first started saying, I think it could go to 4,000, it doesn't mean there's a war, that missiles are all over, but there is a war against COVID. And when all that print money has been printed, it just doesn't evaporate overnight. You're going to start seeing money go into art. Look at Bitcoin, Ethereum. I’m the chairman of high blockchain, the largest crypto mining company, and Ethereum has gone from 110 at the beginning of the year, ran up the 280, back at 125 and now at 400.

It has to do with all this money printing; so, you have a whole sort of audience of millennials that go and buy crypto, and then you have another audience that go buy Gold. I think the only support or funds are looking for things that do well during a Corona virus, because I don't think it's going to get a vaccine but remember this Corona virus has mutated over 14 times now. It's an RNA based virus, so it's going to continue to mutate. So that vaccine is going to have to always be evolving. I think that how we deal and grow up with it is going to be looking for those companies that are going to do well with it. And one of the first things you look at, say in America, is who's hiring people? One of the best food delivery system is Chipotle. They just announced 10 days ago, hiring 10,000 people. In March, Amazon now is hiring 100,000 people where everyone's losing their job. We have to take a look at where's the growth with that? Where's that cycle. And for me, it's looking at the data of job hiring, not job cutting, that usually is a great precursor to those companies doing well. And I think that's also a global phenomenon.

Matthew Gordon: What happens if the Democrats win the election in November?

Frank Holmes: I think that Biden has stated very clearly that he is going to raise taxes. I don't know how he can handle groping with a lobby of his hardcore-left policy makers from New York City, AOC to Minneapolis, to Seattle. These are radical-left politicians.  I don't know how he can handle that but raising taxes will be good for my tax-free bonds, but it'll probably be bad for stocks. That would be something just to recognise that, but right now we're not seeing that. The election is within 6-months, we'll see what happens. What we did see in the last election, a lot of people would not admit they are voting for Trump. They just wouldn't do it. But they voted for them because that's what the tallies showed up. And you can have that cycle.

Matthew Gordon: I think the whole world is waiting for that outcome.

Frank Holmes: What happens if he does? That to me is a more interesting deal. I think the biggest thing that the smartest people believe that he's accomplished, has been not afraid to take on other bullies like China, that's been important for North Korea. It doesn't matter. And two, more important is the election of real constitutional lawyers into the federal court system because the federal court and the Supreme court and all the federal judges across the country that are real constitutionalist believe, like British common law, private property rights. And the left to not believe in them. They'll find ways to basically undermine them or usurp them. I've seen this in Canada where they make the area green and all of a sudden, the value of your property goes down and the property across the highway goes up over 10 years, it doubles, but not yours because they basically put a tax on it. I think that his biggest legacy will be slowing down and bringing in judges that really respect common law and private property rights.

Matthew Gordon: Do you think that it has had an impact on the economy in the short or medium term?

Frank Holmes: I think this was a real unlevel playing field. Facebook is not allowed over there. The espionage is well known, the recent Houston issue of the embassy being constantly shut down is because there were burning documents, and why? Because a couple have been arrested, and I guess the DOJ and the FBI, whatever the departments, they found a couple of people stealing our data for mining, for oil and gas. This is a big issue. I think that he's willing to take that on. I think what he did with North Korea was really to test to see what China would do. And they didn't send in, like they did last time, a couple million soldiers into North Korea. And so that gave them the positioning to go and challenge them for trade.

It's difficult the way he does it. He is brutal in the way he words choices and now it's coming back; what goes around comes around. A few miscommunications, the way he bullied other people with is not coming back to hurt him in many ways. Like the name of the president of Biland, or is it Thailand? This type of stuff shows up in the independent you guys are sending to me this information, but I think that a lot of people are concerned in America on political correctness. And they're afraid to actually tell you that. Do they champion this guy? I think it's really important to go back and look at when the printing press was created, the educational masters grew dramatically. More people read. The first big book was the Bible, and it led to the reformation from Germany against the Papacy, against the Pope sending money there. And that showed up in England and Henry VIII. And that was a cultural change so we're seeing this take place with social media and the internet and how that's real big game changer with his tweeting and his Twitter followers, et cetera, he is able to all of a sudden have his own constituents that don't trust the normal media. It doesn't matter what he says, that everyone's going to attack him for, they are following him. This is something I don't know the answer to, but I do know when you look back maybe 30-years, I can look back and be able to analyse it, but there's something happening because communication has changed, just like the printing press changed things.

Matthew Gordon: Why is he going to ban Tik Tok? What's the logic of him focusing on something like that?

Frank Holmes: I think you have to respect that there's something there with the DOJ and the FBI. I think the news that we're not seeing and that we're only seeing the tip of the iceberg. Is there a malware in there there's tracking all the data the kids are using that China can make all this money off America and they collect all the data? That makes it a very, very big concern. They can manipulate, probably, the election by manipulating what goes into Tik Tok. At the beginning was humorous and now it's very politicised. I think there's something else with that. I also know that I leave this country, if I wasn’t an American, I’d give him my passport, I have to pay a big exit tax because I made all my money here. If I'm a green card holder and I leave this country, I still don’t to pay an exit tax because I made all this money here. So what they're trying to apply to Tik Tok, if you made all this money in America and you're going to sell it, then you have to pay back a tax to the government.

Matthew Gordon: We see a lot of these big technology companies coming, sitting in Europe, collecting money, making money in Europe and then paying taxes or paying an intellectual property tax to ‘Holdco’, offshore.

Frank Holmes: Coming back to history of all the tribes, Israeli tribe, the Israelites were all lost in the desert, along comes Moses and he whittles 465 laws of Leviticus, which no one can remember, down to 10, 1 for every digit. If you follow these 10 commandments, our group, our company, our country can survive and thrive, but everyone has to memorise these 10. And in there is envy, envy will destroy a culture of family, a country, a team, a sport. And so, what we see, so walking from the socialist world, are envy policies as a solution to a problem, and that really doesn't work, as short term - yes, but long term -no. It just doesn't work out.

Matthew Gordon: I really enjoyed that. It was a romp through lots of different topics there, but some philosophical and a lot of macro and your view on Gold – much appreciated. Thank you.

Frank Holmes: I enjoyed your broad selection of questions and different angles to make it very rewarding and enriching for me, it was a great experience.

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