Darrell Delphen Macro

China created paper money and this is what happened!

China experimented with paper money centuries before the West. Marco Polo marveled at how Kublai Khan could issue paper and exchange it for real goods and wealth.

Then came the problem that has plagued governments ever since every time: They Printed too Much!

The money initially created a boom. But eventually the supply of paper overwhelmed the gold and silver behind it, convertibility disappeared, and the currency lost its value.

Sound familiar?

The U.S. severed the dollar’s final link to gold in 1971. Today we have nearly $40 trillion of federal debt, persistent deficits, and enormous political pressure to keep financing the system.

History suggests governments rarely choose austerity when they can choose currency debasement.

Historically, paper money always goes to zero overtime.  I’m not suggesting that the dollar will cease to exist right now, but I do believe the debasement through money printing will continue and investors must protect themselves. 

That is a major reason I believe gold, silver, energy, commodities, and productive real assets will become increasingly important in the years ahead.

You can print currency. You cannot print scarce assets.

Diesel is now at an all-time high as expected. A direct result from taking refineries off-line in the Ukraine and Gulf states. Diesel is an input in everything. 

"Eat, drink, and make merry, for tomorrow we may die" .

The U.S. Treasury is buying back longer-term bonds while issuing more short-term debt, helping relieve pressure on long-term yields.The market loves it—for now.

Long bond yields world wide were going up as investors priced in out of control government debt. The US approaches $40 trillion!! We are currently paying approx. 20% of tax revenues on interest and that figure is growing fast as we overspend by $2-3 trillion per year in what supposed to be "good times". Wow!

Currently, Democrats want more social spending, and Republicans want more defense spending. As usual, I think they will compromise and do both. 😉

I guess they want to finance more of our deficit spending at the short end of the curve, where the Fed has greater control over rates.

The bond market was beginning to impose some discipline on Washington. This buys them more time to keep spending like drunken sailors.

Short-term gain. Long-term pain. Eventually, arithmetic wins.

Gold Miners

Gold miners are printing cash right now.

Free cash flow across the senior gold miners is roughly 10× what it was in 2020, while sector debt is about 50% lower than five years ago. Yet miners are trading near a 20-year relative low versus the S&P 500 and remain historically cheap relative to gold itself.

Meanwhile, the average investor has only about a 0.18% allocation to gold, according to Goldman Sachs, while the East continues accumulating physical metal. China alone reportedly bought 14.93 tonnes in June alone and has spent years reducing its Treasury exposure while building its gold reserves.

Do I know exactly what happens next with gold miners? No. This is not a recommendation.

But I have rarely seen a setup where cash flow is surging, balance sheets are improving, valuations are depressed, investor ownership is extremely low, and the underlying commodity is being aggressively accumulated.

When you price things in gold, it’s easy to see what’s happening!

Investment Conference – Client Update

Bekki and I are wrapping up the investment conference in San Diego. I found a few promising ideas that deserve more research, but the biggest takeaway is that I remain confident we’re partnering with outstanding managers and operators.

San Diego has been a wonderful break from the Texas heat. Last night we enjoyed sitting around a fire pit on the beach, and it reminded us how important it is to slow down.

That said, no matter where I travel, it always feels good when it’s time to head back home to Texas.

Germany wants citizens to work on Sundays 

Germany’s industrial decline isn’t being caused by Sundays off. It’s being driven by expensive, unreliable energy.

German industry warns that 2026 could mark a fifth straight year of manufacturing contraction. Capacity utilization is just above 78%, yet policymakers seem more concerned with extending the workweek than fixing the real problem.

Factories don’t relocate because bakeries close on Sunday. They relocate when energy becomes too expensive to compete. Germany shut down nuclear power, abandoned affordable Russian energy before securing a competitive replacement, and layered on costly green policies. The predictable result has been declining competitiveness in chemicals, steel, glass, machinery, and automobiles.

This is a perfect example of how a country‘s leadership making bad decisions can affect everyone. 

Affordable, reliable energy isn’t optional. It’s the foundation of a strong industrial economy.

The U.S. appears to have two choices in Iran: bad and worse.

The worst option: Stay in the war, watch the conflict escalate, and risk severe economic damage. If that happens, history could judge Trump’s presidency through the lens of a major economic downturn.

The bad option: Negotiate an agreement, withdraw, allow Iran to charge a toll on shipping, and declare the mission a success.

My concern is that global oil inventories appear relatively tight, missile stockpiles are being depleted, while Iran still has a large supply of low-cost drones and, perhaps most importantly, time. Wars of attrition are not won by military strength alone—they also depend on logistics, industrial capacity, and political endurance.

We’ll see how it unfolds, but the strategic and economic consequences may ultimately matter more than the battlefield victories.

Why is the savings rate so low?

For years, inflation was low, interest rates were near zero, and the Federal Reserve flooded the financial system with liquidity through quantitative easing (QE). Investors came to believe the Fed would step in whenever financial markets got into trouble.

But the Fed can’t make the same guarantee for real assets or the real economy.

The result? Capital flowed into financial assets like stocks and bonds because investors expected Fed support. That helped inflate asset prices, benefiting those who owned them. Meanwhile, investment in the productive economy—the factories, energy, infrastructure, and industries that raise the average person’s standard of living—lagged behind.

The stock market climbed, but many Americans saw their purchasing power erode as the cost of living outpaced their wages.

This is why I am always saying that the stock market is not the economy.

It’s often easy to see the unintended consequences in hindsight. The hard part is recognizing them while they’re happening.

This is another reason that I believe we are entering a period of natural resource scarcity. We have under invested Capital and exploration and development of real things for a long time. 

Whether OpenAI or any other AI company ever becomes consistently profitable is almost beside the point. Every AI model still requires enormous amounts of electricity, cooling systems, transformers, copper, networking equipment, and reliable baseload power to operate.

If AGI arrives, infrastructure demand accelerates. If AGI takes longer than expected, data centers still need to be built, expanded, and powered.

AI requires massive amounts of power, and power depends on fuel. Yet fuel supply is under pressure from depletion, years of underinvestment, and geopolitical attacks on critical energy infrastructure—all at the end of a decade-long commodity bear market that constrained capital investment.

I’m not trying to pick the winning AI model. I’m looking to own the businesses that supply the picks and shovels: the energy, electrical infrastructure, and industrial backbone that make AI possible.