Ozan Tarman on What's Driving The Nonstop Rise in Gold and Tech

Episode Summary

Executive Summary: Odd Lots discusses why gold, Nvidia, and China have become consensus macro trades amid a softer dollar, fiscal dominance concerns, and questions about Fed independence. Guest Ozan Tarman argues investors want U.S. corporate exposure but are hedging dollar risk, while central banks and global allocators keep buying gold. Tariffs, AI capex, and China’s export/FX dynamics round out a market where equities keep rising despite growing sovereign anxiety.

Main Topics: Gold as a trusted macro hedge (Priority: 5/5): Gold is discussed as a key beneficiary of mistrust in fiat currencies, U.S. institutions, and geopolitical uncertainty. Tarman argues that gold works in periods of risk-on/risk-off because the underlying story is distrust in governments and the dollar. Nvidia and the AI capex boom (Priority: 5/5): The conversation explores whether Nvidia and AI investment are propping up U.S. growth, with concerns about circular funding between Nvidia, OpenAI, Oracle, and the broader Magnificent 7. Tarman notes skepticism is rising but the revenue base is still real. Dollar weakness and hedged U.S. equity exposure (Priority: 5/5): Global investors want exposure to U.S. megacap winners, but increasingly hedge the currency risk. The discussion frames this as buying U.S. corporate earnings while avoiding full sovereign/dollar exposure. Fiscal dominance, Fed independence, and the long end (Priority: 4/5): The hosts and guest debate whether markets are pricing enough concern about Fed independence and fiscal dominance. Tarman suggests the market still believes current rate cuts are justified and does not yet show a strong fear premium. Tariffs and stagflation fears fade, but remain important (Priority: 4/5): Tariffs have slipped down the list of market concerns compared with spring. Still, Tarman says they matter for growth, inflation, and the U.S. election/midterm calculus, even if markets have grown more comfortable with them. China, CNH/RMB strength, and export-driven disinflation (Priority: 4/5): China is described as a consensus trade alongside gold, with investors increasingly long China tech and RMB/CNH strength. China’s cheap exports may also help suppress inflation in Europe and elsewhere. Asset prices, wealth effects, and U.S. growth dependence (Priority: 3/5): Tarman argues the U.S. economy is increasingly dependent on rising asset prices and wealth effects, with growth concentrated among higher-income households. He ties this to the risk of bubbles and the K-shaped economy.

Key Arguments: Gold is rallying not just because of rates, but because investors and central banks are worried about sovereign trust, U.S. institutions, and fiat currencies. The current AI/Nvidia boom has real revenue behind it, unlike the late-1990s bubble, even if the financing structure feels circular and crowded. International investors want U.S. megacap earnings exposure but increasingly hedge the dollar, showing confidence in corporations but less in the U.S. sovereign story. The market is not yet pricing a serious Fed independence crisis in long rates, breakevens, or term premia because recent cuts are seen by some as defensible. Tariffs could still matter materially if they begin to slow growth or lift inflation enough to alter the political and policy response. China has become an important consensus long through tech and currency strength, while its exports may export disinflation to Europe. U.S. growth increasingly depends on rising asset prices and wealth effects, making equity bubbles more macro-relevant than in the past.

Data Points: Podcast timing: September 20 / September 23, 9 a.m. - The conversation is recorded just before major Powell and Trump speeches and references the date repeatedly. Dollar move: Eurodollar moved from around 1.10-1.11 to above 1.15 - Tarman cites the weaker dollar as a key macro development since the prior April episode. Hedged flows: Almost 80% - Tarman says recent flows into Nvidia and similar U.S. equities are hedged against dollar exposure. U.S. 10-year yield: Around 4.12%-4.14% - The hosts and guest discuss the 10-year drifting around this level ahead of Powell's speech. Four trust moments: U.S., UK, Japan, Europe - Tarman describes a summer/fall setup where multiple sovereign bond markets faced fiscal/trust pressures at once. Tariff level: Beyond 10% in many countries - He notes that many countries face tariffs above this threshold. Consumption concentration: Top 10% of U.S. consumers account for almost 50% of consumption - Used to illustrate the K-shaped economy and the importance of wealth effects. Inflation outlook for Europe: Could fall to 1.6%-1.5% - Tarman cites his European economist colleague's view that imported disinflation from China could push euro area inflation lower. China strategy reference: Dollar/CNH calls with strikes starting at 7.5 and 8 - Used to describe how heavily consensus had leaned toward yuan weakness earlier in the year. Gold necklace example: $35,000 then $45,000-$50,000 - The hosts joke about a gold necklace Tracy once considered buying and its higher current value.

Pivotal Quotes: "a bubble is a bull market that you missed out on" — Ozan Tarman: Used to frame skepticism around the market and why some people criticize rallies only after missing them. "Gold works in that as well" — Ozan Tarman: Explaining why gold benefits from multiple forms of uncertainty, including weak dollar and distrust in institutions. "What you explained is happening. ... people want exposure to a handful of extraordinary U.S. companies. They just don't want to take the risk ... that the dollar ... is going to go down further." — Tracy Alloway: Summarizing the key thesis of hedged foreign demand for U.S. equities.

Implications: Markets are rewarding U.S. winners, gold, and China at the same time, signaling investors are hedging sovereign and currency risk rather than abandoning risk assets. The big watch items are Fed credibility, tariffs, and whether AI/asset-price momentum can keep supporting growth.