Elon Musk becoming ‘the new central bank’

In a conversation exploring the collision of traditional finance and futuristic technology, top Wall Street strategist Tom Lee sketched out a wild “black swan” scenario in which the global financial system is upended not by the Federal Reserve, but by Elon Musk.

Speaking at a live recording of SoFi’s The Important Part podcast at WNYC, the Fundstrat cofounder and head of research raised his eyebrows and offered various thoughts on the asset, wowing the crowd and drawing smiles and laughs from co-panelist Michael Lewis, author of The Big Short, and podcast host Liz Thomas, head of investment strategy at SoFi. Not only is gold a “Lindy effect” asset, Lee said, but it’s also a “demographic” story, in Lee’s opinion, that has to do with nostalgia. All that, and he sees a “black swan” tail risk that involves Musk, the world’s richest man, discovering a new asteroid and becoming the world’s central banker.

In Lee’s opinion, gold is “probably a demographic story,” noting Fundstrat does a lot of demographic research, and it’s found “preferences skip a generation.” For instance, every 50 years you get another peak in RV, or recreation vehicle, sales. Noting the peak in RV sales during the pandemic, he said the last time sales were so strong was during the 1950s heyday of I Love Lucy.

“Kids don’t buy what their parents like,” he said, “but they buy what their grandparents like.” And gold, he concluded, was “really a big investment for the boomers,” whereas Gen X went into hedge funds and alternatives.

Lee said gold was comparable in size to the stock market, with data backing him up, gold having a total “above ground” valuation of $29 trillion to $34 trillion, which compares to the Magnificent 7’s roughly $21 trillion market cap.

“By the way,” he added, “it all fits in a swimming pool, all the gold in the world.”

Lewis commented his palms were starting to sweat, “just imagining” this idea. “Saliva starts coming to your mind,” he said.

Lee continued on, saying gold is a “Lindy effect” asset: something that, because it’s been agreed upon as a store of value for many years, is still accepted in that way. What could disrupt this? This is where it gets to Musk.

One key risk for gold is the above-ground aspect.

“There’s a million times more gold underground than above ground today,” Lee estimated, nodding to estimates that most of the gold on earth is inaccessible. If gold gets too expensive, he argued it would create perverse incentives. “Like, literally, Mag 7 is just going to get into the gold mining business, right? Because you might as well just dig for gold. It’s more valuable than anything.”