Will Thomson: The Bond Market Is Broken, the 60/40 Portfolio Is Dead -

Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Coming up we’ll hear a tremendous interview with Will Thomson founder and portfolio manager of <a href="https://research.massifcap.com/?modal=signup">Massif Capital</a> – a privately held, value-oriented hedge fund with a focus on the energy, mining, materials and infrastructure sectors. (Sign up for his free email newsletter <a href="https://research.massifcap.com/?modal=signup">here</a>.)
Will joins our Mike Maharrey for a fascinating and informative discussion on whether or not the Federal Reserve is going to be able to maintain control over long-term interest rates and how the global bond market is underdoing fundamental shifts that investors need to be aware of. Will also shares his somewhat unique view as a money manager on why he believes gold is highly attractive reserve asset which is free from counter-party risk.
So, stick around for that and a whole lot more with the very talented and highly-respected Will Thomson with Massif Capital, coming up after this week’s market update. And if you enjoy this material, please do us a favor and like and subscribe to this podcast wherever you consume this content.
It has been another challenging week for precious metals investors, with both gold and silver coming under heavy selling pressure as markets focused less on geopolitical turmoil and more on what that turmoil could mean for inflation and Federal Reserve policy.
Normally, an escalating conflict in the Middle East would be expected to boost safe-haven demand. But that's not how markets have interpreted events this time around.
The renewed military exchanges between the United States and Iran have sent oil prices sharply higher – up roughly 12% this week. Clearly traders are worried about potential disruptions to global energy supplies.
Rather than benefiting gold, those higher energy prices have reinforced concerns that inflation could remain stubbornly elevated, making it more difficult for the Federal Reserve to ease monetary policy.
Technically, gold remains in a consolidation pattern despite this week's weakness. The metal has slipped below key moving averages and is testing important support around the $3,900 area, while resistance remains near $4,200 on the upside. A decisive move outside that range will likely determine the next major trend.
Silver, meanwhile, continues to be the weaker performer. The white metal has broken below previous support levels and remains under sustained technical pressure. That's not entirely surprising. Silver's greater industrial exposure often causes it to underperform during periods when investors worry about slowing economic growth and tighter monetary policy.
Despite the difficult price action, long-term fundamentals remain intact. Central banks continue to diversify reserves into gold, government debt burdens continue to grow, and geopolitical tensions show few signs of easing. Those structural drivers haven't disappeared simply because markets have become fixated on short-term interest rate expectations.
For long-term precious metals investors, periods like this can be uncomfortable – but they also tend to be when some of the best opportunities emerge. Markets often overshoot in both directions, and sentiment has clearly shifted toward the pessimistic end of the spectrum.
We'll continue monitoring developments in the Middle East, movements in the energy markets, and any additional signals from Federal Reserve officials in the week ahead. As always, those factors are likely to remain the primary drivers of gold and silver prices in the near term.
As for the specific price action this week in the metals, gold is down a little more than $100 or 2.6% and checks in at $4,026 an ounce, it’ll be the roughest week for gold in a month and half.
Silver is down nearly $4 an ounce and currently trades at $56.69 an ounce, showing a 6.4% decline as of this Friday morning recording.
Turning to the PGMs, platinum checks in at $1,606 an ounce, down 2.2% since last Friday’s close. As for palladium, the industrial metal is also down 2.2% like its sister metal platinum and checks in at $1,265.
Taking a step back and looking at the bigger picture, Sprott strategist Paul Wong put forth a strong argument this week that, despite silver's painful correction, the long-term investment case for the metal remains as compelling as ever.
There's no sugarcoating what's happened. Silver has fallen more than 50% from the record highs reached back in January and just posted its worst quarterly performance since the COVID panic selling of early 2020. June alone marked the biggest monthly decline since 2011.
But Wong says investors shouldn't mistake volatility for broken fundamentals.
In fact, silver has historically been one of the most volatile assets in the precious metals complex. During previous bull markets, it's not uncommon to see brutal corrections that shake out speculative traders before the next leg higher begins.
And underneath all of that price volatility, the physical market continues to tell a very different story.
Silver has now been in a structural supply deficit for five consecutive years. Simply put, the world is consuming more silver than miners and recyclers are producing. Last year alone, the market ran a deficit of more than 40 million ounces, and industry analysts at Metals Focus expect another supply shortfall this year.
Those annual deficits have added up. Over the past five years, more than 700 million ounces have been drawn out of above-ground inventories to satisfy demand.
That's a remarkable figure when you consider that annual global mine production is only around 850 million ounces.
And unlike many commodities, silver supply can't quickly respond to higher prices. As we’ve discussed many times over the years in this space, most silver is produced as a byproduct of mining for copper, zinc, lead, and gold, meaning miners generally can't ramp up silver production simply because prices rise.
Meanwhile, demand continues to expand.
Solar panels remain one of the largest growth drivers, but silver is also becoming increasingly important in electric vehicles, artificial intelligence infrastructure, data centers, advanced electronics, and even military applications where its unmatched electrical conductivity is difficult to replace.
Wong also notes that silver is beginning to regain its monetary appeal. As governments continue running massive deficits and central banks gradually diversify away from the dollar, investors increasingly view silver as a higher-volatility companion to gold during periods of monetary uncertainty.
Finally, Wong believes recent weakness has been amplified by speculative paper trading. Record options activity helped drive prices to unsustainable highs earlier this year, and the unwinding of those leveraged positions has accelerated the decline. But as those excesses are flushed from the market, he expects physical supply-and-demand fundamentals to become the dominant force once again.
His bottom line is straightforward: while silver's ride is rarely smooth, persistent supply deficits, growing industrial demand, and tightening physical inventories continue to support a constructive long-term outlook for the white metal.
Well now, without further delay, let’s get right to this week’s exclusive interview.
<div style="padding-left: 5em;">Mike Maharrey: Greetings. I'm Mike Maharrey and I'm joined today by Will Thomson. Will is the founder and managing director of Massif Capital and excited to have you with me today. Will, how are you? Will Thomson: I'm good. Thanks for having me. Mike Maharrey: Well, absolutely. It's a pleasure. This paper that you guys put out on the bond market is really interesting to me, so I want to get into that here in a second. But before I do that, I would like for you to just give folks a little bit of your background, who you are. You can talk a little bit about Massif if you want to, but just tell us who you are and where you're coming from. Will Thomson: Yeah, absolutely. So name is Will Thompson or am, I should say, the founder and portfolio manager for a long short equity hedge fund called Massif Capital. We run a single strategy that invests in energy, materials, industrials, and infrastructure globally. So a bit of a divergence from a lot of people's portfolios these days. We don't have tech and healthcare or anything like that. We focus on energy of all kinds, whether that be oil and natural gas to renewables, to nuclear power, utilities. Trials is mostly all mining, running from precious metals to copper, uranium, you name it. We've tried it. And then industrials and infrastructure. And then that's global. And then in terms of background, I have a bit of a diverse background. Spent time working at Lloyd's of London at an insurance syndicate there, writing political and credit risk insurance policies, mostly for companies that were running operations in emerging and frontier markets or for commodity traders like Glencore. Will Thomson: Before that, I worked for the DOD or I guess now the DOW in Afghanistan where I was a strategic advisor to a general on various different economic issues. And prior to that it was investment banking and private equity and then some grad school work where I got a master's in government writing my thesis on how to integrate political risk into the valuation of assets. Mike Maharrey: Very, very interesting. So now that makes sense of your take on the bond market. I can see how that background is kind of playing into your analysis there. That's pretty cool. So let's go ahead and talk about that. Will Thomson: Not the background that produces an economist view of the bond market, that's for sure. Mike Maharrey: Yeah, yeah, for sure. So, let's talk a little bit about that paper. Basically you say that interest rates, and you note accurately that an interest rate is the price of money. I wish more people understood that because I think they think it's this weird different kind of thing, but I think that's important. But anyway, you say that it's increasingly set by geography rather than by the policy rate. So, can you give the dumb guy version overview of what this shift entails? What are you getting at here? Will Thomson: Yeah, so I think that for, and I guess maybe start with when I say geography in the paper, I use it as a bit of a catchall, but it is geography in its sort of holistic sense, meaning the geography is the government, the politics, the country, all of its associated sociopolitical attributes, not literally just the geography. So it's a bit of a catchall. But if you look at interest rates and you look at say the last 10, I guess 20 years since 2008, what you see is that the price of money has largely been set by a bit of a, let's call it formulaic approach to understanding what that price is. The price is set by the central bank at the very short end. So, money borrowed for a very short period of time is set by the central bank. And then because geography wasn't considered a significant variable, we weren't engaged in a lot of… I mean, we had wars, but the wars were of a different nature. There wasn't global international conflict between major powers. There weren't two live wars on the borders of Europe and in Iran, et cetera. The long-term rate for money was being set via the aggregation of many small-term money ranges. So you aggregate that short-term range across rolling bonds and you get the long-term rate. Other variables that were taking a backseat included say the fiscal quality or the debt balance of governments and things of that nature. Those were not primary variables. Now I see us shifting into a period where those variables that historically had helped define the cost of money. How much money had the government borrowed? What conflicts was it engaged in? Were its domestic policies sensible? Were the people in that country voting for people who had sensible positions in terms of how to guide the economy? Those variables that were historically important are reasserting their importance. And so if you went into say the economics department of any old university and you asked them to explain to you over the last 20 years, how do you price a bond? They would've given you a formula and nowhere in that formula would have been geopolitical risk, would have been political risk, would have been even necessarily the balance sheet in some way, shape, or form of that country. How can you borrow money from someone or lend money, I should say. How can you buy a bond, lend money to someone without taking those variables into consideration? So there was this post-Cold War period, post – 2008 period in particular where those variables just sort of weren't as significant. They are reasserting themselves and they're reasserting themselves in a meaningful way. Inflation is reasserting itself in a meaningful way. And now the long end of the interest rate curve, the yield curve is beginning to take those things into consideration. So that's the argument in a nutshell. Mike Maharrey: That makes sense. So, let me make sure that I'm understanding where you're coming from, and I'll just put that into a practical application. People are now looking at things more closely at things like, oh, the US has 39 point some trillion dollars in debt. That's relevant if we're going to lend them money. Or the fact that sometimes countries can use their assets as a foreign policy tool. I call it the weaponization of the dollar in the US sense. Those things matter. So that's kind of what you're driving at, correct? Will Thomson: Exactly, exactly. Mike Maharrey: Exactly. Okay. So what are the ramifications? Because I know that the traditional investing paradigm is 60%, equity is 40%, bonds, bonds are a huge part of the typical investment strategy. How do we as investors adjust to this new reality in your view? Will Thomson: So, I think there's definitely two very obvious and upfront implications. The first, and I go into it in the paper, is the idea that bonds and equities would run in opposite directions. And so when you had that 60 / 40 portfolio, when equities went down, the though was bonds would help balance that out. Well, a couple of things have happened. We've had a roaring bull market in equities for quite a while now, and bonds have done well also at the same time. And now with the long end of the yield curve moving up with equities, what we're seeing is the potential for them to go in the same direction. And in fact, in the paper we document that, and I don't remember off the top of my head what year the shift occurred in, but there has been a distinct and consistent shift where now both bonds and equities move in the same direction. There are multiple explanations for that, some of which are relevant to this conversation, some of which aren't. But needless to say, it's very clear in the data that it has occurred. So your portfolios that are 60 / 40, ideally balancing each other out, both sides of that, that's no longer the case. They're now moving in the same direction at the same time. So, that has implications for everyone's portfolio. I would say the other implication is that as interest rates go up, especially on the long end of the value of assets, especially assets with payoffs long in the future. So, let's say something like, I don't know, a company that wants to build a city on Mars long off in the future. Those assets are no longer worth nearly as much as they would be when interest rates were low. And so one has to be more thoughtful and careful about what their investments are and what the return profile looks like and where those returns are coming from. Are they coming from some admittedly interesting idea that is way off in the future or are they coming from the operation of practical assets on the ground right now? And so that becomes important for people's portfolios that are obviously these days heavily tilted towards tech, which tend to be companies that have a lot of their value in a terminal value, which is to say a value that is off in the future and highly sensitive to interest rates because of how it gets discounted back to the present. Mike Maharrey: Yeah, that makes absolute sense to me. Looking at it from what we're seeing in the marketplace right now, and I kind of know this because I've at least scanned the paper, but part of the ramifications of this is we're seeing central banks moving away from treasuries to some degree and putting more emphasis on gold. Am I correct? Is that part of this kind of dynamic that's playing out on the ground? Will Thomson: So, the role precious metals are going to play going forward is really interesting and it is admittedly a little hard to disentangle. And the reason it's a little hard to disentangle is because traditionally, if interest rates go up, you would expect precious metals to go down. And I think we've absolutely seen that this year. I think the move we've seen in gold, I don't think it's wholly attributable to that, but absolutely that plays a large role in the move we've seen in gold to the downside this year. Some of it has also got to be explained by just the tremendous move it made last year and some rebalancing a little bit. But it's going to be complicated because at the same time you pointed out and mentioned say the weaponization of the dollar. The marginal consumer of treasuries has historically been governments that have vast dollar reserves that they need to put somewhere. One place they've put them is treasuries. Well, with interest rates going up, bond prices coming down, it's not as clear that that is the place they want to be nor with say a geopolitical perspective with the weaponization of the dollar at times, is it clear that's where they want to be? Because maybe even if they are in treasuries, maybe they won't be able to redeem those treasuries for cash in the same way. Maybe they'll be locked up say like Russian treasury bonds are currently. And so they are very much increasing their purchasing of gold because gold is an asset that is no one's liability. You own it. It's no one's liability. And so there's both a push and a pull and a bit of a tug on either side of gold. And so it is a little unclear where gold's going to go and what role it plays going forward, but it's hard to argue with the idea that an asset that is no one's liability is highly desirable in the current environment. Mike Maharrey: Yeah. I think a lot of people are kind of, I think they're still in that past paradigm where they're thinking, okay, the Fed is going to keep interest rates higher to keep inflation down, and so therefore that's negative for gold. And I'm wondering in this scenario that you're talking about, just how much power does the Fed really have over the interest rate? I mean, obviously they have quite a bit of control over the short end, but are they in danger of losing control of the long end? Will Thomson: I don't see why not. I mean, I think it has precedent in the past, so there's no reason it can't happen again. And the bond market, money markets, these are just much larger than the Fed could ever hope to be and move on or can move on variables that the Fed has no control over. After all, the Fed really, their toolbox is very limited in the grand scheme of things. So unless they want to institute some sort of say yield curve control, then yeah, they very easily could lose control of the long end of the yield curve. And even if they sought to exert some sort of yield control and that is by no means an area of expertise for me. And so I'd have to look up exactly how you do that. I have trouble imagining that given the size of the treasury markets, that they even could do that effectively. I think that the size of the markets is just too large. But again, that is an area where I definitely do not have expertise. Mike Maharrey: Yeah. I think what they would probably have to do is focus making purchases and expanding the balance sheet on certain lengths. So focusing on 10 years or 30 years to try to increase demand for that and therefore bring the price down or bring the yield down and the price up. But yeah, it's interesting. And I guess the other thing that I'm thinking is what do you do if you're somebody that's in the world of politics and your job is to budget and you've got this $39 trillion plus debt approaching 40 trillion and all of a sudden your borrowing costs are going up? It's not like they can just wave a magic wand and make that go down. I mean, this has huge implications in terms of an economy that is loaded up with debt. Will Thomson: Yeah. I think every politician up in DC, I'm in Charlotte, so up in DC, they have a laundry list of things they want to do, all of which cost money. I don't know where that money comes from. And then on top of that, it's not clear to me that we are in a political environment where meaningful bills of any kind that make substantive change, to be perfectly frank, whether it be substantive change we think is positive or negative can get passed. Anything meaningful has trouble getting through Congress because it's so contentious and so at odds. So, I don't know how people budget or how DC budgets either. And we see this, the recurrence, regular recurrence now of government shutdowns. It's not that they never occurred in the past. Actually there's a long history of them, but the regularity with which they are occurring now is a bit of a step change. And so, there's plenty of evidence that they are incapable of doing their job. Mike Maharrey: Yeah. I think the big difference is that years ago you would run up every three or four years you'd run up against the debt ceiling and then we'd have the drama of the debt ceiling fight. And now it's really… they're kicking the can down the road in basically three to six months intervals it seems like because literally two or three times a year you start, “oh, we're getting up near the debt ceiling again or the budget's not done yet.” So yeah, it is definitely very disrupting. Will Thomson: I mean, I would agree with you. It hardly seems like there is a debt ceiling. It's a nice phrase that they're using. But whenever they come up against it, they just push it. And so it hardly even qualifies. Mike Maharrey: It's politics. So, from the perspective of an investor, we talked about the traditional 60 / 40. Obviously if what you're saying is correct and we're seeing this shift in adjustment, then that's going to mean a shift in adjustment in the way people approach a portfolio. We had Jamie Dimon not too long ago actually suggest a 60 / 20 / 20 portfolio with that 40% actually being split between bonds and then hard assets such as gold, silver or even mining stocks, that kind of thing. Is that where you're heading? What is an investor to do? How do we play this if maybe bonds are going to be correlating with equities as opposed to being the balance? Will Thomson: So, just to be crystal clear, I run a portfolio of those real or hard assets as you're talking about. And so admittedly, I'm talking my book a little bit. But I would say that the most important thing even beyond asset class is relating to quality. And so in some regards, it doesn't matter whether we're talking say healthcare stocks, pharmaceuticals, or mining firms, this is an environment where the move should be towards quality. And that also includes in bonds. There will be bonds that do well. You look at someone like Norway, for example. Norway has their fiscal house in order. They run sensible policies. They can elect governments, et cetera. There's no reason why their borrowing cost in this world shouldn't decline. United States, maybe a different story. So, I think the idea is to move to quality and the idea is also to move to quality that is understood in a more holistic sense. It isn't just what the central bank is doing. It isn't just what earnings per share are. There are political variables, there are social variables. It is a more holistic understanding of the role that that company or government plays in the overall economy. And taking into account some of those other variables quickly reveals some businesses that are potentially problematic. Mike Maharrey: Yeah, makes sense. Talking about hard assets, this question came from Stefan, but when you're looking at hard assets, what's the continuum from safe to more risky in that area of hard assets that you guys specialize in? Will Thomson: So, the continuum, it's going to be interesting. I will argue for probably a different continuum than most people. I would argue that the continuum has got to start at the first level with an understanding of management and more important even than in some cases, even than the asset itself, whatever it is they're doing, it starts with management. And the example I like to give, a lot of times people will say, "Oh, okay. Well, so what's better? I guess we build mines and drill for oil in the United States. That seems like the best place to do it." Well, maybe it might be. At the same time, I'm only familiar with one mining firm. I've been working with mining companies now, I guess, let's see, it's coming on 20 years. I'm only familiar with one mining firm in my experience that has brought on not one but two mines, both on time, one ahead of schedule and under budget. And that mine is in the DRC, the Democratic Republic of Congo. The importance of management in execution businesses and real assets are execution businesses almost cannot be overstated. Admittedly, a crappy asset is almost impossible to save. But anything short of a crappy asset, oftentimes the right management team can make all the difference in the world. And so I would say that the continuum has got to start with an assessment of the management team and whether they are the right management team for that asset wherever it is located some management teams are good in Africa. Other management teams are good in the United States. Others are good in Canada. All depends. Depends on where that asset is in its lifecycle. Some teams, if we say are just talking mining, some teams are good at exploration. Others are good at operations. Sometimes both those teams are bad at building. So you've got to sync up the team with where the company is in its lifecycle, with where it is geographically, and with the challenges it has ahead of it. Mike Maharrey: Very interesting. I really like that. I like that approach. And I'm assuming that's how you approach things. So with that in mind, before I let you go, I would love for you to let folks know a couple of things. First off, where can they find more about you and Massif? If they're interested in investing with you guys, how do they do that? And I believe you have an email list or a mailing list as well that folks might want to get on. So if you can give people all of that important information on where they can learn more about what you're doing, that would be great. Will Thomson: Yeah. So the best place to go is our website. It's Massifcap.com. That's M-A-S-S-I-F-C-A-P.com. And we do have a mailing list. And on that mailing list you can sign up and you would get our quarterly letters which provide a snapshot of the portfolio that doesn't discuss every position, but it discusses a lot. Also discusses our outlooks and things like that. And also some occasional research pieces are released. So that mailing list is easy to get on from the website and you'll get a steady stream of emails from me once a month or so with some sort of in – depth piece of reading. Mike Maharrey: Well, that sounds fantastic. Folks need to do that. I can tell from the paper that I've read, you guys do great work and very interesting. And I like the fact that you come at things from a little bit of a different angle than the cookie cutters that you get out in the mainstream. So I appreciate all the work you're doing. I appreciate you taking a little bit of time out of your day to hang out with me and hopefully we'll have an opportunity to have you back on sometime in the future. So thanks so much. Will Thomson: Yeah. Well, happy to do it anytime.</div>
Wonderful stuff there from first-time guest Will Thomson and I hope you enjoyed that interview. Knowing Will personally I was extremely excited for us to get him on this podcast, and it was really good to hear his insights. (Sign up for Will's free email newsletter <a href="https://research.massifcap.com/?modal=signup">here</a>.)
Well, that will do it for this week. Be sure to check back next Friday for our next Weekly Market Wrap Podcast. And to check out any of our audio programs, including our second podcast, the Money Metals Midweek Memo, just visit <a href="https://www.moneymetals.com/podcasts" target="_blank" rel="noopener">MoneyMetals.com/podcasts</a> or find them wherever you listen to your favorite podcasts. And as a big help to us we would ask you to please like, subscribe, download and rate our podcasts. Doing so helps us extend the reach of this material.
Until next time, this has been Mike Gleason with <a href="https://www.moneymetals.com/" target="_blank" rel="noopener">Money Metals Exchange</a>, thanks for listening and have a wonderful weekend everybody.

Read The Original Article