Introduction

The following report provides word-by-word transcripts of the General Session

presentations from the 2018 New Orleans Investment Conference. It represents an
incredible value — hundreds of pages jam-packed with some of the most insightful,
enlightening and entertaining investment information you’ll ever encounter.

We are confident that you’ll deeply enjoy the analyses, forecasts and specific
recommendations provided.

However, by the very nature of having these presentations transcribed by an

independent service, there will be errors in the resulting document. We’ve tried to catch
most of them, but please forgive those that snuck through.

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 TABLE OF CONTENTS
Guy Adami ..........................................................................................................................4
“Forewarned Is Forearmed: Where Are The Markets Headed?”
Pamela Aden ....................................................................................................................11
“What’s Happening On The World Stage And What To Do Today”
Juraj Bednar .....................................................................................................................16
“Cryptocurrencies As An Asset”
Peter Boockvar ................................................................................................................20
“Buckle Up”
Booms, Busts & Bubbles Panel ....................................................................................28
Albert Lu (MC), Ben Hunt, Mike Larson, Peter Schiff
Sean Brodrick ..................................................................................................................44
“The White Hot Metal That Will Make You A Millionaire”
Doug Casey ......................................................................................................................49
“Collapse Of The Markets? No Problem. The Collapse Of Western Civilization?
Big Problem”
Charles Krauthammer Retrospective Panel ................................................................58
Gary Alexander (MC), Jonah Goldberg, James Carville, Brien Lundin, Jason M.
Smith
Adrian Day ........................................................................................................................68
“How To Minimize Risk In A High-Risk World”
Dennis Gartman ...............................................................................................................73
“Money Flows, Monetary Policy, And The Midterms: A Trader’s Perspective On
The Capital Markets”
Economic Panel ...............................................................................................................83
Mark Skousen (MC), James Grant, Dennis Gartman, Peter Boockvar
Geopolitical Panel ...........................................................................................................97
Gary Alexander, Mark Steyn, Jonah Goldberg, Doug Casey
Global Investing Panel ..................................................................................................111
Albert Lu (MC), Adrian Day, Guy Adami, Doug Casey, Mike Larson
Jonah Goldberg .............................................................................................................123
“The Future And Past Of Conservatism”
James Grant ...................................................................................................................135
“Humanity’s Worst Subject”
Nick Hodge .....................................................................................................................145
“Real Investments For A Fake World”
Ben Hunt .........................................................................................................................151
“Investing In The Fake News Age”
Byron King .....................................................................................................................160
“A Nation On The Edge Of Forever”
Robert Kiyosaki & Tom Wheelwright ..........................................................................165
“Why Debt & Taxes Are Making The Rich - Richer”
Mike Larson ....................................................................................................................181
“The “Uber Bust”: Causes, Consequences, And Profit Opportunities”
Sean Levine ....................................................................................................................189
“The Oil Story Is Just Getting Warmed Up”

Brien Lundin ...................................................................................................................195

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 “What’s The Next Multi-Bagger From Gold Newsletter? Top Opportunities In
Junior Mining Stocks”
Mining Share Panel .......................................................................................................202
Rick Rule (MC), Brien Lundin, Nick Hodge, Lobo Tiggre, Byron King
Peak Prosperity .............................................................................................................217
“The Crash Course: Our Unsustainable Future”
Chris Powell ...................................................................................................................228
“Gold Market Manipulation Update”
Robert Prechter ............................................................................................................234
“Three Key Markets Are Due To Reverse Trend”
The Real Estate Guys Radio Show .............................................................................239
“Keeping It Real In An Unreal World”
Rick Rule.........................................................................................................................249
“With My Money, Natural Resources Investments”
Peter Schiff .....................................................................................................................258
“Is The Trump Boom For Real? “
Precious Metals Panel ..................................................................................................268
Thom Calandra (MC), Dana Samuelson, Omar Ayales, Matt Warder, Rich
Checkan
Mark Skousen ................................................................................................................285
“A Viennese Waltz Down Wall Street: My Formula For Finding High-Profit
Opportunities And Avoiding Fools Gold”
Mark Steyn......................................................................................................................290
“Steyn On America”
Lobo Tiggre ....................................................................................................................302
“The Single Best Commodity To Speculate On Today”
Matthew Warder .............................................................................................................308
“Current Status Of Commodities Markets”

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Guy Adami
“Forewarned Is Forearmed: Where Are The Markets Headed?”

Lindsay Hall: Next up you have Guy Adami who is a TV personality, author, financial analyst,
and professional investor. He’s one of the original fast money five on the show
Fast Money on CNBC. Adami joined Goldman Sachs’ commodity group J. Aron
as vice president in 1996 and six years later he left Goldman Sachs to become
an executive director at CIBC World Markets.

It was during this tenure at CIBC World Markets that he became a contributor
CNBC’s Squawk Box and later a permanent cast member on Fast Money. He’s
also currently managing director at Drakon Capital. In March 2009, he took on
the position of vice chairman at TradeMonster. In 2012, Adami completed the
first ever New York City Ironman challenge with a time of 16:19:52. With that
being said, welcome your TV personality, expert, and Ironman from New York
City, Guy Adami.

Guy Adami: That last panel, that killed me. My god, I wanted to get out of here on a plane as
fast as I could. Usually I’m the most bearish person in the room. I think on that
table I was the most bullish. But it was an honor to be on that panel, it’s an honor
to be in front of you folks here.

We don’t have a lot of time so, when I typically speak I like to tell just a little bit
about myself. I think it’s important for the audience to sort of know who you are
and how you’re wired. I’m the oldest of five kids. My mom and dad met in 1960,
the first day at law school at Fordham University. My mom was one of five
women in that class. On the first day of class, the professor looked to her and
said, “Why are you here?” Looked at another young lady, “Why are you here?” If
you’re here to meet your husband, you’re in the wrong place. This is 58 years
ago.

Well my mother and those other four women graduated from law school and they
all went on to do amazing things. My mom took the bar exam in March of 1964,
having given birth to me in December of 1963. I mention that because I think I’m
sort of wired the way a lot of you folks in this room are wired. I don’t take
anything for granted and I’m always sort of pushing. I don’t allow people to define
who I am. I learned that sort of from my mom.

She wasn’t going to be defined by that professor, nor were those other four
women, and you know what, I’m not going to be defined by things either. I’m
always trying to push and to try to figure out what lies beneath the curtain. What’s
the unforeseen risk. By the way, sort of fast forward to that. A few years ago, five
years ago I took my mom to her 50th reunion from law school. The other four
women were there as well. To a person, every man in that class that was there,
came up and said how proud you should be of your mother and these other four
women.

I think it’s important because don’t allow people to define who you are. But quite
frankly, you’re the only person that’s putting obstacles in the way of yourself.
Whether you’re a trader, whether you’re an investor. Your success, your failure
really is predicated on the obstacles you put in front of yourself. Lindsay
mentioned that I did the Ironman, I think it’s now six years ago. August 2012. I’ll
give you a quick backstory of an Ironman.

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I’m on the board of directors of the Leukemia Society in New Jersey. Before my
first board meeting, on our show Fast Money, we had the three guys that were
putting together the logistics, the licenses, all the ancillary stuff to put on what
would be the first ever New York City Ironman. It took these guys five years to
put everything in place and they came on our show. They talked about how in
August of 2012, 2,500 people will jump in the Hudson River in an attempt to
become an Ironman.

I’m saying to myself, man that’s pretty cool but who does this. I mean, these
people are insane. Took their card, left the show, and I attended my board
meeting at Leukemia Society a few days later. At that board meeting, at the end
of the meeting, a gentleman stood up. Talked about how he had just survived
AML which has a 16% survival rate. Now he’s doing triathlons to raise money for
the foundation.

Of course the light bulb went off in my head and I’m like, “Wow.” I just met the
three guys who are going to put on the first ever New York City Ironman, I bet if
they call them they will give us, us being Leukemia Society, some spots for the
Ironman. These things typically sell out anywhere from five to fifteen minutes.
Sure enough, I made the call and I was able to get ten spots for the Leukemia
Society.

Well there’s a saying in life, no good deed goes sort of unanswered. I typically
should see things. I fashion myself somebody that sort of sees ahead and figures
things out. But I didn’t see this one coming because they called me back and
said, “You know what Guy, that’s fantastic but we want you not only to put
together the team for the Ironman, we want you to be on that team.” At the time
I’m I think 45-46 years old, I weigh about 239 pounds, I fashioned myself a
decent athlete at one time. But I was a meathead athlete. I played football and
basketball. I wasn’t a long-distance runner. I didn’t run, I didn’t swim, and I didn’t
bike.

I’d get out of breath walking up a flight of stairs. I don’t even know what my blood
pressure was. It probably wasn’t important. I’m Sicilian so unless there’s a bone
sticking out of my arm I’m not going to a doctor. I’m one of those people. But I’m
about to say to myself, you know what, there’s a reason why I met these three
guys. There’s a reason why I’m on the board of Leukemia Society and I said I’m
going to do it. Everybody to a person either laughed at me to my face or laughed
at me behind my back. Nobody thought I could do it. Quite frankly, I didn’t think I
could do it either.

But over the course of the next eight months, I whittled myself down from about
239 pounds to 190 pounds. I got my resting pulse down to 46. I jumped in the
water that day along with 2400 of my closest friends to try to complete the first
ever New York City Ironman. Now, if you don’t know what an Ironman is, it’s
pretty cool. 2.4 mile open water swim, 112 mile bike ride, followed by a
marathon, 26.2 miles and they’ll tell you the point two miles is really what gets
you. You have 17 hours to finish. They typically start at 7:00 am and they end at
midnight.

Little anecdotal story, hopefully you all ate breakfast. The Hudson River is not the
most pristine body of water in the United States. It was made less pristine three
days prior to the Ironman because there was a raw sewage spill in Tarrytown,
which is North. The water flows from North to South and that’s the way we were
swimming. But the swim went off, I got out of the water in an hour and nine
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minutes which was remarkable. In my day, for me that was it. The fact that I
didn’t drown was a miracle. But 16 hours and 19 minutes later, as Lindsay
mentioned, I completed the first ever New York City Ironman.

Zero business doing that thing. Point is, huge obstacle, I was able to overcome it
because if you put your mind to something in life, you absolutely can overcome it.
Sort of on another anecdote, we raised almost $700,000 for the Leukemia
Society. Which I think is in large part why I was able to finish that day, because I
did it for the right reasons. As investors, as in traders, to the extent that they’re
traders out here or investors out here or people that think differently than
everybody else. You’re always going to be challenged, you’re always going to be
challenged by people who say they know better that you are or they know things
that you don’t know. Or maybe you’re looking at the world differently.

You know what, push back on those challenges. Look at the world the way you
look at the world. Don’t let others define how you’re going trade. If you put on a
good investment, it’s because you put it on, not because you heard about it on
CNBC. If you put on a bad trade or a bad investment, quite frankly it’s because
you put it on not because you heard it on CNBC. Live and die with your own
thoughts.

Now let’s talk quickly about the markets and the environment we find ourselves
in. Fast Money is an interesting show. Hopefully some of you folks have seen it.
If we make it to January it’ll be 12 years on air, which is pretty remarkable.
People ask, “How did you wind up on this show?” Again, I’ll give you a quick
story.

I was a commodities trader. I worked at Drexel Burnham Lambert in the 1980s. I

left Drexel to go work at Goldman Sachs. I worked at J. Aron which is the
commodities, the fixed income, currency and commodities group within Goldman
Sachs. I worked with Gary Cohn, I’m sure you know that name. I worked with
Lloyd Blankfine. I’ll give you a quick Lloyd story because this is sort of the way he
and a lot of the folks at Goldman were wired.

They called me up in the Spring of ‘96 and they said, “Listen, we’d like to come
talk to you about potentially working at Goldman Sachs.” I said, “Absolutely. Tell
me where to be.” They said, “Come down to 85 Broad Street on some random
Friday.” I made my way down to 85 Broad Street, the headquarters of Goldman
Sachs. In a room I met with a guy named Jim Riley, who none of you should
know. I also met with Lloyd Blankfine, who hopefully all of you will know. They
sat me in a conference room and they said to me, “We’ve followed your career,
you’ve done a great job trading gold for Drexel, subsequently AIG. Our gold
trader is leaving to go work in London, we’d love for you to come over.” I said,
“Wow. Lloyd, Jim, this is amazing. It’s humbling. Thank you so much.” I said to
them, “Do I have any time to think about it?”

Lloyd said, looked me in the eye and said, “Guy, you have all the time you need.
I just need an answer before you leave this room today.” It was then that I knew
that was my first test at Goldman Sachs. That was my absolute first test. Even
though I didn’t work there yet, I was being tested. I said, “You know what Lloyd,
you’re right. When do I start?” I trusted my instincts. I find in life, and I believe this
with all my heart, I think we’re all born with great instincts. I think the only time we
get ourselves in trouble in life, whether it’s athletically, educationally, personally,
relationship wise, or investing wise, is when we fight against our instincts.

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I think we should always trust our instincts. I trusted mine that day and it got me
into J. Aron. Now, at J. Aron at Goldman Sachs nobody goes on TV except a few
people and I was never on that course. I was also not on the course to be a
partner at Goldman Sachs. You’re either on the partner track or you’re on the
Guy Adami track. I was sort of on the Guy Adami track. When I was there there
was 6,000 people at Goldman Sachs and everybody thought they were going to
be partner. The reality is, that wasn’t going to happen.

At a certain point you have to make a decision there. You’re either going to stay
in your current role or you’re going to say, “You know what, I’m not on the partner
track, maybe I can lever this and move on.” I chose the latter, I levered it and
moved on and went to work at a place called CIBC. Within one of my first few
weeks at CIBC, CNBC came in with a camera crew. Bertha Coombs was the
anchor that was there.

We were doing our charity day at CIBC. They came in and said, “We’d like to
interview a few traders during the day.” Nobody wanted to do it. One of the guys
came up to me and said, “Guy look, we’d really like you to do this. Nobody wants
to do it. Would you mind going on CNBC?” I said, “Yeah. Sure, I’ll talk about
whatever you want me to talk about.” I went on, I was on with Bertha Coombs, it
was Liz Clayman’s show. It went pretty well. A couple weeks later I got a phone
call from Liz and she said, “We really liked what you did last week. Would you
mind coming on sort of a weekly spot?”

I said, “Absolutely.” That coincided with Jim Cramer’s show Mad Money. Now, as
a lot of you folks know, Jim did a show with Larry Kudlow called The Kudlow
Report, show was awful. Why was it awful? Because both of those guys are
brilliant but neither one of them were themselves around the other guy. They
were so respectful of each other that it made for miserable TV. A woman named
Susan Krakower came to CNBC and said, “Alright look, this show is miserable so
this is what we’re gonna do. Larry, you’re gonna get your own show at 5:00 each
day called The Kudlow Report and Jim we have an idea for you.” The idea for
Jim was Mad Money.

Within six months that show absolutely explodes. But in television, it’s sort of
what’s next. They ask Susan, “What’s next?” She had been incubating an idea
with a guy named Dylan Radigan about a show about traders. What is a trader,
what do they look like, how do they interact with each other, what’s their
relationships, what do they do when the market’s closed. They wanted to
replicate that on a television show.

Over the course of about six months, from November of ‘05 to sort of early
Spring of ‘06, CNBC brought in about 450 people. Effectively anybody that ever
been on a network in any capacity, to screen test for, interview for, talk about a
yet to be named show. They picked me and they picked three other guys. Jeff
Mackie was one of those folks. A guy named Tim Strazini and somebody who
may folks know, a guy named Eric Bowling and Dylan Radigan was our host.

All through the backend of 2006, we did what is now Fast Money as an eight
minute segment on an existing show. As fate would have it, in September, Larry
Kudlow went on vacation. The Thursday before he was going on vacation the
network came to us and said, “We’ve made a decision, you guys are now going
to have Larry’s spot next week.” Instead of doing eight minutes once or twice a
week, you’re going to have an hour long show from 5:00 to 6:00 next week.

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None of us were journalists except Dylan. I don’t consider myself a journalist
now. But we were able to pull it off and the show went really well. The numbers
were great. By the end of the year it was pretty clear that we were going to get
our own gig. Well, I still had a day job at CIBC. My firm came to me and said,
“Look, we’ve allowed you to do this for the last six, seven months but it’s
untenable at this point. You have to make a choice.” I said, “Look, I understand
that this show, this CNBC stuff is really great for me but I also think it could be
great for the firm. It’s a great way to brand the firm.”

They didn’t see it that way. Here’s where trusting your instincts come in as well. I
was in my early 40s, three kids, mortgage, the whole rig. I said, “You know what,
I think you’re making a mistake but if you’re asking me to choose, I choose
CNBC. I quit.” I left to join a show that might’ve lasted a week, a month, maybe
six months, but certainly not a year. I tell that because if we make it to January,
and they always say if, if we make it to January we’ll have been on air for 12
years. Which is a remarkable run on TV.

What we try to do is help people and navigate. We’re not a stock picker show.
We try to help navigate the waters. You’ll recall in ‘08-’09, people were flocking to
Fast Money in numbers that CNBC had never seen before. We saw things on a
daily basis that hopefully we’ll never see again. But quite frankly, none of us had
ever seen before. But we helped sort of navigate those waters.

What I also think it did, it empowered people. Because for a long time Wall Street
was a place where, don’t worry about it we got it. We’re smarter about your
money than you are, we’ll take care of it. What ‘08-’09, taught people is, wait a
second, these so-called experts, which I am not by the way, but they don’t know
any more than I do. I can lose money just as easily as they can lose money. I
think it empowered people to invest, to trade on their own.

It also helped people to ask the right questions and to maybe look at the world a
little bit differently. Let’s talk about the world real quick. Because I share a lot of
the same views that the panelists did as well. But I want to say this, I’m always
been in terms of my professional career, a half-empty person. I think it’s really
important to put that out there. I’m always looking for the next exogenous event.
I’m always looking for the next shoe to fall. Prepare for the worst and hope for the
best.

When I played football a hundred years ago, if we won a game, that’s when the
coach would get on us the hardest. Now, the last couple weeks notwithstanding,
the stock market’s basically only gone up for the last eight or nine years. Now’s a
really good time to point out what potentially could go wrong. October 8th, 1871
was the day of the Great Chicago Fire. It also happened to be the day of a fire in
Peshtigo, Wisconsin. To this day, it was the deadliest fire in the history of the
United States. Depending on what textbook you read, it killed anywhere from
1,500 to 2,500 people.

From that fire the National Forestry Service was born. Their main job, their
mandate, was fire sequestration. Why? Because clearly forest fires were
destructive but they were also very deadly. If somehow they could sequester
fires, it would be in everybody’s best interests. For a long time they were able to
do just that. But what they learned was, forest fires are a natural part of the cycle.
Old trees burn down, new growth comes up, and that’s how the forest survives.
Darwinism at its very best.

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Yes they’re unsightly, yes they’re destructive, but more importantly they’re
necessary. What they learned was, trees that had been impervious to fires were
now falling victim. Why? Because the fires that were necessary that were being
sequestered were five times worse when they finally did happen. Why do I bring
that up? Because in my opinion that’s exactly what’s happened with our Federal
Reserve and it started under Chairman Greenspan.

He said to himself, correctly, that they would be able to chemistry out or

orchestrate out the recession from the cycle. They were able to do that. But what
we learned the hard way is, recessions are a natural part of the cycle. If you don’t
allow them to happen, bad things will be 10 times worse. I think in ‘08-’09, that
was a manifestation of exactly that.

But I also believe in my heart that the problems of ‘08-’09 weren’t solved, they
were just moved. They were just moved from the balance sheets of banks to the
balance sheet of our Federal Reserve. As I mentioned earlier, I was something
called a prop trader. A prop trader’s job is to make bets and to make bets on
things going higher and to make bets on things going lower. Putting on a position
is the easy part.

I’m a huge Giant fan, okay. You go to the Meadowlands on a pristine October
Sunday, you go, everybody drives there. But driving in on these beautiful days,
everybody drives in, they’re ladies and they’re gentleman. You first, no after you,
enjoy the game. Everything’s beautiful it’s going to be a great day. Everybody
enters as human beings. Then the game starts, Giants go down 17 to 3. Third
quarter starts, some rainclouds come up. The other team scores another
touchdown. Before you know it, it’s 24-3. Mid fourth quarter, everybody decides
to leave at the same time because now it’s raining.

But those same people that went in as ladies and gentlemen, leave like absolute
animals. You’re not leaving the same way you came in. It’s easy to get into the
Meadowlands, it’s really hard to get out. It’s the same way with prop trading. It’s
easy to get into a position, it’s really hard to get out. What’s my point? My point
is, in my opinion, our Federal Reserve put on the biggest prop trade in the history
of mankind. Their balance sheet ballooned to almost $5 trillion under Chairman
Bernanke and under Chairman Yellen.

What are they trying to do now? Well, they’re trying to exit this trade. They’re
trying to do it in a way that’s going to be non-disruptive. But almost by definition,
it has to be disruptive. Now if you listen to the President, correctly or incorrectly,
he’s talking about how Chairman Powell and the Fed is moving too quickly. But I
ask you folks this following question, to think about and these are not my words.
The President has said on a number of occasions, maybe correctly, maybe
incorrectly, I don’t know I’m not an economist. I’m not smart enough or humorous
enough to be one. But he has said that this is the greatest economy in the history
of our republic.

Maybe it’s true. Unemployment rate just ticked down to what? 3.7-3.8 percent-
ish. Obviously we’ve seen wage growth now for the first time, a significant wage
growth for the first time in decades. Consumer optimism is through the roof.
Small business optimism is through the roof. All those things are true. Until
recently, our stock market’s been on fire. Maybe the economy is the greatest in
the history of our republic.

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But if in fact that’s the case, then why are interest rates still basically at flat. Fed
funds and inflation are basically the same thing. We’re talking about zero percent
real interest rates. If our economy can’t handle normalization, then maybe the
economy’s not as strong as we seem to think it is. But what is the economy? I’ve
said this on the show and I want you to think about this as well.

Does a recession cause a market selloff or does a market selloff cause a

recession. I ask that as a serious question. I think I know the answer. I happen to
think it’s the latter but that’s what makes markets. Why do I say that? Well, 73-
74% of our economy is driven by the consumer. It’s driven by events like this, it’s
driven by the fact that 100,000 people will probably show up tonight in Baton
Rouge to watch the Alabama, Louisiana State game. Half the amount of those
people-ish, will show up tomorrow to watch the Saint and the Rams. They’ll all
buy beer. That’s our economy.

People will spend money as long as they feel good about things. What are
things? Again my opinion, all I think consumer optimism is, is an overlay of the
S&P 500. In my option, when the stock market goes higher, people feel better.
Now you say, “Well wait a second. Everybody doesn’t have money in the stock
market.” That’s true. But for whatever reason, whether you have a dollar in the
market or not, if the stock market’s going higher, you feel wealthier. If you feel
wealthier, you’re more inclined to spend.

If you spend, that drives our economy. As long as you feel good about things,
you will spend. I hear it on the network all the time. The US consumer has never
been better. I don’t know necessarily about that. I never question the US
consumers’ want to spend. Never underestimate the US consumers’ want to
spend but should they be spending? Right now, consumer debt to GDP is about
54%, the highest level we’ve seen in quite some time.

By the way, anecdotally again, people talk about corporate balance sheets never
looking better. Maybe that’s true. But corporate debt to GDP is right around now
50%. My opinion, we have a tremendous debt problem but it hasn’t manifested
itself in the market yet ‘cause everybody feels so good about things. But if the
market were to start to turn, and we’ve seen glimpses of it obviously over the last
couple weeks. If the market becomes a story, and not a story for the right
reasons, will people stop spending? Will people say, “Wait a second. What’s
going on out there?” That’s my concern.

While I’m railing against the Fed and I happen to think, by the way, that
Chairman Powell is doing all of the right things. I want you to think about this as
well, unintended consequences. History is littered with disastrous outcomes born
of great intentions. All throughout history that’s the case. I also think it’s the case
here. One of the unintended consequences, in my opinion, of a central bank
that’s been extraordinarily too accommodative for the last decade, it’s made
corporate America lazy.

What does that mean? Well, I’ll give you two great examples. When money is
cheap, corporations don’t have to really focus and examine their businesses.
They borrow money, they buy back their stock, they pay a dividend, the market
goes up, they look like geniuses. They don’t have to forecast, they don’t have to
take critical looks because the market’s doing it for ‘em. The market’s made
corporate America lazy. The central bank has made corporate America lazy.

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 You want proof positive? I’ll give you two examples and you know both these
companies. Look at General Electric over the last decade and look where it
closed last week. Look at IBM as well. Both those companies bought back
ridiculous amounts of stock but yet didn’t focus on their business model. Well you
say, “IBM I mean, that was just old tech. All old tech was gonna die.” No, not true
because if you look down the street at Microsoft under leadership of Satya
Nadella, they actually were able to make that pivot. So it’s not all companies.
Some companies got lazy, other companies didn’t.

The Federal Reserve, in my opinion, did not allow corporate Darwinism to work.
We’re starting to see it manifest itself in some of these companies. I don’t want to
leave you all doom and gloom. I do believe in the United States and our
entrepreneurial spirit. My biggest concern is the central banks, our Fed
specifically, has curtailed and sort of squashed that over the last few years.

I think we’re in for a heightened point of volatility but I also think it’s a great time
to look at your portfolios and to ask the tough questions. Hope is not an
investment thesis. Thanks for having me everybody. I appreciate it. Enjoy the
conference.

Pamela Aden
“What’s Happening On The World Stage And What To Do Today”

Robert Helms: So Pamela and Mary Anne Aden are the co-editors and publishers of
Aden Forecast, a monthly newsletter, now in its 37th year, famed for its
precise forecast of the precious metal markets as well as forex and the
US and global stock markets, interest rates and bonds, and the global
economy. They also publish Gold Charts R Us, a weekly trading service
founded by the retired legendary investment advisor, Sir Harry Schultz,
and we met him yesterday, Omar Ayales, is its chief trading strategist.
Aden Research also now publishes Richard Russel’s famed Dow Theory
Letters, as a joint collaborative writing effort with an expert team of
seasoned analysts and writers, and Aden Research sponsors the Daily
Pfennig, written by Chuck Butler.

The Aden sisters have been featured in all kinds of major publications,
including Business Week, Smart Money, Barrons, The Wall Street
Journal, and Forbes. So here to talk about what’s happening on the world
stage and what to do today, please welcome Pamela Aden.

Pamela Aden: Thank you very much, and it’s great being here with you tonight. Tonight,
I’m going to focus on what’s happening and the best places for your
money. It’s been a good year, actually, for the stock market and the
economy, well except for this past month. Now that’s kind of tossed
another uncertainty, and everyone’s getting nervous on top of the election
coming up next week and the trade wars, so it’s been a volatile month.
Basically, what I’d like to do is talk about the top five items that are
moving the markets and what we can do about them.

I’ll start with number one, which is President Trump, because he does
move the markets. The stock market has surged on President Trump’s
optimism, the market believes his presidency has been good for

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business, and it’s also pushed the economy way up. Despite recent
volatility, it’s telling us that no recession, yet, and the stocks look ahead,
like six to eight months down the road for the economy. So you’re saying,
“Well, what about the fall?” This is another story, in a moment.

The first chart I’d like to show you is ... can’t see if it’s on there ... I’m
starting with this, because I’ll tell you in a moment why. The Bull market is
still in force, the 10 year old, almost, Bull market, and even though it’s
declined the S&P 500, which is this chart, going back to 2007, it’s
declined almost 10% since late September. It’s actually not as bad as the
two you see there, the 2011 and 15. I’m just giving an example of “What
does a downward correction look like in the stock market?” It’s been a
Bull market for 10 years. Those declines were 14 and a half per cent on
one of them, and the worst was almost 20%. We’re not there yet, doesn’t
mean I have to do it, but the whole question today is, “Is this a correction?
Or is it the beginning of a Bear market?”

Of course, everyone’s heard about the phases in the Bull market. All Bull
markets are the same, actually, and gold has this, too. But when a Bull
market, the first phase is when smart money goes in and then the second
phase starts coming and there’s more news and more people start
coming into the market, and the third phase is the frantic phase, when
everyone pours in, and it’s wild. The madness happens. Now that hasn’t
happened yet. It doesn’t mean it has to happen, but it normally does
happen. In the third phase, we’re thinking, if there’s going to be a melt up,
as many people talk about, it would be happening now. We’re like in the
eighth inning of a game, so it’s coming close to the end. So if you’re in,
we say, stay with it but stay cautious and be quick to know that it’s a
maturing Bull market coming up.

On the downside, just to cover that a moment, since it has been in a

down correction, the transportation’s hit a new low, if we see the Dow and
the NASDAQ reach new lows for 2018, we’d pretty much say that’s pretty
much ... I wouldn’t want to be in the market after that. Those are the
numbers we’re watching for, 23 thousand five something on the Dow, and
67-75, but anyway, numbers are kind of boring right now. That’s the idea,
it would be a new low for the 2018.

So this is what we’re watching for on that. The positives and negatives
facing the economy, which is the number two, but all things considered,
the positives are still pretty more weight and have more weight than the
negative. Now we go back to 2008, and the world was on the brink. The
greatest crisis since the Great Depression, as we all know, and desperate
measures were taken when the World Central Banks created tons of
money. All this money that’s floating around has caused many of the
markets to soar and boosted the economic growth. Aside from the stock
market, real estate, of course went up. And inflation has been picking up.
As you can see here, it goes back a few years, you can see it’s on the
rise, in spite of it coming down a bit in the recent months. It’s tame, but it’s
on its rise. And as long as this continues rising, it will effect the gold
market and the stock market.

Now there’s something really interesting happening, and this is what

we’re actually very exciting to be watching closely right now. The
movement and the interactions that the stock market has with the gold
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price. If you go back to the ‘60s, there’s a correlation that’s very
interesting. I’m not going to show you the details, I will in the workshop
tomorrow night, but for now, it’s enough to tell you the bottom line of this
study. For example, just to give you an example, when one of the markets
is an underdog, like gold has been now, and like it was after the 20 year
Bear market in ‘99, 2001, when it’s starting to turn on that point, on top of
the roaring Bull market, when there’s one loved and one hated so much
that when those start crossing over, they tend to cross over and rise
together. Of course, the underdog doesn’t look like anything ‘cause no
one’s really paying attention to it.

We think that’s what’s happening with gold and the stock market now. We
think it’s in one of those trading places moments that could last a while
longer, but we think there’s going to eventually be a trade off, that gold’s
going to start in the Bull market, and the stock market’s going to end its
Bull market, and they’re going to trade places. I can show you more
clearly in the workshop, but this is what we’re watching closely, and we
think that’s the bottom line, that they are in the process of changing
places, and it could last a while longer, but we think that’s what’s
happening right now. A maturing, roaring, loved Bull, and a hated market
that has been actually bottoming for several years.

Now the next up, number three on the list of the five, is interest rates.
Economic growth has made the Fed confident about raising rates ... As
we know it, the Feds rose their rates for the third time this year, and it’s
become a very big deal, because President Trump doesn’t want interest
rates to rise and he thinks they’re moving too fast, and it’s not necessary.
Rising interest rates are a relatively new situation as we all know. The
markets are feeling it because it’s going too fast, even though it went like
from zero to two, it was fast. I think the fastness is what’s causing to
effect the markets. ‘Cause we originally thought, “Well going from zero to
three or four per cent wouldn’t really effect the markets that much,” but
they are going fast, and that’s what’s effecting the markets, and
remember, the global economy was on such thin ice when the Fed and
the rest of the World Center banks had to leave rates near zero for all
those eight years, and some are still at or below zero, like in euro and the
yen, the Japan.

The US is basically the Lone Ranger in raising rates right now. That’s
kind of the glaring difference which is actually hurting the global economy.
To show you the next chart, interests going back to five thousand years.
That’s right, three thousand years BC. So this is showing you that this is a
unique situation we have been in the last eight years. Such low rates. And
we’re now rising, we’re seeing the rise from these low rates, and indeed,
we’re seeing a confirm that rates are now heading higher, moderately
higher, and eventually just heading higher. They don’t change very often.

The next chart I’ll show you shows you that it doesn’t change very often.
It’s the longer term 30 year yield as the longest out when it goes back to
1930. And you can see here how it doesn’t change. It’s a very steady rise,
like from the ‘40s to the ‘50s, ‘60s, up until 1981, it was above the red
line, saying the mega trend is up, and it was up, interest rates were rising
all that time, ‘til they turned down in the early ‘80’s, and you can see
they’ve been a very steady decline since then. Only now, this year, did
they rise above and stay well above this mega trend, so the 30 year yield
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above 3%, is a very bullish interest rate. Not right to say bullish, but it
means the mega trend has turned up, and rates, not that they’re going
screaming higher, but their trend is now up, from here going forward, and
into the years to come.

We always have a good story to tell on the flip side of this. Back in 1981,
at that peak on the chart, a friend of ours, in interest rates, remember, the
long term yield was the 15%. Bond prices were collapsing. There’s only
one person we knew that actually was buying bonds and a lot of
government bonds at the time, and held them for those 30 years. At the
expiration date, he walked away with huge bond profits, and double digit
interest collected during that time. That was amazing. But he did do it.
The point is now, we’re on the opposite end, now we’re going to have
rising rates for probably the decade to come, just a steady rise, just like
the steady decline.

And not to be a party pooper, but on the fourth point, I’d like to tell you
about black swans. Those are always the unexpected events that come
out of nowhere. We saw that with the subprime problem in 2007, and it
usually takes most people by surprise, and I know at that time, they did,
they took everyone with a surprise, including ourselves. But those are
called the wild cards, and we think a wild card’s very likely to come out.
So this month has been a wild month, but it hasn’t been a wild card. The
2008 financial crisis was, like I said.

Everyone knows what was happening at that time, when the banks were
nervous. With the banking system teetering on the brink, stocks plunged
fast, and it could happen again. Now what could cause some of the likely
... What are some of the likely black swans that could come? We think
that one would be the tariff trade, is very much one of the ones that’re
going to come ... But first of all, I want to show you this.

With interest rates rising, and the dollar rising, and the trade tariff coming
on this month, this year, from April until August we saw everything fall out
of bed. The resource, the commodities, gold. So everything fell, and look
what happened with Turkey, Argentina, and India, just for an example.
This is just a small example of what happened. That’s what the trade tariff
did to the emerging worlds and the developed worlds. The global world. It
caused all of them to feel the heat of rising, because everyone put their
debt, a lot of countries put their debt in dollars. We’ve seen that in Costa
Rica, ourselves, and we see the problem there, firsthand. But that’s
what’s happening all around the world today, ‘cause there’s a lot of US
dollar debt in the emerging world, and it’s hard to pay it back if you aren’t
making dollars. That’s a real problem in the world today.

So actually President Trump is correct. The stronger the dollar is, the
worse the world economy can become. And interest rates, too. So they
won’t be screaming up, but they’re moderately rising, and the dollar has
been rising, but we see it as a limited rise. We don’t see it yet, it has to
still prove itself to see that it’s really going to be all out. This is just an
example, all their currencies collapsed, their stock market’s down, and
actually, the stock markets in Europe have been down. So everything is
looking very weakish in the world, and the US being the gleaming light for
the moment.

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What’s interesting here, is what happened with all this coming up, look
what’s happening to gold, right now. What’s happening is that ... This is
just this year. You can see the fall, this is gold around the world. Gold
based is euros, Canadian dollars, the dollar, and the yen. And this is
showing you how much, since August, how much gold is rising in all
currencies. Now when gold rises in all currencies, it’s a Bullish sign for the
gold itself, ‘cause it doesn’t do that very often. It usually rises or falls with
the dollar, but when it rises in all currencies, that’s very Bullish for the
gold. This is a good start to a bad year. It’s really a good start, and the
fact that platinum is starting to bubble, silver looks like it’s ready to go,
when we start seeing the other precious metals themselves, starting to
look good, like gold, like it is right now... And the fact that it’s a seasonally
strong time for gold right now, we think that ... If you want to call it leg up,
we’re in the process of right now, is a very important leg to keep an eye
on for the turn around time that we think’s been going on in gold for a
couple years.

So we’re looking at that 1200 bottom that doesn’t seem to want to go

below 1200 right now, and we’re looking at 1380 right now, which I want
to show you here. Now if I go back, what I just showed you is part of this,
what we call the five year saucer bottom. So this is, since 2013, this is
what gold’s been forming. You can see the 1380, that’s like the magic
number. We think there’s a lot of good potential, but once it ever breaks
that, then there’s no stopping gold. You’ll really want to be on board
before then.

The big thing here, now, is, of course, like I mentioned, is the dollar. And
the fact that gold has been the most hated market in 17 years. It’s
unloved by the general masses. But we think that is a good sign of a
bottom itself. We can remember back in 2001 very well, many of you
probably remember that is how bad it really was in those days. Really, the
hard part of gold was when it fell that extra $50, really wasn’t that much in
dollar terms, but it was more the sentiment that really got it, with
everything else falling in. And so that was it. Central banks have been
buying, Hungary just bought a lot of gold, and all the countries have been
buying over this weakness period, so the demand is picking up, and
inflation is picking up, too. So we think gold’s time is coming, and it’s
actually here, it’s just not obvious yet, and we think that if you look at the
big picture, which is this one, going back to 1967, that doesn’t even look
so bad. It looks actually very good, and that’s the big picture of gold in the
free market.

We recommend, keep your gold. These low times are a good time.
Someone asked, “Is it good to buy in other currencies?” The currencies in
gold all fail together, so actually, it’s a good buy. I have a very nice
looking chart of gold in euros that looks great. So you don’t buy it in that
currency, you just know that it’s good in all currencies. It’s a good buy
regardless if you have yens or euros or dollars. It’s a good buy in all
currencies right now, which is unusual, and actually a very Bullish sign.

I’ll leave you by saying that I hope to see you in my workshop tomorrow
night at 6:00, I’m going into a lot more detail on this, and a lot of other
things, too. I think you’ll like it. And thank you very much.

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Juraj Bednar
“Cryptocurrencies As An Asset”

Gary Alexander: And our next guest is from Slovakia, Bratislava. He has nonprofits in both
Prague and the Czech Republic and Bratislava and these companies are
operating almost exclusively in crypto currencies. So he has experience
with using them as back end assets for running a business. He’s
interested in exponential technologies to increase liberty. He founded
several IT companies, mainly focused in IT security. This is a whole new
world to some of us older folks. We believe in gold, obviously, but to
some of us crypto currency is very new, and I’m very excited and happy
to have someone here to help us understand how to profit in these areas.
His name is Juraj Bednar, and he’s going to talk about crypto currency as
an asset. Please welcome Juraj Bednar.

Juraj Bednar: Thank you. Alright, thanks for having me. There’s really, people ask, what
is an Eastern European IT guy doing at an investment conference? That’s
a good question, most people think that we fix your computers, the truth is
that we usually break into them. So, the truth for me is that I used to do IT
security, so I was breaking into banks and trying to help them improve
security. Then I read the Bitcoin White paper, which kind of explained
how you can do transactions and decentralize money without having a
bank. So, I thought, okay this is great. It’s a technological innovation
because if there is no bank, I would actually have to break into all the
holders of bitcoin, into all the wallets that are there. I was very interested
in that and I said okay, we’re going to use it for everything, It’s amazing.
Then people started saying, “Okay, you can not, it’s not a unit of account,
it’s based on nothing. You can not actually use it.” So, my answer to this
question is usually, “Okay, have you tried?”

So we tried. We created this house that is running almost exclusively on

the crypto currencies, meaning we only take crypto currencies as a
payment. We have had some bumps, and it was a wild ride. The other
reason why I think it’s good that I’m here, is that I’m from Eastern Europe,
from a post-communist country, and we have experienced governments
stealing money from us. So, I think that it’s the best value proposition of
crypto currencies.

I’m going to tell you something about how I perceived the worlds now and
why I think crypto currencies have their place in this world as an asset.
First of all, I used to read books on offshore banking, and it’s like hiding
money in the tax havens and tropical islands and stuff like that. Recently I
realized that offshore banking is almost dead. It has some use cases but
due to Fatca here in America and for the rest of the world the equivalence
is always a common reporting standard. Which are basically ways, how
banks, wherever they are in the world, they have to report on all your
assets, all your capital gains to the tax office where you’re a tax resident.
So even if you have a bank account in an offshore bank, there’s no
banking secrets. It’s no longer secret, and they have to report everything.
So there’s a lot of financial surveillance, also it is very difficult to conduct
business with these banks because they will ask you questions like,
“Source of funds, what are contracts, how did you get these funds and so
on.” So it is very slow and painful to transact.

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Also, I think we can count on some scary governments being out there.
This is how much Venezuelan bolivars you needed to buy one banana.
It’s out of date, this is worth nothing right now but it’s a good picture. We
have Countries with hyperinflation, they are also not in the payment
network, so it’s not possible to just wire money to Venezuela, you can’t
just do it technically. There are Countries with inflation, there are a little bit
better countries, like China or South Korea. South Korea is basically the
future. If you have ever been to South Korea it’s like what the world will
look like in five years. It’s advanced county, but it still cannot easily move
your assets outside of South Korea because there are capital controls on
limits. There are Countries that have very limited access to payment
networks like Swift. One of the examples would be Iran because of the
embargoes and being kicked out of Swift. So I think these problems can
be solved, to some extent, by crypto currencies. This is the value
proposition.

It is an asset that is very difficult for governments to steal. It doesn’t have

to be your government, so if you’re investing into crypto currency or
buying crypto currencies, if you are just open to the possibility that there
are some governments out there that do this, people will start buying
crypto currency there. It’s a liquid market, so the price can go up, just
because there are some governments that steal money. So like stealing
gold by Roosevelt in 1933. We have experienced banking crisis in
Cyprus, basically where banks stole money over 100,000 Euros from
bank accounts of the owners of the bank accounts. A lot of people had all
their retirement just sitting on the bank account and at one point they
were left with 100,000 Euros, approximately 100,000 U.S. dollars.

So, crypto currencies can be stored and transferred easily. There is no

third party involved. So if I send someone a crypto currency, I don’t need
to ask a bank for permission, it’s not going through a central bank, it’s a
direct peer to peer communication. So the best analogy to this would be,
if you just hand someone cash. There is no third party involved but with
crypto currencies you can do it over the internet. So you can do it
anywhere.

There are things like monetary reforms. A recent example would be in

India, where they would change bank notes to different bank notes. If you
couldn’t prove where you got the money from and if you paid taxes on it
they would just, basically, disappear. They would destroy this bank note.
There are monetary reforms, inflation, it is much more difficult to steal by
government. So that’s one reason why I think they’re interesting.

Another one is the banking secrecy. That, I said that after Fatca and CRS
were introduced, there’s no more banking secrecy, unless you can get rid
of the financial intermediary, which is a bank but that also applies to gold
storage. So even if you have a gold ETF or, even crypto exchange, if you
have a financial institution and you store your assets there, they have to
report all these assets to your government. It doesn’t matter if it’s in Saint
Vincent or Bermuda or anywhere else, they still have to do it.

With crypto currencies, there are many of them. Most of them are
pseudonyms notes. Which means you can create an account on your
wallet. It never asks you who you are, not even your email address. You
just click button and it will create an address and account that you can
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use. There is no barrier to entry. You can literally install a crypto currency
wallet right now and just transact with people who have it. The problem
with these three crypto currencies is that they’re fully transparent. So all
the transactions are visible for everyone. You just don’t which account
belongs to who, but they are visible. So it’s good to know there still not
censorable, you can still do whatever you want with your bitcoin or
etherium or litecoin. Just know that the transactions are public, without
the identity. There are other crypto currencies, like monero or zcash,
which focus on privacy. With these crypto currencies nothing is visible,
basically, if you do it right. So, that’s the second reason.

I think crypto currencies are currently the easiest way to bring back
banking secrecy. I don’t know if you recently tried to open a bank account
in an offshore jurisdiction, but they basically ask you everything. They
want to know where did you get the money from? Did you pay taxes? Are
you married? Are you in any debt? And so on, it’s an interrogation
basically. So I really like that with crypto currency you just install an
application and you can use the crypto currencies. There are no
questions asked.

No borders. I had to fill this form, while coming to the U.S. and they ask
me if I am bringing over $10,000 U.S. or more over the border. Which I
find, it’s not very nice that they ask this question. I think it’s very private.
Even if you don’t have counterparty risk, like if you have gold coins, it is
very difficult to move your wealth out of the country. If something happens
in the U.S. and you want to move to Hong Kong, you’re not going to pack
your gold coins into a suitcase. Because if they find it, they are going to
steal it from you at the border. Either at the U.S. border or at the Hong
Kong border.

With bitcoin, they’re not really anywhere. The network is decentralized, so

there’s no jurisdiction. You cannot store them in the U.S. There’s no such
concept, they’re stored everywhere. So if you want to send money to
Venezuela, to Iran, to or from India, if you want to escape capital controls
and move your wealth out of China or out of South Korea, it all works, it
doesn’t matter. Another nice thing is that since crypto currency is
basically a set of private keys, which is like a password, I would say. If
you remember this long number, which can be represented by 24 English
words, you can remember it and that’s all you need to access your crypto
currencies. So, even if you want to escape a country and you are totally
naked and you don’t have anything on you, if you can remember 24
words, you can move out with your wealth. They cannot search it, you
don’t have any password written anywhere. It’s 24 words that the wallet
shows you. If you remember them, it’s your back up and you can move it
out. So borderless payments from anywhere to anywhere is my third
reason.

So, one thing to know, we in the crypto currencies space, say that if you
own these keys, it’s your crypto currency. If someone else owns it, like an
exchange, it’s not your crypto currency. My piece of advice would be, if
this is a hedge against government stealing your money, do not store it
on an exchange because the government can always come to an
exchange and say, “Okay, give me the list of customers and we are going
to take the money out of this account, out of this account.” But if you store
it yourself, that means you send the crypto currencies from the exchange
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to your own wallet, it’s your crypto currency. No one sees it, no none
knows that you have it. That would be the first piece of advice.

The second piece of advice is, don’t store it on your computer or on your
phone. Like I have a wallet on my phone but it is basically pocket money
so I can spend crypto and I can send it to friends and so on. Normally
what you would do, is you would buy a hardware wallet, which is a device
like that one on the picture. That’s a Czech company that is building it. It’s
called [inaudible]. There’s another one which is called Ledger and the
reason why you want to use a hardware wallet is because it cannot get
hacked, it cannot get malware, it cannot get attacked by a hacker. The
way it works is you connect it to your computer, if you want to make a
transaction you do it on your computer but a transaction is signed on the
device. So you need to physically confirm on the device. On the display
you will see, “okay, you are sending one bitcoin from this address to this
address.” And unless you physically push the button it doesn’t get
transferred. So this is the reason why it is more secure.

The thing with crypto currencies is, since there is no central authority, if
someone steals your crypto currency, they’re gone. You cannot sue
anyone, you cannot ... there’s no one that can return it to you, unless the
other party sends it back. Make sure to store it securely. This device
costs, I don’t know, $100, more or less. It’s a very, very good thing to do.
Also, think about inheritance. If you want to pass your wealth to your
children, to your grandchildren, it won’t move automatically. If you have a
super strong password on your [inaudible] and you don’t tell anyone, they
will not inherit anything because the government cannot move the crypto
currencies. It’s decentralized.

There’s a really good book by an attorney from New York, Pamela

Morgan, and she wrote the book on how to plan inheritance in crypto. It’s
called Crypto Inheritance Planning. I highly recommend you do it as soon
as possible. So, get a hardware wallet and think about inheritance.
Usually the question is, “Is it an investment? Is it a speculation?” Crypto
currency doesn’t produce anything. It’s like gold, it’s just sitting there. It’s
not an asset that produces anything. I think it’s a speculation, but I think
it’s a good speculation because it’s hedging against very probable events.
So betting on governments being evil and stealing money from people
anywhere in the world is, I think, a really good bet. I think crypto
currencies are one of the few solutions to this problem.

There’s a huge hype about new crypto currencies, block chain projects
and so on, I highly recommend you don’t look for features. It doesn’t
matter if it has faster transactions or if the fees are a little bit lower. The
most important thing about money is the network effect. How many
people can you pay with the crypto currency. So, if someone invents a
new crypto currency that is a little bit better and it has five users, it will
never get any value. The main thing that you should look for is the
number of users. So if you are just starting, think about bitcoin, forget
about all the other things.

I’m very skeptical about block chain applications, we have been talking
about it yesterday with some people, for [inaudible] tracking and all these
things. Happy to talk about it after but I’m not buying into that. What is
really interesting is that some people say that bitcoin is the hardest
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 money out there. The reason is that, for example, if the price of gold was
a 100 times more, it makes more sense to mine it and you will mine more
gold because if you put money into mining, you will just mine more gold
and there will be a larger supply. What is very counterintuitive about
bitcoin is even if you invest into bitcoin mining, which is the creation of
new units, you will never mine more. It will just be more secure. So the
supply is constant. The full supply, that will be ever created is 21 million
bitcoin and if there are a hundred times more miners and more mining
capacity, it’s still doesn’t affect the mining supply. There’s a good book
about it called “Bitcoin Standard,” if you like it. So, I think it’s a great thing.

One last thing I would like to say is that there are some smart new things
you can do with crypto currencies. We are talking, or Robert Kiyosaki was
talking about, using debt. What you can do now, since December, is to
create collateralized loans on a block chain. So basically now is the time
when the Federal Reserve has lost control over the money supply
because there is a stable coin called Dai, D A I. Which is backed one to
one U.S. dollar. You can create it by depositing crypto currency collateral.
So you can hold crypto currency, put it in as a collateral and mint new
units, which are backed one to one to U.S. dollar. It’s really a new territory
here because I can print U.S. dollars from my laptop. I just put in the
crypto collateral and I can still use some of the wealth. So I don’t need to
just put it in the wallet and let it sit there but I can actually produce
something and still keeping a little bit of the up side because I can access
that collateral if I pay back the debt.

It’s really exciting territory. I think crypto currencies have a place in every
portfolio. If you just buy a few, just to play. I highly recommend doing it
and you can use it in a business as well.

Thank you very much.

Peter Boockvar
“Buckle Up”

Robert Helms: Well, welcome back! You’re gonna be glad you’re here for this session,
because many of you were at the panel earlier and got to hear a little bit
from Peter, but now we have an opportunity to hear even more. And
Peter Boockvar is the chief investment officer of Bleakley Advisory Group.
It’s a four billion dollar wealth management firm. He’s also the editor of
The Book Report, which is a market and economic newsletter.

Previously, Peter was chief market analyst for the Lindsey Group, which
is a macroeconomic and market research firm, and prior to that, he spent
a brief time at Omega Advisors, a New York-based hedge fund, as a
macro-analyst and portfolio manager. He also was an employee and
partner at Miller Tabak for 18 years, where he was the equity strategist
and a portfolio manager.

So buckle up and please welcome Mr. Peter Boockvar!

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Peter Boockvar: Thank you. Thanks. Hi all. Thanks for coming. So buckle up implies as an
investor, it’s time to put on your seat belts.

Okay. So one of the keys of investing success is getting your timing right,
and being cautious was never the right thing over the last couple of years.
It always paid to be bullish. And being cautious and not getting your
timing right is essentially being wrong.

But I feel like we’re on the cusp of the change in the markets that matter a
lot, and these are the three factors that I talk about in this presentation of
why now it begins to matter.

The reversal of these three things. The first one of course, the
extraordinary easing we’ve seen. Number two quantifies the extent of the
expansion of central bank balance sheets and the extraordinary number
of negative yielding securities that we saw in the summer of 2016. And
when this begins to reverse and why does it matter, and how does it
matter.

So this is just a visual of the fed’s balance sheet. We always hear about
the expansion. I think it’s always a good visual to see how extraordinary
the increase was. We’re at about nine hundred billion dollars back in
2008, and peaked at around four and a half trillion. And you can see on
the right side, it is beginning to actually shrink.

This is the Bank of Japan balance sheet, which is up to almost 100% of

the country’s economy, and their holdings of the JGB market is about
40%. This is a chart of the BOJ balance sheet as a percentage of GDP.
You can just see, we’re just shy of 99%.

This is the ECB balance sheet. Another extraordinary increase, which is

up more than double since the low of early 2015. Again, you know this,
but I think it’s just a good visual to see how extraordinary this amount of
easing has been and the expansion of the balance sheets have been.

This is a chart of the dollar amount of negative-yielding bonds. As I

mentioned in the first chart, it got as high as twelve trillion dollars in the
summer of 2016, and now is at about seven trillion.

Now understand that a negative yielding bond is actually not an asset if

you own it. It’s a liability. Okay, so this time we’re beginning to see
reversal of central bank activity, but I want to show you the last few times
that we’ve seen a reversal and the response of the markets.

So back in 2010, the Fed told you exactly how much they were going to
buy in terms of assets with QE, and they told you exactly when it was
going to end. But three weeks after it ended, the S&P 500 fell about 17%.
Okay, so that was the first example of a market response to the end of
central bank easing.

Now we know of course, this was only a temporary end to the easing.
Because then we get to QE2, like clockwork, three weeks later, we began
a correction that took the S&P 500 down as much as 19%. QE3 ended
October, last day of October 2014, and what happened in the month and

21
weeks before? The S&P 500 fell about 10%, just as we were about to end
QE3.

What happened after the first Fed rate hike in December 2015? Not even
two weeks later, the S&P 500 begins a correction that takes us down from
the end of December through middle February, down about 13%.

So, what saved us after the Fed first raised interest rates in early 2015
and ended QE was instead of raising three times, or four times in 2016,
they only raised once. And then of course, the ECB and the Bank of
Japan ramped up their easing cycle.

So that actually bought the market time. We also got the tax cut of
course, which the 2017 rally in the markets sort of priced in. So the Fed
essentially got a respite in terms of market response after QE ended, and
as they began to pick up the pace of their rate hikes, but the point being
before, we had sell-offs every single time central bank easing ended.

Also, what helped the markets in the case of more rate hikes by the Fed
this year was the strong earnings growth that we’ve seen, of course,
helped out by the lower tax rate, which contributed about a third of the
improvement in earnings, and we also had good revenue growth this
year.

But, as my title of the speech implied, we’re beginning to see

vulnerabilities. This is a chart of a short VIX ETF, that as you can see,
blew up in the beginning of the year. And what was the catalyst for this
blow-up? It was a 30 basis point increase in the US 10 year yield, that
went from 2.40 to 2.70. All of a sudden that very modest move, but a very
rapid move, caused a complete unwind of what was in cumulative, a
trillion dollar trade.

This is the Turkish lira. The higher it goes in this chart, the lower in value
it is relative to the dollar. Turkey’s had political problems for years, but
now all of a sudden it mattered. Erdogan has been beating up its central
bank for years, but now all of a sudden it mattered. This year.

This is the Argentinian peso. Again, the higher it went means the weaker
it is against the dollar. And, most importantly, look what happened on the
right side of this chart to Italian bond yields.

So I purposely moved this chart back to 2013, really mostly 2014. So in

June 2014, Mario Draghi decided that he was going to go what I call
down this rat hole of negative interest rates, in addition to ramping up his
asset purchases. But as you can see, in May, ‘cause this actually goes
back to October, ends in October in the short. In May, you can see the
spike.

So in a matter of two weeks, the Italian bond market gave back four years
of central bank buying and negative interest rates. In two weeks the ECB
lost control of the Italian bond market. This is the MSCI World Stock
Index, not including the US. Okay, you can see what’s happened this
year.

22
This is the Shanghai composite, down dramatically this year. This is the
German DAX, down dramatically this year. Okay, then all of a sudden
what was going on overseas, and I argue in response, the tighter
monetary policy, not just here, but the Bank of Japan cutting their QE in
half, and the ECB working to ending their QE program, all these things
started to happen.

‘Cause you have to understand, when central bank liquidity goes the
other way, vulnerabilities ... that are the weakest, start to get called out by
the markets. So as I showed in the previous charts, the markets started to
call out markets overseas, and beginning middle of September started to
come to the US, where it usually starts with the small cap stocks, and
then bleeds into the bigger cap stocks.

So this is the Russell 2000, which really began the US equity market
correction, that accelerated once we got to October. And an important
statistic beginning October 1st, what the Fed was taking out, subtracted
by what the ECB and BOE were putting in netted to zero. This was versus
a hundred billion dollars a month in Q4 2017.

So years of extraordinary liquidity injections have now netted to zero. Do

you think it’s a coincidence that two days into October, the big cap equity
stocks started to roll over?

In addition too, growth overseas that has slowed, this is Chinese GDP.
Now, I stretched this back pretty far, but you can see this very steady
decline that we’ve been seeing on over the last bunch of years, where the
last quarter for Q3 at 6.5%, if you believe it, is actually the lowest level
since the first quarter 2009, which happened to be a trough of the global
recession.

Chinese fixed asset investment. You can see the steady decline. German
manufacturing and services composite index. This is from market. You
can see we are at the lowest level since 2016. This is Germany. This is
not some emerging market.

This is total Eurozone, manufacturing and services composite index.

Weakest level since September 2016. Now, granted this is all with
negative interest rates and all the easing the ECB has done. This is
before he’s even finished his asset purchases. This is German GDP
estimates on a steady decline. This is actually for Q3. They haven’t
reported yet. They’ll report I think next week for Q3, but you can see
estimates have steadily declined since the spring.

So, the Euro area finally this week reported their third quarter GDP
number, and you can see growth slowed to the weakest since 2014, and
is below now 2%.

Here’s a chart. Japanese exports declining year over year for the first
time since 2016. ‘Cause one of the other noteworthy characteristics of
this economic slow-down has been a slow-down in global trade. And
there’s no better proxy than Japanese exports for a measurement of
global trade, and we’ve also seen a softness in German exports where
exports make up 40% of the German economy.

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So this is something I wanted to talk about when we look at what’s the
equity market going to do from here in the context of the correction we’ve
seen so far in October. The two greatest profit margin generators in this
economic cycle that drove the impressive earnings growth was lower
interest expense through zero interest rates and giving the companies
ability to refinance into very low cost lending, or borrowing, and very
modest labor costs.

So if you picture the profit pie of corporate America, the piece, the slice of
labor a couple of years ago was the smallest since World War II. That has
now changed. Labor is gaining more leverage. Employees are now
experiencing wage increases. In fact today, in the payroll number,
average weekly earnings on a year-over-year basis is now above 3%. It’s
actually 3.4%, which is the highest in years. So it’s great for employees,
but it’s going to crimp profit margins.

And profit margins as of the third quarter did hit a record high. So we are
now seeing a reversal in monetary policy, globally, and a peak in profit
margins. The two biggest contributors to this bull market in equities.

Getting back to the cost of money, this is a chart of three month Libor. So
take the Russell 2000, small cap stocks, 40% of the debt of Russell 2000
companies is floating rate, which means that it’s tied to Libor, which
means that every tick up in Libor raises the cost of capital for 40% of the
debt on the balance sheets of Russell 2000 companies. So you better
hope that whatever stock you invest in has the cash flow to finance this
rising cost of capital.

This is inflation pressures, as I mentioned, average weekly earnings. This

is 3.4%, and we pretty much match that in the number today. This is the
employment cost index, which is another measurement of wages, and
actually I would consider this probably the best measure. This is private
sector wages and salaries year-over-year, and as you can see, we are
growing wages again for the benefit of employees, but to the detriment of
profit margins, at the quickest pace since 2008.

Labor is the biggest cost of a company’s cost structure, and in the

aggregate making up about 70% of company costs. This is actually a
visual, and I don’t know if you can see it back there, of what I’m talking
about with exposure to rising rates and the differential between Russell
2000 companies at the bottom, versus companies at the top, the S&P
500, how much is floating rate? As you can see in the yellow, 40% give or
take is floating rate for smaller companies. It’s obviously much smaller for
bigger companies at about 25%.

We also have inflation that is going to be a factor in raising not only the
cost of doing business, but also the cost to potentially higher interest
rates. And I just took some quotes from corporate America in the 3rd
quarter earnings releases in their conference calls that talked about the
rising cost pressures. And if you have yesterday’s Wall Street Journal, the
front page talked about the amount of companies in their conference calls
talking about the cost of doing business and their ability and desire to
raise prices.

24
And you can even throw up some food companies. Kellogg’s reported
that they’re going to start raising prices as well. So this is an important
issue.

This is actually a chart of the number of companies using the word tariffs
on their conference calls and how it’s affecting their business, whether it’s
affecting their business from a logistical supply chain standpoint, or it’s
affecting their business from a cost standpoint.

Okay, now I’m going to get into the weeds on terms of US growth, and if
you look at the two biggest sectors of the US economy most sensitive to
changes in interest rates, it’s housing and autos, of course. So this is a
chart of existing home sales. Weakest since November 2015. What’s
happening is buyers are getting turned off by these perpetual, annual,
5%-6% home price increases with now 5% mortgage rates, which are at
the highest level since 2011. It’s seven years of home buyers that have
never seen a mortgage rate with a 5% handle on it. Now they are
beginning to, and you can see visually how it’s beginning to affect home
sales.

So that chart was existing home sales. This is a chart of new home sales.
Lowest level since December 2016. This is a picture of capital spending.
We know business investment is a core part of the economy, and as you
can see in this chart, it’s slowed dramatically from the peak in 2014, pretty
much down to the election of 2016, and only finally after the election,
when there was at least some visibility on who was going to be president
and what the tax situation was going to be, you were going to see an
increase. But this increase has only taken us back to previous peaks.
That’s how much capital spending has been sluggish in this cycle.

This is auto sales, literally flat-lining. No growth in auto sales, at least

through back through 2015. So imagine, auto sales peaked out outside of
this one month spike in September 2017, auto sales essentially peaked
three years ago.

Okay this is a chart on consumer spending, because with it being 70% of

the economy, it’s been the strength of the consumer that has really kept
this economy afloat, and with rising wages, we hope that maybe that can
continue. But as you can see on the chart on autos and housing, the big
ticket items, the big ticket consumer items, are obviously getting impacted
that rising wages can’t offset.

So I want to talk about two years ago I was here, and I was pretty bearish
on bonds, thinking that we saw the end of the bear market. And what I
wanted to do here was really list the reasons why interest rates are rising.
It’s not just one or two things. It’s not just the Fed raising interest rates.
It’s a combination of factors that I expect to continue.

Nominal GDP in the third quarter report was about 5%. Historically
speaking, the 10-year yield matches up about where nominal GDP is.
Now when the cycle was zero rates and all the QE, that relationship was
pretty much destroyed, but I think with Fed easing reversing, you could
get a relationship that is somewhat similar again. 10-year yields of 3.20%.
I’m not saying we’re going to go to 5% any time soon, but it can help
explain this rise in interest rates.
25
Then we through in the inflation pressures, and it’s not just tariffs and raw
materials. It’s transportation. Good luck getting a truck to deliver your
goods from point A to point B. It’s been very difficult sourcing drivers and
the cost of transportation is running 7%-10%. Quantitative tightening,
which is now at its max level. It went there in 4th quarter to 50 billion
dollars a month, which is an annualized rate of 600 billion dollars, which
means that we have to find another buyer of this 600 billion dollars of
paper.

Paper which is now increasing dramatically in supply, where the US

treasury is going to issue about 1.4 trillion dollars-worth of paper this year,
versus about 600 billion last year. Some of that is refunding existing
maturities, and some of it of course is dealing with the exploding deficit,
which the CBO estimates will be near a trillion dollars next year.

Then of course we have the end of ECB QE. To give you an idea of how
influential the ECB was, in terms of pushing interest rates down in
Europe, is at peak, ECB buying, they were buying seven times net
issuance of European government bonds. Seven times. The Fed at its
peak was buying no more than 25% of US treasury net issuance. 25%
versus seven times. That’s why the ECB was able to push European
bond yields literally to the ground.

They are now walking away. They will still be re-investing, but on a net
basis, they’re essentially walking away. So who’s going to buy European
bonds outside of the ECB? Who’s going to buy a Spanish 10 year bond at
1.3%? Well, we saw Italian bond yields, no one’s buying Italian bonds
with yields that were at the floor, and now Italy’s going to have to pay
3.5% for 10 year bonds, 10 year paper that they were paying below 2%
just a few months ago.

The Bank of Japan has cut their QE purchases in half, and they are
allowing a modest rise in long-term interest rates because they know a
flat yield curve has destroyed the profitability of their banking system, and
now they’re beginning to give some room to the Japanese banks. Not
enough, but still, a rise in Japanese interest rates will filter into a rise in
European rates, and filter into a rise in US interest rates.

Also, if you’re a Japanese investor or a European investor, and you think,

“Wow, I can get 3.2% on a 10 year US treasury government bond,
instead of buying a German bond at 40 basis points, or a Japanese JGB
at 15 basis points?” Uh-uh. The cost of hedging that out eliminates that
entire spread, so the only reason why you would do it is if you’re willing to
take currency risk. If you’re not willing to take currency risk, your yield has
basically gone to zero.

And the last point is foreigners have dramatically slowed the pace of
buying US Treasurys. At the peak about ten year ago, they owned 50% of
the US government bond market. That is now approaching 40%. So don’t
think US rates are rising just because the Fed is raising and maybe there
are some inflation pressures. Yes, they’re important, but there are a lot of
other reasons why I expect rates to go up, and not for good reasons.

This is high yield credit, which up until a month ago, actually traded really
well. Whereas, late September, the spread relative to treasuries got as
26
tight as it did in July 2007. We know what happened after that, and you
can see on the right side, we saw a blowing out of spreads and yields just
this month. So high yield is finally beginning to get infected.

This is also the absolute yield on high yield, so the previous chart was a
spread. This is the actual yield, and you can see the cost of capital is now
at a 2.5 year high for those high-yield borrowers.

This is a chart of European high yield. Now just ... if you cannot see back
there, European high yield. This is junk credit in Europe. Last year, got to
a yield of 1.8%. Junk… 1.8%. And that yield has essentially doubled
since.

Valuations of the equity market. You’ll hear on TV, the PE ratio, it’s only
15 times. It’s very reasonable. It’s very attractive. Well, understand that
the E-part of that PE has been inflated by extraordinarily low interest
expense, and very low labor costs, and as I mentioned, that is beginning
to reverse. So looking at this chart, being a price-to-sales ratio, takes
away the games you can play with earnings, so it’s a different metric of
valuations.

And as you can see, just recently, we were as expensive as we were in

March of 2000. So I say, bottom line, buckle up, because now things
begin to matter. Next year, the combined balance sheets of the Fed,
ECB, and BOJ begin to shrink, after as I mentioned, are now flat lining.
Corporate profit margins are now going to regress. Global growth will
continue to slow. The previous chart I showed you how excessive equity
valuations still are, and that the bond bull market is over, and if that is the
case, and we are on the cusp of a further rise in US interest rates, then
the US equity market is likely over as well.

So, where to hide? Here are a couple suggestions. Short-term T-bills.

You can buy a two-year T-bill right now, and get almost 2.9%, and on a
tax-adjusted basis, because you don’t have to pay state taxes, it’s
actually above 3%. Gold and silver, I don’t need to sell you on gold and
silver, but understand the next catalyst for gold and silver will be next year
when J. Powell blinks at either a slowing in the US economy, which I
believe will occur as the weakness in housing and autos spread to other
areas, or we see a sharp decline in the stock market that he blinks to.

When he does, the dollar weakens dramatically. Gold and silver go up a

lot.

BNDX, that is a Vanguard ETF, which has a lot of international bonds,

and it’s kind of boring to watch, but I believe it’s a short, based on my
bearishness, particularly on European bonds.

European bonds to me really is a potential problem child, and you’re

going to potentially see much higher rates there, in that Italy is just really
the dress rehearsal. I like uranium. I think the bear market is over. The
catalyst for that was Cameco announcing that they were shutting down
their biggest mine and were starting to buy product in the spot market.
That followed Kazakhstan dramatically cutting their production.

27
 And we’ve a pretty sharp rise in the spot price of uranium, which has
gone from low $20 a pound to almost $30 a pound, and Cameco CCJ is a
great way of playing it.

And how many people, raise your hand, if you’ve thought about investing
in Greece. One. One hand. Okay? Well, that tells me that’s a good thing.
The reason is right now the president of Greece, Alexis Tsipras, is left of
Bernie Sanders, if you can imagine that. And even with that, Greece has
actually got their budget situation in control.

Next year there is an election. The new democracy party, which is the
main opposition party, the head of that is this guy Kyriakos Mitsotakis. He
is a very business friendly guy who understands economics. He is 10
points ahead in the polls. He will likely be the next leader of Greece. He
will potentially be a game-changer for Greece. The Athens stock market
is down 88% from its 2007 peak. That is just as bad as the Dow was in
the 1930s in the Great Depression.

Greece has had their Great Depression. If you’re looking for a cheap
market out there with a lot of opportunity, if Mitsotakis wins, Greece is a
place. If Mitsotakis loses, reverse the trade. I think he’s going to win.

And that’s it. Thank you very much.

Booms, Busts & Bubbles Panel

Albert Lu (MC), Ben Hunt, Mike Larson, Peter Schiff

Lindsay Hall: Welcome back, everybody. Please, come on in. If you’re still coming in,
get seated. And you guys are ready to listen to Booms, Busts, and
Bubbles. You ready for all that? Three B’s, yeah. All right. Good deal.
Okay. Your participants for this panel today are going to be Ben Hunt of
Second Foundation Partners, Mike Larson from Weiss Ratings and Peter
Schiff from Euro Pacific Capital. Also Albert Lu from Sprott Media will be
mediating.

Albert Lu MC: How’s everyone doing? Hope you’re doing well. This is going to be a fun
panel. One of the things I want to do this morning is test out a hypothesis
I have, and that relates to natural constants. And those are the things in
the world that never change. As examples, C, the speed of light in a
vacuum, G, the earth’s gravitational constant, pi, the ratio of a circle’s
circumference to its diameter. These things never change. And I want to
propose a new one. That is L, yeah, I’m naming it after myself. L equals
2.0, and that is the number of years until the next financial crisis. It never
seems to change. Doesn’t matter what the situation is, what the
economy’s doing, or who you’re with. There is always someone who will
say that it’s two years away. So I want to see if that holds up during this
panel and throughout the rest of the day.

I’m going to direct, I think my first question to Ben Hunt, because I’m least
familiar with your views. Interested in knowing what you have to say. And
28
 to be perfectly honest, if you look to your left, this might be the only
chance you have this morning to speak.

Ben Hunt: Yeah, I know. Yeah, once it gets to Peter, we’re done. We’re done. Yeah.

Albert Lu MC: So, yeah. Mike’s pretty good, too. So, let’s make it count. Where do you
think we are in the global cycle?

Ben Hunt: Well, look, we are in a bubble. Let’s call it the bubble of financial assets or
the bubble of everything. And I’ve got a talk later, we’ll show some charts
about this. But basically, the idea is that really, as a country, you can’t be
richer than your economy grows, right? Not for long, anyway, and not by
a lot. But we’re now at kind of the third one of these, I’ll call it central
bank-induced bubbles, where future growth has been pulled forward, and
it manifests itself in net worth of us, right? So you can see this really
clearly, right? So we have the dot com bubble, we have the housing
bubble and now we’ve got the bubble of everything, right, which has really
been focused on financial assets.

So we’re in a bubble, right? But to your point about, well, is the financial
crisis two years away or some year away, what pops that bubble? And I
gotta tell you, it is different today. It is, the bubble-popping process has
been made different today, because we have a new, I’ll call it a
gravitational force in the world. And that is the 20 trillion dollars in assets
that central banks have bought, right? There’s enormous gravity that’s
formed by that, really starting in 2009, and still going on today, right? It’s
topping off but still going on today. You can’t un-ring that bell, to mix a
metaphor here. And it really does change everything in terms of the
lifespan, the life cycle of bubbles, by having this enormous gravitational
force there.

So I’ll give you a quick example on it. So in 2012, summer of 2012, I was
running a hedge fund. I mean, it’s about 800 million, so it wasn’t small.
And we had a big bet on the Euro issues that the ECB was unable to face
in the early summer of 2012. And look, I went that summer from having
some of the best days of the fund to some of the worst days of the fund,
to the point where by the end of the summer, really in that first week in
August, when Mario Draghi gave his “whatever it takes” speech, followed
by this entirely mythical program to prop up the European monetary
system by making what they call outright monetary, outright purchases, of
everything. Just those words were enough to alleviate the crisis, ‘cause
that was a full-blown financial crisis in the summer of 2012, and it was as
if it didn’t happen. And I got kicked in the teeth with the fund.

And what I realized was that our world had really changed, that just
understanding the fundamentals, it was no longer enough, right? That we
really do have these new forces that are determined to turn capital
markets into political utilities. I really believe that’s the goal here. And it’s
a darn effective mechanism they’ve got here. It’s both the words and
backing it up with the ability to buy trillions of dollars worth of stuff.

So what I’m looking for, to get back to your original point, what does pop
the bubble? It has to be something that undermines market, global,
whoever, confidence in the ability of central bankers to bail us out, to
rescue us. And I don’t think that that happens with another Euro crisis out
29
 of Italy, even though I think that could absolutely happen. It doesn’t
happen if China floats the yuan. Although I think that could absolutely
happen. It doesn’t happen if the Fed continues to raise interest rates and
spark a cyclical recession here in the United States. None of those things,
my view, are big enough to pop this bubble, because none of those things
are big enough to undermine that global confidence that you’ve got
central bankers with their words and their money to be able to save the
day or prop up our prices.

So that’s where I am. What I’m looking for is, well what is it that can
undermine that? I think it’s inflation. I think inflation can happen. I think
that can undermine the confidence that people have with the Fed and the
ECB and all these other banks can save the day. I think that’s what it
takes to pop the bubble.

Albert Lu MC: Okay. Thank you for that, Ben. I think we’ll return to that with Peter.
Before we do that, I want to talk to Mike a little bit because from our
discussions yesterday, it sounds like you’re not waiting for the catalyst.
You’re already rotating into cash and maybe into value stocks away from
growth. Is that true?

Mike Larson: Yeah, that is. I think that some of the market activity that we’ve seen
beginning in January, and especially with what happened in October, tells
me to some degree that these background concerns that have been
simmering and building up for a long time are now starting to bubble over,
if you’ll pardon the pun. Ben mentioned there’s sort of a bubble of
everything, but the term I’ve been working with is the Uber Bubble, and
it’s kind of a play on the fact that Uber means largest, biggest example of
it. But also, private tech companies, valuations of Uber and many other
firms in that industry are radically, are pretty much ridiculous by my
standpoint. Haven’t made a penny of operating profit in nine years and
they’re worth $120 billion. It’s up about two million, 220-odd percent since
it was founded. But that’s just one example.

I mean, what I, when I look at this sort of bubble cycle that we’re in, the
last two cycles we’re very high in amplitude, right? You had a extreme
bubble in dot coms. The rest of the economy, not necessarily impacted as
much by that. And then that popped. Housing, same kind of thing. Very
amplified sort of wave pattern where the bubble in housing was extreme.
Other parts of the economy weren’t as touched by it.

What’s happened this time, in my opinion, is sort of the trough-to-trough

measure of this bubble. It’s much broader, not as highly amplified, but
much broader. And it’s in things like stocks, it’s in things like high-yield
bonds, it’s in housing again, commercial real estate again. But if you’ll
indulge me, there’s examples that you’re finding in all kinds of other
markets that you don’t hear about a lot, but it just shows that the asset
economy, asset valuations, are out of control. We just sold in November
2017 this Salvator Mundi painting. Some people think it’s da Vinci, but
they don’t know, and it sold for $450 million, which was the, beat the
previous record of 179 million. You have, for example, NFL team.
Everybody’s kind of interested in what’s going to with the Saints later
around here. The average value of an NFL franchise was up 8% last
year, 2% this year. And is up 146% in the last sort of QE period.

30
 There’s a company called PWCC Marketplace. They track the value of
baseball and other trading cards. If you look at what baseball cards have
done, for example, they are up 265% in the last several years during the
QE era. If you look at vintage comic books and comic book art. In
Chicago, we just had a sale, $12.2 million total auction value, up 17%
from the previous record. I could go on and on. There was a bottle of
vintage scotch, actually, that was just auctioned off in October of 2018. It
sold for $42,980 an ounce, an all-time record. A 1962 Ferrari just
changed hands for $48.4 million, all-time record for any vintage car as
well.

So, again, it’s everywhere and so when I talk about that wave pattern. It’s
much broader, it’s much more all-encompassing. And it does raise the
issue of where you go to hide if indeed we are kind of the ship that’s
going to hit up against the rocks. And that’s the real problem. I think last
two cycles were narrower and higher in amplitude. Now they’re broader
and more dangerous. So that’s why, beginning in, with some of the
market activity that we saw in February and March and so on, we’ve
gotten much more defensive. And I think the process of unwinding some
of this is already beginning.

Albert Lu MC: Thank you. I’m going to go with Peter now, and I think most people in the
room are familiar with Peter’s background, but I just want to revisit it a
little bit, because if you go back to 2004-2008, America was really getting
drunk on cheap credit, on homes that seemed to appreciate forever.
Peter was out there, one of the leading voices warning of what was going
to happen. And he really called it, and I think of it as a playground. The
kids are all just going nuts. And Peter’s a cool kid in the back of the room
saying, synthetic CDOs suck, man. I’m not participating in that.” And he
really nailed it. That was then.

This is now. Now what I’m seeing is, yes, Peter, you’ve maintained your
opinion on what’s going on, but I’m seeing other people come in as well.
So now you got guys like Jack Bogle warning. You have investment
banks warning that growth is going to slow down over the next couple
years because what we’ve done with QE. You have people from the Fed
like Richard Fisher, saying “Look, we pulled forward growth,” sort of
echoing your sentiments, Peter, “this can’t continue.” And then even, it
goes as far as people like Carl Icahn and Ray Dalio, people who
managed a lot of money, warning. And so my question to you, Peter, is,
well it looks like being bearish is not as cool as it was before. It’s a bigger
club. But now that so many people are actually saying it, what’s taking so
long? Usually in the public markets, if everyone is looking for the same
thing to happen, it happens, correct? So what’s taking so long?

Peter Schiff: Well first of all, I still think that those warnings are too tepid. So they’re
just not nearly bearish enough. They don’t really appreciate the severity
of what is about to happen. They look back at 2008 as some kind of
reference point, like, “Well that’s as bad as it’s going to get. So whatever
we have now isn’t going to be as bad as that.” It’s going to be a lot worse
than 2008.

This, the panel is about bubbles, so I wanted to talk a little bit about
bubbles and the nature of bubbles and where they come from. And
generally, bubbles are a creation of central banks. I mean not always. I
31
mean they didn’t create the Beanie Baby bubble. I mean, that was
created just, human greed and bad decisions when it came to Beanie
Babies. But when you see rampant, wide-scale bad decisions, generally a
central banker is behind it, and they have made a bad decision to create
too much money and to artificially manipulate interest rates down.

And that is a very important thing, because interest rates are an important
price on market economy. And like all prices, they need to be determined
by the free market, by supply and demand. Supply is savings and
demand is people who want to invest that savings. And the market is
going to find an equilibrium rate. Well when the government doesn’t like
the market rate, it tries to set a rate that is below that. And just like
whenever the government price fixes something, they create big
distortions. They create mal-investments. And the further from the market
rate that the central banks put rates, and the longer they leave them
there, the more mistakes, the more mal-investments.

So the dot com bubble was a result of the Fed keeping interest rates too
low and creating too much money, and for all sorts of reasons during the
1990s. You can remember a lot of the things that were going on. Fears
about Y2K towards the end, the Russia debt default, Asian collapse in
‘97, a long-term management blowing up. Every time something went
wrong, there was Alan Greenspan with more money to make the
problems go away. And so that manifested itself in that bubble. But when
that bubble popped, the Fed came back with even more aggressive
monetary policy. They lower rates down to 1%, which at that time was
pretty much a record low. And it took a few years to get them back up to
5%.

And so during that period of time, we created this gigantic housing

bubble. And there were so many mistakes made during that bubble that
when it popped, we had what we now call the Financial Crisis of 2008, but
which many people say produced the worst recession since the Great
Depression, and it would’ve been a whole lot worse had we not blown an
even bigger bubble.

But what the Federal Reserve was able to accomplish, now, we didn’t just
stop at 1% when it came to interest rates. We went all the way to zero.
And we didn’t just leave them there for a year and a half. They were there
for eight years. And the Fed’s been raising rates now for about three
years, and now they’ve got them all the way back up to 2%. So we have
had artificially low interest rates for an unprecedented number of years at
an unprecedented low rate. So the mistakes that have been made during
this time period dwarf mistakes that have ever been made in any bubble
in the past, because the bubble is so much bigger.

The busts, the recessions that follow, that is the free market trying to fix
all the stuff that was done wrong, all the bad decisions, all the
misallocations of resources, all the mal-investments. That all needs to get
liquidated. That all needs to get cleaned out. And the bigger the boom,
the bigger the bust. The problem now is that the boom is so big that the
bust will be catastrophic. And what’s going to make this bust different is
that there is no bailout. There is no stimulus. It is impossible to reflate this
bubble, because as Ben said, this is a bubble of everything. They can’t
make the bubble go someplace else. It already is every place. But the
32
 one place there’s no bubble is in gold, but there’s a bubble in everything
else. And that just shows you that there’s also a bubble in complacency
and optimism. People are so drunk on all this cheap money, they think
nothing can go wrong. That’s why you have these record low spreads
between high-yield and credit quality.

But all that is changing. Rates have been rising and even though they’re
at 2%, that’s too high when you have so much debt. People keep saying,
“Oh, we’re just normalizing rates.” Well fine, but we have an abnormal
amount of debt because rates were kept so low for so long, everybody
borrowed more money than could ever be repaid. In fact, they can’t even
be serviced if interest rates even approach normal.

And as far as what the pin’s going to be, look, I mean there are so many
possible pins for this bubble, but most people, when you’re in a bubble,
you can’t see the pins. There a lot of pins that were pretty obvious in
2006, 2007 when I was forecasting a collapse. There are more pins now.
Believe me, it’s more obvious now that we’re headed for a train wreck.

Albert Lu MC: Peter, can I jump in for a second here? I wanna make a point-

Peter Schiff: All right, yeah. Okay.

Albert Lu MC: Based on something that James Grant said yesterday. I’ll come back to
your point, though. I just want to interject something. Jim Grant spoke and
he said something that was really interesting. He said if you look at sort of
scientific progress, engineering progress, it’s people standing on the
shoulders of other people, learning and improving. Why is it that in
economics, it seems like we’re stepping on the same darn rake all of the
time? Right? And the rake is getting faster and more dangerous, just this,
weapons of mass destruction, as Warren Buffet likes to refer to it. But I
think it’s because each cycle is just a little bit different. People have
forgotten. It’s just a little bit different enough to fool us.

So Peter, one of the things about the call you made in the early 2000s
wasn’t that you timed it correctly. It was how specific you were about the
catalyst that was really impressive. You said, “Watch subprime defaults.”
And it all kind of went off of that. Do you see one thing, Ben was saying
possibly inflation, do you see one thing that we should be watching that
might give us a hint that this is about to happen?

Peter Schiff: Well I don’t know if it’s one thing. I mean we just had that, Bank of the
Ozarks was the new name of it, just, they just blew up 25% in one day. I
think the stock’s down 60% because of losses on real estate-related
loans. I mean this is a canary in a coalmine that people are ignoring. We
have this stuff happening in ‘07, but you could look at stocks like GE
having to eliminate their dividend and crashing to 9-, 10-year lows. Look
at the auto stocks. Look [crosstalk 00:18:30]-

Albert Lu MC: But Peter, are any of those as big as subprime, though? Are any of those
as big as subprime?

Peter Schiff: Well the problem with subprime is the government now owns the
subprime industry. All the subprime loans are owned by the government

33
 now. The government basically took that over. But your point, it is
amazing how we’ve advanced. We know a lot more about science and a
lot more about a lot of things than our ancestors, but when it comes to
economics, we haven’t learned anything. We repeat the mistakes over
and over again. And it’s crazy that this time, the mistakes are so close
together.

I remember when I was on CNBC, probably in 2005 or 6, when Mark

Haines was still alive, and Mark was kidding me because he said, “Peter,
bubbles are a once-in-a-lifetime thing and we just had one in dot coms.
Are you expecting us to believe that we have another bubble so soon
after having the last one?” And I said, “That’s exactly what I want you to
believe, because it’s the same bubble.” It all started with Greenspan and
it’s continued. It’s all part of the same thing because the government
never allows it to fully reflate. The government never allows the free
market to fix the problem because it rushes in with another dose of
monetary heroin.

So the reason that so many people don’t understand that there’s a crisis
coming now is because they never understood the problem. They think
the Fed solved the problem. They don’t understand that the Fed made the
very problem that caused ‘08 much worse.

Mike Larson: I think-

Albert Lu MC: Okay, yeah, can I ask you a specific question, Mike?

Mike Larson: Yeah, sure.

Albert Lu MC: Well, what asset class are you most concerned about crashing?

Mike Larson: Well I think-

Albert Lu MC: [crosstalk 00:20:02] same thing for Ben Hunt as well after.

Mike Larson: Sure. To me, the most concerning activity that I see is almost the parallels
that are happening in sort of private tech valuation world that we saw in
public tech back in the dot com peak. I mean if you look at where sort of
the easy money has flooded most aggressively this time, it’s in the
corporate arena versus mortgages. And it’s also in the incredible amounts
of money that you have seen thrown at private tech companies of all
different kinds, and that are manifesting themselves in so many places. I
mean I mentioned Uber earlier as one example. But if you look at a
DoorDash, for example. They’re valued at something like $4 billion and
they deliver food and they have 500 competitors to do the same thing. It’s
absolutely ridiculous. They don’t make any money. And you can find
example after example of that.

You look at real estate in the Bay Area as a result of what’s happened in
the tech market. As of this spring, the average San Francisco house was
going up $561 and 64 cents per day, or $23 and 40 cents per hour. I
always joke you could sit on your couch eating Doritos and playing Xbox
and make more money than you could by working. And that’s what you’ve
seen. So I think if you had to say what part of it was most concerning, I

34
 think it’s happening in the private, and to some degree public, tech
market. I would point out that as of the first nine months of this year, 83%
of the companies that IPO’d were losing money in the 12 months leading
up to their IPO. The only time literally in history we saw anything close
was in ‘99 and 2000 when it was 81%. So-

Peter Schiff: I was about to interject that [crosstalk 00:21:34]-

Albert Lu MC: Okay, same question. Ben Hunt, please.

Ben Hunt: Yes, I’m going to flip it around. For me it’s not what asset class is, I’m
most worried about. I’m looking at where can I make the most money.
And right now, you’ve got a setup that’s actually very similar to the setup
in, well, starting in late ‘07 and going through ‘08, where you could buy
credit default swaps at basis points, right? So it was at, basically, it was a
free option on a financial debt instrument that could blow out enormously.
It’s risk and reward, an asymmetry of risk and reward. And today you’ve
still got that to an extent in the credit default swap market, which is as big
or bigger than it ever was back in ‘07 and ‘08.

But what I’m looking at are long-term interest rates. They don’t have to be
too cute about this, but the fact is that nobody in markets today believes
that long-term interest rates can make a sustained and violent move up.
They just don’t. Right? So, people say, Ok well we’ve got the wage
inflation. We’ve got some inflationary pressures. All true, right? But the
perception on markets is that this is cyclical, this is a blip, and that the
next deflationary shock, whether it’s from Europe or whether it’s from the
Fed’s own actions or whether it’s from China, well that’s, we’re just on this
long race log to nowhere.

So on assets and what you can do, you can purchase these very long
dated, long-termed interest rate swaps or futures, however you want to
express it, basically for nothing. Right? Because no one believes in
markets today that there’s any possibility that we get what I’ll call a
regime change in inflation. We’ve had 30-plus years of declining
inflationary expectations. The last 10 years, we’ve been just rock bottom
on inflation expectations. And what I really believe is that is starting to
change.

Albert Lu MC: And how would you-

Peter Schiff: ... that, yeah, everybody wants to fight the last war. And if you look at the
most recent round of stress tests that the Federal Reserve put the banks
through and they bragged about all the banks passed, but even under
their most adverse scenario, interest rates didn’t go up. They stayed the
same. And inflation went down in their worst-case scenario. They cannot
even envision a scenario where in a recession, interest rates go up.

Ben Hunt: That’s right.

Peter Schiff: They can’t envision stagflation, even though it happened in the 1970s.
Not the 1870s, the 1970s. Everybody on the Federal Reserve was alive in
the 1970s, so it’s not ancient history. But it’s something that they consider
so impossible, so implausible, that they’re not even stress testing for it.

35
 So, it’s what people don’t expect. Nobody expected the collapse of the
housing market even though it was so obvious, ‘cause people talk about,
“Oh, real estate prices never go down. It’s never happened.” Nobody
expected it. And so right now nobody expects inflation, and that’s exactly
what they’re going to get. And they’re going to get stagflation, and the
Fed can’t deal with that.

Mike Larson: Well you know what’s really interesting-

Albert Lu MC: Can I, sorry, can I just follow up with a question for Ben? Just a quick-

Ben Hunt: Yes.

Albert Lu MC: ... answer. How do you compare the mispricing you see in these interest
rate derivatives compared with what we had with the credit default swaps
on CDOs back in the last [crosstalk 00:24:54]-

Ben Hunt: I never thought we would, so in my hedge fund this is how we made our
bones with credit default swaps in ‘07 and into ‘08. I never thought I would
see it again. I never, I mean I just ... How is it possible that we could see
that level of excess again?

Albert Lu MC: Is it that level?

Ben Hunt: It is absolutely at that level.

Albert Lu MC: Okay. Thank you. Mike.

Mike Larson: Well I was just going to say, you talk about how people traditionally, for
many, many years, stocks go down, stocks go down, what do you do?
You buy treasuries, the money flows from one side of the boat to the
other. But what’s interesting even as recently as Friday, you have a day
where the Dow’s up a couple-hundred points. It’s down 300 points at the
worst, somewhere in that neighborhood. And what happens to treasuries
all day? Prices go down, rates go up. And you look at the pattern for the
last year and a half in the bond market, steadily declining bond prices,
steadily rising interest rates. That is clearly a different pattern in the short
term. We’re starting to see it more often. And it makes you wonder, is
this, again, like I said, is this the surprise that people aren’t expecting?
That even if the economy starts to hit the rocks, what happens to rates?
They go up.

Peter Schiff: Yeah, I mean, people think that oh, if there’s a crisis, people are going
buy bonds, but bonds are also in a bubble. They’re one of the bubbles
that has been inflated. When the stock market crashed 30 years ago in
1987, yields were at 9%. [crosstalk 00:26:15]-

Ben Hunt: But look, Peter, don’t-

Peter Schiff: Bonds were a buy.

Ben Hunt: When there is a crisis, people will buy bonds. All right, my point is you
need to think of your bond allocation as a tactical allocation as opposed to
a core allocation.
36
Peter Schiff: But they won’t buy bonds if part of the crisis is sovereign debt and the
dollar. I mean if you’re worried about the ability of the US government to
pay its debt and to make the interest payments on its debt, and if you’re
worried about massive money printing in order to monetize that debt,
you’re not going have any safety-

Ben Hunt: I’m with you, Peter, but that’s, that is years down the line.

Peter Schiff: Maybe.

Ben Hunt: Right?

Peter Schiff: Maybe not.

Ben Hunt: That’s, and between that, ‘cause the path matters here, right? So when
there is a crisis that emanates from China or from Europe, or from some
emerging market, people will buy US bonds.

Peter Schiff: You don’t know that.

Ben Hunt: Oh, absolutely I know that. [crosstalk 00:27:02]-

Peter Schiff: ... people expect that. Look, even when-

Ben Hunt: Come on, come on.

Peter Schiff: ... even when, I mean, when Standard and Poor’s downgraded the US
Treasury debt that first time, and I think it’s all junk bonds anyway, but
they downgraded it, and people were so worried about the downgrade of
US treasuries that they bought US treasuries as a safe haven.

Ben Hunt: That’s right.

Peter Schiff: So it, but that, right, but that irrational-

Ben Hunt: That’s my point, Peter.

Peter Schiff: ... behavior is going to come to an end-

Ben Hunt: It’s not irrational.

Peter Schiff: ... nothing that can’t go on forever

Ben Hunt: I don’t [crosstalk 00:27:26]-

Peter Schiff: It is irrational.

Ben Hunt: ... solution that is irrational that some magical free market genie that’s
going come down and undo all the socializations happen in markets. I
agree it has happened in socialization markets. But to say that, oh well,
magic’s going to happen and that will all reverse-

37
Peter Schiff: Well that’s not magic, that’s just common sense. But if you look around,
we don’t have all our friends anymore like we used to. I don’t think the
Chinese are gonna step it up. The Russians, the Japanese, the Saudis.
Who’s gonna buy all these-

Ben Hunt: Every-

Peter Schiff: ... bonds?

Ben Hunt: ... institutional investor in the world

Mike Larson: I think if you want to focus on bonds, you’ve got to start with the credit-
sensitive side of the market. That’s where you’re going to have more
problems, in my opinion, at least in the first couple of phases of this thing
than you are in government debt. I mean, again, if you look at where the
highest-risk lending, highest-risk borrowing, highest-risk behavior is going
on, it’s clearly on the corporate side versus mortgages last time. There
was a lot of garbage debt, garbage securities out there. You look at some
of the things, a company like we work has sold. There’s plenty of
examples of paper and companies that are gonna be in a lot of trouble
based on what they’ve done in the corporate bond market [crosstalk
00:28:35]-

Peter Schiff: And a lot of these companies are going to lose a lot of money. They’re not
going to be able to buy bonds. But I think if you’re talking about bubbles,
the bond bubble, for my money, is a bigger bubble than the stock market.
So why would you want to take refuge from one bubble by participating in
an even bigger bubble?

Ben Hunt: Because we have to live in the real world, right? And in the real world we
have stocks and bonds. We have government rate instruments. And we
can’t, most of us can’t, step back for five years, for the popping of the big
bubble. We have to play the game-

Peter Schiff: Well no, you don’t have to buy 30-year bonds. You can buy one-year or
two-year bonds. You can stay in cash. You can buy bonds issued by
other governments that have better credit quality. You can buy gold. I
mean, there are other assets. It’s not just stocks or long-term bonds.
There are a lot of other things you could buy.

Ben Hunt: Yeah. Okay.

Albert Lu MC: I want to ask you guys about going abroad. I know Peter, your strategy
has been foreign equities, right? Getting away from the US. Mike, I know
that you like to stay in the US. And so I guess I’ll direct this question to all
three of you. Is it possible that sometimes we overrate or overvalue things
that are overseas or abroad or less familiar to us? Because if you think
about it, our banking crisis was someone else’s foreign investment, right?
There were some people, someone out there was putting Singaporean
teachers into Lehman Brothers-structured products. So, what is the value
of investing abroad, and are we overvaluing that in terms of diversity? I’ll
start with Ben.

38
Ben Hunt: I don’t invest overseas. I don’t. I mean I’m completely opposite on this. I
think that given both the deflationary shocks that I think we all see
coming, the ultimate inflationary pressures that come from monetization
of debt, which I agree is absolutely coming. It’s going to happen. I want to
be, I want to push away from the table of the casino, if you will, of public
securities, particularly those that are overseas. So I’m looking at real
assets, particularly at those that are as closer to home as I can get. I want
real cash flows as close to home as I can get. That’s what I’m focused on.

Albert Lu MC: Mike.

Mike Larson: What I’m looking at, I mean again, since that sort of February/March
timeframe, I said this at the earlier presentation, it’s not greed is good. It’s
boring is good. I want to be as boring as possible. Consumer staples type
things, high yield, low volatility, the portion of money that’s still going to be
in equities. And in our newsletters, we have 50% some-odd range in
cash. Those few remaining things that we do have recommended are
plays like that.

I think domestically, it’s important to be domestic versus overseas. It’s

important to be boring versus extravagant. And I think the one last point
that I’ve made is that you have so much money that has been into the
growth overvalue trade that you have the Russell, the divergence
between the Russell 1000 Growth and the Russell 1000 Value Index is at
the widest, or the broadest spread you’ve seen except for the one-year
period bracketing the peak of the dot com bubble. So the stuff that’s
undervalued, it’s not the FAANG names and all that other stuff that’s on
TV all the time. It’s your, some utilities, consumer staples. Things that
aren’t sexy but are going to save you or make you money even in a rough
market, in my opinion.

Albert Lu MC: Mike, are there not any of those boring stocks to be found in overseas
markets?

Mike Larson: I think the issue to me is really that, what’s going to happen with the US
dollar? I’m not negative on the dollar. I actually think that the dollar, as our
rates go up and foreign rates don’t, as money seeks safe havens, I
actually think the dollar is likely more a bullish play than a bearish one.
And I think that’s going to work against you.

Peter Schiff: I agree-

Albert Lu MC: Okay Peter, your thesis has been sort of the opposite of that. Weak
dollar. Are you still looking overseas?

Peter Schiff: Yeah, I mean, first of all, I mean I think the valuations are much better in
the markets that I’m involved with. But I think more importantly, people
are underpricing the political risk in the United States. Not only are our
assets very expensive, but there is a real wave of socialism building in
this country. I think the Bernie Sanders phenomena is much more
important than Trump. Trump was able to win because he was able to tap
into the frustration from a bunch of people who knew the economy was a
lot weaker than the experts were telling them.

39
 But when this bubble pops and we are in recession at a bear market, two
very likely events that will occur and will be ongoing in 2020, Trump will
be a one-termer, and his replacement will be a socialist and Congress will
be a socialist, and all of these tax cuts, which people think are permanent,
are going to be very temporary because one of the things that they’re
going to do is they’re going to raise taxes rather dramatically. They’re
going to vilify corporations and greed and capitalism and blame all that for
the problems. And they’re going to jack up taxes and spending’s going to
go through the roof. And we’re running massive deficits now under
Trump, biggest trade deficits, biggest budget deficits in history. Obviously
those records will be broken under the term of whoever who succeeds
him.

So there’s a lot of risk, inflation risk, political risk. I want to be far away
from this blast when it happens. I want to look at countries that are, have
better fundamentals, where they have trade surpluses, balanced budgets,
budget surpluses, where people are saving money, not just borrowing it,
where they have real industry and real production. And yes, the dollar
went up on anticipation of the Fed raising rates. Well last year was the
first year in five when the dollar went down. Now it’s up a little bit again
this year because people actually believe we’re going to win this trade
war. It’s impossible for that to happen. We’ll see if the dollar finishes the
year higher. It’s interesting. The dollar is not gaining much traction
recently with the markets kind of blowing up and problems happening.

But I think the next big move is going to be when either the Fed has to
admit that the economy is not as strong as they think, and they’re going to
change their forward guidance on rates and the dollar’s going to tank, or
the markets are going to figure this out and front-run the Fed, and the
market is going to tank. But when they have to go back to zero, when
they have to launch QE4, the dollar’s going fall through the floor-

Ben Hunt: You think if the US market tanks that your foreign stocks are going to do
well?

Peter Schiff: As long as the US dollar goes down, as long as the US dollar goes down,
foreign stocks will do very well, because the problem for a lot of foreign
stocks now is not only the overvalued dollar, but the expectation that the
dollar’s going to keep rising. When that expectation proves to be false, it’s
going to provide tremendous relief. Remember, a lot of these foreign
markets have dollar debt, and when the dollar loses value, it’s like their
debt gets forgiven. And all of a sudden, commodities that are priced in
dollars become less expensive for people who have other currencies to
pay for them. So-

Ben Hunt: Look, if you invest overseas with the dollars, you are taking on currency
risk with your investment.

Peter Schiff: That’s exactly what I want-

Ben Hunt: And it swamps [crosstalk 00:35:37]-

Peter Schiff: ... because I’m-

40
Ben Hunt: No, no wait [crosstalk 00:35:38], let me finish-

Peter Schiff: I’m getting rid of the risk [crosstalk 00:35:39] of the dollar.

Ben Hunt: ... let me finish. It swamps all of your fundamental analysis of those
companies that you’re investing in, [crosstalk 00:35:45]-

Peter Schiff: Not if the dollar goes down.

Ben Hunt: ... well, that’s my point. Not if the dollar goes down. If it goes up, you’re
making another bet, which I-

Peter Schiff: Yeah, I’m making a bet-

Ben Hunt: ... promise you-

Peter Schiff: ... that I think I’m gonna win.

Ben Hunt: Well, that’s a very-

Peter Schiff: That the dollar’s gonna fall.

Ben Hunt: That’s a very, then just bet on the dollar. Why are you doing it investing in
specific companies?

Peter Schiff: Because I make, if I own a company that earns currencies that are going
to go up, then I make a lot more. [crosstalk 00:36:06] If I own a foreign
stock, I can make money three ways. I can get the dividend on the stock.
I can get the appreciation of the company. And I can get the foreign
exchange gain. If you want to bet on the dollar, that’s fine. That’s a bet
you want to make. I wouldn’t want to make that bet.

Ben Hunt: No, you are betting on the dollar when you-

Peter Schiff: No I’m not.

Ben Hunt: ... invest in foreign stock.

Peter Schiff: I’m betting against the dollar.

Ben Hunt: You just are.

Peter Schiff: I’m betting by investing abroad. That’s exactly what I’m doing.

Ben Hunt: All right.

Peter Schiff: And obviously, betting on the dollar was the right bet from, in 2016 and
2015 and 2014. But I’m in this game to win it. I just don’t want to win, I’m
not trying to win a few hands. I want to walk home, walk away with all the
chips. And when this bubble bursts, I think the dollar goes down, just like
it did, when the dot com bubble burst, the dollar tanked and it hit an all-
time record low in 2008. When the real estate bubble burst, the dollar
actually rose. But I think this time it’s going to be a repeat of what

41
 happened in 2001, only a much bigger decline because when the ‘08
crisis started, gold was at an all-time record high and the dollar was at an
all-time record low. And that’s how everybody was positioned. But now
nobody is long gold, and everybody is short the dollar. So people are,
when they get surprised by the events that we have now, it’s going to be
a big drop in the dollar and a rise in gold.

Albert Lu MC: Gentlemen, just a few minutes left, and I want to turn the attention to gold
because it’s been a very tough number of years for gold investors. If you
look since the crash, nine years, the stock market’s been going up double
digits year over year. We basically been flat. And it occurred to me, back
in 2004 when I got married, I’m putting the ring on my wife’s finger, and
the gentleman is saying, “In sickness or in health, till death do you part,” I
thought he was talking about my wife. I think he was talking about the
gold I was putting on her finger, because that trade has required a lot
more faith and dedication than anything else that we’ve experienced as a
married couple.

And I feel kind of duped, because I think the marriage proposal was a
much more honest proposal, meaning that no one told me that my wife
was going to look the same a thousand years from now, or that our
marriage wouldn’t become tarnished. There were no claims of
malleability, like she would become any person I want her to be. And if I
miss her, I can’t carry a one-ounce version of her in my pocket. So I’m
feeling a little bit disillusioned with the gold trade. And I’m seriously
considering a fling with the S&P. If there’s anyone in this room who can
talk me out of it, it’s Peter Schiff, so only 30 seconds Peter. Your best
pitch.

Peter Schiff: Look, my cuff links are made of 24-karat gold. Got them from a company
called Mene. My cuff links are going to outperform the S&P over the next
five years. I mean gold, gold started this process. When they started
blowing up the dot com bubble, gold was under 300. All right? It got as
high as 1900 in 2011. This game is not over, right? The fat lady hasn’t
sung yet. When this final bubble pops, gold’s going through the roof. I
used to think gold was going to 5000. Now I think that’s, I doubt it’s only
going to go to 5,000. 10,000 may be a more likely target than 5,000. But I
do think that by the time this bubble has run its course, you’ll be able to
buy the Dow Jones for an ounce of gold. And-

Albert Lu MC: Mike.

Peter Schiff: ... that’s where the Dow bottomed out in 1982, and that’s where it
bottomed out in 1932. So there is precedent for the Dow being worth one
ounce of gold.

Albert Lu MC: Yeah, Mike.

Peter Schiff: So I think it’ll be worth-

Mike Larson: Sure.

Peter Schiff: ... one ounce of gold again.

42
Mike Larson: All right, I’ll preface this by just saying I’m not a gold bug by nature. There
have been times I’ve liked gold, there is times when I don’t. I think gold at
this point has two things going for it. It has the fact that unlike many of
these other assets I’ve talked about, Ben’s talked about and Peter have
talked about, being radically overvalued, gold is one of those assets that
is undervalued and has not been swept up in this mania. That’s the first
thing. The second thing, frankly, in a higher volatility, higher risk, Uber
bust scenario, whatever you want to call it, I think that one of the reasons
gold declines so much is that the price of volatility itself was extremely
low. I mean we had more days when the VIX was under 10 last year than
we’ve ever had in recorded history. As that increases, gold is going to
prove its role as chaos insurance in my book, and it’s something you want
to own.

Ben Hunt: So I own gold. I don’t own it as an asset. I own it as an insurance policy,
and that’s exactly the way I think about it. I think today it’s a cheap
insurance policy. However, it is an insurance policy that will not pay off
until confidence in central banks is broken, not just shaken, but broken.
And that is a very long and very difficult and very dicey path. And all the
shocks we’re talking about, they’re not going to break confidence in
central banks. It’s going to reinforce confidence in central banks. So it’s
an insurance policy, but don’t be expecting it to pay off until everybody
says the central banks don’t have control over either inflation, well that’s
the only thing they can’t have control over.

Peter Schiff: How did it go though from 300 to 1900?

Albert Lu MC: Guys, guys, out of time. Final question. How many years till the next
recession?

Ben Hunt: The next recession? So a garden variety cyclical recession in the US
within 12 months.

Albert Lu MC: Okay. And the next crisis, serious crisis.

Ben Hunt: Next serious crisis, I’ll use your two years. It’s going to be around either
China devaluing its currency or around Italy standing up to Germany in
the ECB.

Albert Lu MC: Okay, Mike. Same question.

Mike Larson: I think the markets are already topping. We’re already carving out a
rounded top, and I think we’re probably in recession within the next 12 to
18 months.

Albert Lu MC: Financial crisis, on the horizon?

Mike Larson: Financial crisis, I believe we’re already getting the first canaries in the
coalmine, so to speak, and I think that the volatility’s going to be
increasing dramatically, and next year is not going to be a good one for
the averages.

Albert Lu MC: Next year. Okay, Peter.

43
Peter Schiff: Yeah, I would agree. I mean, we could be in recession very soon. I think
we’re already in a bear market in stocks. People are going to call it a
correction until it’s officially a bear market, but all bear markets begin as
corrections. But I don’t think it’s going to be focused in Europe or China. I
think America is going to be the epicenter. And I think this time people are
not going to run towards the blast. They are going run away from it.

Albert Lu MC: All right, that’s it. Ladies and gentlemen, please thank the panel. Thank
you very much.

Peter Schiff: Thank you.

Sean Brodrick
“The White Hot Metal That Will Make You A Millionaire”

Robert Helms: But now it’s time to introduce you to our headline speaker for tonight. Our
final speaker is Sean Brodrick, and he’s going to share the White Hot
Metal That Will Make You a Millionaire. Sean’s travels have taken him
from diamond fields north of the Arctic Circle, to gold projects in
Argentina, to an ancient city of mummies and silver, to a wild patch of
mountains in Alaska where gold flakes still wash down crystal cold
streams. He’s the editor of Weiss Ratings Monthly Wealth Supercycle and
has a premium newsletter, Supercycle Investor. Sean’s best selling book,
The Ultimate Suburban Survivalist Guide, helps readers prepare for and
profit from any crisis. Please welcome Mr. Sean Brodrick!

Sean Brodrick: Alright.

Robert Helms: Alright!

Sean Brodrick: Thanks. Thank you very much, folks. It’s hard to follow marijuana and free
giveaways, but I will do my level best.

Thank you all for showing up. I know this is the last session of the night,
and we are in one of the best cities of the world. So you probably have
better things to do. I will make this as brief as I can. I have 20 minutes. I
have 23 slides. We’re going to fly like this, like a pack of flying monkeys.
But we are going to cover some ground here. And let’s advance.

Alright. Does that go back? Yeah. That’s me. And I will be talking about
uranium tonight. I know many of you like gold. I like gold. I think gold
looks really, really bullish. I’m not talking about gold tonight. I have a
session on Sunday where I will talk about gold and uranium and other
things. It’s kind of a grab bag kind of stuff of lots of things that can make
you money. Uranium in particular is doing extraordinarily well.

Gold has been kind of, you know, drip, drip, drip, kind of a painful thing for
many of us in the past few months. Uranium is a metal that’s doing
extraordinarily well. It was up again today. It’s up, I think it’s 38.50 now, or
some ...

Audience member: 2850

44
Sean Brodrick: 2850. Thank you very much. So up again today, and it’s just been
cranking up and up and up. There are some fantastic companies that are
leveraged to that metal that really have some extraordinary potential.
We’re going to talk about some of those today, and just what can really
go on here.

One thing you should know about me is that I’m a cycles guy. There are
cycles in pretty much everything, and people can talk your ear off about
this. But the important thing is there are cycles in markets, and the cycle
for uranium is really coming around. There are many reasons for this, but
there is a new bullish cycle due to the rapid building of nuclear reactors,
not here in the US. Many investors only focus on the US, and so here you
think, well, it’s kind of stalled out. Places like China and India, they really
have a building boom going on. So that’s just a lot of future demand
coming down the road.

In the meantime, the price just cratered for a bunch of reasons that I’m
about to get to, and because of that production has been cut. But the
price is still so low that it’s cheaper to buy uranium on the spot market
than it is to mine. That’s the problem that Cameco, the big western
uranium miner, actually ran into, so they cut production.

Now, I don’t blame skeptics. I have heard promises we’re going to hit a
new uranium bull market every year from the uranium miners since 2014.
However, I believe, for the reasons that I’m going to show you, that it’s
finally here.

Now, first we have to realize how we got to this place. Why did prices go
down? We have surging supply from Kazakhstan. We had a tripe
meltdown at Fukushima. We had rising inventories at US nuclear power
plants. These things combined to drive down the price of uranium. In fact,
uranium inventories at US utilities went up until 2016, but then they
started living off them. They’re just starting to tip over now, which is good
if you want to see the price go higher.

The bears will argue that 12 US nuclear power plants are slated to close
by 2025, and we’ve already lost four gigawatts of capacity since 2013.
However, I believe that the existing US nuclear power plant fleet is going
to be extended. They’re going to have licenses extended. It’s a large fleet,
largest in the world until China catches up with us. That’s really going to
change the game. Plus, there’s a lot more being added around the world.
So there’s just some tremendous demand coming on.

If you like to watch cycles, as I do, we saw a cyclical bottom in uranium. It

hit in 2016. Prices went higher in 2017. That’s only the third time uranium
prices have gone higher in the past decade, and this year’s gain so far is
bigger. So we saw the cyclical bottom in uranium. It’s going higher. The
dog days are over, and so it’s time to saddle up those horses and pick
your winners, because we’re going to see those thoroughbreds run. But
even though uranium hasn’t moved higher ... and I’ll show you which
chart on that. Prices are still 66% below the 2011 peak. It has a huge way
to go. So they are coming fast. This chart already out of date. Now it’s like
39%. But they’re up 38%. The price of uranium is up about 38% since
April.

45
Don’t you wish you could say the same for gold? Wouldn’t that be
wonderful? I bet you have some stocks in your portfolio that would do
very well if the price of gold went up like that. Uranium stocks are doing
incredibly well, and they’re going to do much better going forward. This
price rise is an acceleration off of last year’s bottom, and it’s looking pretty
darn good.

One thing that is driving it is we have new physical uranium funds. We’ve
had the Uranium Participation Corporation for quite a while. That was
around during the last uranium bull market. Since January 1st, 2016 it’s
about 2.65 million pounds of uranium stocking up as it does. Yellow Cake
PLC was just launched this year over in London. It’s already scooped up
eight and a half million pounds from Kazakhstan, and there are two more
that are just about to launch. One in Australia and one in New York. The
one in New York will have a lot more liquidity, and you can bet your
britches that as soon as those funds make their debut they’re going to
want to load up on uranium too.

We have a supply crunch looming. I’ve already explained that we’ve seen
suppliers around the world closing production. So we’re seeing more
demands from these funds. We see more nuclear power plants being built
in China and India and elsewhere in the world. So how do you supply
those funds and those new plants? Well, you need more uranium. But
prices are so low nobody wants to sign long-term contracts. There haven’t
been any new long-term contracts signed in the past two years. You have
to go to the spot market.

And you see what’s happening to the spot market right now, and it’s just
soaring. Part of this is Cameco. It has to fulfill existing contracts to supply
uranium, because it shut in one of its big mines. It lost that mine
production, so that’s off the market, and it has existing contracts that it
has to fulfill. So it has to go into the spot market, and so that’s just kind of
eating up all the uranium that’s lying around. I just wonder how long that
will last.

This year there was a seven million pound deficit in the uranium market
that was made up by stock piles, and yet we see the deficit coming and
it’s just going to be huge. In fact, Cameco just announced that it has to
buy one to three million pounds in the rest of this year, 2018. There’s only
two months left in that. And then it has to buy 10 to 12 million pounds next
year. Somewhere in the neighborhood of 14 million pounds. 2019 is going
to be extra dry, and we are going to see just some tremendous demand in
the spot market that could really light a fire under uranium prices.

Utilities, meanwhile, they’ve been under buying for years. Why have they
been under buying? In other words, not buying nearly as much uranium
as they should to fulfill their long-term demands. Because it was so cheap
in the spot market. All they had to do was go and buy it there. It made
them very lazy, and, actually, just not thinking about the long-term, which
if you own nuclear power plants you really should think about the long-
term. They’ve been under buying. This is one more thing that’s probably
going to help fuel the next rise in uranium prices. In fact, it could kind of
trigger what some call the mad dash, because according to Cameco,
which is the big miner, or at least the big western miner in the space,
uncovered utility requirements are projected to be 730 million pounds
46
over the period between now and 2027. Which means either people have
to sign new long-term contracts to fill that at higher prices or they have to
buy it in the spot market. And as I said, the spot market is being soaked
up right now.

There are risks to this, and I did want to mention that. We could see
Kazakhstan, Cameco, others, switch the mines back on. It’s not the
easiest process in the world. It actually takes some months to do that, but
they could do it. But in order to do it they’d have to have incentive to do it.
And the incentive for them to do it would be for the price of uranium to get
to between 60 and 80 bucks a pound. It’s nowhere near that now. I mean,
the price of uranium would have to double and more in order to get there.

According to the World Nuclear Association, in the five years from 2015 to
2019 you should see 55 new reactors start in 12 countries, and two of
those countries will have their first nuclear power plant. Once you build
one it’s much easier to build more of them. So over that period, if the US
reactors that are slated to shut down don’t shut down, if they’re extended,
which they probably will be, and if we have the new ones come online,
then we could see an enormous increase in the uranium base case
demand. That’s when the mad scramble begins.

A funny thing ... and I just want to touch on this a bit. The US used to be
the world’s biggest uranium supplier. We aren’t anymore, Kazakhstan is.
In fact, US uranium production hit a 70 year low in the first quarter of this
year. Now, the White House is trying to do something about this. There
was an executive order signed late last year, it has a list of critical
minerals that we are dependent on foreign sources for that we’d really like
to enhance our own sources. One of those is uranium. That’s one of the
35 minerals on that list. Lithium, cobalt, vanadium, a lot of the other
exciting minerals, which I’ll also be speaking about Sunday, they’re also
on that list. You just wonder what the White House is actually going to do
to actually promote the mining of those minerals. I have some ideas. I
don’t have time to get into it right now.

It’s too bad that’s ... oh, that’s actually not cut off there. Okay.

How bad is it? The US produced 2.3 million pounds of uranium in 2017,
and yet US utilities consumed 46.5 million pounds. The rest must be
imported, and obviously that’s the kind of thing that we really don’t want to
see. That has to change somehow.

Before I came, I put together my list of tradable uranium companies. Here

they are, and I have 37. This includes some funds, and three of them
aren’t even trading yet but they will be. If you’re a subscriber of mine you
probably got this list today. Now, you might be thinking, there’s a couple
Australian companies that aren’t on there. And yes, that’s because those
companies trade for two cents Australian, which isn’t even real money.
And if it goes down a penny then you lose 50% of the value of that stock.
To make my list they have to trade at least a nickel. That’s the lowest
one, and I think that’s crazy. But I still only came up with 37 names. This
is a very, very small universe. The supply-demand crunch that I’ve been
talking about has to be dealt with by 37 names. That’s just crazy.

47
Now, sure, there will be more uranium companies launching. You can bet
your britches on that one, too. But there’s some real potential in these
names. An investor with enough money could easily buy all of those and
start his own fund. There’s only 37 names for crying out loud. Some of
these are going to get a heck of a lot more expensive.

These are some US uranium companies. I’ll have a slightly different list
when I speak on Sunday, because these are the most well-known ones.
And then there’s a kind of different list that’s the one that I think have the
most potential. But this isn’t a bad list. UEC used to be in production. I’ve
actually been to their mines in Texas, but they’re not in production now.
Waiting for higher prices. Probably waiting for around 45 to 50 bucks. UR
Energy, they’re producing in Wyoming. Lowest cost producer among list
of public companies. And then Energy Fuels, which is a fascinating little
company. Largest uranium producer in the US, and it’s restarting is
vanadium production this year. That’s a really interesting metal use and
steel has a chart that makes other metals envious. It’s just been on a
rocket ride, and I’ll talk more about that Sunday.

The big enchilada in the uranium space is called Cameco. Now, it just
shut down some large mines. It reported earnings today, and it beat
earnings by five cents a share. It’s kind of a sad commentary on the
industry that by shutting mines down a company earns more money than
people were expecting otherwise. The reason is because it’s cheaper to
buy uranium on the spot market than it is to mine it. So, Cameco,
anyways, says every five dollar per pound increase in uranium prices
gives the company an additional $54 million in revenue, and great cash
flow, and all that stuff.

Now, it is facing the problem that many of its long-term contracts end in
2021. So it needs the uranium price to be over $30 to $35 per pound. By
then, the good news is, I think, that the uranium price is definitely going to
be over there by then. Also, Cameco just had a very favorable tax ruling
in court up in Canada covering a few years in which they had a huge fight
with the tax authorities up in Canada. The tax authorities lost. They are
now appealing that, but there’s likely to be more favorable tax rulings. I
think this company, actually, has a lot going for it, and it’s the largest one
but it can get bigger. So, definitely keep your eye on that one.

Now, Energy Fuels. This is in two of my portfolios, both Supercycle

Investor and Wealth Supercylce have this in there. One is up, I think,
65%, and one is 85%, because we got it near the lows. But it can go a
heck of a lot higher. It has uranium, it has vanadium. This thing trades in
the US. It’s easy to buy. If you don’t own a uranium name you might want
to consider buying this one. And I will give more picks in energy metals.

I have these sessions coming up, but I did want to sum up my case here,
which is that we have demand for uranium is steady and growing. The
low base case is we are going to see demand increase by 2.3% per year
if those US nuclear power plants do not shut down as scheduled. And if
their licenses are extended, it’s going to grow a lot faster than that.
Supply has been forced lower. There’s been no significant long-term
contracts in the past two years, and the volatility in the spot market is
really starting to heat up. Meanwhile, inventories are falling. That is
probably going to spark a scramble among the utilities to actually fulfill the
48
 things they’ve just been pushing off and pushing off, because they could
always buy it cheaper on the spot market. And that seems to be going
away. And so, when the next price correction comes, it will be to the
upside. It could be rather sharp, and when it happens we could see the
spot price, I believe, go as much as 50% to 100% higher than it is now.

What will that do to the stocks of those mining companies that are
leveraged to the price of uranium? They are going to go ballistic. I just
gave you a list back there of ... that’s one ... there we are. Any of those
companies will do well. Some could do very well, and some could do
extraordinarily well. Keep those things in mind. If you don’t have any
uranium names in your portfolio, if you’re a person who just likes the
precious metals and stuff like that, you have to think outside of the
sandbox a little bit, because this market is not going to wait for you. The
cycles have come around. They’re heading much higher, and there is
going to be an extraordinary move in both the price of the underlying
metal and in the price of well positioned miners and developers and even
explorers.

That said, going back to my list that I had earlier, not all these names will
be winners. There are ones in that list that should do extraordinarily well.
Some of them won’t. So be careful if you’re doing this on your own. They
are not all going to be good, but there’s so much potential in there. Just
please, give it a look over, because you could really make a fortune in this
metal and in these miners over the next few years.

And that’s it for me. Thank you very much.

Doug Casey
“Collapse Of The Markets? No Problem. The Collapse Of Western Civilization? Big
Problem”

Speaker 1: Next up a man who needs really no introduction, but I will introduce him anyhow.
Doug Casey is the founder of Casey Research. His first book, The International
Man, became the largest best selling book in the history of Rhodesia, a record
that will never be broken. He’s also the author or two New York Times nonfiction
best sellers, Crisis Investing, and Strategic Investing, and now two novels,
Speculator, and Drug Lord. He’s visited over 150 countries, and lived in 10. He’s
an anarcho-capitalist, partial to Austrian School economics, reach him at
caseyresearch.com, and internationalman.com. If you would, please give him a
warm welcome. Doug Casey.

Doug Casey: Thank you, thank you. Okay, friendly greetings and a warm hello. All right, what I
want to talk about this morning is why you shouldn’t worry about the collapse of
the markets, or the collapse of the economy, both of which are gonna happen.
These are relatively trivial things. What you should really worry about is the
collapse of Western civilization.

Okay, so let’s go from the trivial to the important. Little bit of history on the
markets and what you should do about them. You remember back ... little bit of
ancient history, you remember back in the early ‘80s when U.S. government
bonds were yielding 18%? Well, they’ve gone down to close to zero as of a

49
couple years ago, and now they’re heading back up. My projection is they’re
gonna be yielding much more than 18% before this is all over, so don’t own
bonds. That’s one piece of investment advice.

Second thing, stocks. Back in the early 1980s when bonds were up there, the
DOW was 850. Now it’s about 27,000. My guess, where should it be? In real
terms, real terms, 3,000, 4,000. I think it could fall a lot. Remember when Exxon
used to yield 10% in dividends way back then when electric utilities used to yield
15%, just keep that in mind when you’re chasing 1% or 2% stock yields today.

Real estate. Unfortunately, real estate is floating on a sea of debt, and as the
price of that debt interest goes up, real estate’s gonna go down. So, I don’t want
any of these conventional investments. What’s gonna happen to the economy?
It’s over-financialized, and I’ve said this before, we’re in the middle of a gigantic
financial hurricane. We went through the leading edge of it in 2007, ‘08, and ‘09,
we’ve been in the eye of this gigantic storm for years. We’re going to the trailing
edge, and the greater depression is going to be much worse, much different, and
much longer lasting than the brief unpleasantness of 2008. Now, it’s going to be
much worse than it was in the episode of 1929 to 1946.

So, that’s the bad news. The good news is that most of the real wealth in the
world will still exist. The fields, factories, technologies, knowledge base, that’s not
gonna disappear just because a lot of companies do, it’s just gonna change
ownership, and that can be good news. Here’s more good news, what drives the
economy and the markets are two things. Remember this, two things, very
important, why things will eventually get better. Savings, and technology. People
are like squirrels, okay, we’re programmed genetically to produce more than we
consume, and save the difference, because winter’s coming, we know this over
hundreds of thousands of years. That’s one thing. So, people continue doing
that, it’s genetic.

Second thing is technology, and since biologically modern humans evolved

200,000 years ago, Moore’s Law, which was formulated by Gordon Moore in the
mid-’60s ... actually, Moore’s Law has been around for a couple hundred
thousand years. Started out with the quest for fire, and maybe 100,000 years
later maybe the bow and arrow came up, and 50,000 years later learned to
domesticate the horse. So, it’s slowly progressing, but compounding at a
hyperbolic rate, but then it got faster and faster, and in the Industrial Revolution it
became noticeable.

I think that Ray Kurzweil is right, and in only 20 years we’re gonna see the
singularity, at which point artificial intelligence, and robotics, and genetic
engineering, and biotechnology are gonna change the whole nature of existence
on the planet. So, that being more good news. I’m trying to throw out lots of good
news here with the gloom and doom. It really doesn’t matter what the economy
does from that point of view. Except, there is a problem. If people stop saving,
because they all save in dollars, or pounds, or euros, or kwachas, or pulas, or all
these other fiat currencies, if those currencies are destroyed their savings are
destroyed, and their desire to save more is destroyed for at least a while, and this
could slow down.

So, that’s one of the main springs of human progress destroyed, because of the
fiat currency system, and the other thing is, is technology today is very capital
intensive. You destroy savings, you don’t have capital, and that might put paid to
the hyperbolic curve of the growth of technical and Moore’s Law. So, that would
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be very bad news. This stuff is important, what happens to the financial world
and the economy. You don’t want to lose everything you have. None of us want
to be living under a bridge, but this isn’t the real problem. This is relatively trivial.
I’ll tell you the real problem we’re confronting, and that is political correctness. It’s
a real problem.

Let me kind of define, or at least describe what political correctness is, and what
Western civilization is, and compare them, and how they relate. Wait a minute,
let me give you some solutions. I’m gonna try to do that too. This is a practical
seminar that we’re at. What would I do about these financial and economic
problems? Well, I have radical solutions ‘cause they’re radical problems. Number
one, the U.S. government debt, I’d default on it, overtly. Honestly, default on it.
Why? I don’t think the next several generations should be turned into indentured
servants in order to pay it off. I think when a building is about to collapse, a big
building, it’s better to have a controlled demolition, rather than waiting for it to fall
randomly. That’s another reasons to default, honestly on it.

The last thing is, I think it’s morally important to punish the enablers that have
lent the government all this debt. So, I would default on the debt. Of course, I
would, number two, abolish the federal reserve, which is the engine of inflation.
Third thing, a lot of you won’t like this idea, but I would cut the military at least
90% because the military, American military, is not a defender of America and
civilization, it’s the greatest danger to it. Long story, won’t go into it now. Fourth
thing, I’d eliminate all regulatory agencies and all regulations, and fifth, that would
enable cutting taxes by 90%. But don’t worry, this is very radical. It’s a space
patrol, it’s not going to happen. The only thing that’s gonna happen for sure is the
debt’s gonna be defaulted on, but not the way I said.

So, let’s get back to political correctness and how it’s destroying Western
civilization. What is Western civilization? If you’ve ever thought about this, it’s a
complex of traditions, ideas, and attitudes that started out with classical Greece
and Rome, and then these things, attitudes, traditions, so forth, ideas, were
amplified in the Renaissance, and the Enlightenment, and they’re unique. I’m
gonna give you a list of them. They’re unique to the west. Others have adopted
some elements of it randomly, but Western civilization has driven almost
everything that’s good in the world, and I mean this not just technologically and
economically, but morally, and spiritually, and every other way. But it’s going
downhill.

Now, what’s its enemy? It’s a complex of things, a syndrome of things, of other
ideas and attitudes that is generally can be termed political correctness. I first
heard that term in about 1980. I was watching Saturday Night Live, and they
mentioned political correctness. I thought it was a skit, part of a joke, but it’s no
joke. What is political correctness? It’s a complex of things that stand in overt
opposition to Western civilization and everything it stands for, believe it or not.
Now, political correctness is perverted, destructive, degraded, but unfortunately
it’s widely accepted, and even lauded as being a good thing, and a moral thing
today. This is a real problem.

Incidentally, Western civilization in this era of multiculturalism ... how do you feel
about multiculturalism? Well, I’ll tell you. Western civilization out of all the other
so called civilizations in the world is absolutely the only one that’s worth the
powder to blow it to hell, which could easily be done with the others and we
wouldn’t be missing anything. Ayn Rand once said, “East minus West, equals

51
zero.”, and I thought about that, and I said, “Ah, that’s going too far.”, but then I
thought about it more.

Yeah, it is going too far, ‘cause we do get some good things from other
civilizations, and I thought about it and I listed them. What are they? Well, we got
yoga, that’s good. Got martial arts, that’s good. We got Taoism, it’s good. Zen, I
think it’s good, and most important, we got Oriental cuisine, but I wouldn’t make a
trade between Western civilization and sushi, and moo goo gai pan. I don’t think
that’s a fair trade, but that’s about all you get from the other civilizations in the
world, believe it or not.

So, what are the elements of Western civilization? I’m gonna give you a list of 12
things that are unique to Western civilization, which is almost as despised as
middle aged white males, I mean, it’s considered to be a horrible, terrible thing.
Free thought, free speech, free markets, that’s number three. Number four,
limited government. Number five, individualism. Six, rationality. Seven, liberty.
Eight, the concept of progress. Nine, privacy. 10, property rights. 11, the rule of
law and 12, the idea of industry and entrepreneurialism.

Now, let me explain this a little bit. Free thought. This is the basis of everything.
The ability to think freely ... actually, the main thing that separates us from
monkeys, and George Orwell put his finger on this many years ago when he said
that ... when he diagnosed that we were going in the direction of double think,
and thought crime and such, but maybe even more important than free thought is
free speech, because you can’t crystallize your thoughts unless you have the
words to express them even in your own mind. If you control language you
control thought, and that’s exactly what these people are trying to do, and are
doing.

There are words today that are taboo. You’re not supposed to use perfectly good
English words. It’s quite confusing. People don’t define terms anymore, it’s
dangerous. I’m a freedom fighter, you’re a rebel, he’s a terrorist. Well, what’s the
difference? People never even think out what these different things mean, they
just use them robotically. Democracy, which is really just mob rule. Mob rule
dressed in a coat and tie, perhaps. It’s confused with freedom. They’re two very
different things, but you listen to television, or listen to a teacher, and they’re
used interchangeably. You remember when the Defense Department was called
the War Department, and it really made war. Now we have a Defense
Departments that it’s ... the language has changed to confuse the way people
think.

Isolationist. That’s what they call non-interventionists, and nobody objects,

nobody brings this up. You remember during the 1960s there used to be this
joke, “America will never have concentration camps. We’ll call them something
else.”, and today, by God, we have detention centers. So, the old joke isn’t a joke
anymore. So, so much for free speech. Incidentally, part of free speech is hate
speech. I’m a big fan of hate speech. I think we should use hate speech. Why?
Because you’re identifying who the enemy is. I’ll get into this a little bit later, but
one reason why hate speech is actually a good thing is ... a person who speaks
in a certain way, good, bad, you decide, identifies who he is.

If you can’t say anything for fear of offending people or whatever, you don’t know
who you’re dealing with. I like to know who I’m dealing with. I like to know what
they’re thinking, and speech is how they express that. So, let people say
whatever they’d like. And trigger words, this is a new phenomenon too. Yes,
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trigger words are fine. People insist on identifying trigger words. It helps me ... it
lets me know that I’m dealing with a crazy person, people that actually has
serious psychological problems that needs to be told that a trigger word is
coming up.

Third thing, free markets. Socialism is actively being endorsed, and Bernie
Sanders, an overt socialist, actually would’ve gotten more votes than Hillary if
he’d actually been allowed to run. You’ve got lots of people in the democratic
party that are endorsing socialism. Socialism is just the notion that everybody
can live at the expense of everybody else. It’s a stupid idea, but it’s widely
accepted.

Fourth notion of Western civilization. Unique to Western civilization, limited

governments being replaced by the idea of unlimited government. Everybody
thinks that the dictatorship of the proletariat, in effect, is a good thing.
Busybodyism, which is what politics is all about, is very much in the air.
Everybody sees the government as a solution, but let me tell you something
about government. You don’t get the best and brightest people to go into
government, you get the worst people. The most criminal personalities that get
into government. You got two kinds of people in the world, people that like to
control physical reality, and people that like to control other people, and they go
into government and all these stupid chimpanzees vote for them, and cheer them
on, and give them money. It’s insane.

Anyway, limited government, that’s going out the window. Individualism. This is
also uniquely Western. It’s been totally replaced by identity politics. You’re no
longer an individual, you’re a member of a race. Very important. We can’t say
that, but it’s a fact. Well, at least if you’re a white person you can’t say that.
You’re a member of a gender, or a class, or a group of some type, but forget
individualism, that’s out the window. Rationality, uniquely Western concept
actually. Things like science, and fact, and logic, are out the window, and they’re
being replaced by their traditional enemy, religion.

Now, I don’t mean religion worshiping a God necessarily, not that type of religion.
We live in a new era. It’s being replaced by a secular religion. I don’t even mean
Islam, which is a ridiculous religion. I’ve actually read the Quran. It’s intensely
stupid and unreadable. You’re not supposed to say that, but read it yourself, I
suggest you do, it’s only 400 pages, not much. You’d think that Allah would have
more to say, I mean, it’s not even the length of an encyclopedia. But, anyway,
rationality is being replaced by secular religions, and group think, and
superstition, and political correctness, which is actually a religion, and Greenism,
which is another religion.

Seven, liberty. Another uniquely Western concept. This stuff doesn’t exist in
India, and China, and Indonesia, and Africa. Forget about it, it doesn’t exist, the
idea of personal liberty. Now, it’s seen as danger because if you have liberty you
might not be under control, you might do something ... you might offend
somebody, you might violate somebody’s safe space, a new concept that’s risen
to replace liberty. The concept of progress, all these PC people actually hate
progress. Why? Because if you have progress it’s neatly not equal. It means the
smarter and harder working people get ahead. Well, wait a minute, what about
no one left behind? Well, I got a thought for you. All these people want equality,
which you can’t have if you’re gonna have progress. I got a better idea, how
about justice? Justice is getting what you deserve. That’s different from equality. I
think equality is not a virtue, but justice is.
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All right, next thing, privacy. Privacy is a dead duck. Uniquely Western concept.
Dead duck. It’s been replaced by transparency. Everybody says, “Yeah,
transparency. We gotta be transparent. Gotta see through this.” No, this is
ridiculous. What about the concept of mind your own business? That’s uniquely
Western. We don’t live in a primitive village, although these people would like
that, they hate progress so much. Primitive village, you could hear what your
neighbor’s doing, you could look through the bamboo slats and see what he’s
doing. Privacy is uniquely Western. It’s going out the window with transparency.

Property rights. All rights are based on property rights. These people hate
property rights. They’ve been replaced by something called human rights. Well, it
sounds okay, doesn’t it? Well, I’ll tell you what human rights are. They’re the
rights to other people’s property. They’re the opposite of property rights. You got
a right to food. Everybody’s got a right to eat, don’t they? You got a right to
housing. You got a right to education, right? Free education. You even got a right
to a guaranteed income. You certainly got a right, a human right, not to be
offended. This is all nonsense. It’s antithetical to the idea of property rights, which
are the real basis of human rights. This is all phony stuff, but people buy it.

Number 11, the rule of law. Of course people don’t have any sense, you don’t
have any respect for the laws today ‘cause you don’t even know what the laws
are. I mean, they fill libraries. How can anybody have knowledge of the law? You
can’t. There’s thousands, millions of these laws, micro-laws. Everybody commits
three felonies a day whether you know it or not, but I suggest that all these laws
be replaced, including the constitution. I’ll throw that out too, incidentally. I’m not
a big fan of the constitution. The Constitutional Convention was actually an illegal
coup d’état, another story won’t get into that now, replacing the Articles of
Confederation. But I’d say that we only need two laws. People can remember two
things. You don’t have to remember a lot, just two things. One, do all that you say
you’re gonna do, and two, don’t impinge on other people’s property, including
their bodies. That’s really simple. Do all you say you’re gonna do, and don’t
aggress against other people’s life, body, property. That’s it.

But you know what, as I’m gonna point out momentarily, it’s hard to remember
stuff. Even remembering two things might be too much for some chimpanzees.
So, let me break it down to one law. That makes it easy, doesn’t it? Just one.
Even Allah couldn’t do that. Here’s the one great law. It’s ... the whole of the law
is, do as thou wilt but be prepared to accept the consequences. Everybody
basically does what they want anyway, don’t they? But, if they’re told to be
prepared to accept the consequences, “Wait a minute, maybe I gotta think about
this before I do it.” Now, is this reasonable or realistic that we have a society
where there’s only one law, that one? Probably not, because the average person
would have to be thoughtful, responsible, and I’m afraid that the human race
hasn’t been around that long to make that possible, but it’s an ideal to shoot for.
So, that takes care of the rule of law, okay if I’ve been clear, throw out all the
laws we got. Two laws, better one law.

Last is the 12th thing that’s unique to Western civilization, and it’s all being
flushed, it’s all being flushed, is the idea of industry and entrepreneurialism.
People are no longer interested in creating things, they’re interested in
preserving nature. Now, I love the birds and the bunnies as much as anybody, I
promise you, but I think George Carlin was right when he said the, “Save those
bees, save those trees, save those whales, save those snails.” I mean, this is
what it’s all about, it’s nature has become a mania, and nature isn’t your friend,
it’s your enemy actually.
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Nature always ... it’s always wanted to kill you. That’s what nature ... it’s not
friendly, it’s the enemy. It’s only since industrialism in Western civilization have
mellowed things out, and allowed us to live without driving herds of buffalo over
cliffs, and burning down forests in order ... this is what primitive people do.
Actually, industrialism is the friend of nature, but these people, the PC people
think it’s the enemy of it. So, they want you to preserve it, and de-industrialize.
Greenism is another manifestation of this religion.

Okay, so I’ve given you 12 things, very important things, that are unique to
Western civilization, and are hated like Western civilization itself. Okay, why are
they important? These are just concepts, okay, they’re nice, because they have
effects. What are the fruits, the effects, of these 12 concepts I just gave you? I’ll
give you six. They’re literature, one. Music, two. Art, three. Philosophy, four.
Science, five. And a high standard of living, six. Now, let me explain this, if I may,
and how Western civilization is responsible for these things. Literature, you just
kind of expect, you got a book, you could read it.

Well, in colleges today, I’ll talk about that too, they don’t teach the ancient
classics anymore. Forget about it, doesn’t exist. They don’t even teach
Shakespeare anymore. I was a trustee of the 10th oldest college in the U.S.,
Washington College, for I don’t know four, five years, and I attended classes. I
went to one class, an English literature class, and forget about Shakespeare. The
professor walks in, in gym shorts and a tank top, I’m not kidding, and he starts ...
and the assigned reading was a book written by a black guy, I don’t know what
he was like, I don’t know if the ... but it was an almost unreadable, illiterate book
written by a guy who was just out of jail, but it was very political correct. That is
what’s being taught instead of Western classics, so forget about literature. That’s
going out the window with political correctness.

How about music? We all enjoy that. Beethoven, Bach, well, you don’t have to
listen to that all the time, but it’s been replaced by rap and hip-hop. All right, yes I
know, it’s a matter of taste, that ... I know rock and roll ... I love rock and roll,
when it came in everybody thought it was jungle music, and so forth, I know,
tastes, but the fact is things like rap and hip-hop are in fact atonal and discordant
and they use foul language. Incidentally, I’ve got nothing against foul language,
I’m a big fan of Deadwood, which is structured around foul language.

So no, I’m not a puritan, but when it’s constantly being sung at you, it has an
affect on the way you think. You remember American Bandstand with Dick Clark,
back way back when, ancient history times? The kids that were on American
Bandstand, it was very funny, Dick would ask them, “Well, what’d you think about
that song, Jimmy?” “Well, the lyrics were pretty good, I’ll give them a 63, but the
words weren’t so hot, I’m only gonna give them a 32.” Well, that was a standard
deviation above hip-hop and rap today. Just an opinion.

Art. Art. This is a sign of civilization. Leonardo, Rembrandt, people like that,
forget about it, even in the market. Things really turned definitely in the ‘70s, I
forget the so-called artist, who did something called “Piss Christ”. Remember that
was a ... I’m not a Christian, incidentally, so this isn’t another religious comment,
but I just thought it was in bad taste, where there’s a crucifix and it’s in a plastic
display full of urine, and this went for a lot of money, one is exhibited in the Met,
and some ... I collect art, incidentally, but some years ago, I live in Aspen during
the summer, just full of rich stupid people, and there’s this guy, he’s not ... I don’t
know if he’s a billionaire, worth hundreds of millions anyway.

55
I visited his house, very famous art collector, and he showed me his pièce de
résistance, this was the heart of his ... it was a plastic blowup thing, I don’t know
about two feet by three feet, and he pushed a button, and there’s a little
pneumatic engine, ‘ba-ba-ba-ba’ that blows it up into something else, I don’t
know what the hell it was, and then it deflated. This thing was worth hundreds of
thousands of dollars, and I would’ve laughed and said, “You’re an idiot.”, but I
couldn’t because I was in his house, and that would’ve been unseemly. All right,
that’s what’s happened to art.

Philosophy, this is even more important. The problem with philosophy today is
there isn’t any. Ethics hasn’t improved or changed since at least the 19th century,
which was kind of the peak of Western civilization. Meanwhile, technology, as I
pointed out earlier, has been going hyperbolic. Now what we’ve got here is
people that are advancing rapidly in weaponry, but not advancing at all in ethics
and philosophy, and understanding of these things. So, what we’re gonna have is
a bunch of chimpanzees hooting and panting at each other while they fight over a
scarce resource, but with very advanced weapons, more advance than nuclear
weapons. You know, philosophy ... next lifetime, should I have one, I want to
come back as somebody important, like an actor, because people listen to
actors. It’s like they know something. Some actor or actress, I don’t even know
who the hell they are, they say something everybody listens. So, another sign of
how degraded civilizations become.

Science. People don’t study science, they study gender studies, they study
diversity studies which is really stupid. People get degrees because of affirmative
action, because of being a member of a race, or a gender, or a class. I’ll tell you
why this is serious, because eventually with things like anthropogenic global
warming, a whole nother subject to talk about, is debunked. In the mind of the
average non-thinking person, non-thinking because of the things that I mentioned
earlier, it’s gonna debunk the idea of science. Hey, they were totally wrong. They
were 100% correct about AGW, doesn’t work.

So, it’s not just the stupid things that they’re gonna do to fight it, it’s the fact it’ll
debunk science itself, and of course a high standard of living, you’re not gonna
have time for literature, art, music, philosophy, science, if your standard of living
collapses because Western civilization collapses, because you’re gonna be too
busy loading 16 tons of coal every day, or grubbing for roots and berries. So
that’s what’s at stake.

Now, I’ve given 12 unique characteristics of Western civilization. Things that are
responsible for almost everything of value today, but they’re hated and despised,
as is Western civilization, and they’re being actively destroyed. Forget those 12
unique characteristics, too hard to remember 12, I can’t even remember without
a list. I’ve given you six critical fruits of Western civilization that are gonna be
washed away. That’s too hard to remember too. So, forget the list of 12, forget
the list of six. I got a list of three things. You can probably remember three things.
Primitive people, when they count, they say, “Two, three, many.” They can’t
remember stuff past three. Okay, here’s a list of three things you can remember.
I can remember them.

Number one, and this is a practical conference, you want stuff you can do, right?
It’ll benefit your financial and economic ... okay, I’ll give you three things. Number
one, don’t give to charities. Big mistake. I’ve written a lot on this. I’m just gonna
give you a one paragraph summary of it. Yeah sure, if you give it to a charity
you’re keeping it from the government. I understand. Smart. Good. I approve of
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that. But, giving to almost any charity is actually actively destructive. It rarely
helps or solves anything for more than a moment. It’s actually a dissipation of
capital. Yeah, you kill some mosquitoes, okay yeah, there’s some Africans that
are better for the ... but then the mosquitoes come back, but the capital’s gone.
That’s the problem. All charity does is it assuages the guilt of people who have
committed real and imagined sins, and it also makes them feel like big shots,
which is very important to charitable givers.

Worse though, charity tends to cement the recipients to the bottom of the barrel.
It makes them ... receivers of honor and goods. That’s a very bad thing. It’s
immoral. It’s destructive. Worse, the people in control of charities everywhere,
and all these NGO’s, which there are thousands, they have PC values that are
antithetical to what I know most of your guys believe in the things I’ve listed, and
you give money to these charities, idiotically, ‘cause you think you’re being a
good guy, you’re cutting your own throat. It’s absolutely crazy.

I got a suggestion with what you should do. You should give to people that
deserve it, not to people that need it. To hell with people that need it. They
probably need it ‘cause they got bad habits. Give it to people that deserve it, if
you’re gonna give it at all. But I got a better idea yet, there’s lots of ideas, but
there’s no time for this. If you really are a philanthropist, you love humanity ...
incidentally, I don’t like humanity, I like individual people, but most people, no.
But if you really like humanity what you’ll do with your money is use it to create
more wealth, create more money. That’s how your ... but they don’t believe this,
okay. So, don’t give to charities.

Number two, more important, don’t give to colleges, and don’t send your kids or
grandkids to a college or university. This isn’t just the height of stupidity, this is
actively destructive. Actively destructive. Now, I understand if you want to learn a
formal discipline, we need lab work, science, engineering, medicine, things like
that, okay there’s a place for that, no question. But now, it’s worse than a
misallocation of time and money. I wish I hadn’t. I wish I’d had good counsel, I
didn’t. I wouldn’t have gone off to college, misallocated four years of time and a
bunch of money. Today it’s four years of time, and $100,000, $200,000. How
stupid is that? Spending that kind of time and money when you could be doing
something productive with it.

You don’t know what to do? It means you failed in your job as a mentor, as a
parent, as a grandparent, if you’re sending your kids off to be indoctrinated by
neo Marxists because the entire education industry is totally captured by these
PC people that I’ve been talking about. All of them. I mean, it’s like an infestation
of aliens in a nest that you send your kids there, 18 years old, they’re authority
figures, they’ll listen to them, and once you get these ideas in your head it’s hard
to get them out, and it’s hard to replace them with different ideas, and everybody
goes to college today. It’s not like in the old days when a few people did, and
colleges weren’t as corrupt as they are now. Colleges are much more corrupt
and everybody goes there, and then when they get out of college, the movie
industry, the entertainment industry in general, the news industry, government,
just the general ambiance of society, these ideas are cemented. So, there’s
really no help for this. I’m just telling you don’t send your kids to college. Do not
send any money to universities.

The third thing, and this is in general, don’t give aid and comfort to the enemy.
That’s real treason. What I mean by that is don’t attribute good intentions to
these glib, smarmy people that talk about the values of education, and giving,
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 and all this kind of nonsense. It’s a moral issue. I know you all want to do the
right thing, the correct, the moral thing. Well, your moral ... calendar has been
turned upside down by the way society is going, and Western civilization’s
declining, because people just don’t think about these things. Don’t say, when
you listen to one of these idiots say something, “Yeah, I guess you’re right, but
maybe you’re going too far, or you’re going a little too fast.”, makes you sound
like a republican for God’s sake, I mean you should be embarrassed.

So my advice to you, finally, is when you encounter these people don’t apologize,
don’t explain ... don’t rollover and wet yourself, and act like a whipped dog. That’s
what people do today when they’re confronted by these PC people. They give
them moral high ground. So all right, I’ve given you good news, bad news, good
news, bad news, I’m gonna end up with some good news. The good news is
unfortunately resistance is futile, and the battle is lost. At least for the next
century or something until civilization collapses, and we’ll see what reorients
itself, but the good news is, is you control your own life, and I expect you to think
about these things, and act this way, so you can maintain your self respect while
Western civilization collapses, and you could at least do that. So that’s the final
bit of good news. Thank you very much.

Charles Krauthammer Retrospective Panel

Gary Alexander (MC), Jonah Goldberg, James Carville, Brien Lundin, Jason M. Smith

Gary Alexander: And now we come to an important part of our program, which is sobering,
and at the same time a great celebration of a great man, Charles
Krauthammer. I’d like to welcome up to our podium Brien Lundin, the
director of this great conference over the last 20 years. James Carville,
here from New Orleans, who was on a couple of ... or maybe three panels
with Charles Krauthammer. Jonah Goldberg, whom you heard from this
morning, who’s been on panels with Charles in Washington, D.C., area.
And Jason Smith, who was personal assistant to Charles Krauthammer
for the last 18 years. Come on right up there, gentlemen.

Charles Krauthammer was not given his biblical threescore and ten, just
fell short of that. I also want to honor another man in a wheelchair who
made this whole program possible, that’s James U. Blanchard III, who
would have turned 75 next week. He had his last conference here 20
years ago in 1998 when Margaret Thatcher was invited here. Jim died the
following March, and in his will he willed this conference to his intellectual
air, the editor of Gold Newsletter, Brien Lundin, who has continued Jim’s
legacy with this conference.

So, I want to start out this tribute to Charles Krauthammer with Brien
Lundin, and ask you, Brien, what did you see in Charles Krauthammer for
these political debates that began about a decade ago? And you invited
Charles for the conservative side of the conservative versus liberal versus
libertarian debates. What did you see in Charles, and more importantly,
what did Charles see in us, and why did he want to keep coming back to
be with us? Brien ...

Brien Lundin: Well, what I saw in Charles, I think, is easy. Everybody saw the same
thing, you saw a giant intellect, and someone who could reason and think

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 out his words, and not speak for effect or a clang or shock value, but for
that kind of intellectual ... he would translate his intellectual energy and he
fed off of that. But what I discovered of Charles, and it really didn’t hit me
until ... it started to hit me when he announced that his disease was
terminal, and it really hit me after he passed, and it’s hitting me again
during this conference.

I have had the pleasure to meet a lot of fairly famous people because of
this event. You send them a check, and they meet you in the greenroom,
and shake your hands, take a picture, and that’s pretty much it. A number
of those people over the many years have passed, and you say, “Darn,
that’s a shame. I remember meeting. They were a nice person.” As I
wrote after Charles passed in one of the ... or actually, right before he had
passed, in one of our letters, Charles was different. A lot of people were
eulogizing him before he passed and afterwards, and were really good
friends of his, and I felt I had to write something about my experiences,
and I did. I started writing it as if he was a friend, and I said, “You know, I
really can’t claim that. I saw the man once a year.”

Once a year I saw him, yet every time I saw him, he greeted me as a
friend. I felt a grief when he passed, a real sense of grief, and it’s hitting
me again today, as if he was a very close friend. And again, I met the
man once a year, and in speaking to a number of you since and at this
event, a number of you felt the same way. Some of you never bothered
him, of course, it wasn’t a bother for Charles, but a number of you didn’t
go up and talk to him in the hallway and take pictures with him, a number
of you did, but you all felt the personal attachment to him, and you all felt
the same thing.

You feel that same pang of grief as if a close friend had passed, and yet
we, the vast majority of us, only saw the man once a year, interacted with
them only briefly, but he had that effect on people. The shame is that so
many people, only a small fraction of people who ever met Charles or
saw him speak, and most of them in this room or attending this
conference, got to see that side of him, got to see him relaxed, and the
banter and the humor and the good-nature that Charles really exhibited in
person, but didn’t quite do it because of the time limitations and the
particular set ups of television.

So, we were very fortunate, and because he passed, we feel a personal

loss even, again, if we only had a superficial interaction with him. We all
feel a personal loss, but to me that loss is ... it’s great for us, but there is a
greater loss, and that’s the loss for intelligent discourse in modern
humanity. It’s a loss to the world, and it’s a crying shame. I tell you, we
will not ... the analysis, the intelligence, that we will not hear from now on,
it’s a loss to the world. It really is.

Gary Alexander: The way we began using Charles was in a three-way debate politically.
Later on, we used Charles in something called the Summit for America’s
Future, but early on we tried to pit a liberal and a conservative and a
libertarian. The libertarians were usually Doug Casey or P.J. O’Rourke,
and it was easy to find conservatives. This is a basically conservative
crowd, but it was ... the courageous person was always the liberal. I
remember one debate between Susan Estrich and Ann Coulter, but the
most memorable was Charles Krauthammer versus James Carville, and
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 could be run clip number one here? We have three film clips to run. Clip
number one ...

Male: James.

James Carville: Well, first of all, I appreciate my role here as the fireplug at the dog show.
(laughs)

Charles Krauthammer: Allow me to lift my leg. (laughs)

Gary Alexander: If you didn’t catch that, Charles Krauthammer interrupted, after he said
fireplug, Charles said, “Then allow me to lift my leg.” James, tell us about
your experiences with Charles.

James Carville: Well, first of all, I’m walking in the hotel and this woman comes up to me
and says, “Well, James, we’re going to have a parade of Democrats in
your honor, but my husband got sick and I didn’t want to march by
myself,” so here we are. I think the real telling thing about Charles is this,
the world is full of people that tell you how to live. Charles Krauthammer
actually showed you how to die, which is a real, real, real show of
strength, of character, of everything else. To be honest with you, one of
the things that he was really well known for was his handicap, but the
thing about him was as soon as you sat at the table, you didn’t even
notice it. You were just having a debate.

You were having a debate with a really sharp, clever, well-read, well
thought out guy, and you just never ... anybody else, you would have
said, “I gotta take something off my pitch,” but with Charles you said, “I
got to load up here.” That’s a unique ... and you have that kind of
characteristic, where you have the kind of life that Charles had, a very
public life, and you never had a iota of sympathy for him. He never
wanted you to have it, and the fact that his death was public, and he
wrote about it, and he dealt with it, which is just the ultimate kind of
Charles Krauthammer thing. There’s just not very many people that you
run across the have that kind of dignity, that kind of class, and that kind of
... he was a physician, so he was very familiar with lifecycles.

I just thought in many ways he was maybe one of the ... I mean, he was
clearly one of most remarkable people I’ve known in these ... one of the
great public intellectuals of modern American history, honestly. I could
think of a couple I would throw in with him, but not very many, and that’s
quite a role. You’re talking about honoring a guy who was extraordinary,
did extraordinary things, and had an extraordinary life, and I’m just
delighted that you would ask me to participate in it.

Jason M. Smith: I’d like to piggyback off of what James said. I was Charles’ personal
assistant, helped him with all of his travels for the last 18, 19 years of his
life. I met him my freshman year in college, and continued on until the
end. There’s a story that captures what you’re saying about his handicap,
is one day Charles and I were at a hotel, The Breakers, down in Florida,
and we’re about to go to a speech, and the mirror was from the floor to
the ceiling where we were waiting for the elevator.

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 Charles stops and he looks at himself, and he goes, “Jason, I’m so busy
and so focused on my life, I sometimes forget this is how I look,” and that
is what James captured right there is you didn’t throw Charles that pitch
because he didn’t throw the pitch to himself. He never looked at his
paralysis as anything more than an afterthought. It didn’t consume his
thoughts throughout the day. It was just something that he was dealt in
life, and he said, “Okay,” and he kept doing what he wanted to do, and his
passions in life, but he didn’t allow that to overcome him.

Like James said, that’s so fascinating because of the level that he went
and took things, and to not allow that at all to become part of the
conversation after he made a credible thought. The conversation after
Charles spoke was what Charles spoke about. It wasn’t about Charles
Krauthammer. I just want to quickly say as to how we got James here
today, and then I’ll let Mr. Goldberg say some thoughts. About seven
years ago, I come into the greenroom backstage with Brien Lundin, and I
said,

“Man, I had one of the best plane rides of my entire life last night.” I said,
“Charles debated James Carville yesterday in Virginia, and after the
debate, because James could not get a direct flight to New Orleans, and
Charles had had private aircraft arranged for him so he could get here for
the event the next day, offered James a flight home because, as you
know, Charles is good friends with James’ wife as you can imagine. So,
we get on the plane that night, and it was just absolutely fascinating, the
conversation that they had, the fine things that they had, but also what it
really came down to.

When they got on the plane, Charles asked James, “Why did you choose
to go to New Orleans? Why’d you choose to go back home instead of
staying in Washington where you had it made in the shade, could send
your kids to the best schools, so on, so forth?” James replied, “There is
no civic duty in Washington.” This was shortly after Katrina.

James thought it was better to be in New Orleans, and James and

Charles just talked about life, raising their family, raising their kids, and
that’s the one thing that not many people got to see about Charles was
how complete of a person he was. Like Brien said, he really, genuinely,
wanted to be your friend, and if he did not respect you, he would not
shake your hand, and he would not be your friend. So, I think there’s a lot
to be said about Charles Krauthammer outside of his political views, and
just the total character of who he was as a man.

Gary Alexander: In James’ opening statement about Charles’ death, I want to share with
you that I did not know that he was so sick, and when Brien said he might
be coming to the 2017 conference and did not, I didn’t know until Charles
wrote this letter just a few days before he died of how sick he was. When
I read that letter, the immediate vision I got was Lou Gehrig standing in
Yankee Stadium saying, “I’m the luckiest man alive,” because he was the
iron man, Lou Gehrig, and Charles’ letter was so profound. It was just like
Lou Gehrig’s speech about his beautiful family, and I lived the life I
intended. It’s such a beautiful letter. I hope you all read it.

Jason M. Smith: I have one more thing to inform you, just so you are all aware of what the
result was of the debate when Charles debated James. So, Charles
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 debates James that day. That night there was a dinner, and at the dinner
the MC stands up and says at the mic, I’m in the back corner of the room,
nowhere near Charles, and he said, “Charles will not be joining us for
dinner today. He ate James for lunch.” So, that will give you an idea as to
how it went.

Gary Alexander: Now, before I introduce-

James Carville: I would hesitate that that was at Liberty Univer... no, at Pat Robertson’s
thing. I always gave child’s home-field advantage.

Gary Alexander: Now, before I introduce Jonah, I’m going to introduce the second clip, but
with a little bit of an introduction. We had a debate, I think it was 2013, the
conservative was Wayne Allen Root, slicked-back hair, evangelist for the
right, and the left-winger was Fred Kaplan from Slate, professorial
looking, tousled hair. They got into such a debate I had to, like, separate
them like in a wrestling ring, and Charles was kind of the outsider. So,
listen to Charles retort in one of these clips. Clip number two:

Speaker 7: I’m kind of stunned. I’d say I agree with about 80% of what Charles said.

Charles Krauthammer: Well, then I retract all of it.

Male: Next question.

Charles Krauthammer: Is this a private fight, or can anybody join in.

Male: Join in.

Charles Krauthammer: Well, I’m sorely tempted to refute what Fred said, and that I will
exercise tremendous restraint because I really want to do Wayne instead,
if you’ll permit me?

Stephen Moore: Well, I think you hit all the buttons, and you’re exactly right of all the flaws
of this candidate.

Charles Krauthammer: You can stop right there.

Gary Alexander: So, Charles is a master of one-liners, as well as great paragraphs of

thought. Jonah, tell us about your experiences with Charles.

Jonah Goldberg: Oh, sure, so I’ve lived in Washington since 1991 or ‘92, and I knew his
research assistant back then. I actually knew a couple of his research
assistants, but I never really knew the man, himself, and I never really
realized how handicapped he was until we started being on ... I started
being in Special Report with him on Bret Baier’s show, and you really
realized just how ... lots of people knew he was in a wheelchair, but he
was truly, truly disabled, and you never could really appreciate it until you
saw how the production assistant on the set would have to bring him a
glass with a straw because he couldn’t hold one up to drink for himself.

And the thing about Charles, who I got to be very good friends with for the
last 10 years or so, is that he’s sort of a weird study in contrasts. On the
one hand, you can’t ... he had said many times that the only way he could
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have survived what happened to him was to be absolutely honest with
himself, that there was no going back. His life was going to be in this chair
for the rest of his life, and he couldn’t feel sorry for himself. I always felt
there was a certain analog to that in the way he thought about everything
else.

He was fiercely realistic about how the world works, about how life works,
about politics and international relations, and that’s the part that we
usually saw on television or in print was this sort of piercing, cutting
through the BS kind of intellect. But the thing that you saw when he was
off-camera was he was a mensch. I’m not a big baseball guy, but I always
knew that the Nationals were playing because when Charles showed up
at Fox, and he was chewing gum and he had a grin from one ear to the
other, it meant he was leaving immediately from the show to go see a
Nationals’ game.

One of the things I always try to impress on interns when I give these little
talks about Washington and whatnot, there is this distinction that people
make between living your life so at the end of your life you have a great
resume, or living your life so at the end of your life you have a great
eulogy. Resume is a bunch of positions and accomplishments and
awards, a eulogy are the stories that people tell about you that say how
much you meant to them and how much you’ll miss them. And Charles
amazingly lived his life to the fullest on both fronts.

I’ve got funny stories about what a sweet guy he was, but the one that
sort of moved to be the most, because I didn’t know it at all until after he
died, was General Keane, who’s a great guy, you see him on Fox a lot,
he tells the story about how he asked Charles to speak to a young soldier
who was horribly wounded in Afghanistan. Basically had the same kind of
injuries that Charles did, and he said, “I don’t know if you do this kind of
thing”

And Charles said, “I don’t think a month has gone by in the last 30 years
where I haven’t counseled people in these kinds of situations,” and he
says, “The thing you always have to tell them is you have to own this.
Maybe there’ll be some miracle breakthrough, but you cannot get to that
point in your life unless you own who you are, and move forward as if this
is who you’re going to be for all time. You can not have self-pity.” That
was the thing that always struck me about Charles is that of all of the
people you meet in Washington, all the people on this panel, we can all
have our moments of self-pity, he deserved his moments of self-pity more
than anybody I can think, and he never indulged in it. He just saw the
world as clearly as he could, and he was happy for what he had. He
brimmed with gratitude.

So, when you watch Charles on TV, you would think he’s this incredibly
intimidating guy. Turns out, that guy’s actually George Will because
Charles was actually this very gregarious, fun guy. He was also, one last
sort of point I’ll make, is ... and I used to joke with him about this all the
time, when I used to watch Special Report all the time, the natural
reaction is, “Gosh, I wish they gave Krauthammer more time. Then you
actually would get on the panel with him, be like, “Man, this bastard
filibusters.” We used to joke about that all the time. My mom, her proudest

63
 things about me as a pundit, were always whether or not I would make
Krauthammer laugh, and I always tried to do it right before he went up.

I remember at one point, we were talking about the Obamacare website

failures, and I said some line about how no one could have predicted that
the Obama Administration would have hired the best Amish computer
programmers their community could provide, and he lost it. Afterwards,
during commercial break, goes, “You got me.” So, I thought he was just a
remarkable, remarkable guy, and it’s one of the things I’m most grateful
for, that I got to be friends with him.

Gary Alexander: Jonah, I’m sure everybody’s curious of how you met Charles
Krauthammer, and what he’s done for your career over the years, how he
mentored you?

Jonah Goldberg: Well, I met him around Washington because it was hard to avoid, but I
first started seeing him on a regular basis at Fox in the greenroom, and
we would talk, we would conspire, and we would gossip. He loved the
gossip, not in a mean way. He just always was interested and what was
going on. For me, by the time I got to know him my career was pretty well
established, but what he was incredibly useful for was bucking up.

You know, the 2016, 2015 period, for people who were not getting on
board the Trump Train, was a very difficult time, and to have Charles as
sort of this guy who called ‘em like he saw them, he praised Trump when
he thought it was worthwhile, but he never ... Charles was constitutionally
and intellectually immune from undue enthusiasm about anything, and
that was incredibly reassuring, and it was a huge loss I think because I
think conservatism these days is being corrupted from a whole bunch of
pressures, and particularly intellectual conservatism, and we could use
Charles Krauthammer now, whether you agreed with him or not, just for
the manner and seriousness of the way he thought about things. We
could use him a great deal now, and other than that, we just argued about
history stuff whenever we saw each other.

James Carville: Can I make a point here?

Gary Alexander: Sure.

James Carville: It’ll be a little bit crude, I can’t think of another way to say it. I can’t tell you
Charles was the smartest person I knew. I can certainly tell you he was
one of them. I can’t tell you that he’s the best debater I’ve ever seen or
been against, but I can clearly tell you that he’s one of them. There’s one
superlative about Charles that I will say and it’s this, he is the most un-full
of shit person I ever knew, okay? He didn’t bullshit himself, or you, or
anybody else. I know it’s crude, but I just cannot think of a better way to
put it.

Like you said, if he didn’t like you, you kind of knew it, and if he liked you,
then you were his friend. To be honest, it was a level, I wouldn’t say of
arrogance about Charles, but he wasn’t going to be friendly with you
unless you had something to say, or you had something to bring to the
table, which is understandable. I tell my students that, “Your goal in life is
to always be the dumbest person in the room. If you’re in a room and

64
 you’re the smartest person, get out because you’re not going to learn
anything.”

But Charles was just ... I’m telling you, he never ... and he had no ... in a
city that floats on shit, okay, he was the ... and I was thinking, I could think
of some people I think are as smart as Charles, I can think of some
people I think has got ... but I cannot think of anybody more
straightforward. I could have said straightforward, but I wouldn’t have
gotten [crosstalk 00:24:03]. I just really think that’s something that-

Jason M. Smith: And you’re right about that. His son, Daniel, his eulogy, and Charles is a
very private person so I don’t want to speak too much about this, but
Charles loved movies, he loved cinema, and in the last month of his life,
one of the movies that he watched more often than others was the movie
Lawrence of Arabia. There’s a line in Lawrence of Arabia in which he
says, “My friends know my name,” and that’s what Daniel talked about,
and James is talking about now, after Charles passed, was even if you
only saw him once a year, you knew you were Charles’s friend.

He put it out there, and you actually felt that. So, James, you’re exactly
right. He didn’t care about being with the Who’s Who of Washington, and
being invited to all the different dinners. Years ago, he went to the press
club dinner, and he gets home that night, and he goes, I’m never going to
a press club dinner again. It’s really big in Washington. All the celebrities
show up, so on so forth. He goes, “It will not get any better than it got for
me tonight.”

I said, “What do you mean?” He goes, “Kim Kardashian shows up, and all
of the paparazzi start chasing her down to get a picture of her, and they
end up accidentally stampeding Arianna Huffington. It’s never getting any
better for me. I’m not going again,” and that was Charles. I mean, it was
so simple but so funny, and the whole entire night, all I’m envisioning is
Kim Kardashian at the Kennedy Center, Arianna Huffington just getting
ran… by paparazzi, and it was simple, but it was funny. You know what?
He never went to another one of those events again. He really didn’t.

Gary Alexander: Been to the mountaintop, right.

Jason M. Smith: But I would also like to ... he asked me how I met Charles and discuss my
introduction, and when I started working for Charles, and it sort of
supports everything we’re talking about. He did not throw his weight
around. I was a freshman, and I was partying a lot my freshman year of
college like most of us do, and I literally suffer from Catholic guilt. I said, “I
better start doing something to even this out, or I’m going to fail out of
college.” So, I see in the newspaper a job to go help a disabled man with
his evening duties Monday through Friday, 10 o’clock at night.

I said, “That’s perfect. I go out to the bars around 11:30. I work for him
from 10 to 11, and that’s it.” So, I get on the Metro, go to downtown D.C.,
and show up for this job, and there is a line of people outside the door
and down the hallway. When I walk into his office, this is how much I
knew about Charles, I walked into his office and I see Charles and I said,
“Man, whatever this guy does for a living, he must be pretty good at it
because he has a huge office.” I didn’t even know who Charles was. I
ended up giving him the priest of my local parish as a recommendation,
65
 so he knew I had no clue who he was, and he ended up offering me the
job.

The way that I found out who Charles was, was it was two weeks later in
the dead of winter and there was a snowstorm in Washington D.C., he
calls me up at 6 o’clock in the morning and says, “Jason, I need you to
come to my house and help me right now.” I said, “Charles, I got class at
8 o’clock in the morning, I can’t come right now.” He goes, “I’ll write you a
note. I have to be at the White House for a meeting.” I’m like, “What?” So,
I go to his house, help Charles out, and I get back, and I google Charles
Krauthammer, and I’m like, “Oh my gosh.” I called up my dad and said,
“Dad, have you ever heard of Charles Krauthammer?”

He goes, “Get out of here.” I said, “Well, that’s the man I’m helping.” My
dad jokes around that he hasn’t had to pay for a drink at the VFW since.
That’s Charles Krauthammer. He didn’t say, “This is who I am, and this is
who you’re working for.” It was more, “Can you serve me, and do I think
you’re going to fit” I just always loved that about him. He didn’t make it
about what he had done, it was about what we’re going to do, and that’s
one of the most important things in life.

Gary Alexander: All I’ll say as as an MC, I had to listen to what he had to say, and I know
he couldn’t burst in like many debaters can. He took time to brief, and I
had to ... because most people, when you breathe in a debate, that
means that’s your chance to interrupt, but he thought in terms of
paragraphs, and I had to give him time. I think Charles and I, by the end,
worked out some winking system, and he let me know when he was
about ready to finish.

But the most dramatic thing besides the lifting his leg there in a debate
was when he proposed the entitlement solution: raise the age of
retirement, TORT reform, and means testing for Social Security. Boy,
Dick Army stood up with his cowboy boots to his 6’ 3” frame and said,
“That’s fraud. If a private pension firm did that they will go to jail for that.”
Charles said, “That’s the solution. It’s a tax like any other tax. We got to
do it.” Those are the kinds of ideas Charles had that would probably work.
It would raise hackles in Washington as the third rail, but it would
probably work.

Charles had those ideas. They were wonderful ideas. They were worth
entertaining, but Washington won’t do it. That was my experience. We’re
going to run a final tape in a minute, but before we do, because I think
Charles’ final tape should be our final word, so any final words anyone
else wants to say before we close the panel about working with Charles
over the last few years?

Brien Lundin: I’d like to say one thing, and we covered, I think, the most significant
aspects of Charles’s personality. What a kind and genuine person he
was, but just one thought on his intellect. I disagreed on a number of
issues with Charles, but in talking these things over or hearing Charles on
these various issues, talking it over with Charles, the man had such a way
of presenting a sound, coherent argument. Like you say, he thought in
paragraphs. He didn’t have the luxury, which I think is a handicap for
most of us, of being able to type something out and then delete it, and
then say, “How else can I express this?” And edit and re-edit.
66
 He had to get it out pretty much right, correct, what he meant to say, the
first time. I think mental gymnastics were his exercise, and I think he
mastered that, but he could present such a sound argument, not only
using logic and persuasion, but just the tone of his voice, and he carried
such authority that even if you vehemently disagreed with something he
said, he made you rethink your premises. You’d have to go back and say,
“Well, if Charles Krauthammer thinks I’m wrong, there’s a pretty good
chance I am, so let’s go take another look at this.” It was just that weight
of his intellect, which I don’t think was the most important thing. It made
his career, obviously, it wasn’t the most important and lasting aspect or
impactful aspect of his personality.

Gary Alexander: James or Jonah?

James Carville: I am a baseball fan, and I’d see Charles at the Nationals’ games all the
time, and Charles is a wordsmith, and it reminds me of something that
Mark Twain said. He said, “The difference between the right word and a
nearly right word is the difference between lightning in a lightning bug.”
When it came to picking the right word, I think Charles is a 400 lifetime
hitter. That’s what I’d say.

Gary Alexander: Yeah, that’s good. Jonah, any more?

Jonah Goldberg: Oh, yeah, just a word about probably the reason he could speak in these
perfect, crystalline paragraphs is that he had kind of a superpower. He’d
been dictating his column for 40 years, and that’s a muscle memory thing,
and you learn how to speak in ways that most writers can only figure out
with their fingertips. He had to do it with his mouth, and it made him ...
that’s one of the things that made him so formidable. My favorite image of
Charles was I was coming back from a friend’s hotel room that I crashed
at at the 2012 Republican Convention. Some bartender outrageously
over-served me the night before, and it was about 6 AM, and I’m horribly
hung over.

I’m walking over this land pedestrian bridge thing, and I hear this whizzing
sound. I turn around, and coming out like a Japanese fighter pilot with the
rising sun behind him is Charles Krauthammer. Had to be clocking 20
miles an hour in that wheelchair, and he loved to zip around in that thing.
The only problem was, I joke with him, is like, “You really should have an
external speaker playing like the Flight of the Valkyrie out of it,” which he
really liked that idea. He was a man in full. He could barely use any of his
body except for one hand, and he was one of the most fully realized
human beings I’ve ever known, and that’s true whether you disagree with
him or agree with him. He was just a completely well-rounded, grateful
person, and I’ll miss him terribly.

Gary Alexander: Now, Jason has a workshop at 5 o’clock for 40 minutes going against
Peter Schiff and all the investment guys, so you want to just tease that
workshop? What are you going to talk about?

Jason M. Smith: Just some personal experiences and life lessons that Charles gave me
along the way, if that’s something you’re interested in hearing about. Also,
giving me some questions that I can answer for you, and some things you
would maybe want me to talk about, I’m willing to do that as well.

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Gary Alexander: Okay, I’ll set up this last minute with Charles. It’s the 2016 conference.
The other two panelists had already talked about the election. P.J.
O’Rourke was voting for none of the above, not even the libertarian.
Steve Moore was going to vote for Trump, and Charles Krauthammer was
not voting for any of them, not even Trump or Clinton nor the libertarian,
but Charles had great hope for America in this closing minute of his last
message to this conference. Please run the tape.

Charles Krauthammer: In the 19th century we needed a Lincoln and we got a Lincoln. In
the 20th, we needed FDR to get us through the depression and the
second world war. In the second half of the 20 century, we needed
Reagan to revive the country when it was deeply depressed and in
retreat, and also in which there was great post-Vietnam self-doubt, and
he succeeded in doing that. Now, I don’t stay awake at night praying for
miracles and for a new Ronald Reagan, we’re not going to get one, but I
remain impressed by the fact that in American history things generally
turn.

To me, whether you believe it’s the hand of God, to me it’s the bedrock
decency, common sense, wisdom, and generosity, and love of liberty of
the American people. Churchill once said, “Americans always do the right
thing, after having tried everything else first.” Well, we have just spent
eight years trying everything else, and we may spend the next four years
trying everything else, but I do believe that eventually we’re going to get it
right. Thank you very much.

Gary Alexander: And thank you, Charles Krauthammer. And thank you to our panelists.

Adrian Day
“How To Minimize Risk In A High-Risk World”

Robert Helms: Adrian Day is an amazing gentleman, he’s about to talk to us about how to
minimize risk in a high-risk world. Adrian is a British born writer and money
manager which will be very obvious if you haven’t heard him speak before. And
he’s a graduate at the London School of Economics and president of his own
money management firm, Adrian Day Asset Management, where Adrian
specializes in Global diversification and Resource Equities. His firm is also the
sub advisor to the Euro Pact Gold Fund. He’s been a frequent guest on CNBC in
the Wall Street Journal Radio and his latest book is called “Investing in
Resources, How to Profit From the Outsized Potential and Avoid the Risks”,
published by Wiley & Sons. Please welcome back, to the New Orleans
Investment Conference, Mr. Adrian Day!

Adrian Day: Well, thank you ladies and gentlemen for that warm welcome and thank you
Robert for the kind words. I guess I’ve been doing this long enough, I should
know by now that when you change the topic of, and title of your speech, you’re
supposed to tell the MC before he introduces you. So I apologize for that.

You know as we know it’s now 10 years on from the bust of Lehman Brothers
and the Credit Crisis. And 10 years on I think it’s time to take a stand back and
look at the results of policies of the world’s Central Bankers. What they did, what
they didn’t do. What the future of their policies is likely to be. And you know,

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when you look back 10 years, it seems pretty clear, and I’m trying to put this
diplomatically and not snidely. But it’s pretty clear that most of the world’s Central
Bankers didn’t really know what they were doing. And that is because they didn’t
understand what would cause a crisis. There was something going wrong, they
felt they had to do something. And they were basically experimenting as they
went along.

And in fact they’ve, many of the Central Bankers have actually more or less
admitted this. They talk about trying this and trying that. I will, my thesis, my
argument here, will be that the Central Bankers, in 2009 and subsequently, did
more harm than good. In the end, although they talked about trying every tool in
the tool chest and all of that, but in the end they did the things that Central
Bankers know how to do. That is print money, lower interest rates, and assume
more power.

As we know they took unprecedented measures, hoping they would work, the
Fed’s balance sheet, quintupled to almost 4.5 trillion dollars by the end of May
2017, representing 24% of U.S. GDP, that’s astonishing. And as we know they
drove interest rates down to historic, and I mean historic lows of virtually 0%. It
wasn’t just in the U.S., of course, many countries around the world went far,
farther than the U.S. did. The Bank of Japan’s balance sheet is increased to 88%
of GDP, and the Swiss National Bank has increased its balance sheet to 115% of
GDP. And in many parts of the world, Japan, much of Europe, rates actually fell
below 0 to negative. Last year, as I mentioned last year, some 40% of all
government bonds issued around the world were issued at negative returns.
Now, Central Bankers will say that by taking these extraordinary measures, they
saved the world from a depression. That’s a depression at best. Many of them
will say they saved the world from Apocalypse, but did they?

Well the main actors, of course, say, “Yes, they did.” But then they would,
wouldn’t they? Bernanke once said he sleuth the dragon. But in words of Stanley
Druckenmiller, if it was an imaginary dragon, Bernanke would say, “Well if not for
me, you would have had the dragon.” And this reminds of me of the old joke, it’s
a pretty feeble joke, about the man in Piccadilly circus standing on one foot and
tapping his head. He’s asked, “What do you do? Why are you doing that?”, and
he said “Well it’s to keep the elephants away.”, “But there are no elephants in
Piccadilly Circus,” “see?” The man replies, “It works, doesn’t it?” And I think that’s
similar to the Central Bankers and the depression that we didn’t have in 2009.

They might have done better simply staying out of the way. Allowing some
companies to go bankrupt and after a short and sharp recession, the economy
would likely have recovered far quicker, and far stronger than it did. You know,
we don’t remember the depressions that resulted when the government perused
this policy. And the reason is because the recessions tended to be short, and the
recoveries were strong. That’s unlike the recovery of 2008. And I’m, there are
historic precedents for this, one of the speakers later in the week, James Grant,
who I think competes with Mark Skousen for the number of books written. But
anyway, one of his books is on the Forgotten Depression of 1921. Well it didn’t
exist because the government stayed out the way.

So, I’m going to discuss some of the negative consequences, of QE and the
Central Bank policies. But let’s also look, to be fair, let’s start by looking at, was
QE Successful On the federal reserves’ own terms? Forget about other
consequences, but was it successful on their own terms? Well, QE was intended
to increase inflation, which was, quote, “Worryingly low”, which is a perverse
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phrase from a Central Banker, in my mind. And to boost GDP. Well, let’s look at
inflation. A decade after the fed took these unprecedented steps of QE, the fed is
still worrying that inflation is too low. And let’s look at the Bank of Japan, which
instituted QE on steroids. And you can see that this graph here, that money
supply shut up dramatically. And the rate of inflation fell, and it fell into negative
territories.

So, I don’t think it’s at all clear, and I’m using British understatement, I don’t think
it’s at all clear that QE has boosted inflation. Well, how about GDP? Recovery,
from 2009, with all of the massive QE that was instituted, was, as we know, the
worst recovery of the post-war years and for a man my age post-war means
post-second world war so that’s the post 75 years. I’m showing from 2009-2016,
and I’m showing that for a reason that we’ll come to later. So, it was the worst in
3/4 of a century.

Now, let’s look at a real, live experiment, QE vs No QE. Because, a game, like
the dragon, what would have happened if Bernanke hadn’t slew this dragon,
what would have happened? Let’s look at a real life comparison. And we’ll look at
Canada and the United States. Two economies, obviously in close proximity, two
economies with broadly similar stages of economic development. Both exposed
to similar economic sharks. They should have broadly similar experiences. The
Bank of Canada did not engage in QE, not much anyway, while the fed did. Now,
at the end of 2016, the Bank of Canada’s balance sheet was at about 5% of
GDP, which is broadly where it was in 2007. That compares to a 24% of GDP for
the fed, which had increased five-fold over those previous 8 years.

From 2007 to 2016, Canadian GDP actually grew stronger than the U.S. because
of the QE instituted in the fed, by the fed. This is also true globally, and this is all
counterintuitive. And when you say this initially to people they think you’re a little
bit of, I don’t know, maybe an alt-right nut of something, because it’s
counterintuitive. But the facts are the facts, let’s look globally. You look at the
countries with the strongest growth over the last 10 years. Countries like
Germany and Sweden, actually had QE that was a quarter as much as other
countries in Europe even though, as I say, their growth rate was 4 or 5 times as
much as countries like Belgium, Spain and Italy, which had 5 times as much QE.

So, did QE result in higher GDP growth? Clearly the answer to that is no. A
senior economist at the federal reserve Bank of Saint Louis recently, actually just
last month, published a study on QE. And he concludes this rather long study by
saying, “There appears to be no evidence that QE works, either to increase
inflation, or to increase real GDP.” Now let’s repeat that, this is not some right-
wing nut saying this. “There appears to be no evidence that QE works to
increase real GDP.” That’s pretty astonishing.

Another study by an economist at Federal Reserve Bank of San Francisco

looked at Japan. And he concluded similarly, “The QE in Japan had worked to
keep alive zombie banks with their zombie loans to zombie companies and had
prevented real structure reform that was necessary in Japan.” And, of course, as
we know Japan, as I said, did QE on steroids. And yet, over the last decade,
Japan has had some of the lowest growth rates in the entire world including
whole years of negative growth, otherwise known as recessions.

So, if it didn’t work on the Federal Reserve’s own terms, we have to say what
was it all for? Now, as I’ve said, we can never know with absolute certainty what
the result of a different government policy may have been. We can look at
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historical precedents, like the depression of 1921 that didn’t happen. But what we
do know, with certainty, is that there are real results from the extraordinary
measures. Including the extreme money printing and the ultra-low rates. QE
made the recovery abnormally low. Again, I’m not saying that the recovery was
slow in spite of or despite of, I’m saying it was slow because of, because of, QE,
we’ve already seen that.

If heard savers, that’s pretty obvious, ultra-low interest rates. It moved debt up to
new highs, even though after 2007, that’s the second graph from the left, after
2007 we were supposed to have austerity, some austerity. It reinforced
deflationary tendencies. I mentioned earlier that the fed did the only things they
know how to do, print money, lower interest rates and increase power. Certainly,
the role of the Federal Reserve in the economy has grown tremendously over the
last 10 years. And one of the things that they did, of course, after 2007 - 2008,
was target certain sectors. One of the sectors they targeted was housing, the
other sector, of course, was the big banks. So the fed was deciding who gets
some money and who doesn’t get the money. And that has consequences that
we’ll come to later.

Some of you, I think, will know Felix Zulauf, the Swiss money manager. He
actually went further than I did, he said, “We have left the world of free markets,
and entered the word of managed economies. Central Banks have taken over
the running of economic policy after the financial crisis.” The low interest rates
also helped accelerate the decline in public companies. Because it meant small
growth companies can obtain private equity funding much easier and bypass
public markets. Now, that has consequences because it means that ordinary
investors are not able to invest, either directly or through mutual funds, are not
able to invest in some of the really high growth private companies. Which go
straight from private equity funding to simply being acquired. And they never
actually become public and so smaller investors miss out on some of these. And
again, low interest rates, as I mentioned, keep alive zombie companies. We will
see the results of that when interest rates start moving up significantly. As
Warren Buffett famously puts it, I didn’t want to put a graph, a picture of this. But
as Warren Buffett famously said, “When the tide goes out, we’ll see who’s been
swimming naked.” So, no pictures.

The other thing that QE did, it compressed bank profits, constraining banks from
lending. I had a conversation just a couple of weeks ago actually, with a federal
reserve policy official. We met accidentally in a restaurant, and I had a
conversation with him and I was feeling a little bit mischievous, I guess, so as my
opening gambit, I said that the federal reserve was actually responsible for the
election of Donald Trump. And after having just told me that people are wrong
when they think the federal reserve is full of Democrats, he obviously showed
that, in his case at any rate that wasn’t farther from the truth, he looked at me
and thought I was a bit crazy, I think he actually said as much.

But anyway, I said, “Let me explain. The massive monetary expansion went to
banks who largely did not lend to small businesses because of the feds’ idiotic
policy of paying interest on excess reserves. The result was that money sent to
banks were able to borrow money from the federal reserve at 0 interest, and turn
around and put the same money, back on deposit, with the same institution, the
fed, and earn a quarter of a percent.” Now, I don’t know about you, but I know
about me, if someone said, “You can borrow all the money you want at 0% and
give it back to me and I’ll pay you a quarter of a percent, I would do that. And the

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result was, if you’re a bank, you’re doing that instead of lending money to small
businesses, which then go out and hire people.”

So, money flowed to, let me skip over these next two, they show how the amount
of loans has declined, and even though there’s been a falloff in the last couple of
years, the amount of excess reserves that banks hold because of this idiotic
policy is still significantly higher, I can’t see the numbers from here, but
significantly higher than it was in 2007. And so money flowed instead to
investment banks and already wealthy people with collateral, the so called 1%.
Who could now borrow at ultra-low rates, buying more assets including financial
assets, at the same time that the middle class and the working class people, the
middle class with savings but without the ability to borrow, couldn’t borrow money
and thus widened the wealth gap.

That shows the velocity of money not moving, and this shows, if you look at the
end of that slide on the right, how the top 1% has stayed more or less static but
the bottom 50% and the bottom 10%, this is net income, but it’s the same for
their wealth, has actually declined since QE was instituted. And because of that,
we had the rise of popularism and therefore the election of Trump.

So, the federal reserve’s QE policy was directly responsible for better or worse
for the election of president Trump. And the, remember I was having this
conversation with a federal reserve policy official, and he somewhat sheepishly
said to me, “Oh, well, we actually had a member of a fed research department
give us a briefing last week, and he made the same points you did,” although he
didn’t say that the fed was responsible for the election of president Trump.

So, this has happened before, a previous finance minister who, like the fed,
thought that gold had no intrinsic value, printed money like crazy, lowered
interest rates to abnormally low levels, destroyed the value of the currency,
increased debt and created a bubble. This was John Law, a Scottish adventurer,
who became in an amazing story the finance minister of France in the mid 18th
century. At the time he was called the, “Second most Powerful Man in Europe”,
Alan Greenspan, remember, was referred to as the, “Second most Powerful Man
in the World.”

Well, Law created the Mississippi bubble, some of you will know about that, I’m
sure. And what his policies did would destroy the purchasing power of the French
Livre, create the Mississippi bubble. When the bubble burst, the people with a
near-worthless currency and increased debt, and later, subsequently, massive
inflation, we had the rise of the mob. We had fighting in the streets, between
opposing factions. Aristocrats, like this husband and wife, assaulted on their way
to their favorite restaurant. I don’t think I need to put up a picture of Mitch
McConnell, and that led ultimately to a French revolution, to the terror and finally
to the dictatorship. Now, I should say ultimately, it caused France to lose their
dominant global role to England. And this was all the direct result of easy money,
which destroyed the currency.

Now, I’m not actually sure they say that history rhymes, it doesn’t repeat. So, I’m
not sure whether president Trump is Jean-Paul Marat, who was assassinated or
George Danton was guillotined, or Robespierre, who introduced the terror. Or
was he Napoleon, who brought in the dictatorship. I’m not making assessment on
that, but I think we can see that the first part of this story, already sounds very,
very similar to what is happening in the United States today. And let’s just hope
that it doesn’t end the same way. John Law has been called, “The Father of QE”,
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 and the author of a recent biography, a very good biography by the way, notes
that Law’s policies are now the plainest orthodoxy. Again, the plainest orthodoxy,
which most people do not question, can lead, can lead, to the most devastating
consequences. And with that, I thank you very much.

Dennis Gartman
“Money Flows, Monetary Policy, And The Midterms: A Trader’s Perspective On The
Capital Markets”

Albert Lu: Dennis Gartman has been directly involved in the capital markets since
August of 1974, after his graduate work at North Carolina State
University. He was an economist for Cotton Inc. in the early 1970s,
analyzing cotton supply demand in the US. In the late 70s, Mr. Gartman
became chief financial futures analyst for AG Becker & Company in
Chicago. Mr. Gartman was an independent member of the Chicago Board
of Trade until 1984. In 1984, Mr. Gartman moved to Virginia to run the
futures brokerage operation for Sovereign Bank, and in 1987, Mr.
Gartman began producing the Gartman Letter on a full time basis. He
continues to do so today.

The Gartman Letter is a daily commentary on the global capital markets,

distributed to subscribers by 6:00 AM Eastern Time each business day.
The letter addresses political, economic, and technical trends from both
long term and short term perspectives. Clients of the Gartman Letter
include many of the leading banks, brokering firms, mutual funds, hedge
funds, energy trading companies, and grain trading companies.

Mr. Gartman has lectured on capital market creation to central banks and
finance ministries around the world, and has taught classes for the
Federal Reserve Bank’s School of Bank Examiners on derivatives. Mr.
Gartman served a two year term as an outside director of the Kansas City
Board of Trade from 2006-2008. He now serves on the investment
committee of both the University of Akron, and the North Carolina State
University.

Mr. Gartman appears often on financial news outlets including Fox

Business, Bloomberg, and BNN, discussing commodities and capital
markets. His talk today: Money Flows, Monetary Policy, and the
Midterms, a trader’s perspective on the capital markets. Please welcome
Dennis Gartman.

Dennis Gartman: So an 85 year old man celebrating his birthday, and his friends decide to
throw him a party, and they send him a prostitute. And she shows up at
the door, opens her skirt, and says, “I’m here for super sex.” He says, “I’m
85. I’ll take the soup.”

That was funnier than that. My job is to bring you a little bit of soup this
morning. I won’t bring you much in terms of sexy presentation. I’ll give
you some decent ideas on what I think is going on.

Before I got here this morning, I had done TV for Fox Business a couple
times this week. Did Canadian television, got interviewed by the Wall
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Street Journal, and before I left this morning, my lovely bride of 28 years.
I said, “Can you believe in your wildest dreams that this has happened to
us?” And she looked, took my face in her hands and said, “Hey, buddy.
We’ve been married 28 years. It’s been 29 since you’ve been in my
wildest dreams.”

And with that start, I’ll talk about what’s going on in the capital markets
generally. And I have to tell you that, to begin with, I am somewhat to the
right of Genghis Khan in political circumstances, and I’m very much a free
market oriented trader. And what I talk about every morning in my
newsletter, and I get up at 1:00 AM to start writing that newsletter. In 30
some years, I’ve missed two days. Both of them happened to be this
year. One with a kidney stone. If you can avoid kidney stones, avoid them
at all costs. Believe me, they are not worthy of discussion. And I lost
electricity one morning with Florence, with the hurricane. So in all these
30 some years, I’ve missed two days.

I get up every morning, and try to piece together what’s happening

around the world geopolitically. What’s happening around the world as far
as central banks are concerned. I take a look at what’s happening in the
energy market, what’s happening in the grain market, what’s happening in
the equities markets, what’s happening in the commodities markets. And
if I start from one circumstance, it is that commodity prices are so
unbelievably inexpensive. If you take a look at commodities relative to
equities prices, we are at a ratio that has been unprecedented in the last
40 years. Commodities start from that premise that commodities are
unbelievable inexpensive.

And as the chairman of the University of Akron’s endowment committee,

and as a member of NC State’s endowment committee, with the longest
tenure, for at least, now 12 years, I’m pushing both universities to reduce
the size of their exposure to equities, and to quietly, at the margin,
increase their exposure to commodities. We start from that premise.

Let’s first of all look at monetary policy. And for the first time in quite some
period of time, I’m actually overtly bearish of stock prices in and of
themselves, whether looking at stocks, themselves against themselves,
or looking at stocks relative to commodities. I think we have entered a
bear market, and I don’t like being bearish of stock prices. Let’s start from
that premise. I do not like being bearish of stock prices, and I am not a
permabear. I’m not one of those people. There are periods of time when
you are to be bullish of stocks. There are periods of time when you are to
be bearish of stocks, and we have to understand that bear markets begin
at the peak of economic activity. In fact, bear markets begin 6, 7, 8, 9, 10
months before the peak of economic activity. Just as bull markets begin in
stock prices 6, 7, 8, 9, 10 months or a year before economics begin to
peak up. That’s just historically precedented. That’s just what happens.

It happens because the monetary authorities at the depths of recession

do properly the right thing, and many of you in the room may take issue
with my stance on what the Federal Reserve Bank has done, but in the
depths of 2007, 2008, and 2009, Dr. Bernanke stood up and said, “I am
the adult in the room. This entire circumstance is coming apart. I’m
fearful,” and I was, for the first time in my life, absolutely fearful of the
economies or the global circumstance imploding in and upon themselves.
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And he said, “I’m the adult in the room, and I’m going to force feed
reserves into the system as aggressively as I must in order to stop this.

When that happened, what happened? The economy continued to go

down for another year or so, but stock prices began to rally dramatically
beginning in March of 2009, because the monetary authorities were force
feeding reserves into the system that didn’t need to go into the economy
yet, and found their way into the capital markets, found their way into
stocks. Hence, stock prices took off, even as the news media was
promoting how seriously corrupt, how seriously detrimental, how seriously
implosive was the domestic economy, and how seriously implosive was
the global economy. Stock prices began to rise long before the economy
turned higher.

Then, for the next seven, eight, nine years, we saw that wonderful period
of time when the economies were beginning to strengthen, and stock
prices rose in tandem. And beginning this year, in January. Somewhere
between January 26, and January 29, and I keep a very simple indicator
of global stock prices. I just call it my international index. It’s just the 10
largest stock markets in the world, and I don’t adjust them for the size or
duration or capital involvement. I just average the stock markets together.
It peaked on January 29th, and it has not made a new high since, and
we’re down about 12% from that high. That, to me, and I find it amusing,
that on television, you listen to the promoters. You listen to the
announcers. You listen to the anchors who say you’re not in a bear
market until you’re down 20%. I tell you, if you go down more than 7%,
you better pay attention to what’s going on, because if you do go down
20%, if that’s only the start of the bear market when you’re down 20%, in
order to get back to even, you have to go up 35% just to get back to even.
20% is far, far too much to give away before you agree, or announce, or
decide that you have entered a bear market.

We are in a bear market. We’re down about 12% right now in global
terms even after the last three or four days which have been spectacular
bear market rallies. But I believe that there’s no question in my mind that
we’ve begun to enter, or that we’re now well into, and it’s going to be
developing for the next six months, a year, or longer, in a real protracted
bear market. And strength is to be sold into, weakness is not to be
bought.

Notice, technically what’s happening in the stock markets. As we rally,

volume in the futures markets and volume on the exchanges themselves
is declining. As we break, volume on the futures markets and volume on
the exchanges itself increases. It’s been happening consistently for the
past several months. If volume is to follow the trend, or if trend is to follow
volume, what we are seeing now is volume coming in on the downside
and waning on the upside. That’s evidence as far as I’m concerned of a
real protracted bear market. So be careful in stock prices out there.

The economy, however, in the United States, is doing rather well. The
economy will continue to do rather well. I may disagree with my president
on a rather frequent basis because his ideas on trade are absolutely
wrong, utterly and completely, and we will get into that in a few minutes
when we discuss the US dollar. But he has done two things right. He did
force through a tax cut, and tax cuts are always and everywhere
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beneficial to stock prices. Always and everywhere beneficial to stock
prices. He put that through, and he’s cut down regulations. Those two
things are much needed. Those two things are long overdue, and the fact
that he has done those, he should be applauded for that. The fact that
Congress followed through on it, should be applauded for that. Let us give
them our applause for having affected those two trades.

Even so, be careful with stocks. Be very careful with stocks. Commodity
prices on the other hand- oh and one last thing. If you have only one
economic data point that you can look at and pay great attention to, pay
attention to what comes out on Thursday afternoons from the Federal
Reserve Bank of St. Louis, which is still the bastion of monetarism. Watch
the adjusted monetary base. Without getting too esoteric, the adjusted
monetary base is simply the stock from which the other soups of
monetary expansion or contraction are derived from. The adjusted
monetary base is, for lack of a better term, comprised primarily of the
Fed’s holdings of treasury securities, a small adjustment for reserve
requirements, and a small adjustment for the amount of cash that’s held
on hand. Those two latter ones are very small relative to the overall
change in the adjusted monetary base.

Beginning in 2008, the adjusted monetary base was $800 billion. By April
of 2015, after the Fed had gone through quantitative easing, a
terminology we’ve all become comfortable with, and now understand as
part of the lexicon, by April of 2015, the adjusted monetary base had
expanded, some will say had exploded to $4.3 trillion from $800 billion to
$4.3 trillion. That increase of $3.5 trillion is what sponsored economic
growth, and it’s what sponsored the strong stock market. That money was
finding its way into the capital markets, finding its way into stocks.

Since April of 2015, the adjusted monetary base has begun to decline.
Hasn’t declined dramatically. It’s only declined modestly, from $4.3 trillion,
it’s down to about $3.7 trillion, which is still a massive multiple over where
it was in 2009, but it’s declining. It’s rather like, to keep it in a very simple
metaphor, it’s like taking the gas off your automobile. Taking your foot off
the gas pedal. The car will slow down. It won’t stop, but it will slow down.
Eventually it will stop, but it doesn’t stop dramatically. It doesn’t stop
quickly. It’s not like hitting the brake. The Fed has not hit the brake. It has
simply said, “We are allowing our holdings of treasury securities to mature
and roll off.” That is the money that the Fed created literally out of thin air,
and that is what central banks do. They do create money out of thin air,
and there’s nothing wrong with creating money out of thin air because if
you want the economy to grow by 3% per year, and if population is
growing by 1% per year, you need 4% more money in the system every
year to accommodate that simple amount of growth. So there’s nothing at
all wrong with an expansion of the reserves, as long as it’s equal to
population and hope for GDP.

It’s when you expand it beyond that that you get inflationary pressures.
But the Fed is now beginning the process of allowing its treasury security
holdings to roll off slowly, almost measurably, not markedly, but
consistently. This, I think, is quality federal reserve bank policy. I think
they are now doing exactly the right thing. But if the fuel that had fueled
both economic expansion, and stock price evaluation, if the fuel is now
being slowly, laboriously tipped over. If the foot is being taken off the gas
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pedal slowly and laboriously, either economic activity has to continue
higher and money has to come out of stock prices, or eventually, both
shall tip over. And that’s what’s going to happen.

We will have a recession sometime in the next two years, probably before
then. As that slower decline in the adjusted monetary base does in fact
take hold, and as economic activity, remember recessions begin at the
peak of economic activity. We tend to forget that. Everybody gets frothy.
Everybody gets excited. Everybody gets joyous as housing prices are
rising. As home prices continue to move upward. As industrial production
numbers make new highs. That’s when recessions begin. And the
monetary authorities in the United States have begun the process of
slowly and laboriously removing those reserves from the system.

That’s why you’re going to have continued economic strength for another
couple of months, perhaps another year, but stock prices have no choice
but to begin to decline.

Which brings me to an evaluation of the US dollar. If the monetary

authorities in the United States are allowing the supply of reserves in the
system, are allowing the adjusted monetary base to roll off on a quiet and
consistent basis, all other things being equal, and given the fact that the
ECB continues its policies of quantitative easing, and given the fact that
the Bank of Japan has made it absolutely and abundantly clear that it has
no intention whatsoever of allowing its reserves to decline. All things
being otherwise equal, what has to happen to the US dollar? It has to get
stronger. It can’t be otherwise. All things being otherwise equal, as long
as our monetary authorities are letting the adjusted monetary base to
decline, the ECB has said, “We have no intention at this point. We may in
the near future allow our to decline,” but they’re not right now. And the
Bank of Japan has made it abundantly clear that they have no intention
whatsoever of allowing theirs to decline. The US dollar has to rise.

Which brings me to the question of trade. Let’s think about trade with
China. I would imagine that most of you in this audience get upset about
the fact that we run trade imbalances with China that simply continue to
grow. I applaud those trade imbalances with China. Let’s think about it.
We have a president who decries this imbalance of trade as if it is
something deleterious to the US economy. There aren’t many things in
this world that I know, but I know this, in 1972, we were running
imbalances of trade with the world, and those on the far right, the gold
bugs among us were saying this cannot continue, and it has to be
detrimental, and the dollar will decline. They told me that in ‘72. They told
me that in ‘77. They told me that in ‘82. They told me that in ‘97. They told
me that in ‘02. They told me the same thing in ‘07. They told me exactly
the same thing in ‘12. They told me the same thing in ‘17. Every single
year with the exception of 2007, 2008, and 2009, the US imbalance of
trade got worse, and worse, and worse, and yet the US economy
continued to get better, and better, and better.

I don’t know about you, but we are healthier. We are wiser. We all have
more money. The economy is stronger than it was 50 years ago, 40 years
ago, 30 years ago, 20 years ago, 10 years ago, 5 years ago, yesterday,
and it will be 10 years from now, 15 years from now, and 20 years from
now, and the United States will continue to run ever larger imbalances of
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trade deficits with the world. It has been that way for 50 years. It will
continue to be that way.

When we get concerned about the imbalance of trade with China, which I
find amusing, let’s think of it in proper terms. We get stuff from China, and
we give them paper in return. Think about that. We get stuff from China,
and we give them paper in return. I think that’s one hell of a deal. I think
that’s a great bargain. And yet, the president of the United States wants
to do something to stem that. That’s nonsense on his part.

Today, the imbalance of trade, we had a trade number that came out
again this morning, and the imbalance of trade deficit was larger this
month than it was last month, and larger this month than it was a year
ago. And what was good about it was both the amount of export trade,
and the amount of import trade was higher. That tells me the economy is
doing well, thank you very much, not doing poorly. So remember, when
you hear the president decrying the imbalance of trade with China, and
China, let’s not forget, China does cheat. No question about it. They do
steal all of our intellectual properties, and I choose not to sell my
newsletter to the Chinese. That is my decision. Why? I sold it to a couple
of Chinese companies, and they ended up sending it out and selling it on
their own without anybody telling me. So they cheat. But it’s my decision
not to deal with them.

I abhor the fact that my own government might tell me that I cannot deal
with the Chinese. That should be our own decision, not the government’s
decision. And when you get concerned about the imbalance of trade
numbers, when you lie awake at night thinking, “Oh my Lord, the United
States is running a $57 billion, $58 billion, $59 billion, $60 billion, $61
billion imbalance of trade on a consistent basis,” remember, we get stuff
from China. We give them paper in return. It’s a bargain that is a great
deal for the United States.

Secondly, how dare the government. How stupid could our government
be that we were imposing trade sanctions against Canada for national
security purposes? What nonsense is it that you’re putting into effect
trade sanctions against the country with which we have our largest trade
on a consistent basis every single day? Billions go across the border
every single day unimpeded, always our best ally, has been our best
friend, the longest unprotected border in the history of mankind, and yet
we are going to put trade restrictions against our Canadian allies? How
silly was that?

So I stand in front of you and say I look forward to an imbalance of trade

deficit because for every dollar that we have a trade deficit, we have to,
by definition, have a capital inflow, and the president never seems to
speak to that issue. In that circumstance, I tell you, given the political
circumstances that prevail in Europe, and they have real problems. Italy
wants to have a much larger budget deficit than Brussels will allow.
There’s a new, almost a very strange government in place in Italy. You
have a far right winger, and a far left winger who have allied one with the
other. That can’t be consistent, but they’re going to consistently force the
idea of having ever larger expenditures far beyond what Brussels will
allow. You have a German government that is now in dissolution, for all

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intents and purposes, with Mrs. Merkel standing down from her position of
authority. And that’s just what’s happening in Italy and Germany.

Europe is in transition, for lack of a better term. In that environment, you

can only, I think it’s a matter of time until the Euro trades back to parity
and even below, and eventually dissolves. Japan, you’ve heard me say
this before, and I shall say it forever, Japan’s real problem is its
population. Japan’s own government tells you that in another 20 years,
the population in Japan must fall by half. Think about that. Japan’s
population in another 15-20 years shall fall by half of what it is right now,
and not only shall its population fall in half, but it’s population will grow
demonstrably older at the same time. That is not the hallmark. That is not
the progenitor of economic growth. That is the progenitor of economic
weakness.

Japan has no choice but to continue to weaken its Yen as best it can. The
only reasons, the only times that the Japanese Yen strengthens against
the US dollar is when we have periods of strong stock market declines.
As they refer to them, Mr. and Mrs. Watanabe fearfully take their money
home to Japan. So for a day or two, you get a strong Japanese Yen. But
on balance, in an environment where the population has no choice but to
continue to decline, can’t change that. It’s a demographic tidal wave that
won’t be stopped, and it’s population continues to get older. In that
environment, the only thing Japan can hold to is export trade. It has to
continue to export as aggressively as it can. It will continue to roboticize
its economy as best it can, and it has to allow for a continuously weaker
Japanese Yen over the next two years, five years, 10 years, 15 years.

When I first got into the business of trading foreign exchange in the early
1970s, I can remember trading the Japanese Yen at 365 yen to the dollar.
I can remember trading it at 265 yen to the dollar. I can remember trading
it at 215 yen to the dollar. For me to think that the Japanese yen currently
trading around 115 yen, can go to 125 or 150, or 175 yen to the dollar
over the course of the next two, three, four, five years perhaps a decade,
makes eminent sense.

Which brings me to the commodity markets. I know that most of you here
are gold bugs, or tend to be gold bugs. The gold bugs don’t like me. If I’m
bullish of gold, they find fault with me. If I’m bearish of gold, they find very
real fault with me, and if I’m neutral of gold, they find fault with me. I’m
okay with that. There are times when one is to be bullish of gold. There
are times when one is to be bearish of gold, and as I began this
conversation, I said that I think commodity prices on balance are
unbelievably inexpensive relative to equities values.

I think gold is probably, for the first time in a long period of time, in what
looks to be a gentle, quiet bull market. If that’s true, I want to own gold in
the currency that I think is going to devalue in price rather than the
currency that is going to evalue in price. Indeed, the major barrier that
commodity prices in general, and gold in particular, has to overcome, is
that I think the dollar is going to get stronger, and that, under most
circumstances, all things being otherwise equal, would be deleterious to
the gold market.

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If that’s true, I don’t wish to own gold in dollar terms, which is what most
of us think of. We think of gold as going from $1200 to $1250, to $1300,
to $1350, to $1400. I want you to start thinking of gold in terms of the
euro, and in terms of the Japanese yen. I want you to own gold in those
terms. Because I think the dollar’s going to get stronger. I think the euro is
going to get weaker. I think gold in dollar terms is going to get stronger,
and I think in those terms, gold in euro terms, and gold in yen terms is
going to get stronger still.

Take a look at a chart. Just go to finviz.com, which if you have not

discovered finviz.com, it’s one of the best websites. It’s free as is most
things on the internet nowadays anyway. But it’s a wonderful charting
service finviz.com. And just take a look at a chart of gold in dollar terms,
which we’ve had a little rally in the past 24 hours. Not a predominant one,
but a rally nonetheless up 20 some dollars. But if you take a look at gold
in dollar terms, it’s actually sideways for the past six months. The euro is
weaker for the past six months. Gold in dollar terms is up for the past six
months. Gold in yen terms is up even more over the course of the past six
months.

I also want to be bullish of the grains. I think something happened

yesterday that has turned the grain market, and I really think that this
happened in the last 24 hours. Mr. Xi, the president of China, and
President Trump of the United States, said they had a talk yesterday,
which was rumored to begin with, but the Chinese have now indicated
that indeed there was a talk, and that it was beneficial on balance, which
means that the sherpas in the background are having conversations to
probably end this animosity between the United States and China. And if
that’s true, you can take a look at what has happened to soybean prices
since this trade problem erupted early in the summer. Soybean prices
have fallen almost $2 per bushel. That’s a preposterous decline, and if
we’re putting that behind us. If this talk did in fact take place, which I think
it did, and if it was in fact beneficial, which I think it was, and if the
sherpas do what I think they can do to emilurate the trade relations
between the United States and China, can soybean prices rally to $2.50,
$3 per bushel? Yeah, absolutely.

Wheat prices, corn prices, they’ve stopped going down. They’ve started
quietly to go up, and I think that’s going to be a process that evolves over
the course of the next several months. If I’m bullish of anything, I’m very
bullish of the grain markets.

If I’m bearish of anything, I’m bearish of energy. And if I’m bearish of

energy, I’m bearish of crude oil. Why? Fracking. Think about this.
Fracking and seismic technologies. Technology has changed the
demeanor with which the entire energy market has evolved. 15 years
ago, our hit rates before seismic technologies took place, our hit rates, as
we drilled, as we sent a soda straw down into the ground were about 10,
15, 20, 30%. Now, with better understanding, and we used to think that
those reserves in the ground had a very finite shape. They looked like
your fist, and if we were lucky enough, on those 10 or 15 or 20%, to hit
the top of that structure and we got a gusher or well, it was wonderful. But
if you missed it by a quarter of a mile, you came up dry.

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Now, we understand that not only do those structures look like your fist,
but they look like your hand with fingers extending out, and because now,
with seismic technology, we can map those structures and now, with
horizontal drilling, we can send one soda straw down and bend it, and
bend it, and bend it, and bend it again, and we’re able to suck crude oil
and natural gas out of structures that a mere 5 and 10 years ago were
utterly uneconomic. And we’ve driven the price of fracking wells and
drilling wells from $85 a barrel to the good ones out in the Permian Basin
and up in the Bakken, probably the good ones can now get crude oil out
of the ground for $25 and $30 a barrel. Those are the good ones. Even
the bad ones can get crude oil out of the ground via fracking operations at
$50 and $55 a barrel. And remember this, we are the only country that is
consequentially drilling and fracking.

Saudi Arabia has not fracked a well yet. Russia has fracked a handful of
wells. Canada has barely begun the process of learning how to use
fracking operations. I guarantee you but one thing, Canada, Saudi Arabia,
Russia, Angola, Venezuela are all going to learn how to use fracking for
the next several years. If we have been able to increase production in the
United States from four or five million barrels of crude five years ago to 11
million barrels of crude on a consistent basis now. To the point where the
United States now vies with Russia, Saudi Arabia, and we, on any one
day basis as the number one producer of crude oil in the world. If we
have gone from four to five million barrels of crude a day to 11 million
barrels of crude a day, and the trend is from the lower left to the upper
right, and in another three years, we’ll be producing 13 million barrels of
crude a day, and we’re the only ones that had begun fracking, and
everybody else is seeing what we’ve done, do you really, honestly believe
that the rest of the world is going to avoid fracking? Of course they won’t,
and of course they will produce.

Crude oil, if you only can watch one thing to tell you what the direction of
crude oil is going to be, and without getting too terrible esoteric, watch
what’s known as the term structures. Watch how the front months trade
relative to the back months. In great bull markets, the front months in oil,
and in other commodities too, but predominantly in oil, in real bull
markets, the front month trades at one price. The next month trades
lower. The next month trades lower. The next month trades lower. The
next month trades lower. That’s called a backwardation.

At that point, the market is saying to crude oil, “We’re not going to pay
you to go into storage. We need you to come to the market right now. We
will pay you to come out of storage immediately. In fact we will penalize
you if you go into storage.” Backwardations do that.

In bear markets, you go to the point where the front month is here. The
next month is higher. The next month is higher. The next month is higher.
The next month is higher than that. It’s called a contango, and when
crude oil goes into contango, the futures markets are saying to crude oil,
“Go into storage. We’ll pay you not to come because supplies are high.
Demand is low.” We have gone from a backwardation a month and a half
ago, to a contango in both Brent and WTI, and the contango is widening.
And that tells you all you need to know about crude oil prices. They’re
going lower.

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We’re fracking. We’re going to teach the world how to frack. They will
steal our technologies from us. That’s just the standard operating
procedure. And given that, the supplies of crude oil are going to be
abundant in the coming years.

In 1968, when I was in undergraduate school, they told me we were

absolutely told we would run out of crude oil by 1984. If you didn’t run out
of it by 1984, they told us we’d be out of crude oil by 1994. If you didn’t
run out of it by 1994, they told us by 2004, no question, we would be out
of crude oil. Here we are in 2018. I don’t know about you. I’ve driven my
car. I’ve cooled my house. I’ve flown in airplanes. We have used and still
use, and will continue to use more crude oil on a daily basis every single
day than we did last year. We’ll use more two years from now than we’re
using now. We’ll use more five years from now than we use two years
from now. They told me then, in ‘68 we’d be out of it by 1984. We now
have four times more proven reserves in the ground than we had five
years ago.

I can’t guarantee many things, but I guarantee you this, in 10 years from
now, even as we continue to use more and more crude oil everyday,
more and more will be found, and we’ll have 4 years, 10 years, 15 years
from now, four times more proven reserves in the ground then than we do
now.

So I may be bullish of the grains. I may be bullish of the metals. I may be

bullish of cotton. I may be bullish of commodities generally, but the crude
oil market is telling me that prices are going lower, not higher. Buy wheat.
Buy beans. Buy cotton. Buy corn. Sell crude oil. Buy gold. Sell crude oil.
Those are my thoughts.

Avoid stocks. Be prepared for a recession. The monetary authorities are

slowing the growth of the monetary aggregates. We’re taking the fuel
away from the economies, which is going to be detrimental to stock prices
generally, and remember this, what I tell you is what I do for my own
account. I don’t trade money for anybody else. I have my own. I have a
retirement account that is my few several millions of dollars, and what I
put in my newsletter is what I do. I have my own net worth on the line
every single day. I think that’s important. Most people don’t.

So to reiterate, the most important technology to be concerned about or

the most important fact to be concerned about is that the monetary
aggregates in the United States are beginning to slow. From $800 billion,
to $4.3 trillion in the adjusted monetary base by April of 2015, down to
$3.8 trillion now. The foot has been taken off the monetary aggregate gas
pedal. That can only be detrimental to either stock prices or the economy.
The economy, however, I think continues to expand. And if that’s true,
capital has no choice but to come out of stocks to continue to allow plant
and equipment and labor to rise in value.

Interest rates are probably going to go higher. The Fed is probably going
to continue to tighten monetary policy. Within the next year or two, we’ll
probably see the overnight Fed funds rate another 100 basis points
higher than where it is. The great bull market in bonds has ended. The
bull market is stocks probably has already begun to decline. As I said, it
reached its peak in January of this year. Buy commodities, sell stocks.
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 That’s my story. I’m sticking with it, as my old friend Paul Tudor Jones
says, “Trading and investing, it’s like falling in love. Put your arms around
that girlfriend and you hold her tight, but if she shows you the first sign of
disrespect, throw her overboard and disavow any association
whatsoever.” That’s my story and I’m sticking with it. Thank you for your
time. Are we allowed to have questions? No? Thank you. Good luck.

Oh one last thing. If I leave you with one piece of advice, this is what
separates pros from amateurs in the business of trading. Whatever you
do, don’t average down. Whatever you do, don’t average down. If you buy
a stock at $20 and it goes to $15, you’re wrong. Don’t buy more. If you
buy a stock at $20 and it goes to $25, you’re right. Buy more. That’s what
separates pros from amateurs. The pros in the business are probably
right 30% of the time and make money on balance. The public is probably
right 90% of the time, and loses money on balance. Why? Because the
public buys something at $20, and buys more at $15, and buys more at
$10, and buys more at $5, and pukes at $2. Don’t do that. That’s my story
and I’m sticking with it. Thank you for your time. Good luck. Good trading,
and enjoy New Orleans. Enjoy the food here. Enjoy the rest of the
speakers. Thank you for your time.

Economic Panel
Mark Skousen (MC), James Grant, Dennis Gartman, Peter Boockvar

Speaker 1: All right, let’s introduce our panelists and I’ll introduce you to the
moderator of Economic Panel this year. First of all, he’s the CEO of
Bleakley Advisory and the Editor of The Boock Report, please welcome
Peter Boockvar. There he goes, new to the stage. Now, you’ve heard
from this gentleman already this morning. From The Gartman Letter,
welcome back please Dennis Gartman. And we just heard from this
gentleman, but we can’t get enough. The editor of Grant’s Interest Rate
Observer, please welcome back James Grant. And to moderate this
session, please welcome a gentleman who probably needs no
introduction here, named one of the Top 20 Living Economists, Mark
Skousen, ladies and gentlemen.

Mark Skousen: Okay, you’re all getting settled. This is gonna be a fun rock and roll
session. Lots happening in the markets, the market’s up 350 points and
now down 200 and some points just because Larry Kudlow said there’s
no trade deal with China. That’s a very jittery market. A lot of technical
traders would say, you know it was just an excuse, the market was
headed lower. A lot of people are saying that. I do wanna start off, one of
the things that I did in preparation for this panel was to listen in on our
panel last year, our Economy Panel. And of course, not everyone was on
the panel, but Peter and Dennis you were on the panel, along with Judy
Sheldon and with Peter Schiff. So, now we have Jim Grant taking the
place of a woman and a man. So that’s ...

Speaker 1: I think that’s not allowed these days.

Mark Skousen: I think anything goes today. From what I’ve heard. So we’re delighted to
have you together. In listening to what we talked about last year, Dennis,

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 you actually mentioned the new crown Prince Mohammed Bin Salman by
name. And that his name has come up in the news very big time lately
and I know, Dennis, you have some inside information there in what
happened and to what extent this crown prince engineered the gruesome
murder of the Washington Post reporter Jamal Khashoggi. And before
you tell us something about it, I wanna tell you all an exchange I had with
Tucker Carlson, who’s a friend of mine, Fox News, and he spoke recently
here at the New Orleans conference. So I e-mailed him and I said
“Tucker, what is it? Why are you not covering this?” It was front page
everywhere in CNN and MSNBC and even lots of Fox News had it as the
major story that was happening and what impact that would have in the
United States.

But Tucker didn’t have hardly anything on it and I asked him “why do you
do this?” And here’s what he said. “No, I don’t think the death of a Saudi
National at the hands of the Saudi government is a huge story.” Now is
sometimes the press just out of it? Don’t really know what’s going on? I
mean isn’t this really, Dennis, a huge story? Isn’t it true that the oil price
fell sharply after this occurred? Now maybe it had nothing to do with it,
but I suspect it had a lot to do with it. So tell me, what do you know about
this Khashoggi affair, and is it going to bring down the crown prince? He
got a standing ovation at his investment conference after murdering this
guy, so what’s your take?

Dennis Gartman: Well first of all what amuses me and amazes me about the press
coverage of what has happened was that Khashoggi was made out to be
this icon of freedom of the press. He’s anything other than that. You have
to remember that this fellow has been involved with the Muslim
Brotherhood. A very arch Islamic organization for the past decade or
longer and clearly the Muslim Brotherhood is troublesome to the Saudi
Royal Family. We shouldn’t be surprised that Khashoggi was ... I was
surprised it took this long to have him disappeared of some sort.

The manner in which it was done clearly was, how do I want to say this?
Ugly. He was tortured. His fingers were pulled off. His eyeballs were cut
out. Then he was chopped up into little pieces. It’s just unbelievably,
utterly uncivilized. Whether the crown prince gave the order to do that or
not, in those instances it’s usually something along the lines of “this man
has been bothersome to me. Take care of it.” And the Major General
[inaudible 00:05:20] appears to have been the fella who has been
responsible and will take the blame for it.

Will this bring down the crown prince? I have my doubts. There are some
interesting circumstances where the gentleman who had been passed
over as the crown prince, the king’s brother, who was the last of the
what’s known as the Sudairi Seven, has returned from exile in London
and has returned to Rihad. Now that’s either going to be that he will bow
down and pledge allegiance to the crown prince, or he may actually have
been called back by others with his safety having been assured, probably
by the United States government and by the Saudi Royal Family itself, to
perhaps replace the crown prince. I hope that the Crown Prince is not
replaced. Quite honestly I think he’s going to be an important and seminal
figure for the next 50 years or so.

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 He is not bullish of crude oil no matter what happens. In fact he’s one of
the few people who understands that probably 50 years from now crude
oil sells at 0, not at some astronomic price, and has gone out of his way
to modernize the company, or the country. But the fact that our news
media played up Khashoggi as being an iconic figure of freedom of the
press and liberation, they missed it completely. And you have to give
Khashoggi, you have to think what an idiotic move it was for him to have
visited the Saudi embassy in Turkey. I suspect that the Turks understood
who he was and agreed to this capture and kill. Uncivilized though it
might have been but, we shouldn’t have been surprised by this fact.

Mark Skousen: Yeah and listen, this decision, maybe they miscalculated what the impact
would be of this gruesome, barbaric act, and it’s one way to just shoot the
guy and another thing to torture him the way they did. And this is the 21st
century. Is anybody acknowledging the fact that barbarism should be out?
Beheadings and so on.

Dennis Gartman: This was medieval.

Mark Skousen: This was medieval. Exactly. And the Crown Prince is responsible for
Saudi Arabia losing billions and billions of dollars in revenue, is he not?
So surely there must be ...

Dennis Gartman: Well he’s also waged wars against Yemen which the Saudis should have
been able to win that war in 2 weeks and here we are 5 years on into the
war. It’s costing a fortune for the Saudi government to continue to wage it.
Plus, let’s be honest. He jailed several hundred of his own relatives in the
Ritz-Carlton last November and didn’t let them out until they paid back
several hundred billion dollars to the Saudi treasury. So the guy is not
above doing the unusual.

Do I think that he actually gave the acknowledgement “go kill

Khashoggi?” I doubt that but one knows how these sorts of things play
out.

Mark Skousen: But they do allow women to drive now so they have made progress.

Dennis Gartman: Isn’t that nice?

Mark Skousen: They’ve made progress. This is an incident but where is this going? In
other words it’s gonna be business as usual? Oil prices continue to
decline?

Dennis Gartman: If the barbaric nature of the killing had not been public it probably would
have been business as usual. But now that it’s public knowledge of how
barbaric this circumstance had prevailed, had existed, it probably won’t
be business as usual. It’s gonna be very hard for the United States to
continue to sell several hundred billion dollars worth of military equipment
to the Saudis on a consistent basis going forward. That’s where the
problems shall lie.

Mark Skousen: So it could have a good outcome ultimately in civilizing the Middle East.

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Dennis Gartman: Let us hope that it civilizes the Middle East. I’m not gonna hold my breath
awaiting that fact.

Mark Skousen: All right, so next, question, Peter Boockvar, by the way, I loved your
newsletter title the Boock Report. It’s a pretty good title. Is that for general
consumption or is this for institutions or what’s the purpose of your
newsletter?

Peter Boockvar: A combination. Anybody who’s interested in reading about the daily
goings on in the economy and the markets.

Mark Skousen: So, your point that you made last year for those who were not here, just
by show of hands, how many were here last year? Quite a few. Maybe
half. So you made a prediction which turned out to be accurate. You said
the big news, just to refresh your memory. The big news for this year for a
year from last year’s conference would be the tightening of monetary
policy. And the reduction in the assets that the federal reserve has. That
they build up QE and now it’s coming back down and as a result we’re
seeing higher interest rates as well as monetary policy that seems to be
tightening. Even M2 is not growing as fast as it used to be. That’s more or
less a summary of what you were saying.

So that’s been an accurate prediction. However, right at the end you said
“and this will cause gold to soar.” Which obviously never happened. So
tell me why would you think that a monetary policy that’s tightening would
cause gold to soar? What was your thinking on that?

Peter Boockvar: Well two things. When you look at previous bull markets in gold, it was in
a time of rising interest rates in the late 70’s and through the mid 2000’s.
Alan Greenspan raised rates from 1 percent. By the time he got it to
around 4 and change, gold had almost doubled. So my estimation a year
ago was “yeah, we’re gonna see this tightening, we’ll see a rise in rates.”
But I know where this will eventually lead. And it will lead to a stock
market sell-off, it will lead to an eventual recession which would then end
the tightening cycle, and eventually lead to an easing and a rising gold
prices.

I still believe that December 2015 was the bottom in gold which did
coincide with the fed raising interest rates. So if you stretch out your time
horizen in a couple years, gold is up 20 percent, and the fed funds rate
has gone from 0 to a quarter to possibly next month 2 and a quarter 2 and
a half. So I would consider that a pretty good performance. And I expect
the next leg up in gold will be at some point next year when the fed blinks
and the dollar sells off and that’ll be the next catalyst for the metals.

Mark Skousen: Blinking you mean that they will decide not to raise rates? Or may even
cut rates?

Peter Boockvar: Even just saying we’re gonna take a pause will be enough to cause a
selloff and in dollar which would then help the metals. It’s inevitable that
we get to that. It’s inevitable typically where rate hike cycles go. A soft
landing is a very rare occurrence. And the fed is getting deeper into this
tightening cycle.

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Mark Skousen: So let me test you a little bit on your statement that the fed raised rates in
the 70’s. Actually in real terms they were still negative. Inflation was
worse than interest rates. Interest rates were kind of catching up. So you
had negative real interest rates and that’s why gold went up. In the 80’s
you had just the opposite. You had real positive interest rates. Interest
rates higher than inflation. And what happened to gold? It fell down. So I
would argue that this should be a case for gold declining because the fed
is raising rates pretty aggressively.

Peter Boockvar: The mid 2000’s also real rates were positive. So the fed was ... I see that
situation somewhat similar to now.

Mark Skousen: And that was the bottom of gold, that’s true. So Jim, you were not here
last year but I’ve been reading up on your views on CNBC and Fox News
perhaps, both?

James Grant: No.

Mark Skousen: No? I thought it was CBNC you were on, maybe it was another network.

James Grant: I’m a literary fellow.

Mark Skousen: This is where you said “treasuries are not safe.” I thought that was just
this last couple of days.

James Grant: Right well ...

Mark Skousen: That was on CNBC right?

James Grant: Right that was the headline. So the question was “what’s a safe
investment?” The moderator said “even safe investments like treasuries
aren’t appreciating.” And I said “that there ain’t no inherent in anything.”
Nothing in inherently safe or inherently risky. It’s a matter of price and
value. And that when treasuries seem riskiest, when they’re yielding the
most in retrospect, that was when they were most valued and most
desirable.

And muscle memory is a very potent thing in markets. And 3 and a half
decades of falling rates and appreciating bond prices have impressed the
world with the idea that this particular asset goes up. Bonds go up. Hence
the idea they are safe by nature. And I challenged that and I think they ...
at these levels it seems to me, if anything they’re inherently unsafe. Not
inherently, but I think they’re rather unsafe.

Mark Skousen: Yeah, so ...

James Grant: At this point in the cycle we have a respectably growing, relatively
growing GDP with the federal budget deficit in excess of a trillion and with
a negative yielding federal funds rate. So that’s something you don’t see
every cycle.

Mark Skousen: So the question is ... treasuries have often been a safe haven during a
crash, bear market. People go to either gold or cash and they’ve been
going to treasuries. More than they’ve been going to gold.
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James Grant: Correct.

Mark Skousen: And you had this massive sell off in October but this time were treasuries
a safe haven? Maybe not this time. Maybe cash, pure cash was. It didn’t
seem like you saw a rally in treasury securities like you normally do
during this October period. Do you agree with that?

James Grant: That’s true. Yeah.

Peter Boockar: That’s certainly true. You actually saw a sell off. Yields were higher in
October both in the short end and in the long end. There was some
buying late in the month but treasuries were down on the month.

Mark Skousen: Right, so it was not a safe haven as it normally is and now we’re looking
and maybe gold you said gold has gone up a little bit. The gold stocks
have not, however, so that almost suggests that the miners, the gold bugs
think that maybe this is just temporary or something. There doesn’t seem
to be a huge rush into gold mining stocks even though they’re going into
gold as a haven.

And they didn’t go into Bitcoin either I noticed. Bitcoin really didn’t do
anything. And that has been viewed as an alternative to gold. Dennis is
shaking his head saying “no.”

Dennis Gartman: No. Bitcoin is an alternative to nothing. I’m a great proponent of the block
chain. I think the block chain is a brilliant idea. It will change the manner
in which we trade everything. It’ll change the manner in which we trade
container ships of goods and services. It’ll change the manner in which
we trade stocks. It’ll change the manner in which we trade houses. But
Bitcoin and we have to differentiate between Bitcoin and the block chain.
They tend to become synonymous and they are absolutely not
synonymous. They are utterly and completely different circumstances
completely.

There may become a time, probably not in my lifetime, when Bitcoin is

transactionable where you can buy a house with Bitcoin but it’s not gonna
happen until Bitcoin absolutely falls in value demonstrably longer and
goes quiet and [inaudible 00:17:26] and doesn’t change price for months
and months. Then perhaps I shall be interested in Bitcoin.

Mark Skousen: Either one of you wanna comment? Either one of you agree with this
nihilistic view that Dennis has regarding Bitcoing?

By the way without Bitcoin you would not have had the block chain.
Bitcoin created the block chain. In order to have Bitcoin, you had the
block chain. So they are very much a part of each other.

Dennis Gartman: They will differentiate.

Mark Skousen: But one can differentiate. And I’m looking forward to the day when we can
put everything on the block chain, transactions and stock transactions
and Patrick Burn of Overstock who’s trying to do that, others are involved.
I mean this is a very real thing that most financial institutions are now
getting into. And I can’t wait for the day when in real estate, lotta real
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 estate investors here, when the title insurance companies go under,
because we don’t need them anymore ...

Dennis Gartman: The only reason you have a title insurance company to begin with is to
pass on the legality of the past history of the piece of property that you’re
owning. Block chain will give you that past history. The mortgage insurers
will disappear. The mortgage industry itself will be utterly transformed. I
am a great proponent of the block chain.

James Grant: Why will the mortgage insurance business disappear?

Dennis Gartman: Well maybe not the mortgage ...

Mark Skousen: No, title insurance.

Dennis Gartman: The title insurance. Excuse me.

Mark Skousen: Title insurance. Mortgage insurance will probably still be around.

Dennis Gartman: Will probably still be around, yes. [crosstalk 00:18:54]

Mark Skousen: But title insurance, these title insurance people drive me crazy. So it’s
great to see that but maybe and hopefully it’ll happen, it’ll probably
happen before we get rid of the Jones Act, which has gotta be the
stupidest act that Congress ever passed. So I wanna bring up the issue of
the stock market and I know some of you are bears. I know Dennis,
you’ve made the case that the market’s headed lower, commodities are
headed higher. By the way you made that same prediction last year, I just
wanted to point that out.

So timing is everything and you’re a little bit off on your timing.

Dennis Gartman: Well actually if you take a look at it from a year ago or from January first
of this year, stock prices are actually down and down rather substantively.
Doesn’t matter which index you look at, they are down. And if you look at
commodity prices, they are up for the year. So actually over the course of
the past year and much of that has occurred in the course of the past two
and a half months, but nonetheless, year on year, stocks are lower,
commodities are higher, I’ve been right. Sometimes you get lucky.

Mark Skousen: Are you sure commodities are all higher? There’s a lot of them that have
had lower too?

Dennis Gartman: If you take a look at the average, and the only way to take a look at the
commodity markets is in broad terms. The averages are higher here to
date.

Mark Skousen: Right but there’s no real bull market.

Dennis Gartman: There’s no real bull market going on. Soy beans have not gone ... as a
Chicago boy having grown up on the board of trade, nothing made
Chicago feel better than a bull market in soy beans. It was just the whole
city became ecstatic when beans and the teens was a great chant. You

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 don’t have beans and the teens, you don’t have [inaudible 00:20:24] rising
dramatically.

James Grant: We have the Cubs now though.

Dennis Gartman: Yeah, we got the Cubs now.

Mark Skousen: You and I remember when soy beans were like 13 dollars.

Dennis Gartman: Oh I remember 15 dollar beans.

Mark Skousen: 15 dollar beans. And what are they now?

Dennis Gartman: 9 dollars.

Mark Skousen: Well, they’re moving back up. Cause they got down to like 4 bucks I think.

Dennis Gartman: No, beans never got that ...

Mark Skousen: Never got down that low.

Dennis Gartman: Never got that low. Yeah.

Mark Skousen: So I wanna talk about the investment grade ratio with the treasury. Kind
of the investment grade, the BAA versus the AAA grading that Moody’s
does and others. St. Louis Fed has a chart on this and so forth. And in
every recession, in every bear market, you had a flight to safety. And the
relationship between junk bond yields and triple A yields, the spread got
monstrously larger. This did not happen in October. So is this an
indication that this mother of all bull markets, which I’m sure all three of
you predicted in the last few years, Dennis, you’re honest to admit ...

Dennis Gartman: No I did not.

Mark Skousen: You were surprised. You were surprised.

Dennis Gartman: There were times when I was bullish but on balance was I, did I think
we’d see what we saw in the past several years? No I did not, really.

Mark Skousen: See now I do have my newsletter here. October issue, the mother of all
bull markets, but I didn’t put it on the title until it actually happened. A lot
of our friends predicted the mother of all bear markets. I remember Dick
Russell, rest his soul, the last prediction he made before he passed away
was we were gonna see the mother of all bear markets and instead we
got the mother of all bull markets. Are we going to see ... a lot of people
are predicting this, bears make headlines, bulls make money. Do you fall
into the category that we are headed for an absolute, catastrophic
disaster that is going to send gold through the roof but the dollar’s gonna
collapse?

All of these predictions that are apocalyptic. Are we going to see that, Jim
Grant?

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James Grant: Who would answer that “yes?”

Mark Skousen: Well, no, I mean I don’t wanna name specifically, I did mention Dick
Russell as an example but you know he’s 90 years of age and he had a
great career.

James Grant: 90 years is not that old.

Mark Skousen: Yeah well you know how to play to the audience don’t you?

James Grant: May I help you by asking myself a question.

Mark Skousen: Ron Paul has made this prediction. Our favorite Congressman.

James Grant: So what exactly is your question, Mark?

Mark Skousen: Let me repeat it, I’m asking you, Jim. Jim Grant. I’m asking you “are we
headed, we’ve had the mother of all bull markets are we now headed for
the mother of all bear markets?” That’s what I’m asking.

James Grant: We’ll know more in 10 years.

Mark Skousen: Jim, people are paying good money to know the answer to this question.
Dennis do you have an answer to this question?

Dennis Gartman: No we are not heading to the mother of all bear markets. It will be a
standard come as you are normal bear market that we’ve gone through
time after time. It shall not look nearly as egregiously awful as was the
bear market of 2006 to 2009. It may not even be as bad as the bear
market of the two bear markets of the early 1980’s. And it may not even
be as bad as the bear market of 72-74. But we’ll give back 25% from the
highs and the economy will go into a quiet, modest recession. We’ve
done it before, we’ll do it again. Are we heading for the mother of all bear
markets? No not at all.

Mark Skousen: Peter?

Peter Boockvar: The difference the next time we get a bear market in a recession will be
the impudent nature of central bank response. Everyone’s used to
previous recessions or bear markets. The fed quickly eases. It’s a short
lived downturn. And we go off and on to bigger and not necessarily better
things. We’re gonna go into the next recession with a fed funds rate that
is dramatically below previous peaks. We’re gonna go into the next
recession with balance sheets that are still rather big. We’re gonna go
into the next recession in Europe with rates that are still probably
negative. And in Japan certainly around 0. So that’ll be the difference
between the next recession and bear market is you won’t have that
central bank safety net to bail you out.

So anyone looking for the next V bottom in the next recovery after the
next recession, it’ll be something more of a bathtub type situation. Again
because of the lack of ability of central banks to deal with it because
they’ve already expended so much of their weaponry.

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Dennis Gartman: They will go ahead and do exactly what they did last time. They’ll revamp
quantitative easing and they will aggressively go out and buy treasury
securities, bank of Japan securities, ECB securities. The fact that they
don’t have the ability to take interest rates lower is consequential. But the
fact that we’ve already done QE one time we’ll do QE again. It’ll be
demonstratively inflationary in the end result, but ...

Mark Skousen: But aren’t we headed for, Mr. Grant, aren’t we headed for a fiscal crisis
with unfunded liabilities? Here we are. Everyone agrees full employment.
We’re in full employment, right? Full employment economy. And even
Keynesian even Paul Krugman who would say we should be running
surpluses now, but we’re running deficits. We could have a trillion dollar
deficit next year. Does anybody give a damn? I mean come on. Isn’t this
going to head for a fiscal crisis? Or are we just in la la land? Are we just
not having to worry anymore? Deficits don’t matter.

James Grant: You can go on the treasury’s website and there’s a button you can touch.
And it will give you the dollar amount that citizens have contributed to the
paying of the public debt. And this goes from like 4 million, 3 million.
Every year the sum total of the gifts will be 2, 3, 4 million.

Mark Skousen: Did Donald Trump write a check?

James Grant: And this year it’s like 700,000. So not only is this the coldest button issue
of the midterms, but the people who customarily donate to the
extinguishment of the public debt are not doing so. So no, it is an issue on
the backest of the back burners. But I’m not gonna repeat what I said only
an hour and a half ago but it seems to me that the question of the integrity
of the public credit has been the least negotiable piece of information on
wall street.

No matter what you knew about the deficit, it would not make you one
penny in a trade. Next week, next month, next year. But it seems to me,
possible, not certain, but possible, that the public credit will now reenter
the marketplace as in fact as the consequential idea in bond prices.
Because the weight of supply this fiscal year prospectively for treasury
issuance and the disposition by the fed from pairing down its balance
sheet ever so gently, that sum is going to be the greatest percentage of
GDP since 1945.

So it’s very heavy weight of supply and this may or may not possibly, I
think it is, two years into a secular bond bear market, so like that.

Mark Skousen: So do any of the three of you remember the 1995 fiscal crisis in Canada?

James Grant: Where?

Mark Skousen: Canada! North. Dennis and I were talking about Canada. We have very
fond feelings regarding Canada. They’re doing a lot better than the US in
many categories. In fact they’re ranked higher in economic freedom than
the United States now. 1995 Canada had a major fiscal crisis. The
Canadian dollar was at an all-time low. They were running huge deficits
and the interest on the debt really drove crazy in fact the conservative
and the liberal party came together. The liberal party complained interest

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 was so high that they could use it if we didn’t have it we could use the
money for social programs. The conservatives said the interest rates
were so high it’s bankrupting us.

So they got together and within a two year period of time they slashed
government spending. They laid off federal workers. They balanced the
budget within two years then they passed a whole bunch of supply-side
tax cuts and they have had a tremendous run and Canada got out of their
fiscal crisis.

So we have an example to the north of our willingness to do this. Is that

gonna happen in the United States? Where finally the Republicans and
Democrats can get together and say “hey we have a crisis here. Let’s
solve it!”

Dennis Gartman: One can hope.

Peter Boockvar: Only when the bond market forces that discipline upon them through
much higher interest rates. They’re not gonna do it voluntarily because
they see the budget deficit as a percent GDP getting above a certain
number. It’s only when their hands are forced and higher interest expense
will be the hand that forces it.

Mark Skousen: Which is now approaching 200 billion dollars a year interest on the debt
and when it gets over the cost of the military budget maybe somebody will
pay attention. You know, Trump makes a big point of living up to his
promises to his people who elected him.

Peter Boockvar: Interest on the debt is about 500 billion, not 200 billion.

Mark Skousen: It’s now at 500 billion.

James Grant: Is it really that high?

Peter Boockvar: Well if we got 15, 20 trillion [crosstalk 00:30:36]

Mark Skousen: So my number may be low.

James Grant: Maybe it’s gross and debt.

Mark Skousen: What’s the military budget? It’s 600, 700 billion right? So once the interest
on the debt becomes the largest cost of the budget, maybe then we’ll pay
attention. But I remember Trump in his campaign saying “one of the
things I’m going to do is reduce the deficit.” And even reduce the national
debt, so if he’s a big believer in campaign promises, why doesn’t he do
that?

Peter Boockvar: Cause that would be hard to do and that’s not what a politician usually ...

Mark Skousen: Well, Larry Kudlow, I know this, Larry suggested, he’s the one who
promoted the idea, and didn’t get a lot of media but everyone should be
aware of this that Trump asked every department to cut spending by 5%
cause he figured there was enough waste in every department that that

93
 could be done. So what’s happening to that proposal? Isn’t that a good
idea?

Peter Boockvar: It is.

Dennis Gartman: Certainly. You won’t get much argument from this panel on that point.

Mark Skousen: But you lose elections.

Dennis Gartman: You will lose elections. And you have to remember if 5% cut, what is a
5% cut? Is a 5% cut from last year’s budget or is it a 5% cut from a 7%
increase this year?

Mark Skousen: Right so it’ll be an increase. Exactly. All right, now, Mr. Grant, you are a
student of history, correct? So here’s my question. I dunno if you’ve read
Alan Greenspan’s new book with Adrian Wooldridge of the Economist,
called “Capitalism in America.” Have you taken a look at this book?

James Grant: No, I’m waiting for the movie.

Mark Skousen: Yes, yes, that’s true. People don’t read anymore, they just watch. That’s
right. So here’s the question. Do you favor a Hamiltonian style strong
central government or do you prefer a Jeffersonian laissez faire and why,
which is better?

James Grant: Well, let us narrow this down to the fiscal nature of the thing, shall we?
This being a financial theme. So Jefferson along with his treasury
secretary Albert Gallatin was all about the elimination of the debt. And
Gallatin was so single minded that when he succeeded as Treasury
Secretary under Madison, and the war of 1812 broke out, he insisted that
military operations be subordinated to the program of redeeming the debt.
That was bean counting for the sake of bean counting. But Jefferson was
all about redemption of the debt.

Now Hamilton, famously was partially quoted as saying that “the national
debt is a public blessing.” But a codicil to that was only when the means
are provided for it’s extinguishment.

Mark Skousen: Through the sinking fund.

James Grant: Ah, the sinking fund. The sinking fund was started less as an idea that
had the sanction of Montesquieu and of other great thinkers and the
practical imprimatur of [inaudible 00:34:01] in Britain. And this thing he
found was a bit of a gimmick as you know because you borrow money
perhaps at a higher rate of interest than you are paying then the debt
interest ... then the interest on which you ... the money you pay is a lower
rate of interest than the money you borrow to pay it back. That could be.
That was the case.

But anyway the sinking fund was an expression of intent. And the sinking
fund existed in this country until 1960. The last securities purchased
under the sinking fund were 1960.

Mark Skousen: Really? Wow.

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James Grant: So Hamilton and Jefferson in the matter of the debt were both of the
same basic philosophical view is that it was no good to have ... it was
okay to have provided you were not going to roll it over and grow it
eternally. And that is what has happened.

Mark Skousen: So Dennis are you a fan of the Hamiltonian central bank idea? Do you
believe that a federal reserve is necessary or are you like Ron Paul and
other wide eyed Libertarians who advocate the end of central banking
and going back to the gold standard?

Dennis Gartman: Yes to both. Okay. Yes, I’m a believer in both. I think there is a reason to
have a central bank of some consequence. I would prefer that they would
be as a dyed in the wool monetarist I would prefer that it was almost a
central bank that every year on a pre-program basis put 4%, 5% growth in
the monetary aggregates and let it go with that. But I do think you have to
have a central bank there.

When there are the consequential circumstances that prevail such as in

2005, 6, 7, and 8 when finally you have to have a central bank that stands
up and say “I’m the adult in the room and I’m gonna stop what’s going on
out there.”

Mark Skousen: But they caused it in the first place.

Dennis Gartman: I’m not sure that the federal reserve was the causer of the housing crisis
as much as it was the silliness of granting mortgages to people at 100%
of the value of the mortgage.

Mark Skousen: But remember, remember the chairman of the federal reserve is the chief
banking officer of the United States. He knew about the subprime loans.
Ben Bernanke knew about it cause I saw, he gave a speech at the AA
meetings which I listened to on bank regulation. And he used the term
“panic” and “crisis” 34 times in January of 2007. That was a clear
indication he knew were headed for trouble and he did nothing about it.
Nothing! He just waited to bail us out at the end.

Dennis Gartman: And yes, he waited to bail us out. If he had done something consequential
to stop the rise of housing prices and to stop the buying of house and to
curtail the housing building business at the time, he would have created
the same circumstance. He would have created the same collapse he
was fearful of. I think that the only thing that the bank could do is what the
bank did. Wait to see, hope that it didn’t occur, when it did occur step in
and say “we’re gonna do what we’re supposed to do as the adults in the
room.”

Mark Skousen: Dennis as we know it never happened in Canada. It never happened in

Australia. It never happened in Hong Kong.

Dennis Gartman: Yes they did not lend 100 and 105 and 110%.

Mark Skousen: They had the [inaudible 00:37:10] rule.

Dennis Gartman: They handled things better. But Canada right now has a problem because
housing prices in Vancouver, housing prices in Toronto have gotten to be,
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 to reach egregious levels. Almost equal to what had happened here in the
United States in the early part of this century.

Mark Skousen: All right we have 4 minutes left. We now come to the question of
predictions for next year. See how accurate you can be. By the way,
Peter Schiff was on the panel last year and he was quite accurate in
saying “well, we don’t know for sure” but he predicted last year that the
Republicans would lose control of the House and that we’d go back to
gridlock. So it’s a week away, what’s your prediction for next week and
next year starting with Peter Boockvar.

Peter Boockvar: I don’t really have any strong opinion on next week. I think it’s somewhat
irrelevant in terms of legislation since Trump got what he wanted in the
tax cut and there’s nothing really big legislatively to follow. I think next
week could have more relevance to the negotiations with China rather
than anything specific to the US.

I think the two drivers of this bull market in stocks was dramatic easing as
we know, and historically high corporate profit margins. And both are now
reversing. So to me that’s the results of those reversals will dominate
2019.

Mark Skousen: Okay, Dennis.

Dennis Gartman: I think both sides hate each other. And the amount of antagonism that
exists on the right and the left, I think we’re gonna be surprised how many
people actually do go and vote next week. I get very upset when I hear
“get out the vote” requirements. Half these people I don’t want voting. I
mean, really. I don’t think you should be allowed to vote until you pay
taxes. But we’re gonna get a large number of Republicans and a large
number of Democrats to go to the polls. Who’s gonna win? I have a hard
time arguing with the pollsters themselves. Clearly the Republicans are
going to gain control, or hold control of the Senate and may actually pick
up a seat or two.

It’s sad when a gentleman as wise as the young man who’s running for
the Senate seat in Michigan will probably get humbled by the current
sitting Senator. She’s an idiot but that’s another question for another time.
And perhaps the Republicans may actually lose 5 or 6 seats in the
House. Maybe they hold control. We’ll see. It just depends who gets
there. What will be interesting to me is to see what happens if the
Republicans do hold control of the House. If you get a rally in the stock
market that then fails. Oh god, that will be devastating. So that’s to me
what’s more important.

If the Republicans do by any chance hold the House and you get an
overnight rally and that rally fails, that’s going to be very ugly. And that’s
my big fear.

Mark Skousen: The betting odds right now if you go to John Stossel’s betting site on
election, the House will go to Democratic, but the Senate will stay
Republican.

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Dennis Gartman: How cool is John Stossel. I love John Stossel. They send him to the
hinterlands of television and he should be on the front pages. He’s
brilliant [crosstalk 00:40:33]

Mark Skousen: You know he never got the popular, I mean I asked Fox News what
happened there and he never did get the support that Bill O’Reilly and
people like that did. But he is a statesman and a great guy. I’ll be seeing
him tomorrow night. I’ll tell him you said that.

Dennis Gartman: Tell him I said hello.

Mark Skousen: He’s going to be at the Reasons 50th anniversary in LA which I’ll be at
while the conference is going on. And finally Jim Grant, what’s your
outlook for in the next year before next year’s conference?

James Grant: Well my only political view point which I hold very earnestly, is I’m really
bullish on Melania, And my financial prediction ...

Dennis Gartman: I’m with ya.

James Grant: If Uber goes public it’s going to be a great short sale.

Mark Skousen: All right. Thank you Jim Grant. Thank you Dennis Gartman. Thank you
Peter Boockvar, let’s thank our panel. Thank you very much for the
economy outlook. We’ll see you next year for that, thank you.

Dennis Gartman: Jim, an honor to be on the panel with you, truly.

James Grant: Thank you, Dennis.

Geopolitical Panel
Gary Alexander, Mark Steyn, Jonah Goldberg, Doug Casey

Lindsay Hall: You guys are in for a treat. Do you know what’s next? Yes, the
Geopolitical Panel. Up next you have Doug Casey of Casey Research,
Jonah Goldberg and Mark Steyn. Gary Alexander’s going to be
mediating.

Gary Alexander: Thank you very much. This is always one of the highlights of the
conference for me. I’ve been moderating these political panels for at least
10 years now. I thank Brien Lundin and the whole crew here for giving me
this opportunity.

Just to summarize in 30 seconds, in the last 10 years, we have solved

most of the nation’s problems. We have elucidated the Bill of Rights,
especially the ninth and tenth amendments. We have solved the
entitlement crisis. We have solved the debt of the United States. The
problem is that Congress and the establishment has not listened to our
solutions, so we still have those problems. We are not gonna hash those
over right now.
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 The basic outline of this panel is that I have a set of four questions I want
to ask of each panelist. Then we’ll just take it freeform from there. I’m
going to ask about the media situation, the tribalism and the echo
chamber effect that we have had exacerbated in the last two or three
years. Exemplified by our first panelist, I’m gonna ask a question. Jonah
Goldberg, in his book Suicide of the West: How the Rebirth of Tribalism,
Populism, Nationalism, and Identity Politics is Destroying American
Democracy, that is about how people are shouting and yelling at each
other, interrupting. I don’t know about you but I cannot listen while I’m
talking. It seems to be a skill they’re developing on television now where
people can listen and talk at the same time others are yelling. I can’t
fathom that.

I grew up under William F. Buckley’s Firing Line and I was in Debate

Society in high school in 1962, where you had structured debates, where
you defined terms, you listened to a case, and you argued back. And you
actually learned what terms meant. William F. Buckley’s Firing Line was
built on that. We had those debates early in this conference with William
F. Buckley, with George McGovern, with John Kenneth Galbraith. We had
Lou Rukeyser sometimes monitoring those debates. We had meaningful
debates in this conference over the years, but that has not been
replicated anywhere that I know on television.

So I want to ask our panelists in this first round, I want to ask if there is
anything like that in their experience on television and barring that, what
their experience is in the media. Starting with Jonah Goldberg, in the last
six months I have monitored the Sunday morning programs. I don’t like
doing this. It’s not really interesting so I do something else while I’m half
watching, half listening. I have timed Meet The Press, Face The Nation,
and George Stephanopoulos ‘til I couldn’t even stand that anymore. I find
85 percent of the material is inside the beltway trivia, and most of that is
tweets from the president. They do not interest me at all, but it is so
beltway-centric that it’s almost like the world doesn’t exist. I never heard
Venezuela mentioned once, for instance.

Jonah, you were invited often back to Meet the Press. Chuck Todd is no
Don Lemon but it seems he is biased a bit toward the left. It seems on the
panels in which you are one of the conservatives that you were only given
about 30 seconds at a time and once it starts to get substantive you have
to pass the baton to somebody else, and it really never gets somewhat
deep into the issue. My question to you is what are some of the
background elements that go on in a show like that? What are your
instructions as to how to partake in a panel? Here’s the tricky question,
fantasize a bit. If you were the producer, if you were the host, how would
you structure Meet the Press to be a bit more substantive and interesting
than it is right now? Jonah Goldberg.

Jonah Goldberg: Gosh, I didn’t know I was gonna be the expert on Meet the Press. First of
all, I’ve never had any instruction beyond, on any show. You have this
myth about Fox News where people think people are told what to say.
They’re not. I mean that ... bookers will sometimes pick people ‘cause
they know basically what they might say, but there is no sort of voice from
on high that says, “You must say this or not say that.” Same holds true
on, I’ve been on now on all of the Sunday shows and I’ve never had
anything like that.
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You often get encouraged to interrupt and have an organic conversation
but there’s literally structurally no ability or time to do anything like that
‘cause they’ve got this roadmap that they wanna get through. I do think
that ... I think anybody who’s ever been on a Sunday show thinks that
they weren’t given enough time. One of the tricks in the business is to
figure out how to grab the time that you want rather than wait for it to be
given to you. I think that is a non-ideological phenomenon.

Where the ideological part comes in is that you really will have three
people who share the same worldview and then the token conservative
who’s sort of supposed to be like the Washington Generals. That was the
team that played the Harlem Globetrotters and was supposed to lose
entertainingly.

Pulling up to about 30,000 feet, I think there’s a different phenomenon

that’s going on that’s been going on for a very long time but it’s
accelerating very quickly right now so it seems so much worse than the
past. That’s basically the Balkanization of the media. 40, 50 years ago
William F. Buckley was the host of Firing Line and that was the
conservative show. Then there were three other channels, four other
channels, and that was about it. Back in those days, and I still think there
was a liberal media bias back then, I can go on a tear about it. But when
you had such massive market share, CBS Evening News, something like
70 percent of the American people watched it on a night, you could afford
to make people eat their spinach in a way. You could tell them the things
that you thought they needed to know and not just the things they want to
know.

But as the media market fractures, you get this situation where everybody
is in a silo and craving for a small, very sticky segment of the electorate or
the viewing public. For example, Fox News, which dwarfs the ratings of
CNN and MSNBC, often combined, on a really good night will get about
three and a half million people. That leaves about 327 million people not
watching. That’s enough still for Fox to be extremely successful.

I think part of the problem that you see across the media landscape,
really in earnest in places like MSNBC and CNN, but I would say there
are issues at Fox as well where I’m a contributor, is that the mindset
becomes more about telling people what they want to hear and less about
what they need to hear. As the groupthink solidifies at all of these
institutions, you start having people lose their perspective about what
actually constitutes the framework of the debate.

So places like MSNBC, where I think a lot of the hosts dance back and
forth between their role as pundits and their role as objective news
reporters, they often get caught up in this crazy group think. You have
these examples of people like Don Lemon. I love this sentence he offered
the other night where he says we have to as a people learn to stop
demonizing other people and we have to realize that the real terrorist
threat in America is from white men. It was like a snake eating its own tail.
It was really fascinating. It just completely did not occur to him that this
was something that maybe half the country would find ridiculous.

This is a problem that you get, I think, across the spectrum these days.
Even the New York Times, which has always I thought been more liberal
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 than people want to give it credit, is basically fueling a constituency that
has a lifestyle where they expect the New York Times to come down on
the issues the way they want it to. This leaves very little neutral ground for
people to have arguments and conversations where people come from
really different assumptions about the nature of politics, the nature of
government, the nature of what America is supposed to be about.
Instead, everybody is retreating to these sort of tribal notions that we’re
right and you guys are all wrong.

Gary Alexander: Thank you. Mark Steyn, I see you once or twice a week on the show with
Tucker, Tucker Carlson who was here last year. It’s one of my favorite
shows. It’s probably the only one I watch regularly. You two are very
copacetic. But I also know that you’re on Canadian television. I saw you
on SteynOnline, the beginning of your free speech forum this morning in
which you discussed on Canadian TV they have something called
Canadian Content Ruling. Every third song has to be Canadian or
something like that. Your bio in our book mentions a 10 million dollar
lawsuit that you’ve had on Canadian media and also hate speech lawsuit.
Tell us what it’s like on Canadian media. Are you throttled more up there
than you would be on say US media?

Mark Steyn: Well, I think oddly US media is more explicitly partisan. The affect in
Canada, the UK, Australia, a lot of Europe, is always that they are more
openly, they have an extreme version of what Jonah was talking about on
Meet the Press where you’ll have a panel where there’ll be someone from
the center left, someone from the extreme left, someone from the insane
left, and then me. The trick there is-

Jonah Goldberg: Sounds like a fair fight.

Mark Steyn: Yeah. It is a fair fight. Actually I quite enjoy it. I wish they had a little bit of
that, a little bit more of that on the US channels. I think that the trick there
is always to be charming because you can upset the apple cart. A lady,
nobody in the US knows her but she hosts the national news in Canada
on the CBC called Rosemary Barton. Rosie interviewed me on the CBC
and her whole thing was, she began by basically saying I’m an extremist
hatemonger. Within about two minutes I’d charmed her so I’d gone from
extremist hatemonger to oh, you’re a little bit naughty. That’s like a huge
improvement.

In the modern world this poor lady, her performance is being live tweeted
by liberal CBC viewers. They’re all going, “I can’t believe she’s letting him
get away with this! Look at it, it’s disgusting! It’s creepy to watch! Look at
the way she’s leaning into him, showing her cleavage and everything, it’s
terrible!” Poor old Rosie, it took her like three years to recover from that. I
actually, I think we don’t have enough of that. I don’t like the echo
chamber thing. I don’t like this idea where you have subscription
television services now where people who totally agree with each other
can all sit in the echo chamber together. I’ve worked in a lot of places
where I was the token right wing madman.

I was the token right wing madman at the Irish Times, which is a very
liberal newspaper. Conversely, when we started the National Post in
Canada about 20 years ago, one of the things we were concerned about
was to find, it was a right wing paper but we wanted good left wing
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 columnists. We tried to find them. I wish there was a bit more of that. We
don’t have, I mean it’s not just politics but we don’t really have mass
media anymore. So the reason that the late night comedy hosts don’t do
genial universal jokes is because it’s in their commercial interest to
appeal to ever more precisely defined niche markets. That’s true
generally.

Gary loves music. We don’t have popular music in the sense that we did
in the 1940s when big hit record were huge hit records for everyone. We
have competing niche markets of rap and country and all kinds of other
stuff. In politics and in public discourse, that just incentivizes you to serve
a narrower and narrower sliver of the population.

Gary Alexander: Okay, Doug Casey, I know you haven’t been on any national TV lately but
the way most young people learn their history is movies, like by Oliver
Stone. The way they learn their morality is some TV series. One of them
is Madame Secretary. How many of you watch Madame Secretary on
TV? Just not too many, but my wife loves the show so I watched in and
there’s a Doug Casey character on Madame Secretary. It’s the young
boy. He’s an anarcho-libertarian. I didn’t know if you knew there’s an
anarcho-libertarian on TV. He’s 20 years old. He doesn’t go to college. He
has his own views and they’re ridiculed by the screenwriter, naturally.

But Madame Secretary is a Hillary Clinton-type person who is perfect:

younger, slimmer, and somewhat ethical. Her husband, unlike Bill, is a
former marine pilot. He is a professor of ethics at the national war college.
He is a one-woman man. Now the two daughters are very liberal. They
dropped out of college to be politically active. The second daughter was
an active worker for a Cory Booker-like politician until that politician
dropped his platform for forgiving college loans. So this daughter’s at
home eating chips and flipping through a magazine when mother says,
“Aren’t you gonna vote?” “No, because this politician backed out on his
campaign promise to forgive college loans.” “You’ve got to vote anyway.
People died for your right to vote,” says mother. Daughter says, “Polls
close in 30 minutes and I’d registered in Silver Spring and we’re
downtown.” Mother says, “What are motorcades for?” So they have this
black SUV motorcade to take her out to vote for the lessor of two evils.

So my question to you Doug Casey, instead of the mother being in the

room you’re the screenwriter for the show. You can place yourself as
father of professor of ethics or the 20 year old anarcho-libertarian son. I
want you to explain to the daughter the ethics of forgiving college loans or
voting for the lesser of two evils. Either the father or the son, explain the
ethics of those situations.

Doug Casey: Well, there are so many problems with that setup. But one of them is that
how can you have a professor of ethics teaching at a war college? In fact,
how can you even have a professor of ethics in any college today?
They’re all political correct which is ... antithetical to the whole idea of
ethics and philosophical thinking. They shouldn’t even be voting. Look, I
don’t believe in democracy. Democracy’s really, in point of fact, as I said
earlier today, nothing but mob rule dressed up in a coat and tie.

This is all about stupidity. By stupidity I don’t mean low intelligence, low
IQ. Let’s be more specific and give a useful definition. To me, stupidity is
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 an unwitting tendency to self-destruction or, if you wish, an inability or
seeing only the immediate and direct effects of what you do and you’re
unable to see the delayed and indirect effects of what you do. Look, this
professor of ethics has obviously failed miserably. The very fact that he’s
got a daughter who thinks and that he’s stupid enough, using these
definitions, to have married a person that is like Clinton. This is all a
jumble, a contradiction.

It’s funny, when I used to be on the national media I had a full hour on the
Phil Donahue Show the day before the national elections in 1980. Phil
asked me who I was going to vote for. I said, “Well, I’m not voting
tomorrow,” and he was shocked, shocked. Then I started listing the
reasons. Well, the lesser of two evils is still evil and therefore you’re
morally compromised if you’re doing that. I mentioned that I’d have to
hang around a government office for the better part of a day registering
and then standing in line to vote. You just get your name in another
government computer bank. The audience was getting very restive
hearing these things.

In fact, on that show they booed me twice. It’s amazing. This is like the
speeches at Caesar’s funeral between Brutus and Mark Antony. The mob
claps and then they boo and then they clap and then they boo. They can
be influenced. I didn’t get as far. After they finished booing me when I told
them that they were idiots sending their kids to college, which isn’t nearly
as bad then as it is today, I only got as far as giving them four out of the
five reasons why they shouldn’t vote the next day. That reason they
probably would have stoned me as I said, “Your vote doesn’t count. It’s all
a charade.” And that’s much more true today than it was then.

We could go on and on about that. It sounds like a wonderful show. I’d

like to watch it and be mildly amused because we really live in an
entertainment economy. Nobody listens to anything, certainly nothing that
has any philosophical-

Gary Alexander: Well I thought you’d want to see yourself as a 20 year old in the show,
and the kid has hair you know and he’s handsome, but the screenwriters
don’t like him.

Doug Casey: No, of course not.

Gary Alexander: Of course not. Let’s move on to the second round of questions which
does have to do with voting. I think two of you aren’t gonna vote. Mark,
you’re not allowed to vote as a Canadian, is that correct?

Mark Steyn: Well I would have a difficulty getting away with voting in my small New
Hampshire township because my town clerk would say, “Get out of here,
you’re Canadian. You’re obviously Canadian,” because she knows who I
am. But I’m pretty confident I could vote more or less anywhere up and
down the California coast for example, multiple times. All I’m willing to say
is no, I won’t actually be voting in my town in New Hampshire but I don’t
rule out making appearances at other polling stations.

Gary Alexander: Well I’m going to ask about the elections, and since Mark and I share a
love of the great American songbook, I’m gonna put it in terms of song

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 titles. First of all, a list of Johnny Mercer titles. The incumbents all say the
country’s in the very best of hands but challengers say they are the fools
that rush in. With days of wine and roses they promise that old black
magic is gonna deliver lazy bones. The road to dreamland, but it’s all a
charade that’s too marvelous for words. They’re building up for a big let
down ‘cause something’s gotta give because when October goes in early
autumn, when the autumn leaves begin to fall, I want to be around to pick
up the pieces when they all sing the blues in the night. So that’s what’s
gonna happen on Tuesday night. Some party’s gonna sing the blues of
the night.

Mark Steyn: That’s a fantastic medley. I’ve never heard a spoken word medley before.
That’s quite incredible.

Gary Alexander: Now there’s a songwriter that was born Election Day, November 6th, Gus
Kahn who wrote Makin’ Whoopee. I’m gonna ask you which party is
gonna make whoopee, the party of Nancy, with the laughing face, Pelosi,
or will we be singing along with Mitch McConnell? Who’s gonna win the
House on Tuesday night?

Mark Steyn: Well I don’t wanna be ungallant but Nancy Pelosi has anything but a
laughing face. It seems to me increasingly immobile over the years for
reasons I decline to speculate on. I recall that when Obamacare was
introduced and the democrats were in control of Congress that in fact,
that the republicans were in control of the Senate and Mitch McConnell
wanted Botox not covered by Obamacare. Whereas Nancy Pelosi wanted
Botox covered but did not want tanning salons covered by Obamacare.
That was actually John Boehner, who as you may recall had the healthy
glow that comes from spending winters in his sun-drenched corner of the
Midwest. It was very peculiar, very peculiar [inaudible 00:22:02].

I don’t know which way it’s going to go. Taking Doug’s point that voting is
irrelevant, I mean in a way that voting is a citizen’s obligation and in the
democratic age that is how we exercise our preferences. But most of the
changes that matter are made culturally. Politics then spends its time
catching up to them. For example, a general mood arises that people are
less offended by minority sexual behaviors than they once were. Then
that becomes a broader disposition towards licensing same-sex marriage
or transgender or whatever it is. There’s an interim phase in which
politicians then spend a few years lying about that. Barack Obama said
for years that he believed marriage was between a man and a woman.
His voters are supposed to know that he doesn’t really mean that but it’s
not politic to say it out loud yet.

Then eventually here you have basically judge-made law. But again,
when you read Anthony Kennedy’s total incoherent argument for same-
sex marriage, Anthony Kennedy basically is saying, “I’m just playing catch
up with the culture here. I got nothing. I can’t find a legal argument for it
but I’m prepared to twist myself into a pretzel to explain why these guys in
powdered wigs a couple of centuries back calmly foresaw the need for it a
couple of, a quarter millennium later.” It’s the culture where the important
shifts in our society are made. In a sense, it’s a Potemkin fight that goes
on about very peripheral battles on the political sphere. Only once in a
while do you have someone who comes and throws one of the big
cultural battles into the political arena, as when Trump basically did that
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 with, for example, immigration, which republicans had shied away from.
But the cultural battles are really where these things are resolved.

Gary Alexander: Jonah, you’re the closest to the political beltway scene. I know that all the
pollsters are saying it’s about an 80 percent change the democrats will
take control of the House and similar chance that the Senate will stay with
the republicans. Do you see any chance that it’ll be like 2016’s surprise
Brexit vote, surprise Trump victory that the republicans have a chance on
Tuesday?

Jonah Goldberg: Yeah. There’s a chance. I mean one of the reasons why ... Look, I mean
Donald Trump in 2016 had about a one in five chance of winning and he
won. One in five chance, unfortunately the way pundits talk about one in
five means zero. But there’s a one in six chance that any side of a die will
come up if you bet on it. One in five, there are lots of things. If you’ve got
a one in five chance prognosis for dying from some disease, you take that
really pretty seriously. 20 percent chance is a real thing. 20 percent things
happen all the time. But I would push back a little bit on the ...

The polling in 2016 was actually pretty good. It said Hillary Clinton was
ahead by three percent. She finished ahead two percent. It was the state-
level polling that was bad. That gets to the problems that they have in
polling generally. Still, if I were gonna bet, I would bet pretty heavily that
the democrats take the House. Historically, the average loss for the first
midterm of a presidency is about 24 seats. The democrats need 23 seats.
Historically, it’s interesting. Incumbency is actually really, really powerful
and usually protects you. What happens is is that going into the primary
season, the incumbents who feel like they may not, they just don’t want to
put in the effort to protect their seats, they all retire.

The thing is open seats historically go wildly towards the other party. So
there are a lot of open seats this time around. The democrats only need
one in three to take the House. It just seems sort of as a safe bet to say
yeah, the democrats will take it. I don’t think it’s gonna be the blue wave a
lot of people thought it was gonna be last time. Personally, because I
think we live in a timeline where the most ridiculous thing always happens
now, I would like to see the democrats take it by one or two seats. Then
you have enough democrats who said that they were not gonna vote for
Nancy Pelosi, refuse to vote for Nancy Pelosi and you have this
absolutely biblical fight over who becomes the speaker of the democrats.

On the Senate side it works the other way. I think the Kavanaugh thing
was a huge galvanizing factor for reluctant republicans or fed-up
republicans who came back home. This is one of these times where I
think the conventional wisdom is largely correct. I just want to add, I agree
with Mark entirely about how most of our issues in life are upstream of
politics and they manifest themselves very late in the process. I do think
voting is a good thing. My problem is if we’re all gonna be sort of the
cranky, “get off my lawn” types here, I don’t like the way we talk about
voting where we think it should be the gateway drug to civic participation
rather than the end product of it.

You got these people who are too stupid to be spell checkers at an M&M
factory in California who want to lower the voting age to 14 or 12 or
whatever. For me, I think that voting should be something that you do at
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 the end of a process of taking your citizenship seriously. I’ve never
personally taken my vote very seriously ‘cause I’ve never lived anywhere
where my vote wasn’t canceled out at least nine to one. I grew up on the
Upper West Side of Manhattan where we were like Christians in Ancient
Rome. It just didn’t matter.

I think that what we’re seeing right now, one last point is I’m sort of
obsessive about how we fetishize voting in this country. For years I’ve
been having these debates with people saying that low voter turnout is
actually a sign that people are pretty happy with the way that their lives
are going. You get very, very high voter turnout when people are really
pissed off or angry or they think the country is going in the wrong
direction. I think it’s really funny that all these people are celebrating how
there’s gonna be massive turnout, and it looks like there will be in the
2018 midterms. But nobody is arguing that this is a sign of civic health.
Whether you like the republicans or like the democrats, everyone is
conceding that everybody’s really pissed off and angry. This idea that we
would be a healthier society if we had total turnout for elections I think is
just belied by the reality of why people vote in this country.

Gary Alexander: Exactly. Now Doug, I know you don’t really care who wins so I’m gonna
put an investment angle on this Election Tuesday. Back in 2016 October
was just like it was this year. They assumed Hillary would win, stocks
were going down, and gold was going up. The same thing happened in
October. We had a strong gold market and stocks were going down on
the assumption that the democrats would take back the House. The
absolute opposite happened after Trump won. Gold went down about 150
bucks in the next month and a half and stocks soared after Trump won.

My question to you is it really does matter to this audience and to you as

gold investors if the republicans retain the House we might have a
collapse in gold and we might have a stock market rally. Do you care
about that now? Is it really important that the republicans win or lose?

Doug Casey: No. First I gotta say it’s a pleasure being on this panel with these two
guys. In the past, I was on panels with Doctor Strangelove and I ...
couldn’t agree with anything he said. I totally agree with everything-

Gary Alexander: I’m glad you’re not on the panel this afternoon then.

Doug Casey: These guys, yes I saw that. I won’t be here. I’ll be on a plane when that
takes place. Yes, I agree with Jonah. I believe that the bad guys are
going to win or the worst guys are going to win. But I especially agree
with Mark that this is a cultural thing, much more important. Who wins this
election is really rather trivial. It’s just a question of which deck chair
you’re sitting on on the Titanic. Ultimately, the way I see this is that the
only solution at this point, what’s going on now is much more serious than
what happened during the 1960s and early ‘70s. Most people have
forgotten, there were actually thousands, thousands not hundreds,
thousands of bombings that took place. But what’s going on now is a
culture war, which is broad-based, much more serious than what we had
back in the ‘60s.

I think what’s going to happen and what should happen is the US should
actually break up into several different countries along cultural lines. You
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 can’t have an election where people are at odds on the basic realities of
the way the world works. It becomes nothing but ... like what Mencken
said, an advance auction on stolen goods. How can you have an election
where half of the public is a net recipient of goods from the government?
It’s a charade, all of this.

Mark Steyn: I’d just like to add to that too that I think we’ve seen in the last couple of
years something that is disturbing if we do fetishize voting, as Jonah was
suggesting. We live in a bizarre time when low-level bureaucrats and
district court judges and all kinds of other people who are not susceptible
to voting think it’s acceptable to obstruct the policies of the duly elected
government. That’s a disturbing thing. You see it in the United Kingdom
too where the bureaucracy tasked with negotiating Brexit basically
regards it as its right to scuttle Brexit. You see it in the bureaucracy of the
European Union where the unelected [inaudible 00:32:56] in Brussels, for
example, think it appropriate to try and get motions passed in the
European Parliament imposing sanctions on countries such as Austria
that do not vote in approved ways.

We’re actually seeing, which is an interesting phenomenon in the 21st

century, we’re actually seeing less and less lip service paid to voting and
the disposition of the electorate than we have seen in democratic
societies before.

Gary Alexander: I wanna highlight something as I was gonna go to global geopolitics next
but I’ll say that, ‘cause you mentioned it’s cultural and I believe that,
Doug. Something from Jonah’s book, early in the book, page 16 and 17,
Howard Zinn’s People’s History of the United States, which I first became
aware of when my daughters went to college at Thomas Jefferson’s
University of Virginia. It was a huge bestseller there and my daughters
were influenced by it. He’s an avowed communist and he told the history
of the US from the point of view of all the victims and nobody else. It
created resentful hostility toward the founders of this country by turning
them into nothing more than greedy white racists.

Jonah talked about a sense of ingratitude that took over this country
toward the miracle of the wealth creation that this nation and capitalism
created. If we don’t teach people to hold what they have precious they
simply won’t bother defending it against those who think what we have is
evil. That’s what Jonah wrote and Mark touched on it there. So I’d ask all
of you to talk about that. I mean back in the ‘60s we believed instead of
saying the one percent were evil, we said, “I can become one of them.” “I
believe that I can become one of them.” Now we want to hate them and
take what they have either by legal means or by means of force, which is
really kind of the same thing. Mark or Jonah have any further comments
on that before ... ‘cause I know Doug feels the same way too. He spoke
on it this morning.

Jonah Goldberg: Sure, yeah. I mean part of the basic ... That’s in some ways the basic
overarching conclusion of the book is that ... I believe that conservatism
boiled down is basically a form of gratitude. You look around the world,
you look around your life, you look around the community that you live
and you say, you find the things that you find lovely or lovable and you
say, “I wanna protect these things. I wanna maintain these things. I
wanna pass them on to my children. I wanna conserve these things.” That
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 doesn’t mean there isn’t room for improvement. That doesn’t mean there
aren’t still problems in the world. But if you don’t start from a presumption
of gratitude, that we have it pretty good, you’re gonna be imbued with
something, with the opposite of gratitude which is a sense of entitlement
or resentment.

In this country basically following along the Zinnian lines is we teach

entitlement and resentment as a core approach to the world. We tell
people simply by virtue of the color of their skin, or their historical
grievances, or just simply because their feelings are in disconnect with
the reality around them, that the world owes them something. I’ve
become kind of a Joseph Schumpeter groupie in the last few years. He
was a famous economist who basically made this argument that
capitalism was doomed. I don’t completely agree with him, because I
think our problems are still fixable. But his argument was that the real
threat to capitalism isn’t the proletariat. The proletariat tends to actually
have pretty old-fashioned bourgeois values. The real threat to capitalism
and democracy are the children of rich people. As a class, the affluent
kids of rich people are being raised to have a deep-seated dislike and
resentment towards the best and most glorious parts of the American
story. The Howard Zinn version ...

Remember the movie Goldfinger? In the movie Goldfinger, Goldfinger

doesn’t wanna rob Fort Knox. His devious plan is to irradiate all of the
gold in Fort Knox with a dirty bomb so that it makes it unusable for like 50
years making his stockpile so much more valuable. I’m sure there are
some people in this room who find this an intriguing idea. That’s what the
left essentially does to American and Western history generally, is it says
that any of the usable past for fostering a sense of gratitude, of communal
purpose, of pride, of patriotism, these things are all unusable and
radioactive.

The only stories that you can teach and tell are the stories of victimology,
of racism, of bigotry, not the stories of us overcoming these things. Every
civilization in the human history had slavery. The interesting thing about
the West isn’t that we had it but that we got rid of it. We don’t teach that.
Instead we teach that that original sin of America is the only thing you
need to know about the founders. That’s a huge, huge problem and it’s
way upstream of politics generally. If we don’t get the story of America
right, the story of our politics is going to continue to get crappier and
crappier.

Mark Steyn: I’d forgotten that was the purpose of Goldfinger’s scheme in the movie.
I’m mindful of the last panel when I believe Peter Schiff asserted that his
cuff links were gonna be worth more than the Dow. So I have a scheme
to irradiate Peter Schiff’s cuff links and shore up your 401Ks. We’ll see
whether 007 manages to obstruct that.

I think Jonah is right, that we have raised two generations to loathe their
inheritance totally. It’s true not just in the United States. It’s true not just in
the United Kingdom, which was obviously a major imperial power so if
you’re told that imperialism is bad that’s a whole big lot of guilt heaped on
the UK. But it’s true of relatively benign non-imperial powers like Sweden,
or at any rate a country that hasn’t been in the imperialism business for a

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 long time. Raising people to hate and loathe their inheritance, as books
like Zinn’s do, is a form of child abuse that has serious consequences.

We see it in the madness to take down ... Basically any functioning

society, just at sort of 30,000 feet as Jonah says, is a compact between
the past and the present and the future. None of us live or exist in the
moment. That’s true for investors who look ahead. But looking ahead also
involves a union of the present and the past. That’s what ensures you
have a future. So if you destroy your past you are also in a sense
destroying your future. That’s why things like a little California town
deciding to take down the statue of President McKinley, who took a bullet
for his country. I mean I don’t know what the guy has to do. I mean he
didn’t get a fair shake from what was that guy, Czolgosz? The fellow who
shot McKinley? That’s not enough. He’s still an evil racist guy.

The most ridiculous thing was this astronaut, Scott Kelly, who tweeted the
other day one of the most unexceptionable Churchill quotes, “In
magnanimity victory.” In other words he’s calling for us to tone down all
the partisan rhetoric so he quotes this Churchillian thing, “In magnanimity
victory.” Immediately everybody jumps on him and says, “No, no,
Churchill’s a racist. You can’t quote Churchill. It’s evil to quote Churchill.
We don’t wanna listen to anything Churchill has to say.” I said years ago
that in the future everyone will be Hitler for 15 minutes. That’s the only
historical figure anybody’s ever heard of. If you’re old, you’re Hitler. We
have now reached the perfect stage of this where Churchill is Hitler to
everybody on Twitter. It’s perfect. You can’t go beyond that. Churchill is
Hitler. When you do that, when you teach people to be ashamed of their
past in that way, you actually cripple the possibility, ultimately you cripple
the possibility of that society having any kind of a functioning future.

Gary Alexander: Doug, I have a question to you as we segue into geopolitics ‘cause you
are The International Man, one of your great books. I have a radio show
on music and what follows me is the Pacifica News that’s extremely far
left. They usually lead with an anti-Trump story but they led with a story of
an overthrow of an African nation, Congo I think. I said, “Mm, that’s
strange. Mm, I wonder how they’ll tie that into Trump.” No kidding, 20
seconds later, “Pundits are saying this is the fault of Donald Trump and
his America First policies since the diplomats aren’t staffing their offices in
West Africa. Therefore there is not enough deterrence of overthrow of
governments in West Africa.” My question to you is what are the
geopolitical hot spots over the [inaudible 00:42:43] They all blame it on
either Donald Trump or global warming.

Doug Casey: Yeah. Obviously they didn’t go far enough ‘cause they didn’t tie global
warming-

Gary Alexander: Oh, they did later.

Doug Casey: Into the whole thing. But, it actually doesn’t matter. Listen, remember this
morning part of my speech was giving the 12 reasons why western
civilization, western culture is in collapse, and why at this point resistance
is futile. I mean the battle is over. Why? Because it used to be a very
small proportion of the population went to college. In those days, the
college professors were teaching western values so no damage done, in
fact, good done. Now everybody goes to college and all of academia are
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 total leftists and they’re totally corrupting the youth who are
impressionable at age 18. It’s very hard to undo this damage and then
replace it with correct values.

It’s a moral value battle that’s being fought. I’m afraid it’s totally lost
because all of these so-called educated people, everybody goes to
college, everybody’s got these bad values. Then they’re reinforced by
movies and television, and everything they hear from politicians, and
people in authority, and their preachers and the people, the rock stars
and people that run NGOs and so forth. It’s actually pretty hopeless at
this point. I’m very sorry to tell you this. Because as I said earlier, western
civilization is the only civilization that’s worth anything in the world’s
history and it’s being flushed.

So I don’t know, I don’t give a damn about the Congo. I spent a lot of time
in Africa. It’s a great place to loot and pillage. If the west collapses the
Africans aren’t even gonna have mud huts to live in. I’m sorry to take
such a gloomy view of these things just ... buy gold and ...

Gary Alexander: Well, despite that, I’m gonna close the last five minutes of this panel on
an upbeat note. Now in this conference the last couple of days we’ve had
a lot of downbeat notes about debt and coming recessions and various
other things. I don’t believe I’ve heard these facts recited so I’m gonna
recite a few.

Consumer confidence is at an 18 year high. The GDP was up 3.5 percent

in the second quarter, so third quarter is up after 4.2 percent in the
second quarter. We created 250,000 jobs in October. 3.7 percent jobless
rate, the lowest in 49 years. Despite tariffs, exports rose one and a half
percent last month, same as imports rose. We’ve had a tax cut that is
working its way through to record earnings for three quarters in a row,
record corporate earnings. There’s some things to celebrate going on.
Despite the election, despite debt in the last couple of years, five years
and so forth and it’s grown out to really unsupportable levels, I would like
our panelists to close on some predictions for the next year that may be
of an upbeat nature. We’ll have to close with Doug anyway but let’s start
with Mark Steyn at the other end.

Mark Steyn: I’m not used to being out pessimism-ed by ... I’ve no idea, this Congolese
news escaped me. I would say this, I think it’s actually good for the Congo
that they’re now blaming it on Trump because they had a Congolese civil
war in the early years of the 21st century. It never made the papers
because CNN and the New York Times couldn’t figure out a way to blame
it on Trump. Actually six million people died in that Congolese civil war.
They all, both sides agreed on nothing except they liked eating the
pygmies, which is unfortunate, very unfortunate for them. It was a terrible
time in the Congo. I’m glad that whatever it is that has happened in the
Congo, and like Doug I’m not listening to Congo FM around the clock so
I’m not sure what’s happened.

But in some strange way, I think this idea that we are at the center of
world affairs is an important, is actually gets to the heart of the issue here.
Whatever one feels about the last two years and about the president, the
fact is he’s actually engaged in the world in a more effective way than his
predecessor was. In a sense, we’re not worrying about stuff we used to.
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 I’m less worried about North Korea that I would have been two years ago.
So I think on the international scene in the Congo and in North Korea and
a bunch of other places things are actually better than they were.

Gary Alexander: Okay. Thank you. Jonah?

Jonah Goldberg: Gosh. I too am not used to being the sunny optimist. I’ve been giving a
speech for 10 years called, “Cheer up For the Worst is Yet to Come,” and
every year it’s prophetic. When Irving Kristol and Judge Bork, who were
both at AEI in the 90s and the 80s, they were watching the Clarence
Thomas hearings. At some point Judge Bork turned off the TV in disgust
and said, “It’s the end of western civilization.” Irving took a long drag on
his cigarette, which you were still allowed to do indoors back in those
days, and said, “Of course it’s the end of western civilization. That doesn’t
mean one can’t live well.”

Gary Alexander: Sounds like you.

Jonah Goldberg: Look, I think we have huge, huge challenges ahead. One of them, which
you alluded to, is this now bipartisan consensus at the level of both
parties that we should just do nothing whatsoever about the national debt.
Herb Stein coined Stein’s Law which said that which can’t go on forever
must eventually stop. So we’re gonna have to deal with those problems in
a very real way, whether we like it or not, and on whatever terms that
reality imposes upon us. But at the same time it’s worth pointing out, sort
of on Mark’s point, every generation faces significant problems.

Ronald Reagan used to say, “We’re never more than one generation
away from tyranny because we do not inherit liberty in our blood. You
have to fight for it every single generation.” That’s part of the compact that
each generation has with the generations that came before us. As
Chesterton used to say, “Tradition is democracy for the dead.” We have
an obligation towards the future and towards the next generations. That I
think is a fact that is dawning on a lot of people, that the problems that we
have are serious and actually need to be confronted.

I think a lot of the hysteria again Trump, I’m no Trump fan, but the
hysteria against Trump is bringing out some useful antibodies among
even hardcore left wingers in terms of understanding that this idea that
we should have neutral rules and a free society, and that democratic
norms have value, is a useful argument to have. I’ve always been a long-
term optimist about America. I’ve just never been such a short-term
pessimist. I would still rather be born in this moment in this country than
any other moment in any other place in human history. I still put an
enormous of faith in the American people to solve their problems, but
things might have to get worse before they get better.

Doug Casey: Well I agree with that analysis but the problem is that, insofar as we have
a boom today, it’s actually very artificial being created by more and more
debt which means that people are mortgaging their future or they’re
consuming the capital that others have created in the past. That’s why
things look good today on top of the fact that you can’t trust the statistics
from the US government much more than you can trust those from the
Argentine government. Here’s the thing. Yes, everything kind of looks

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 good but I think things are coming unglued in the financial markets and in
the economy as we speak.

That means that Trump is going to be in office when it gets to be really

serious and really ugly. They’ll react against him because for some
reason, some unjust and untrue, he’s thought of as being a free market
guy, a capitalist. Well relative to the lefties, yeah that’s true but he really
isn’t. So the chances are excellent that in the next presidential election
the democrats will win. They’ll put up some complete loony toons
communist and then you’re going to get somebody much worse than
Roosevelt, worse than Lincoln, worse even than Woodrow Wilson, who’s
gonna grab the economy around the neck and strangle it to death. I don’t
think there’s much room for optimism at all.

Jonah Goldberg: But one can live well.

Doug Casey: But you can, yes. I mean listen, when the Roman empire was collapsing
in the fifth century there were people who were living well even. So yeah,
it’s similar.

Gary Alexander: Well we have to end on that note. I just thank our panelists.

Global Investing Panel

Albert Lu (MC), Adrian Day, Guy Adami, Doug Casey, Mike Larson

Albert Lu MC: Our topic today is global investing. I’m very happy to have these four
distinguished panelists with me. I think I’ll just start with a few comments,
my own observations, about investing globally. Something I’ve learned
and observed at Sprott is that when you’re looking for opportunities to
invest, in our case natural resources, those endeavors necessarily take
you globally at times. The assets that you’re looking for, the management
teams that you’re looking for, they don’t always exist in your backyard or
where you like to vacation. Sometimes they are in Nevada, other times
they’re in Canada, Mexico, Australia and sometimes they’re in the Congo.

That is an example of, I guess, looking for the right investment turning
you into a global investor. But the other way to look at it is to see
investing globally, or internationally, as end in itself. I want to start with
Guy Adami and just ask you, do either of these two describe you as a
global investor? Which category, if either of those two, do your global
investments fall under? Opportunities that you’re looking for specifically
that take you abroad, or the idea of investing abroad as an end in itself?

Guy Adami: That’s a great question. Thanks for having me, Albert, and this is a great
panel. Thanks folks for being here. For me, it’s more opportunistic, so
you’re finding opportunities as opposed to trying to put a square peg into
a round hole. I’m looking at it, what presents itself as an interesting
opportunity? Couple days ago you might have noticed that Deutsche
Bank, which has been under extraordinarily pressure over the last three
or four years in an environment where banks had been doing really well
and until recently the DAX had been doing well, a stock that’s completely
underperformed. Then you saw somebody jump in on the investment side

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 saying, “Completely overdone.” People were making a mountain out of a
molehill, so maybe Deutsche Bank is an investment thesis. That’s more
opportunistic, so that’s how I personally would look at the world.

Albert Lu MC: Okay, Adrian Day, same questions.

Adrian Day: I follow more of a John Templeton approach, which is I think of myself as
a true global investor. To me, when I’m looking for investments, it doesn’t
really matter to me at all whether they’re in New York, Singapore or
Bangladesh. Obviously, you expect certain discounts with certain
markets, but if I can find a good quality company with good management,
trading at an appropriate price, it doesn’t really matter to me where it is. If
you look at John Templeton’s career, he took that approach. Sometimes
he was as much as 70% in the U.S. At times, he was as much as 50% in
Japan. You get opportunities at different times in different markets, but I
think it’s good to look everywhere.

Albert Lu MC: I want to go in to Doug Casey now. Doug, your first book was about
becoming an international man. In your latest books, the novels, you talk
about someone who is looking globally for investment opportunities while
simultaneously looking abroad for personal reasons, meaning getting in
trouble with governments and whatnot. In the way you’ve presented it,
oftentimes the two sort of come together, meaning the investment thesis
and the personal reasons for going globally. How do you look at global
investing right now?

Doug Casey: I tend to look at things from a historical point of view. Here’s some ancient
history that a lot of you guys might remember. Before 1971, almost
everything everywhere else in the world was dirt cheap, really cheap,
because the dollar was an inflated currency. Things have changed since
then and the rest of the world has caught up. Now you can go to even
backward countries and find that not only the cost of living, but
investments, real estate and so forth, are actually more expensive than
they are in the U.S.

There’s a lot that can be said about this, but my approach, at this point as
a certified permabear, actually, is only to jump into things as speculations
when they’re really, really cheap, when stock markets are, as a whole,
are yielding 12% in dividends. That type of thing. Which, incidentally, as
late as the mid-1980s, there were three stock markets in the world, Hong
Kong, Spain and Belgium, they were all yielding 15% in current dividends.
Especially now, I think you should wait for opportunities like that as
opposed to trying to make a few bucks around the edges.

Albert Lu MC: I’m going to go Mike in a second here, but just anyone who wants to jump
in, what are your metrics for deciding whether something is cheap or not?

Mark Larson: Well, I look at a lot of deciding where to invest here or abroad and what
have you, a lot of my thinking is colored by what’s going on in interest
rates and how that impacts currencies, of course. I think in this
environment that we’ve had for the last several years, very low rates, very
easy money environment, it was a great chance to invest in a lot of
markets abroad and make a lot of money. Now, with interest rates going
up, with the dollar seeming to firm and so on, we’ve all seen what impact
that’s had on a lot of these foreign markets in the last 12 to 18 months
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 and I don’t really see that environment changing. The things that I’m
looking to invest in now are mostly domestic and mostly defensive,
whereas two years ago I was much more bullish on growth year
investments and those abroad.

Albert Lu MC: Okay, Guy. You want to ...

Guy Adami: It’s interesting. Sometimes something is cheap, it doesn’t mean it’s worthy
of an investment though. I just had an interesting conversation out in the
hall and I’ll give you a pretty good example. When Micron was a $43, $44
stock in the spring trading at a single digit PE when they announced,
company at the time was a 48 billion dollar market cap company, this
highly cyclical company announced they were doing a 10 billion dollar
stock repurchase plan, which at the time I thought was, “Wow, that’s
Micron telling us that they’re no longer cyclical. They’ve changed, they’ve
turned that dial.” The stock did act in kind.

The stock went from 45 to about 63 or so within a few months. Now you
have it lower than that stock repurchase announcement and trading at
PEs that don’t make a lot of sense. Just because something’s cheap PE
doesn’t mean it’s investible. I’ll give you another real good, quick
example. Same thing’s been true in the auto sector for a long time. For
three years now, people have been telling you how cheap GM and Ford
have been and the stocks on what had so recently been an amazing tape
in an environment where autos probably have never done better. You’re
talking about two stocks that have only gone down until the last week or
so. To look just at price to earnings in that vacuum, I don’t think you’re
doing yourself a service. In my opinion, you have to overlay that with a
number of things, not least of which are these companies in sectors and
industries that make sense?

Albert Lu MC: Yeah. Let’s go to Adrian Day. I know you look at yields, among other
things. What do you look at when you’re deciding ...

Adrian Day: Well, no, I mean obviously I absolutely agree. One of the most dangerous
things for value investors is the so called value trap. I couldn’t agree
more. We are essentially bottom up investors. Bottom up investors, or
primarily, I should say, we are primarily bottom up investors. That mean
you look at individual companies and you look at how the companies are
doing and you look at the companies’ metrics, PE as well as free cash
flow and book value and yield and other things.

You also have to overlay with that, in my view, you have to overlay that
with a top down approach. I think value investors who say that they ignore
what the economy and market are doing and they only look at individuals,
I think they’re doing themselves a big disfavor. You overlay that with
what’s happening to interest rates, what’s happening to oil price, what’s
happening to currencies and so on.

Mark Larson: I’m glad you brought up the whole issue of value investing because if you
look at the performance, and we did an analysis of this not too long ago,
looking at the Russell 1000 Growth Index compared to the Russell 1000
Value Index and just the spread as far as performance, and you chart that
back all the way to the last 1970s, early 1980s, there’s only been one
period in all of that long stretch of time where growth has outperformed
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 value to the extent that it has in the last 12 to 18 months. That was the
one year period bracketing the peak of the dot com bubble.

Value investing .... Growth stocks, that’s what everybody’s wanted, the
[inaudible 00:09:00] names and so on, and nobody’s wanted to touch
utilities, consumer staples, the boring stocks, if you will, but that’s where I
think there actually is some value and opportunity because so much
money’s been invested on the other side of the boat. I think you’re going
to see stocks that have been left by the wayside for a long time finally
start to attract interest. And that’s happened the last three to six months
really.

Albert Lu MC: Different question now. When we invest in these foreign stocks, let’s
assume it’s not solely in the case of an extraordinary opportunity, but just
global investing in general. If you invest in a company that say has cash
flow, are you indirectly making a bet on currencies? I’m trying to get to
what are the benefits that we’re actually extracting out of these
investments? Are we searching for better tax regimes or better regulatory
regimes? Is it an indirect play on currency, is it an indirect play on growing
economy? Anyone want to comment on that?

Guy Adami: I’ll jump in real quick in terms of currency. It’s a fascinating ... this is not
going to answer specifically your question, but I bring this up because
CNBC did a conference a few months ago, Delivering Alpha, I think was
the name of the conference, and Mary Erdoes made a comment about
the biggest concerns that she had was the volatility in the currency
market. I grew up in 1986 at Drexel Burnham Lambert, I was a commodity
trader.

Currencies would move 1% in a year, if you were lucky. Now you see
currencies move 1% in a few hours. The volatility in currencies to me has
completely changed the landscape. I personally think it’s a harbinger of
really bad things. I know I’m not answering specifically your question, but
when you bring up currencies, they are absolutely, in my opinion, at the
forefront of what could be one of the most volatile times in the history of
markets. Just my opinion.

Adrian Day: No, I agree with that, but I’ll also try to answer you question if I ... You’ve
probably seen funds and ETFs say they’re global hedged funds, which
means they hedge the currency. These tend to be value funds. They tend
to be value funds that are looking at great companies and want to hedge
out the currency exposure. A lot of people often ask me if I hedge. For
retail people, to me, you just simply can’t hedge on a permanent basis
like that. It’s just too expensive. You have to take a view on currencies,
which is very, very difficult. I mean, I don’t know about you, but I find
forecasting currencies one of the most difficult things to do, much more
difficult than most markets or asset classes.

But you have to have a view. To get to your point, Albert, if you think a
currency is likely to be strong, you want to look at companies that are
perhaps individual companies that are perhaps importing their raw
materials and selling domestically. You don’t want to be looking at a
company that is producing domestically and exporting, if you think the
currency’s going to be strong. A lot of people make that mistake. When

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 you have a view on a currency, you then have to look at the appropriate
companies or sectors to take account of that view.

Mark Larson: One of the things that’s interesting if you’re looking to make money from
global investing without having to deal as much directly with the currency
issues, I mean there’s obviously multinationals, U.S. based, U.S. traded
companies that do a ton of global business. When things were looking
better to me in the markets and really in the growth environment, a year
and a half ago we were recommending things like Texas Instruments and
Triple M and so on, because those were U.S. based but obviously do a lot
of business overseas. Now, given what’s happened in a lot of these
foreign economies and what’s happening with the U.S. dollar and so on,
I’m trying to avoid as much as possible investments with both currency
and growth exposure overseas because I think the environment’s a lot
choppier and a lot more dangerous. [crosstalk 00:13:04]

Doug Casey: One thing that I think it’s important to remember, always keep in the back
of your mind, is that absolutely every one of these currencies issued by
every government in the world is a piece of toilet paper. They’re floating
abstractions that are headed towards their intrinsic values, which is zero.
Actually, the most interesting currency to me right now is the Argentine
peso. Now you’re saying, “Why would you buy the currency of a country
where money goes to die?” The reason is that right now, interest rates
are in the 60 to 80% area. The currency’s only been losing value at
around 30 to 40% per year.

Mark Larson: Only.

Doug Casey: Well, that’s a pretty good spread when you’re getting twice that in interest
rates. I would look at that. The other thing, talking about currencies, I was
late to the game, but not too late, to Bitcoin, which was very, very good to
me. One of the good things about Bitcoin is that it’s drawn the attention of
the millennial generation to the fact that now they’re calling all these
government currencies fiat currencies. It’s opening their eyes to other
currencies like gold and like Bitcoin. Incidentally, I think there’s going to
be a second kick at the cat with these cryptocurrencies. When you talk
about currencies, think about these cyrptos. Now, 90% of them are total
junk, but it’s like junior mining stocks. Some of them are going to be quite
interesting.

Albert Lu MC: Doug, can we talk about politics just for a second because you and your
editor, Nick Giambruno, have been known to parachute into distressed
situations, distressed political situations. Can you talk a little bit about
that, what you look for?

Doug Casey: Oh, that was to me?

Albert Lu MC: Yeah, to you again.

Doug Casey: Well, I’ve always been oriented towards exotic, goofy places. The reason
is this, is that I like to go someplace where I don’t like a level playing field.
I think it’s silly to play on a level playing field. I like a playing field that’s
tilted steeply in my direction. That’s why I like to go to Africa, which is
absolutely going to slip back into the dark ages, on the one hand. But on

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 the other hand, if when I go to Africa I have money and connections and
experience and all kinds of things that the locals don’t have, which gives
me a big marginal advantage. I like to go to goofy places like that where I
know more and have more than the locals that I’m dealing with.

Albert Lu MC: Anyone else?

Adrian Day: Are we dismissing an entire continent as goofy?

Doug Casey: Yes we are, actually. But that’s not to say I don’t like it. It’s a good place
to loot and pillage and exploit.

Guy Adami: There’s geopolitical risks right here at home, quite frankly. You talk about
currencies and Doug mentioned he’s a permabear. I think in this
environment we find ourselves in, and Peter Schiff is floating around, I
mean it actually might be the right view given what’s taking place. I agree,
by the way. The U.S. dollar is a fiat currency and every fiat currency in the
history of mankind, starting with the Roman Empire, has ended in
disaster. If you just don’t think that’s the case, to your point, I mean just
look what’s going on in Venezuela over the last few months.

The fact that central banks globally are in a race to torch their currencies
because to make your currency cheaper than the next guy’s and gal’s,
makes your goods more attractive, that can’t end well by definition. I don’t
know how this global race to zero in currencies manifests itself, but I will
tell you maybe it is crypto. I traded gold for a living for a long time. Gold is
not a story until it’s a story. That’s not me being glib, that’s just the way it
works. Interesting, anecdotally, about three years or so ago, the
Bundesbank announced they were repatriated their gold from France and
from the United States.

I encourage you to ask yourself the following question, they didn’t wake
up in the morning and decided they wanted their gold back. They saw
something. That would be an interesting story to go home, Google, figure
out what’s happening, because as I mentioned, when gold becomes a
story it becomes a story in a major way.

Mark Larson: It’s interesting, you bring up central banks, I mean look at what Russia
did, right? They basically sold almost 85% of their U.S. treasuries and
essentially it looks like they bought gold with it as an asset to get out of
that political risk in the U.S., which is amazing to talk about that given
what’s been going on in the politics here. Who’s to say that other
countries wouldn’t do something similar? Who’s to say it’s not happening
behind the scenes already? You look at a day like Friday where the
market went from what, up 200 to down 300 at one point?

Treasuries went nowhere. They sold off all day. Yields were up all day.
There wasn’t any of that safe haven buying. If you look at the trend in
U.S. bonds, it’s been ugly for 18 plus months. I think there’s something to
be said for there’s persistent sellers in that market that are doing more
than just looking at the economic environment. I think they’re looking at
the U.S. dollar or looking at U.S. bonds and saying, “Is this really what I
want to hold?”

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Adrian Day: Let’s not forget, not only are existing holders selling, but there’s also a lot
of new issues coming on. The Fed, as was pointed out by somebody
yesterday, the Fed is selling at the rate of 600 billion over the next 12
months. The treasury is probably issuing 1.3 trillion in new issues, so
that’s almost two trillion of supply that somebody has to buy.

Mark Larson: I think the real issue, the real danger to the markets, Guy mentioned it
being a very volatile environment, is we’ve had two big bubbles and busts
now in mostly tech stocks and then housing. The problem this time is that
it’s really, this easy money environment’s permeated so many markets.
It’s stocks, it’s high yield bonds, it’s residential and commercial real estate
again. You look at how much that’s over the peaks that we had at what
we all agree was pretty much the biggest real estate bubble ever and
you’re finding all these esoteric assets.

I’ve been working on a lot of research for this book and it’s everything
from artwork to comic books to the value of an NFL team. All that stuff’s
gone through the roof much more so than even the S&P. It tells you that
this has really permeated a lot of markets. It’s very dangerous. Valuation
isn’t timing. This isn’t a good timing tool, but it does tell you about your
underlying risk and I don’t see a lot of places where valuations, besides
the things I mentioned earlier, look all that attractive.

Adrian Day: Agree.

Albert Lu MC: Just want to point out that Guy Adami has been here for 20 minutes and
he already sounds like one of us.

Guy Adami: Why? Is that right? Is that bad? Should I ...

Albert Lu MC: No, this is great. They’re going to tease you when you go back to CNBC
though. I don’t know if anybody caught James Grant’s presentation
yesterday. It was brilliant and he included an analogy. He talked about
traveling, not eating on the plane, getting in late, everything’s closed,
you’re starving and you’re looking at the minibar with the $7 Pringles
wondering what to do. My first thought is this guy needs a Snickers. It
reminds me of that commercial, you know, you’re not yourself when
you’re hungry?

He linked that to the idea of buying U.S. treasuries now for safety when it
feels like yields have bottomed out and he thinks that we’re going into
what could be a very long bear market in bonds. I want to tie that to
globally investing for safety, which is sort of where we were going. Some
people don’t want to buy treasury bonds. I’d like to know what you think
about that, but would you go globally to protect yourself as a hedge, or is
everything too correlated at this point?

Guy Adami: This is my opinion. People say, “What’s the safety trade?” Obviously, I
work on a network where each day the market is our story. When the
market goes down, that’s a more interesting story than typically when the
market just grinds higher. Then the invariable question is, “What is the
safety trade?” You’re supposed to come up with an answer. Quite frankly,
I don’t know if there is a safety trade, per se. I could make a very
compelling argument that defense stocks, not defensive, but defense

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 stocks, had been a safety play. Then you look at what’s happened to
Boeing over the last couple weeks and you look at what happened to
Lockheed Martin as well.

Safety becomes unsafe very quickly. In my opinion, in the world we

currently live in, everything is somewhat correlated. Now, you can save
yourself, as ridiculous as this might sound, maybe the safety trade finds
its way into China because if President Trump is truly correct and there is
an imminent deal with President Xi, what I will tell you is although our
market will probably go higher, the Chinese market will go a lot higher, a
lot faster. Maybe that’s some crazy safety trade. I don’t like the term
because quite frankly, I don’t think it does anybody any service.

Adrian Day: I think when you talk about a safety trade, one of the things you’re looking
at is hedging against most of your investments, or the mainstream
investments. In that regard, a safety trade would obviously be gold,
physical gold, would be some foreign currencies. One of the things we ...
When you start to get more defensive, we’re getting much more defensive
now because we simply can’t find a lot of good values. As I say, I look at
hundreds, hundreds, of companies on at least a cursory level every day,
well scores of companies, every day, at least on a cursory level. Very,
very, very few of them even get in to the second stage these days
because just nothing looks cheap to me.

We stop getting more defensive and for us, that means, apart from gold, I
look at things that are cheap on a net assets, things that have strong
balance sheets and have good assets and are cheap on an asset basis
and I look less at price earnings and yields and so on. For example, we
would look at a company like Loew’s, the conglomerate not the homing
store, the Tisch Family Holding Company, selling at about a 28% discount
to the value of their assets right now. Now, most of those assets are
publicly traded companies so clearly if the publicly traded company’s
valuations go down, or prices go down, the discount narrows and Loew’s
goes down, but at least you’ve got a nice cushion and you’ve got 4.8
billion dollars in cash on the holding company level.

If a company’s not going anywhere and perhaps in a market crash you’ll

be able to take advantage of other opportunities. There’s a similar one, I’ll
just mention this and then ... In Switzerland, Pargesa Holding, which is a
joint venture of the Canadian Des Maris families and the Frère family from
Belgium, two very, very well known ... Des Maris is dead, deceased now,
of course, the father, but two well known, value investing families, shall
we say. Pargesa, most of what it holds is publicly traded companies, so
it’s very, very easy to do a valuation. You expect holding companies to
trade at a discount, but a 40% discount to publicly traded companies, I
think is excessive.

Their biggest holding, for example since you asked, is Total, the French
energy company. You don’t mind holding Total, unless you’re an energy
bear. Second largest holding is a German company, a chemical
company, called Imerys. Anyway, again, over 4 billion dollars in cash.
They’re very similar, these two companies, 4 billion dollars in cash at the
holding company level, no debts at the holding company level. Pargesa
actually pays a dividend, which is 4.3% right now, unlike Loew’s which
pays, I don’t know, 1% of half a percent. I once said to James Tisch, that I
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 love your company? We own a lot of it, but I’d love it even more if you
paid a dividend. We’re not getting paid while we’re holding it.

He said, “Well, if you want to get paid, just sell some of your shares.” I
said, “But I don’t actually want to sell your shares.” He said, “Well, that
sounds like you’ve got a psychological problem. I can refer you to a
psychologist.” I didn’t know if he was being funny or not, frankly, but
anyway Loew’s doesn’t pay a dividend. Both of those are very cheap and
to me, they’re good safety plays.

Doug Casey: That’s funny. I second those emotions, but I don’t think safety exists. I’m
not sure if it ever really existed, but it definitely doesn’t exist in today’s
world. What’s your biggest danger in this unsafe world? I think the
economic risks are huge. The financial risks are even huger. The biggest
risk of all is political risk. It’s what your government is going to do to you.
They will. I promise you. How do you handle that risk?

Really, the only way you can do so, most of you guys are Americans,
most of you live here in the U.S., is you’ve got to diversify politically, just
like you diversify asset-wise financially. Diversify politically. Don’t have all
of your eggs in one basket. Yes, I know, the United States, it’ll last
forever. You don’t want that it turns out that you’re in Russia 1917, or
Germany in 1933, or Vietnam in 1965. This stuff happens all over the
world constantly. Diversify politically. That’s the only way you can get
what safety exists.

Mark Larson: When you talk about safety, it’s interesting, a year and a half, two years
ago, the main letter that I’m involved with, Safe Money Report, was
essentially 100% invested. I had a lot of concerns about what was going
on in the market in the background, some of these concerns about asset
valuations, but the trend was looking fine and so I wanted to ride it while it
was happening. You look at that initial VIX-Plosion, or whatever you want
to call it in February, some of these ETFs got vaporized, 80% losses in a
day and so on.

The rally back, in my opinion, had a lot of divergences, sectors not

participating, S&P made a new high, but things like credit spreads did not
make a new low in the investment grade market and so on. I raised the
cash level substantially. The model portfolio’s about 50% in cash right
now. Even in my own 401K, I said publicly I went to basically the highest
cash percentage, or cash-like percentage, I’ve ever had.

I think that in this market, especially now with a two year treasury paying
somewhere in the neighborhood of 95 BIPS over the S&P yield, being in
cash or having a much higher percentage of cash doesn’t hurt you as
much as it did when you had essentially zero interest rates, or in foreign
countries, their equivalence with negative yield. I think that there’s a lot of
things going on that make me think you want to be much more liquid,
much more defensive and much safer in terms of how much cash you just
keep on hand than you would have for the last eight, nine years.

Albert Lu MC: You’re defensively postured now, but we should also add that you look
primarily at domestic stocks, right?

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Mark Larson: Correct. There is one company that’s in the portfolio that we
recommended a few months ago, Israel Chemicals Pod. They do
fertilizers as well as some fluids, chemicals used for deep water oil
drilling. That’s been pretty decent. It’s up 11 some odd percent from when
we added it. That’s pretty much the only foreign based company that I
have in the portfolio right now.

Albert Lu MC: I want to talk about larger political economic zones, like the EU, and by
the way, Adrian and Guy, I’m really enjoying this juxtaposition between
the tortoise and the hare. I’m wondering who’s going to win this race.

Guy Adami: Not me.

Albert Lu MC: Your different styles. Look at the EU. I’m wondering, do you look at it as a
huge opportunity, or danger in the sense that you get harmonization of
certain regulations which make it easier to do business, I read opportunity
there. Then you also see these, like for instance, Turkey benefiting in
terms of its sovereign rating, by being part of that, or Ireland, and then
distorting the real economics of the situation. Is there more good than bad
there? How do you come out on that?

Guy Adami: Real quick, and then I’ll let Adrian speak, but in my opinion, and again just
my opinion, the euro will go down as one of the great failed experiments
...

Adrian Day: Absolutely.

Guy Adami: ... without question. I don’t know where people are from, if you’re from
Alaska, you’re from Nevada, you’re from Nebraska, from Ohio, but if
somebody says, “Who are you,” you say, “I’m an American.” You go to
Europe, you’re from Germany, you’re a German. You’re from Turkey,
you’re Turk. You’re Italian if you’re from Italy. It just doesn’t line up the
same way. The sense is Europe is on the precipice of something, I don’t
want to say disastrous because I don’t want to use that term, but not
good. I’ll say this as well. I mentioned Deutsche Bank earlier. There’s
something going on, in my opinion, with European banks and it clearly is
not good.

I think if Deutsche Bank was down the south here in the United States,
we would talk about Deutsche Bank on the show the same way we talked
about Lehman Brothers and Bear Stearns eight or nine years ago. It’s the
fourth largest economy, I think on the planet. It’s last, I looked, I think, it’s
the largest bank in Germany. It’s been trading abysmally now for the last
four or five years. There’s clearly something going on there. They say,
“Well, how does it manifest itself here in the United States? Is it systemic
or is it just closed in in Germany?” I would say look at what Citi Bank has
done, the stock, over the last couple months. You say to yourself, “You
know what? Maybe the risk in Europe has made its way to our shores and
it’s manifesting itself in some of the weakness in Citi Bank.”

Mark Larson: One thing just to add as far as European banks, at Weiss Ratings we also
rate, not just for investment quality, but underlying credit quality or
underlying bank safety and so on. We do a global ratings update every
six months and Europe’s banks compared to pretty much every other

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 region of the world were terrible, I mean relatively speaking. There’s a lot
of lower rated poor asset, poor other quality, type things going on in
Europe more than any other part of the world. It’s definitely something
interesting to keep an eye on.

Adrian Day: First of all, Albert, I’d say your premise, you said is it a danger or an
opportunity? Of course, as you know, mostly opportunities come when
you have danger. Apart from that, no, I agree completely. The euro is
idiotic because it’s fundamentally and structurally unsound. It just doesn’t
make logical sense. Milton Friedman famously said that the euro will last
... How long do you think it’ll last? He said, “It’ll last until there’s a first
crisis.” Well, it got through 2007, but in a much, much weaker state.

You look what’s happening now with Britain leaving the euro and that’s
primarily not for economic reasons but primarily because British people
frankly just don’t like bureaucrats, bureaucrats, in Brussels, telling them
the curvature of bananas that are allowed and not allowing us to call
British ice cream ice cream because we use vegetable fat instead of
animal fat, or is it the other way around? I don’t know. The whole point is
it’s just idiotic that these bureaucrats are issuing hundreds and hundreds
and hundreds of idiotic regulations effecting everything in life. That’s why
Britain’s leaving.

Then you have the same situation in Italy which is partly, partly cultural,
thing same thing as in Britain, and partly economic. I think the whole euro
zone is probably going to break up, between north and south. Before that
happens, the euro ... The euro is just an ill thought out construct. For
evidence of how bad the euro is, I’m going to offer a reference,
endorsement.

I’ll quote to you something Paul Krugman, the New York Times columnist
said. Now, I don’t often quote him. I think Paul Krugman has probably
said more absolutely idiotic things than any other Nobel Prize winner in
history. He said that all of us here, gold bugs, we should really like the
euro because the euro is exactly like the gold standard. They issue paper
with pretty pictures of bridges on them and gold coins have pictures of
pretty people on them. I thought, “Is this man crazy or what?” But he’s a
Nobel Prize winner. Anyway, I think the euro’s going to collapse.

Doug Casey: Yes. Adrian’s absolutely correct. Everybody here is correct. I’ll go further,
though. The European Union itself is going to fall apart and that’s the best
thing that could happen to Europe. There’s got to be some good things
that happen to Europe because the whole continent is constipated,
concrete bound, stultified, socialistic, totally overwhelmed by political
correctness. The first step in making things better is getting rid of that
government in Brussels where you have 50,000 employees plus 100,000
more hangers on making everybody’s lives miserable. This is a trivial
problem. What Europe really faces in the future is an invasion from Africa.
Don’t worry about these trivial things. There’s nothing wrong with Europe
that the influx of 200 million Nigerians can’t cure over the next couple
decades.

Albert Lu MC: Where do I go from there? Going back to global investing, what about an
idea that popularity can ruin an idea? I remember talking to Jim Rogers
once and he was saying that when he first started investing abroad,
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 people in his office, they didn’t even know if these places had stock
markets. He had to call and then he found out that oh, they actually have
a stock market. Now of course, we know what’s going on in emerging
markets and all markets. If everybody knows about an opportunity, does it
cease to be worthwhile? It’s like the airport lounges now. If the whole
airport is in the airport lounge, is it better to be at the gate? What do you
guys think about that? Are they too accessible now?

Guy Adami: Quickly, because I know we’re on time, I will say absolutely 100%. I can
only speak to what we do on our show but we started talking about
cryptocurrencies probably in earnest in the fall and I don’t think it’s
coincidental that Bitcoin topped out in December/January, not unlike by
the way that we’ve talked a lot about cannabis stocks recently. If you’ve
seen some of the moves in those names, they’ve been dramatically to the
upside and the downside. Popularity can get you to the top of the
mountain, but it also takes you right back down. It’s unfortunate in the
world that we live in today, with the advent of social media and the
instantaneous ability to get information, things become popular. Popular
is probably not a good word, though, for investing.

Adrian Day: Yeah, no. Absolutely. Your comment about the airport lounges reminds
me, I don’t know how many people here are from Virginia. My daughter
lives in Fredericksburg so I drive down. The fastest lane is actually the
slow lane when you’re going on I-95 South. Avoid the fast lane because
that’s the slow lane. It’s a popular lane. What you said is actually a truism,
of course. As things become popular they obviously lose some of their
value. If we’re contrarians, we have to be a little careful about investing in
things simply because they’re out of favor. Things that are out of favor are
often out of favor for a good reason and they’re often out of favor for a
long time. There’s always a sweet spot, which is difficult to get of course,
between out of favor and in value in favor.

Doug Casey: Yeah, I completely agree. I used to make a habit of visiting third world
stock exchanges. One of the more interesting ones that I visited was the
Makati Stock Exchange in the Philippines in Manila. I showed up there. It
was during trading hours. It was a real building, a big trading room, and
there were only two guys standing around smoking cigarettes. That’s how
active that exchange was in those days. There was real value in the
Philippines in those days. A lot of these places you can’t invest. Investing
is putting a dollar some place, like planting a grain of corn, so you grow
things. Create more wealth. I’m not sure how possible that is in a lot of
these backward countries. You can only speculate. You can only go some
place when everybody hates it and the brokers are all smoking cigarettes.
Well, they don’t do that anymore anywhere in the world. I think that’s the
attitude that you have to adopt today. Forget about investing.

Mark Larson: We have so many more markets that are dominated by indexing or the
ETF-ication, for lack of a better word. You can buy an ETF for everything
from Egypt to Vietnam to Greece, whatever. That’s a blessing and a
curse. It makes it so somebody can just sit with their e-trade account and
buy any market almost in the world, but at the same time those ETFs ... If
everybody’s doing it and everybody’s investing on an index or an ETF
basis, you’re not really doing the work, right? You’re not going out there
and deciding do I want to buy this random telecom company or do I like
this small bank or whatever. You’re just buying a basket. It makes it
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 easier, but at the same time it does make many more markets just trade
together in one basket.

Albert Lu MC: We have to conclude now. Let’s end, starting with Mike. Just give me one
actionable piece of information on the way out.

Mark Larson: Sure. Be defensive and focus more at home than abroad. I said at a
recent luncheon that I was at that everybody says, “Oh, greed is good,”
they quote the Wall Street movie and so on. Frankly, my advice is boring
is good in this market. You want to be buying the stuff that nobody has
really liked for a long time.

Albert Lu MC: Boring is good. Doug?

Doug Casey: The only thing in the world that’s really cheap today is commodities. I
would focus on commodities and in particular, if you don’t have a bunch
of gold, make sure you do.

Adrian Day: I agree with both of those and I’ll add something different, which is
something that Doug actually alluded to earlier, which is don’t think you
have to invest at all times. There’s absolutely nothing wrong in holding
cash and waiting for a good opportunity.

Guy Adami: I want to go get a scotch now. I mean, that’s unbelievable. I will say this
quickly. I think a lot of people are hoping that the U.S. market recovers on
the back of the U.S. China deal. I think President Trump has a very
specific game plan for all his adversaries. I don’t think China is a typical
adversary. I think they’re much better suited to play the long game. I think
they have more leverage than we give them credit for. If you think a deal
with China is going to be done in the next couple weeks or couple
months, I would disagree, which I think will lead further pressure to the
down side.

Albert Lu MC: Great job, guys. Ladies and gentlemen, that’s the panel. Please, let’s
have a round of applause for our panelists.

Doug Casey: Very good comments.

Adrian Day: You don’t think they’ll do a deal?

Guy Adami: No.

Jonah Goldberg
“The Future And Past Of Conservatism”

Gary: Okay. We’re going to hear from Jonah Goldberg. Now, you’ve heard from
I’m on the panel this morning and the panel just now. He’s going to guide
you through the essential nature of politics in America by examining the
underpinnings of liberal and conservative ideologies, economic policy,
and the changing role of modern-day media. He’s senior editor of
National Review. He’s established as a prominent analyst with his
publication of the New York Times best-selling book I showed you this
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 morning about the Suicide of the West. And also his earlier book, Liberal
Fascism: The Secret History of the American Left, From Mussolini to the
Politics of Meaning. And he’s named one of the top 50 political
commentators in America by Atlantic Magazine. His informed and
thoughtful perspectives spark indispensable dialogue and debate whether
discussing an intellectual history of the left or the hazards of living in the
Trump era. Okay, welcome back Jonah Goldberg, for the Future and Past
of Conservatism.

Jonah Goldberg: That didn’t take long. I’m going to grab another bottle of water because I
can because I’ve been smoking a lot of pot today, and I get terrible dry
mouth. Yeah so as Gary pointed out, well, today’s speech is supposed to
be called the Past and Future of Conservatism. That was the title of my
speech last year, so I’m not going to give the same speech again. But I’m
a little weary about it because the rule of thumb, I usually tell people, is
you can have a new speech, or you can have a good speech. I figured I
would sort of weigh in first with just a little bit more punditry to set up what
I actually want to talk about. As I said on the earlier panel this morning, I
think that it’s pretty likely that the Democrats take the House and that the
Republicans hold onto the Senate, maybe even expand it.

As a conservative, I’m kind of glad for that. The Senate matters a hell of a
lot more than the House does from a conservative perspective because
the Senate is the thing that actually approves and confirms judicial picks,
and it doesn’t need the House for that. And I would say that as a
conservative first, and a Republican a very distant second, the very best
thing about the Trump Presidency has been his judicial appointments.
And I want cocaine Mitch to keep doing what he’s doing. But there’s also
this strange irony that we’ve got right now, which is that the House
election really doesn’t matter in terms of policy. And it’s something that
neither party is willing to admit.

The Democrats are constantly talking about Medicare for all and
socialized medicine and all these various things, and there’s literally
nothing the Democrats can do policy-wise that will get past both the
Senate, a Republican Senate, never mind Trump’s veto pen. And at the
same time, the Republicans are running as if, if Nancy Pelosi gets power,
we’re going to be Venezuela by tomorrow. And the reality is that’s not true
for the same reasons. The House can’t get anything done without the
Senate and so the only reason why the House matters, for a political
matter, is in part because if the Democrats take back the House, they will
have subpoena power. And this matters a lot for the Trump Presidency
because normal administrations have been crippled when the opposite
party has gotten the ability to subpoena and compel witnesses and swear
in witnesses where they have to tell the truth on the punishment of
perjury.

And one can see, wherever your position on the Trump administration is,
this could be an even bigger problem for the Trump White House. But the
other irony is that the Democrats don’t want to say that because the one
way they could guarantee not taking back the House is if they actually
promise publicly what is really going to be the most likely outcome, which
is an even more chaotic political climate. Everything is going to get
crazier, not less crazy, particularly if the Democrats take back the House
because then you’re going to see a lot of people lawyer up. You’re going
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to see Trump freaking out, yelling at the Democrats and at the same time,
you’re going to see Donald Trump running against the Democrats for his
re-election campaign, at least that’s what the people in the Trump White
House talk about.

And so it’s funny. When you see Trump going around on this very, I have
to say, physically very impressive barnstorming campaign in the last six
weeks or so stumping. And he’s basically stumping for Senate candidates
in places where Donald Trump is amazingly popular. And that points, in
part, to the fact that this is the best Senate climate the Republican Party
has seen since the passage of the 17th Amendment in 1913 in terms of
the possibility for Republicans to run away with things. And the strange
thing about that is that Trump running for all of these Senate candidates
in all of these states, he’s actually hurting the House’s chances, the
Republicans in the House races. There are a lot of red states out there.
He’s campaigning in places like Texas, and Wyoming, and Indiana.
These are basically red or sort of reddish-purple states.

There are lots of districts, swing districts, districts that went for Hillary
Clinton in those states. And so when Trump comes out and galvanizes
the base, the true MAGA hat wearing crowds, he’s also galvanizing the
anti-Trump crowds. And I’ve talked to lots of political consultants,
particularly in places like Texas, that really did not want Trump to come
and campaign for the Senatorial candidate because it would destroy or
damage the chances for various House candidates in districts that are at
least marginally anti-Trump, but friendly to Republicans. And this sort of
gets to the larger point that I wanted to talk about. One of the things that
we’re seeing is kind of an accelerating of transformations that have been
going on in the electorate for a very long time. I like to say that Donald
Trump isn’t the cause of a lot of the problems that we have, but he’s
contributing to some of them. He’s certainly contributing to some of the
trends.

White college educated Republican women are almost a vanishing

demographic, and Donald Trump is largely responsible for that in this
moment. But if you look at the historical trend, the Republicans have had
a gender problem for a very long time, going back 20 years. Remember
George H. W. Bush and the wimp factor? Republicans have been
suffering with suburban white women for a very long time and Donald
Trump is accelerating that process. He’s also accelerating the process of
something that’s been going on for a very long time, which is white
working class men leaving the Democratic Party. The FDR coalition has
been disintegrating for a while. In a lot of ways, what Donald Trump has
done has sort of finally pulled the plug on it. And he’s brought in these
blue-collar, non-college educated white working class guys. Many of them
were Obama voters as recently as 2012, who are now Trump guys. And
that’s reflected in the shape of the parties these days.

The parties are becoming very, very different things. And so you can see
on stuff that we’ve been talking about at this conference about things like
limited government debt, entitlements. Donald Trump is not more right-
wing than previous republicans Presidents. Viewed from the perspective
of saying what did Democrats say in the past versus what did
Republicans say in the past, he’s actually moved remarkably left on a lot
of these things. He basically says we’re not going to reform entitlements,
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we’re not going to touch social security. We’re going to expand Medicare
in some clever kind of way. And so the parties are, in some ways, both
becoming more statist in their own ways, just in different flavors.

So why is he running in all of these different states doing all of this? One
of my views is that Trumpism should be understood as a psychological
phenomenon rather than a political phenomenon. He, by his own
admission, does not have, with the exception of issues like trade, which I
don’t think he really understands very well, he does not have a coherent
ideological worldview. Up until fairly recently, he was pro-choice. He was
for gun control. He was for all sorts of things because he was, essentially,
a New York City Democrat. He brags of himself that he just goes with his
instincts and that he just goes with his gut on how to do policy. And so the
only things that he’s been consistent on for a very long time are these
issues like trade, not even immigration. Remember, he attacked Mitt
Romney from the left for being too mean on immigration. I’m not saying
he doesn’t believe this stuff or at least some of it, but he’s a late convert
to it.

So I think one of the reasons why he’s running around the country
campaigning like this is that Donald Trump really like to take credit for
wins, and a lot of these Senate candidates are going to win. And he’ll get
to say look I saved the Senate. I think another reason for it, though, it’s a
little more difficult to explain is that he is actually trying, along with his
advisors, people like Steven Miller, are trying to turn the Republicans
party, essentially, into a nationalist party. And nationalism has a different
flavoring and tenor, and worldview than a traditionally conservative party
in the Anglo American tradition. And we can talk about more of that in a
second.

And so the result of what we’re going to see in these Republicans races,
in the House races, is that the House members who survive are going to
be much more pro-Trump. The average Republican Congressman is
going to be much Trumpier than the average Republican right now
because the ones who are most vulnerable are all the ones who are
going to be knocked off, Barbara Comstock in Northern Virginia, this guy
Mark Kauffman in Colorado who learned Spanish so that he could
campaign in a purple district where he needed Hispanic votes. Those are
the guys who are probably going to get destroyed in these competitive
races. The people who are going to survive are going to be like the
Western Pennsylvania, carried their district by 20 points, pro-Trump guys.
And that is going to make what is left of the Republicans Party after the
election vastly more nationalist, vastly more Trumpy.

Whether you think that’s a good thing or a bad, that’s fine, but it’s just, I
think, analytically where we’re going to go. So if you’re investing in the
country becoming more protectionist, I think you can expect that the
country will get much more protectionist after 2018 because you have a
lot of interests in the Democrat Party that are protectionists, and a lot of
these guys who are loyalists to Trump are going to be protectionists.

But I think the major reason that Trump is running around like this and
releasing these ads showing how this caravan is going to come to your
house and set fire to your garage and murder your children is that this is
Trump. Trump does not change. Whether you like it or dislike it is a
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completely different argument. Donald Trump is, again, a psychological
phenomenon. He cannot help himself. He’s the first President in
American history, at least modern American history, who has shown no
interest in trying to expand his coalition while in office. Barack Obama
was a very partisan President, by my alights, but at least he pretended
that he was bipartisan, at least when the moment called for it. Donald
Trump is simply, temperamentally, characterologically, ideologically,
psychologically, whatever phrase you want to put around it, incapable of
not being Donald Trump. It’s like Aesop’s Fable, you knew he was Donald
Trump when you elected him and that’s what you’re going to get.

And this was true throughout his business career, as well. He’s kind of a
black swan. He does lots of things that other businessmen didn’t do, and
it worked for him, so he kept doing them more and more. And so what I
want to turn to, you know, I have this book out called, Suicide of the West.
It’s a really cheery title, I know. It was a compromise with the original title
of Why You Should Take a Bath With a Toaster. And I want to pick up on
stuff that Mark Steyn and I were talking about on this morning’s panel. I
believe that most of the problems that the United States have are
upstream of Washington. Civil society, the little platoons of civil society as
Edmund Burke would put it, starting with the family but also church, Elks
clubs, voluntary associations, the kind of thing that the Alexis of
Tocqueville wrote about, they’re breaking down.

They’re breaking down across a wide array of factors. And the problem is,
is that these are the institutions that actually create citizens. These are
the institutions that actually civilize people. Hannah Arendt, one of my
favorite intellectuals, she had this great line where she says, “Every
generation, Western Civilization is invaded by barbarians. We call them
children.” And what she meant by this was that, and anybody who’s had
kids knows what I’m talking about. We come into this world, not blank
slates, but actually as little barbarians. We have lots of preloaded
software in us, and the first thing that we need when we come into this
world are updates. And that’s what family does, family civilizes us. We are
born into a little tiny civilization called the family where parents model
good behavior. They set expectations. They lay out what your decision
trees could be, they tell you what is acceptable and what is not
acceptable. And so when the family breaks down, it makes all the other
institutions after the family have a much harder time of it.

Any teacher you’ve ever talked to will tell you that look, public schools
may have problems, but a lot of these problems start in the home. We’ve
known this about human beings for a very long time, particularly about
men. If you look at street gangs, street gangs, for thousands of years,
formed when young men who are not properly socialized band together
and behave in ways consistent with human nature, with their natural
programming. If you read the Lord of the Flies, like five minutes into the
story, these pinnacles of Western Civilization, they’re dropped off on an
island, these little British boarding school kids. And within like five
minutes, they’ve got spears and war paint, and they’re worshiping some
weird pagan god. That’s what our human nature wants us to do. We are
wired to want to live in tribal lifestyle.

And what a civilization does is it pulls you out of those behaviors. It

regulates things like violence and how you deal with other people, how
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you deal with strangers in positive ways. And civilizations rest on these
little institutions that are at the local level. They give us a sense of
meaning and belonging, and an understanding what is right and wrong.
And so when these institutions break down, we don’t lose our wiring. We
don’t lose our desire to belong to a tribe or a little group, we look
elsewhere to satisfy that. One of the places that we look is social media
these days. I have a big following on Twitter. Twitter has got its problems,
but I really think Facebook is essentially Satan’s urinal.

And what Facebook does is it makes people, first of all, curate their lives
to make everybody jealous about how they’re living their lives. They make
it seem that they’re happier than they really are. But worse, what it does
is it pulls people out of real communities with real human beings, and
instead you join virtual communities where you have all of your bigotries
and biases confirmed rather than confronted. Where people who are just
as angry as you about the exact same things make the same sort of
arguments and tell you the only thing you’re wrong about is you don’t
realize how right you are.

And this has contributed to a massive epidemic of loneliness in America.

We’re becoming deracinated, alienated. The number of friends that
people report having has dropped by almost half in the last ten or twenty
years. And so what happens is we start looking to abstractions to give us
that sense of real belonging that we used to get from faith, family, friends,
church, local communities, soccer clubs, baseball leagues, whatever.
Instead, we start looking to these abstract identities. We start looking to
politics. Identity politics is, basically, just this incredibly cheap idea that
says you can get all of your meaning and sense of belonging based upon
some abstract category about the color of your skin, or some claim that
you have some shared grievance with somebody 1,000 miles away about
something that happened to an ancestor of yours.

Nationalism is another one of these things that’s coming up that people

are investing their identities in. Now, nationalism is kind of a tricky subject
because it means different things to different people. There are a lot of
people who think nationalism just means patriotism. And if that’s what you
think nationalism is, then I have no quarrel with you. But in the political
literature and in the American tradition, nationalism and patriotism are
different things. Nationalism, historically, comes out of Europe as this idea
that there’s some essence to a specific ethnic group, some sort of genetic
family that all belongs together. You know, Germany for the Germans,
and that kind of thing. In America, the difference between nationalism and
patriotism is that patriotism says we are all committed to a certain creed,
to certain ideas that come out of the American founding, certain ideas
about limited government, what I call the Lockean Revolution. The idea
that our rights come from God, not from government. We are citizens not
subjects. That the individual is sovereign and that the fruits of our labors
belong to us.

This is an open cradle association that doesn’t care what color of skin you
have or who your ancestors were. And that, which I always thought was
the essence of Conservatism is starting to be bent toward this idea about
nationalism, which kind of gets us back to politics. One of the weird
ironies of the moment that we’re in is that we haven’t been this polarized
along partisan lines since at least the 1850s. We are more polarized
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today than we ever have been before. Social scientists are staggered by
the data that has come in that shows that your partisan affiliation is now
more predictive of attitudes and behavior than your race, your ethnicity,
your gender, or your religion for millions of people.

We are treating our partisan affiliations almost like a secular religion. And
one of the things that this yields is this thing that political scientists call
negative polarization. Negative polarization just, basically, means that for
millions upon millions of people, the main reason why they are
Republicans is that they hate Democrats. And the main reason why they
are Democrats is because they hate Republicans. My wife had this great
New Yorker cartoon blown up and framed for me a few years ago. And
it’s got two dogs drinking martinis at a bar in New York in suits. And one
dog says to the other, “You know, it’s not good enough that dogs
succeed, cats must also fail.” That’s sort of the essence of our politics
right now where we have people who say that it is worth doing something
rude. This is particularly true on college campuses. It’s worth being rude
or offensive so long as you make the right people angry, so long as you
offend the right people.

This is a very tribal way of thinking. We evolved in an evolutionary

landscape where working within the tribe was the way you passed on
your genes. It’s the ways you survived. It’s where you got all your
meaning, all of your politics, and the stranger was this dangerous horrible
person. And we are applying that sort of mindset to our politics. The other
thing that we’re doing is we’re starting to follow politics like it’s a form of
entertainment. And what I mean by that is that when we watch movies
and TV shows, all sorts of terrible things can happen. The hero can do all
sorts of terrible things, and we don’t care because he’s the hero. We’re
invested in his success. So Denzel Washington or Clint Eastwood can
murder people, he can torture people. It doesn’t really matter because we
know he’s the good guy, and he’s trying to do good things.

And it’s almost as if the morality of the tribe operates through

entertainment, and the thing is, is that your brain changes profoundly
when you watch things like entertainment. There’s this great social
science experiment they did where they’d bring in a test subject, and
they’d open up a curtain and on the other side of a two-way mirror is
someone with electrodes attached, and they shock them. And the
observer kind of does one of these, you know, does one of these jumps.
And that’s because if you don’t know anything else, the empathetic part of
your brain lights up. You imagine it could be you being tortured. You
imagine it could be you being shocked. And then they do this amazing
thing where they then tell the person, “Oh, by the way, you’re a Yankee
fan, well, that guy is a Red Sox fan.” And then they shock him again. And
all of a sudden the pleasure centers of the brain light up. It’s creepy
because it’s true.

And so you find now that this is infecting a huge amount of our politics
these days where you find people defending what Donald Trump does, or
what Nancy Pelosi does, or what Bill Maher says, or what Don Lemon
says purely in the basis of how it’s bad for the other side. And I think that
is a profoundly corrupting thing. It’s weird, nationalism is supposed to be
this great unifying movement, and you have these guys showing up at
various Trump rallies these days wearing T-shirts that say I’d rather be a
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Russian than a Democrat. That’s a really weird thing, historically, for a
nationalist to be wearing. And it’s an absolutely insane thing for a patriot
to be wearing, and so how did we get here?

Well, there are a lot of different reasons, and again, a lot of it has to do
with the breakdown of civil society. But one of the things that’s happened
that’s really stuck with me is that even though we live in this incredibly
partisan polarized moment, the parties themselves have never been
weaker. And you can point to getting rid of the smoke-filled rooms, or you
can talk about the rise of the primary system, which took the decision
making out of the hands of the party. You can talk about all sorts of things
we’ve done in terms of how Congress operates and getting rid of
earmarks. Or you can talk about campaign finance reform. Whatever it is,
the parties are shells of what they once were.

The parties used to be these institutions that filtered, that edited bad
ideas, bad candidates and kept them from running. They don’t do that
anymore. Basically, popularity is the only thing that matters, which is why
Michael Avenatti has a shot at getting their Democratic nominee.
Because there’s this amazing primary going on on the Democratic side
about who can be the biggest jackass because the Democrats have
convinced themselves that they need someone who can fight fire with fire
against Donald Trump. And that’s why you see things like Hillary Clinton
saying, “We can’t be civil anymore.” And if you don’t think that Hillary
Clinton isn’t thinking about running ... Look, for 20 years people have
asked whether or not I thought the Clintons were going to run again in
some way, and I always would say, “Have you seen no horror movies?”
Jason always comes back, Freddie always comes back. There’s always
another sequel. They just did a remake of Halloween. They’ll be back.
Maybe they’ll freeze a head and put it on an android. I don’t know.

But one of the things that has happened is as the parties have downsized
and retrenched from actually being robust institutions that manage a
healthy political party. Sort of in plain sight, but I have to confess, sort of
hidden for me for a long time, is that other institutions that have basically,
picked up the slack. They’re sort of like contractors who do all sorts of
stuff for the Pentagon that used to be done by the Defense Department
itself. And so you have these third-party consultant institutions that serve,
essentially, party functions I’ve worked with many of them for most of my
adult life. You know, think tanks, conservative magazines, liberal
magazines, the major cable news television networks. They all do things
now that used to be done primarily by the parties themselves about
shaping messages, about anointing candidates. And about vetting ideas,
and shaping idea, and coming up with them and all the rest.

And for the most part, that’s fine. There’s not a huge problem with it. In
fact, it’s somewhat healthy. Some of these things have to be done. But
what I saw in 2016 brought home for me the realization of how much
more that process has gone on than I had realized. In 2016, which is what
I talked about the last time I was here, I was amazed at how many people
who have the exact same job description as me, they’re conservative
pundits, or authors, or journalists, or Fox News contributors, or whatever.
I was amazed by how many of them, when the little red light on the
camera would go on, they would say one thing, and when the little red
light on the camera went off, they would say another thing.
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And I think most journalistic ethics are kind of B.S., but one thing I believe
in pretty passionately is that you’re not supposed to lie. And you’d meet
people all the time in 2016 who would say I can’t believe I have to defend
this guy. And I would say, “You don’t. That’s not your job.” But it turned
out what I didn’t understand was it kind of was. That it turns out that there
were a lot of people who wore these different ... I’ve been a party guy, I’ve
been a party booster. I’ve defended Republican candidates for a long
time. But at the end of the day, I always thought the one hat I wouldn’t
take off would be this intellectually honest writer guy. There are other
people who the one hat they wouldn’t take off at the end of the day is the
party guy, the movement guy. And we all have our rationalizations for it
and whatnot, but at the end of the day, there are just some people who
see themselves more as proxies for the Republican Party than they do as
objective journalists or conservative movement people or whatever it is.

And it’s just a different way of seeing what your own role in the world is,
and I think all of these problems are much, much worse on the liberal
side. But what is happening now is it’s a bipartisan phenomenon where
more and more people just simply see their role in the press and in the
media as simply arguing for their team. And I think this is all a symptom
and downstream of the increasing tribalization of our politics. And so as a
conservative, I want to say in all honesty, I think the transactional
arguments for Donald Trump are perfectly defensible. I may disagree with
some of them, but the transactional argument, which is one that you hear
most often from people in various levels of intensity, is basically look, it
was a binary choice. Hillary Clinton was bad. I agree. My position on the
2016 election was a choice of the different kinds of crap sandwiches on
different kinds of bread.

But I also said if it was push come to shove, and I lived in some swing
district, I would have voted for Donald Trump, not Hillary Clinton. I just
never really cared about my vote. What I wasn’t going to do was lie and
say things I didn’t believe to be true. And so the transactional argument is
just simply, look, we got our judges, we got tax cuts, better than Hillary.
Look at the things that we’re getting, better than the Democrats. We like
the policies and so we put up with the tweets when he tweets like an
escaped monkey from a cocaine study, so be it. Look at all of the great
things we’ve got. That is a perfectly defensible position by my lights.

The problem is because of our tribal wiring, because of the tribal nature of
our politics today, very few people are content with actually making that
argument in public. It’s part of human nature to want to believe that our
leader is a good person, that our leader is deserving of our followership.
And it’s particularly difficult with Donald Trump because he craves flattery.
He is very different than almost every other politician we’ve known. In the
past, the traditional model is, if you want the President to do something,
you criticize him when he’s wrong, and you praise him when he’s right.
The problem is he does not take criticism well, I don’t know if you’ve
noticed this.

And so the party has basically, internalized praise at all corners. And that
loses a very important pricing mechanism in how we talk about politics
because if you can’t criticize him, you can only praise him, that means it’s
like having a car that can only take right turns. You don’t actually get to
the optimal policies. And so I see this on the opinion side of Fox News. I
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hear it on talk radio, I see it in friends of mine. Where the impulse is, you
have to say that Comrade Trump will deliver the greatest wheat harvest
we’ve seen in 500 years because he’s the greatest negotiator. He’s a
12th level chess master and all of these various kinds of things.

When I point out every now and then, for reasons that must have to do
with sadomasochism, when I point out that Donald Trump is a man not of
great character, people flip out. But I don’t know if there’s a metric that
you can come up with of a definition of good character that he actually
can clear. And I’m not just talking about the fact that he has more ex-
wives than the previous 45 Presidents combined or any of that kind of
stuff. I’m not talking about the Stormy Daniels thing. I’m talking about
how, in his autobiography, he writes about how he cheated business
partners and brags about it, he brags about lying. There’s just not a good
definition of good character, and I think character matters, that he can
meet. But I’ve become a pariah for saying that even though, by all means,
the judges are great. Gorsuch is great, Kavanaugh is great.

And that’s because we are wired to want to believe that our leaders
deserve to be where they are. And so what is happening in large chunks
of the right is we are redefining what good character means to fit his
yardstick. We are defining what conservative means to meet his
yardstick. It’s like well, Peter Dinklage is only two foot eight, so let’s cut
the top few inches off the yardstick to match it. We are changing the mold
and definition of what we used to believe were conservative principles to
fit what Donald Trump is doing. And that is having a profoundly corrupting
effect.

I’ll give you one example. I don’t know, in 2012, I think it was Pew, polled
the American people and asked can a politician be morally corrupt or
sinful in his private life and still be a good public servant. And among the
results was that self-identified white Evangelical Christians were the least
tolerant of immoral private behavior, fitting the stereotype. Only like 32%
said you could be a good leader and an immoral person in your private
life. They asked the same question in 2016, and the number went from 32
to the mid-70s of white Evangelical Christians saying you could be an
immoral person. If those trends hold, which I think they must ... In
America today, the single most tolerant demographic of immoral behavior
in American life today are self-identified white Evangelical Christians.
That’s weird. And that is a sign of how people are bending their attitudes
to fit the man rather than holding the man accountable to their attitudes.
And I think it’s a problem.

And so you can see this in partisan politics all the time, as well. Steve
Bannon and his crowd, and I’m not a big fan of Steve Bannon. I’m pretty
sure he has hooves. He wanted to declare last year, open war on Mitch
McConnell, the guy who gave us Gorsuch more than anybody else by
holding open that seat. And he wanted to declare war on Corker, and
Sass, and Flake. And he was somewhat successful in that regard. He
wasn’t successful in picking their replacements, but he was successful in
ruining some of their careers. And the argument you always heard from
the Bannonistas was well, they’re not supporting the Trump agenda. That
was simply factually untrue.

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First of all, McConnell’s agenda in the Senate is the Trump agenda. It’s
what he brings to the floor that Trump then takes credit for as victories.
But even Sass, and Corker, and Flake, I think their voting with Trump was
somewhere between 89% and 96% of the time. But what they didn’t do
was flatter him when he did things that didn’t deserve flattery. And what
they did do was criticize him when he said things that were worthy of
criticism. And that was their sin. Meanwhile, Rand Paul, who probably did
more than anybody in the Republican caucus to undermine the Trump
agenda in its first year, year and a half, by constantly changing what he
demanded for Obamacare repeal and whatnot. He figured out the secret
sauce of simply praising Trump in public and then voting against his
agenda on the Senate floor.

And this is what I’m talking about. We are turning politics into a form of
entertainment where we just want everybody to get in line for the sake of
the narrative arc of the TV show rather than arguing about what the real
politics or policies should be. And they’re going to have profound
consequences for that because what we’re seeing is, we’re basically,
seeing politics turn into a reality show. Which is why I now think one of
the greatest politically prophetic movies was Idiocrasy where you have
the entire political system was based on the precepts of professional
wrestling. We can never be quite sure whether or not what you are
watching is kayfabe, or real, or not real.

And I worry about this because I’m a Conservative, I’m not a Republican.
I never really took much pride in calling myself a Republican. The
Republican Party is just the more conservative of the two teams that
control the fight of our elected system. I’m pretty proud of calling myself a
Conservative. And if things go the way they’re going, we’re going to
define Conservatism as, essentially, a right-wing version of identity
politics. And some people around Trump want it to be that. They’ve said
that. I’ve been in debates with people like Michael Anton, the author of
the Flight 93 Election where he basically said the old notion of America as
a melting pot where we judge people on the content of their character
rather than the color of their skin, he says that’s dead.

And so our only choice is to fight fire with fire and meet their identity
politics with our own identity politics. The trouble with identity politics,
which is an ancient form of human organization. Right? I mean
aristocracies are the first form of identity politics when you have the first
aristocracies, the first nobility emerge after the agricultural revolution.
Aristocracy originally meant just rule of the best, most qualified,
meritocracy, essentially. But very quickly, the aristocrats realized that they
wanted to leave their power and status to their children. And so they
created the concept of noble blood, nobility, royalty, the idea that some
people were just simply better than other people because of their blood.
And that way they could pass their power and status and privileges to
their children in perpetuity and forever.

One of the most radical things the American founders did was get rid of
titles of nobility. They rejected the idea that simply by virtue of an accident
of birth, some people are better or worse than other people. Because one
of the great and most glorious things about the American way, which
we’ve struggled to live up to for the last 250 years, but we’ve constantly
improving, is the basic idea that you’re supposed to take people as you
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find them. That you’re supposed to judge people by their contributions,
not by their allegiances to some abstract grievance of the color of their
skin. And that’s not the way our politics is going now.

Instead, it’s going towards this version of identity politics, this version of
tribalism. And it’s a problem on both sides. This is one of the reasons why
I’ve become much more of a Libertarian in recent years because the one
thing that the Libertarians get is how messed up party politics can be. And
they don’t make what I call the fundamental category error of politics,
which is simply this, the government cannot love you. The government
can’t be your mommy or your daddy. It cannot be your church or your
faith. It cannot fill the holes in your soul. There are only about five things
that give human beings happiness, faith, family, experiences, genes
because some people are just born miserable bastards, and this thing
called earned success, or what Ben Sasse calls meaningful work.

Earned success is this idea, it’s not about money. It can be about money.
But what it’s really about is this feeling that I was talking about with
Charles Krauthammer, this feeling that you’ve made a difference in
people’s lives, that you would be missed if you were gone. Stay at home
moms can have huge levels of earned success and Wall Street tycoons
can have extremely low levels of earned success. It’s this idea that says
you’ve lived and are living a meaningful life, that you are loved, and yet
you deserve to be loved. These are the only things that give people
happiness. The federal government in Washington can improve your net
worth, but it can’t improve your self-worth.

And the problem that we have today is that we have two competing teams
out there that are overpromising and under delivering. They’re that the
government can love you. They’re promising that the government can fill
the holes in your soul. They’re promising that the government can do all
of the things that faith, family, friends can do, and it can’t. And our
disappointment at the failure of the government to deliver these things
makes us fall for ever greater levels of con jobs where we go with the guy
who promises even more. The real path to happiness and the real path to
a healthy society is for us to get power out of Washington and send it
back to the most local level possible where people actually live.

I want to invert the pyramid of government in America where the federal

government should get the least money out of your wallet because it’s
only supposed to do a handful of things. And the place where you live
gets the most money because that’s where you actually live. And if you
did that we would still have culture war fights. But the thing is the winners
would have to look the losers in the eye the next day. It gives you a
certain sense of humility when you’re not talking about some abstract
person 1,000 miles away that your pissed off is enjoying their life when
you don’t think they should be. And instead, you’re talking about someone
down the block from you that you have to see the next day at drop off at
your kids’ school or at the supermarket.

The thing is, if we did that, we would actually create better citizens. We
would also create better political leaders because one of the great things
about sending power down on the most local level possible is that you
actually know who to fire when government officials screw up. Right now,
the way we have things set up, no one’s ever responsible for anything. If
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 you send the power down on the most local level possible, you know the
powers that be’s names because you see them all the time. You can
show up at a town hall meeting. And that, I think, would siphon off a lot of
the poisonous populism that we have today where we have people who
think that they’re lives are being run by far off unseen forces. Instead,
their lives to the extent they’re being run by politicians, they’d be run by
Tom, and Phil, and Janet, and people they actually know. And that would
actually make people more engaged in the political system and happier.

And I think, eventually, that’s the way things are going to have to go. But
it’s going to be a while yet because, as I was saying earlier, things are
going to get worse before they get better. And you should cheer up for the
worst is yet to come. But I don’t think it’s the end of Western Civilization.
Instead, I think the end of Western Civilization is a choice. My friend,
Charles Krauthammer gave a great speech once called Decline is a
Choice. We are choosing the path that we’re on. The thing that’s so
wonderful about that, that means we can choose not to be on that path.
And what was required is for citizens to be engaged, to make themselves
known, and stop outsourcing all of the decisions that are important in their
lives to people they don’t know thousands of miles away. The fight for
liberty begins in your own backyard, and it will be won no other place.
And with that, thank you all very much.

James Grant
“Humanity’s Worst Subject”

Speaker 1: I’m honored to have the privilege of introducing our next speaker, the
financial journalist and historian, is also the founder and editor of Grant’s
Interest Rate Observer, a twice-monthly journal of investment markets.
His book, “The Forgotten Depression 1921: The Crash That Cured Itself,”
is a history of America’s last governmentally un-medicated business cycle
downturn. It won the 2015 Hayek Prize of the Manhattan Institute for
Policy Research. His new book, “The Greatest Victorian: The Life and
Times of Walter Bagehot,” will be published in 2019. Among his other
books on finance and financial history are: “Bernard and Baruch: The
Adventures of A Wall Street Legend,” “Money of the Mind,” “Minding Mr.
Market,” “The Trouble With Prosperity,” and “Mr. Market Miscalculates.”
He is, in addition, the author of a pair of political biographies: “John
Adams, Party of One: A Life of the Second President of the United
States,” and “Mr. Speaker: The Life and Times of Thomas B. Reed, The
Man Who Broke the Filibuster.”

Mr. Grant’s television appearances include: 60 Minutes, The Charlie Rose

Show, CBS Evening News, and a 10 year stint on Wall Street Week. His
journalism has appeared in a variety of periodicals, including the Financial
Times, the Wall Street Journal, and Foreign Affairs. Mr. Grant, a former
Navy gunner’s mate, he has Phi Beta Kappa alumnus of Indiana
University, he earned a Masters Degree in International Relations from
Columbia University, and began his career in journalism in 1972 at the
Baltimore Sun. He joined the staff of Barrons in 1975, where he originated
the Current Yield column. His talk today is “Humanity’s Worst Subject,”
please welcome James Grant.

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James Grant: Thank you.

Well ladies and gentlemen, good morning to you. Let me first report what
I hope will strike you as an arresting fact, and that is, as of today, seven
trillion dollars worth of bonds yield less than gold bullion. Yeah. According
to no less a source than Bloomberg, seven trillion worth of securities,
sovereign and corporate, are priced to yield less than zero per cent to
maturity. If you want to reflect on the status of gold in the investment
world, think of the holders of seven trillion dollars worth of promises to
pay fiat currency, value those promises that are guaranteed to deliver
less than zero. They value those promises greater than that thing which
can’t be devalued. That’s the pickle we’re in. I think it’s also the
opportunity, because gold is money. It’s a legacy, money. And because
money competes with credit, I’m going to talk in the four hours given to
me today ... Fine, three. I’m going to approach the question of gold from
the vantage point of credit. A promise to pay money. Of bonds.

Now perhaps you have had the experience, as I think we all have had, at
one point or another, of checking late into a hotel room. Say it was on Jet
Blue. They don’t serve food. And you arrive in your room, ravenous. And
they just closed room service. And you eye the mini-bar with guilt and
with hunger. And there you see it. A seven dollar canister of Pringles.

(laughs)

You buy it. You had to buy it. You hate yourself for it, and you really
resent the price, but you needed it. That, ladies and gentlemen, is the
value proposition in the bond market today. There is not one point on the
treasury yield curve that delivers an after-tax and after-adjustment for
inflation, a return of greater than zero.

The 10 year treasury, after a little jolt this morning, yields, I think, less
than 3.2, still. Let’s see. If you were to add onto that 3.2 the customary 50
year custom, adjustment for inflation, if you deliver today, the average
real return on a treasury, that yield, instead of being 3.2, would be about
five and a half or so. So interest rates are indeed extraordinarily low. As
recently as late last year, there was an issue of Telecom Italia trading in
Europe denominated in Mario Draghi’s euros, that was priced to deliver a
yield. This was a speculative grade corporate piece of paper. The
Telecom Italia issue was priced as recently as late last year to deliver a
return beginning with the figure zero. Zero point seven something or
other.

Perhaps some of you were around for the peak in yields 37 or 38 years
ago. 37 years ago, I suppose. At the time, US treasuries were priced over
30 years to deliver 15%, and if you had, I was there ... If you had told me
that in my, to be sure, somewhat protracted lifetime, that we would live to
see a junk bond priced to deliver a yield beginning with a figure of zero, I
would have been certain that you were either kidding me or that you were
in very profound error. And having lived to see that, I am slightly less
dogmatic about the future than I might have been a few years before
then. The more birthday candles you extinguish, the less dogmatic you
are likely to be, if you are paying attention.

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So with that preface, I think I’ll tell you a little bit about progress. Progress
in the last 10 years. This talk will feature two anniversaries. One, of the
tenth anniversary of the great sorrows of 2008 and the second
anniversary is the, a little more obscure, but this is the, as you probably
know, this is the 69th anniversary ... of the talk given to the American
Bankers Association in San Francisco by Allan Sproul, then president of
the New York Fed. Exactly 69 ... November second, 1949. It’s astounding
that that event would fall on this day, when I’m here before you. Well
slightly astounding.

I will begin with the less obscure anniversary, that of the tenth year of the
crisis of 2008. I think it is useful to reflect on where we were then and
where we are now, and how our progress or retrogression might bear on
the market that interests most of us most. Alright. So here goes. Here’s
some comparisons, then and now. Okay. The top seven banks in 2007
showed an average ratio of assets to equity of 29 times. That’s on a
statement date. Morgan Stanley, in 2006, was showing a leverage ratio
that is assessed to equity on the order of 35 or even higher. That’s on a
statement date, too. That provoked Grant’s Interest Rate Observer to
write a cover story under the headline, “Over the Cliff with Morgan
Stanley.”

2007, at what would prove to be the start of the Great Recession, the
leverage in the banking system was upwards of 30 to one. Now, following
years and years of de-leveraging and re-regulation, the average ratio is
13 and a half to one. So 30 times to 13 and a half times. A great decline
in banking system leverage. To a degree, the withdrawal of leverage in
our private institutions, or our cartelized semi-private institutions, has
been offset by an increase in the leverage of our public ones. The Federal
Reserve comes first to mind. In 2007, the Federal Reserve system, as a
whole, showed a ratio of assets to equity of 24 times, and today, that ratio
is 107 times.

The Federal Reserve Bank of New York, the flagship of the system, the
heart and soul of the financial regulatory body of the system, was then
leveraged 34 to one, and today, ladies and gentlemen, the Federal
Reserve Bank of New York is leveraged 186 to one, which I don’t call that
leading the front, with respect to safety and soundness. Over the past 10
years, the assets of the four major central banks of the world have grown
by upwards of 200% to 14 and a half trillion. The suppression of interest
rates, the persistence of a zero funding cost, and of a squashed yield
curve the world over, has of course facilitated epic exercises in lending
and borrowing.

Corporate debt is a particular source of protuberance in the growth of this

debt. And in particular, a lot of the credit formation has been concentrated
in the lowest major rung of the corporate credit spectrum, that is a triple B
rating category. In 2007, the ratio of triple B bonds to speculative grade
bonds was about even. One to one. Now, the ratio of triple B bonds to
junk is about two and a half to one. And you may think of triple Bs as kind
of speculative grade in waiting, pending the onset of the next recession.
There is the possibility, it seems to us, at Grant’s, seems the possibility,
indeed perhaps the likelihood, of a great excession of supply into the junk
bond market, come the next time we zig instead of zag.

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Alright. In 2007, pre Volcker rule, the dealers in corporate bonds on Wall
Street had inventory of 200 billion dollars worth of securities. 200 billion.
Today, after the Volcker rule, after the revamping of the regulatory regime
in banking, those dealers show supply inventory of corporate debt of only
30 billion. Which raises the question, again, of what happens the next
recession when what is wanted most of all on Wall Street is that precious
thing called a bid. Chances are that, insofar as there will be a bid, it will
not come from the dealer community.

I think, by far, the most astounding transformation in the world, certainly in

hot contention for that dubious prize, is the immense ballooning, the
billowing, of Chinese bank assets. Now I’m gonna quote, Chinese bank
assets as a percentage of GDP, but it’s not Chinese GDP. It is worldwide
gross domestic product. So in 2007, China was a formidable actor in
world finance. Its banking assets represented 12% of world GDP, which is
no small potatoes. As of today, at last count, Chinese banking assets
constitute 48%, almost one half, of world banking assets. That’s 31 ... Oh,
wait a second. No one is getting any younger. Wait one second, please,
for clarification.

39 billion of Chinese banking assets over 85, sorry, trillion. 39 trillion of

Chinese banking assets, over 85 trillion in world GDP. Almost 48%.
Rising 50.

In general, one can say that on Wall Street, nothing is new except the
details. Cycles are eternal. You know, in science and technology,
progress is a story of standing on the shoulders of giants and building on
what our fore bearers have achieved. On Wall Street, it seems, it’s rather
different. On Wall Street, we seem to be stepping on the same rake.
There’s recurrence of error. This perhaps has to do with the obvious, if
troubling, fact that money is really not humanity’s best subject. But be that
as it may, the cyclicality on Wall Street has ever been, ever will be
pronounced, and nothing really is ever exactly new. But there are some
things that are a little newish today.

One of them is the aforementioned level of interest rates. Now, perhaps,

you are familiar, as are we at Grant’s, with a page-turner called “The
History of Interest Rates, 2000 BC to the Present,” by Sidney Homer and
Richard Sylla. I see a lot of nodding heads. Yes, okay, good. That’s
excellent.

Now, I called up Dick Sylla, the still-living co-author to confirm that never
before in history have there been a substantial number of longer-dated
notes, not bills, mind you, but notes, trading for less than zero. Negative
yields. He said, “Yes, that’s correct.” So that’s a new thing. Not in 3000
years. Another new thing is the remarkable level of US treasury yields in
the context of the history of benchmark sovereign yields. A study was
performed by the Bank of England, and the study showed that ... Well it
took the reigning principle, most credit-worthy solvent issuer, sovereign
issuer, from the 14th century to the present. It went from like Venice to, I
don’t know, to ... name another sovereign government. I’m stuck. But
there were some. And it finally wound up, of course, with Britain in the
Victorian Age, and Germany for [inaudible 00:16:21], and then America,
of course.

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Not since 1311, since the early days of the 14th century, has a
benchmark sovereign longer-dated yield been lower than the 1.37% yield
printed in the first week of July 2016 in this country.

One of the preceding speakers gave a very interesting talk on organic

farming, and sustainable farming. I keep on thinking, “Why don’t we have
sustainable interest rates?” I’m thinking, non-GMO. Gluten-free. Free-
range. Farm to table. Organic. Local. Interest rates discovered in the
marketplace and not suppressed by government powers. But not exactly
a singularity, but a distinguishing feature of the present time, is the extent
to which a price discovery has been snuffed out, and in its place has been
inserted the willful power of central banks the world over. In Japan, which
is probably the most grotesque case of the overpowering of market forces
by governmental forces, sometimes the benchmark JGB, Japanese
government bonds, simply don’t open. There being no spontaneous
desire to buy or sell. The Bank of Japan owns what is increasingly looking
like a preponderant level of corporate equity through its purchases of
exchange traded funds.

Around the world, interest rates are treated by central bankers as if they
were knobs on the control panel of state. They have been used, as have
to a degree, equity markets, risk assets have been used as
macroeconomic tools with which to raise up aggregate demand or to
create a kind of a trickle down effect, or the wealth effect, it’s called, or
used to be called. So this, too, is a distinguishing feature of the age, the
extent to which that asset prices have been enlisted or indeed
conscripted into the cause of national policy measures.

United States is not the greatest either implementer or offender with this
idea, depending on your politics, but we are up there, just behind Mario
Draghi’s European Central Bank and the Bank of Japan. So all of this
raises a lot of questions about gold and about how gold might fare in a
time of what might prove to be rising interest rates. I’ve given you two
striking American yields. One is the 15% or so printed on September
30th, 1981, that was the peak in yield of bottom in price of the great bond
Bear market, and the second yield was the ... The mirror image of that,
which was the one point, we’ll call it one and three eighths yield, of the 10
year treasury in 2016.

I have come to believe, through observation and experience, that great

highs and great bottoms, great extremes in markets, are typically
punctuated by levels of valuation that, in retrospect, quickly seem to be
preposterous. Almost satirically wrong, wrongly struck. There was still a
more, in retrospect, egregious case of mis-evaluation of treasuries in in
1984, for a few hours in 1984 in May, the 30 year treasury was priced to
yield 14% at a time of slightly less than four per cent CPI inflation. So
almost 10 percentage points of real yield, on a 25 year, non-callable US
treasury security. And the reciprocal absurdity of that, absurd as seen
through the rear view mirror, is I submit to you, the seven trillion dollars
worth of negative yielding securities today.

I invoke these facts to build at least a working hypothesis, certainly not a

forecast. My working hypothesis is that a bond Bear market, perhaps of
generation length, began in 2016. Now I say perhaps a generation length,
only because that has been the form. That has been the book since the
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19th century. Bond yields have risen and fallen in generation length
intervals. In this country, since the Civil War, they fell for the last, say, 30
years of the 19th century. They rose for the first two decades of the 20th,
takes us to 1920. They fell from about 1920-1946. They rose from 1946 to
1981, and they fell from 1981 to, say, 2016. Now if the 2016 observation
has merit, as the beginning of a Bear market in bonds, that is, of a long
term rise in interest rates, that would put us in the very beginning of what
might prove to be a very protracted move. So you wonder, how would a
non-yielding asset compete against what might be a persistently, a
persistent headwind of rising rates, that ought to be one of the questions
we, as people interested in gold, even if we’re not all Bullish, we’ll have to
think about it. How might gold do against true interest rate competition?

I think we have to consider that interest rates are promises to pay

streams of income, denominated in currencies by a certain specific
obligor. So let us go straight to the world’s principle obligor, the United
States of America. Because treasury yields are only the promise to pay
by a sovereign state. Now the sovereign state is the world’s hegemon,
and is truly a great sovereign state. But still, this country has not got an
unblemished credit history. We, not us actually, we weren’t around in
1814, but in 1814, the year they burnt Washington, the British, that is. Not
the gold bearers. In 1814, the US treasury defaulted on its domestic
promises to pay. Now fast forward to 1933-34, this country defaulted on a
promise to redeem dollars at the rate of one dollar, well one twentieth or
so of an ounce of gold. $20.67 got you an ounce. That was the promise,
the United States reneged. Fast forward again, 1971, the United States
had represented it would exchange all dollars held by foreign central
banks at the rate of one thirty fifth of an ounce of gold, that promise, too,
proved to be empty.

You perhaps traveled, or knew someone, perhaps your grandparents, if

you’re young enough, knew somebody who traveled abroad in the 1970’s
during the Carter era of inflation, and you perhaps have heard about it, if
you did not personally experience the mortification of being given the
stink eye by an Italian hotel clerk because you’re presenting American
Express traveler’s checks.

That was when the dollar was in a very low state of prestige, indeed. And
it might be said, I think it’s defensible, that the United States defaulted in
the ‘70’s by suffering a rate of inflation that by the end of that decade,
achieved double digit levels, rates.

So as great a nation as is America, we have to watch our P’s and Q’s, as

do all countries, as indeed, does every human institution. So patriotism
alone is not going to guarantee the timely payment, in good money, on
time, of these securities. So, with that preface out of the way, how do we
handicap the credit quality of the world’s superpower?

Well, let’s look at what they call gross debt. Which is that debt that is not
held in a government account, just as the so called social security trust
fund. Let’s look at the overall outstanding, that’s the figure that you see if
you’re walking along 44th Street in Manhattan. There’s a debt clock up
there. And you can see the gross debt streaming by. It’s updated every
second, ‘cause it has to be. It is compounding briskly. So I want you to
consider the following progression of figures, with respect to America’s
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public debt, gross public debt. Okay. Let’s say the country was founded in
1789, as a constitutional proposition. So the first trillion dollars in gross
debt, that ... 1981, that occurred, it hit the first trillion. So that’s 193 years.
The second trillion was in 1986, this was during the Reagan arms buildup.
Five trillion, 1996. Ten trillion, 2008. 20 trillion, 2017. 21.6 trillion, now. Or
wait. 21.6 ... you know a few careless tens of trillions of dollars.

It would seem to describe what they should call an exponential function.

That’s not my field, but I think it kinda seems to fit. So since 1971, when
the United States reneged on the $35 per ounce promise, the gross debt
has grown at about eight and a half per cent compounded, the GDP,
nominal GDP, has grown about six point something per cent
compounded, and that gap, that roughly 200 basis point gap between the
rate of growth on the one hand, the debt, on the other hand, the most
basic expression of capacity to pay and service that debt. The difference
is wide, and indeed, very ominous. If you projected that into the future, we
would, certainly, as a mathematical truism, default.

You might say, I think it’s reasonable to come back at that and say
America owes 21.6 something trillion, but our GDP is only slightly less
than that. If we wanted to, we could pay this off in a year. By not eating
and stuff. And indeed, that is true. We could elect people who would
make it their business to pay down the debt. Do you recall that in 1998,
Bill Clinton gave a speech, and he said, we had just run a succession of
balanced budgets owing to the great capital gains bonanza of the tech
bubble. Bill Clinton said that if we pursue the right policies, we could
eliminate the public debt in the year 2015. And there were a lot of chin-
stroking editorials about the desirability of doing this. It had last been
done by Andrew Jackson, 1835. We could pay off the whole public debt.
Well, the Wall Street Journal said, “Look, the public debt is only an
accounting entry. It doesn’t matter. Better we should focus on growth.”
And others objected for other reasons, and it turns out, after all, of course,
in 2015, the debt was not zero. But making its ... seemingly relentless and
irresistible progress to the current level of 21 trillion plus.

Mr. Clinton’s miscalculation doesn’t necessarily reflect on his

mathematics or his patriotic hope for this country, but it reflects on the
uncertainty of the future, and on how little we can know about that future.
But what we can know, is that there is no evident attention to the public
debt, therefore no program in progress or he contemplated to address it,
and it just might be that the public debt comes into play as an actual
investible feature of our markets. When was the last time that happened?
The last time it happened probably was like in 1981 when the bonds were
topping out in yield and the people were despairing. How could this be
happening? Never before had anyone imagined a 15% treasury yield.
The Battle of Gettysburg it was half of that. What was wrong? Well people
made up reasons. I’m in the business of making up reasons, I’m a
journalist, so you practice my craft, you go chasing after facts with
theories. Not least, foremost among these theories, was the public debt is
out of control. Look at what Reagan’s doing.

And then Dick Cheney, many years after that, was overheard to say the
following. Dick Cheney said the following, or was overheard to have said
the following. There’s a difference. “Reagan proved that deficits don’t
matter.” Why? Because as I’ve mentioned, during his tenure, the public
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debt tripled. In his two terms, the public debt tripled, interest rates from
top to bottom were chopped in half.

Japan has a ratio of public debt to GDP of something like 200%. It’s
astounding. And their sovereign debt yields are zero. Then again, Italy
has a debt problem, it seems, that is not so different than ours, and is
having difficulty funding itself. So there is no magic level of debt to GDP
that constitutes the signal. There is no signal. There are no signals in
markets, right? If it were that easy, we’d be at home counting our money
rather than here trying to make some more. I present it to you as a
possibility that the public debt could come into play as a feature in the
perceived credit worthiness of this massive obligor called the treasury. Or
I guess we should call it the Department of the Debt, because there’s no
treasure in the treasury.

If that’s Steve Mnuchin I was kidding about that. But what about Dick
Cheney’s observation about the inverse relationship between growth and
debt and interest rates. In the 1930’s, some portion of the American
electoral public was shocked at the New Deal, and about the profligacy of
the Roosevelt administration. Just shocked. And yet, do you know, that
even after the devaluation of 1933, 34, after the government called in the
gold, after the New Deal began to open up the purse strings in the
treasury’s budget, the treasury spending, that interest rates, with a couple
of bumps, persistently fell until 1946? So that, too, would seem to
underscore the practical sense of what Dick Cheney said. So how could it
be that interest rates might be a credit problem in the years to come?

I think for some of the following reasons: For one, it might just be that
interest rates fell in the ‘30s, into 1946, and that they fell from 1981 to
2016, not because of the treasury’s borrowing, but because of some
forces that were greater than even the balance sheet of the world’s
foremost power. So these Bull and Bear markets and bonds seem to
have lives of their own, they’re great, sweeping, generational things.
Nobody that I have ever read or heard from has explained exactly, we all
have theories about how they come to be, but they have existed, and it
might just be that if we’re embarked on a new bond Bear market, now two
years and some months into it, that interest rates will rise, even as the
treasury’s finances come to be held under the market suspicion. Why
would the market be suspect? The projected, White House projected,
budget deficit for this year is more than a trillion dollars. Think of it. This is
a time of bounding prosperity. A trillion dollars in a time of prosperity.
After it took 193 years to achieve the first trillion, of course with a different
kind of dollar.

This year, treasury issuance, plus the expected dispositions of the Fed,
as it undoes a bit of its portfolio, are expected to represent a greater
portion of GDP, that overall supply of securities for sale, than anytime
since 1945. So there’s an immense supply of treasuries here and coming,
at a time, perhaps, when the tides are going out in the bond market. And
there’s something else, too. And that something else has to do with the
long absent blight of fiat currency called inflation. Inflation has been
AWOL for many a moon, and so long has it been absent that whole books
have been written about its death and decomposition.

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But I don’t know, I kinda think that inflation is never dead. It’s a cancer.
It’s in remission from time to time, but it is a social function, it is a function
of social democracy, as my friend Bill Fleckenstein says, it certainly has
been associated with a regime of improvisational emission of paper
currencies over the years, over the centuries. I’m proposing that inflation
has been in remission for whatever reason, but now, but now. Labor
market’s tight. This morning, I gather that the employee compensation
was up a rather robust three per cent. The Wall Street Journal reported, I
think yesterday or the day before, that companies are raising prices with
more boldness and more confidence that consumers can bear the freight.
So it might just be this is the springtime. The March third or so, in New
York City, equivalent of a new season of inflation, we don’t know. Again,
we don’t dogmatize, but it might be.

Recall, please, that the Fed is out of the business of suppressing inflation,
it’s in the business of supporting it. Ah, yes, but only to the extent of two
per cent. It is a remarkable comment on the times, that the Fed believes
that it is in charge of events. Now is that true? Is the Federal Reserve,
does it have freedom of action? Is it under no constraint? Well, to a
degree, it’s under no constraint. It does not have to exchange its
promises to pay for a thing called gold or silver. Because we float the
world’s reserve currency, we have given a pass on balance of trade, of
current account. We run a chronically negative one. We have a very
sizable net negative investment position. If you were to add together, as
the Bank of America Merrill Lynch has done. If you add together
America’s treasury deficit and America’s current account deficit, and take
that as a percentage of expected GDP and compare that to 44 other
nations, you would find that America comes in the fifth from last. We are
ahead of the following: Argentina, Turkey, Brazil, and Pakistan.

Now that’s a reflection of the world’s belief in America. A belief in her

ideals, a belief in her finances, a belief in the integrity of the governance,
a belief in the dynamism and enterprise of her people. That’s what the
world thinks. And the world is not wholly mistaken, but the world, perhaps
one day, in our meaningful investment horizon, will come to want a little
bit more than that reassurance of ideals and idealism.

My case for rising rates is that it’s time. That the creditors are being
underpaid, and that the world seems to be in the opening phases of a
Bear market, judging by the reciprocal absurdities of 1981 and 2016.
Then, too, there really is very little value in these securities. So perhaps
there’s a Bear market in bonds. If that Bear market in bonds were overlaid
on unscripted inflation, sustained in part by the very people who are
charged with stable prices, not price stability as defined by the PHDs as
two per cent a year, but stable price, that’s in law. Stable prices is the law,
price stability is the construct of our PHDs.

Rising rates, a sense that America’s fiscal affairs are out of control, and
unscripted inflation, could lead to a setup in the credit markets, that is not
unfavorable to gold. I am a “yes but” guy, and I’ve lived in a “gee whiz”
time. And I constantly have to check myself. I’m always looking for what
could go wrong. Well the bond people really must do that. I’m a bond
person, because the upside in bonds is not the same as the text stock
upside. Nobody is going to invent some fabulous Silicon Valley thing that

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is gonna cause your bond to quadruple in price, that’s not gonna happen.
You can get par in interest with luck.

So I’m a “yes but” guy, and I wanna ... I wanna close with some
perspective on where we are in our finances. So where we are is, and
where we have been is a pretty swell place. We have enjoyed three and a
half decades of falling rates. We have enjoyed the reciprocal in the stock
market of rising valuations, of falling cap rates in real estate. Benign
inflation meetings, we have had unimaginable progress in technology,
medical technology, not laced, tightening credits spreads, fattening PE
multiples on and on.

Okay. That is our moment. No world wars, might have mentioned that.
Robert Lovett, who was a distinguished partner of the still thriving private
bank of Brown Brothers Herriman, wrote a piece for the Saturday Evening
Post in 1936. And Lovett, Saturday Evening Post, of course, was the
great national weekly magazine. Everyone got it and read it. And Lovett
was one of the most prominent and prestigious Wall Street guys. His
message to the American public was, “Don’t invest, because it never
pays.” And he proved this by taking representative, what he thought
representative, stocks and bonds, since the year 1901, and computing,
not an index in which the losers are taken out, but just taking out from the
beginning, a certain number of railroads, industrials, and seeing how they
had done over 35 years. At every interval of that three and a half decade
period, Lovett was able to show that you were behind from having
invested.

So he said there was no place to hide. This is this great Wall Street man,
no place to invest, had been nothing for a while. So he goes on and he
says, “No use getting upset,” he goes on, urbanely. He said quote. “We
merely must recognize, that in dealing with people, in mass or with
governments, one is dealing with something very similar to a natural or
elemental force. No one would consider for one moment entering into a
contract with the Pacific Ocean by which it agreed to stay calm, or
accepting a promise from the North Wind to blow only once each quarter.”
So Lovett, though he didn’t seem to be aware of it, was living in a very,
very difficult period. The Great Depression, soon the great 1937
Recession would be on him, did I mention the second World War? What
Lovett did not say, did not say to his millions of readers was that this is an
unusually adverse time. Don’t project the future from it. There’s
something better coming.

I invite you, in the same spirit, not to take as a god-granted right, the
projection of our own truly unusually favorable experience in the past
three and a half decades. It has been one of the great, great moments in
financial assets. It has been, historically speaking, perhaps
unprecedented. In any case, really, really bullish. So as Lovett was a little
bit ahistorical in his own reading of the situation, let us not be. I promise,
oh, I only gave you one significant anniversary. I gave you the ten years
since the 2008 crash. I didn’t give you the other one. The other one, of
course, was Allan Sproul, the president of the Federal Reserve Bank,
now the highly leveraged, one might say almost exceptionally, or
recklessly leveraged, Federal Reserve Bank of New York. He was the
president then, and he gave a talk before the American Banking
Association on the subject of the dollar and on gold.
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 The question of whether the currency ought to be exchangeable or
convertible into gold was still a lively one. This was 1949, November 2nd,
69 years ago today. And Allan Sproul was a great one for standing up for
discretionary management by the Fed, and here’s what he said. He was
addressing now, his gold-minded critics. He said, “When you boil it all
down and try to eliminate mythology from the discussion, the principal
argument for restoring the circulation of gold coin in this country seems to
be distrust of the money managers and of the fiscal policies of the
government.” That was the case against. And I conclude by urging upon
you a constructive, patriotic distrust of the Federal Reserve Board, and
equal patriotic distrust of the fiscal policies of this government. I’m Bullish
on gold. Ladies and gentlemen, I thank you.

Nick Hodge
“Real Investments For A Fake World”

Gary Alexander: Now, to our final speaker for the general sessions today, Nick Hodge, a
great friend of this conference for many years. He is founder and president of the
Outsider Club. He has become well-known for a call-it-like-you-see-it approach to
money and policy. He is the author of two bestselling books on energy investing,
his insights have led to numerous appearances on television and various outlets
on the web. Investment director of Early Advantage and Nick’s Notebook, he’s
led tens of thousands of investors to hundreds of double and triple digit wins in
the mining, energy, and technology fields.

He’s going to speak on real investments for a fake world. Welcome, Nick Hodge.

Nick Hodge: Hello everyone, as he said I’m Nick Hodge from the Outsider Club, I’ll be
speaking about real investments for a fake world. You just heard about bitcoin
and the threat of governments stealing money and manipulating currencies, and I
think that’s a fairly good segue for what I’m going to talk about. Bitcoin is a ... it’s
an imagined thing, and, as I’ll get to, I’m going to talk about some things that are
imagined.

This is Göbekli Tepe. Does anyone know what Göbekli Tepe is? One or two
hands. So, we discovered this in the mid 1990s, and sociologists and
anthropologists have been doing studies on this for the past 25 years. Carbon
dating and analyzing why it was built. This structure was built in 9,500 BC, so
that makes it seven thousand years older than Stonehenge. And so we were
really scratching our heads trying to figure out why did humans build this thing in
9,500 BC?

And so I was reading this in a book called Sapiens that’s out right now, it’s a
bestseller, and when I came across this particular section I started thinking about
what I was gonna talk about in this talk, because I picked the book up in a
Chicago airport on my way to do some due diligence on a project. And I said,
“You know what? This would make a perfect intro for my talk in New Orleans.”

So Göbekli Tepe and humans myths, this is the oldest known religious site we’ve
ever discovered. And it changed, really, our perception about early humans and
our species, and how we evolved, and how we think about the world, and why we
do the things we do. So it was once thought, until we found this site, common

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belief was that the Agricultural Revolution came about because it was easier to
grow wheat. We dropped some seeds on the ground, you’ve probably heard this
story, and they sprouted up and we said, “Well, these seeds sprout up here, we
can just grow some wheat.” And that was the common theory for a long time, that
that’s how agricultural growing and the Agricultural Revolution came about.

But this turned it on its head because the structure I just showed you was the first
religious structure ever built. And so after they discovered that they started
tracing back the lineage of the strains of wheat that we grow, and they traced it
back to that very site. And we built this site because we started believing in
something. We don’t know what they were believing in, some form of religion.
And so they settled on this site from, and this was the transition from hunter-
gatherers to villages, so when they started building this site they needed
hundreds of people to build it, if not thousands. And so they congregated in this
one area to build this religious site, and that’s when they needed to grow stuff in
one area.

And so we didn’t start growing stuff because it was easy, we started growing stuff
because we started believing in myths, the origin of fake news. And then, once
we started growing wheat we started having more kids, and once we started
having more kids we had to grow more wheat. And so then instead of working for
four hours a day, as anthropologists now know we did, just four hours a day to
hunt and gather in our tribes, we now farmed eight to 10 hours per day. This was
the beginning of the rat race. We screwed ourselves 12 thousand years ago by
believing in fake things.

And from there we evolved, you know what happened next, Mesopotamia and
East Asian kingdoms, and things like that. And we traded in the hunter-gathering
lifestyle, roaming hundreds of square miles in bands of 100 or 150 people, for a
10 by 10 hut that we always stayed in, and we’ve been battling keeping the bugs
out of ever since. And this is when we turned to be self-centered, and it was “my
house” instead of “our resources.” And then villages sprang up from there, and
elites and rulers sprang up from there and started to control the peasants, and
things like taxes developed. All because we traded reality for myths.

And I would argue that all political and law systems ever since then are all myths,
they take collective belief to make them real. And myths live until they don’t,
kingdoms have come and gone, over 500 fiat currencies have come and gone.
All of which somebody, some group, believed in at some time. Massive cities
came from then, more myths came, different religions, Native American religions,
East Asian religions, Indian subcontinent religions, all of which are myths, all of
which are fakes, even the modern religions of today. These are called imagined
orders, that’s what I was talking about bitcoin.

Bitcoin is an imagined order, the dollar is an imagined order, the Code of

Hammurabi from 1776 BC is an imagined order, and, I’ll make you squirm a little
bit, your Constitution is an imagined order. It only works because we collectively
believe in it. But they’re flawed because they were based on myths.

So let’s talk about the Code of Hammurabi for a second, it said that men were
greater than women. If you broke a man’s arm, an elite man’s arm, you had to
pay 30 shekels; if you broke an elite woman’s arm you had to pay 20 shekels;
and if you broke a commoner, or a peasant’s arm you had to pay 10 shekels. So
this is flawed, right? We now know in our modern state of justice and wokeness
and all that other stuff that that’s not right.
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Well I would say that the Declaration of Independence is not right either. They
were both derived from what we said were divine. The Declaration of
Independence we said came from God. We have the right to pursue life, liberty,
and the pursuit of happiness under some divine order. But this is flawed. Myths
come and myths go. So both are wrong, and both are imagined. Gets you a little
squirmy.

So let’s talk about our own Constitution, it says that all men are created equal,
and that’s just simply not true. I’m 6’1”, you may be 5’10” or weigh more than I do
or have a different color hair, we’re inherently not equal, it’s a myth that we
believe in. And you would say, “Whoa, whoa, whoa. It’s in essence that we’re
equal, it doesn’t mean that we’re all the same size and the same height and have
the same color hair.” And I would say, “Exactly,” it’s imagined, you have to
believe in that to make it real.

And so whether it’s Hammurabi in 1776 or Jefferson in 1776 AD, both are myths
and so here’s a nice Voltaire quote that says, “There is no God but don’t tell that
to my servant lest he murder me at night.” And so imagined orders are always in
danger of collapse. I told you about the kingdoms that have come and gone, I
told you about the fiat currencies that have come and gone and so because
they’re always in danger of collapse we have to have mechanisms to keep
people in line and that’s why we have armies and prisons. Better stay in line, boy.

And so if all those things are myths I want to talk about something that is real.
While in Göbekli Tepe they were building those towers for whatever they were
building them for and at Stonehenge they built towers, you know, Stonehenge for
whatever they built that for and all the way to Machu Picchu and the towers on
Easter Island straight through to the Roman empire and the statues they built.
There’s all these different beliefs. But at the same time as all that was evolving all
these different cultures just happened to settle on the same form of currency, this
gold and silver, the Chinese settled on it, the Indians like gold and silver, the
Europeans.

And so I think a good story to tell is about the Crusades. This was a clash to the
death of religions. A clash of myths. Whose myth is better, whose myth is right.
And while they wouldn’t accept each other’s myths, they would certainly accept
each other’s coins, whether or not a Christian would accept a coin with a Muslim
insignia on it and vice versa and that leads me to believe that that’s something
that’s real. It’s not something that’s imagined. We all settled on the same thing
thousands of years ago. How?

Something that has tangible value. It’s something that’s real. And it’s remained,
gold, silver, the Chinese used a little bit of bronze. While all these other empires
and currencies, fiats, have come and gone. And I’d argue that those real things,
the gold and silver and precious metals, they’ll be here unless we drop all the
myths and go back to hunting and gathering. And that’s just my little
philosophical intro and now we can talk about some more things that are modern
and what’s real and what’s fake.

So the sum of the money in the world right now is some $60 trillion but the total
sum of bank notes is only 6 trillion and so there’s 54 trillion of myth money
floating around. How long are we going to keep believing in that? That’s just ones
and zeros on a computer screen, same as the imagined reality of bitcoin if we’re
being honest. You don’t need to put in God we trust on gold and silver because
people inherently accept that it’s real.
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Let’s have some fun. Last year I talked about what’s fake. There’s a lot of things
going out there. Wells Fargo created millions of fake accounts, Volkswagen
faked data emissions, I could go on Twitter or Google something and I could
come up with a litany of examples, we’re just going to run through a couple.

This is Fitbit the device you wear on your wrist that supposed to tell you how
many steps you’re supposed to take or what your heart rate is or how long you
slept but the data that it was turning out was fake. Caught red handed. Pull up a
chart of Fitbit on your Stock Watch or your Yahoo finance and see what that did
to shareholders. Fake. Fake data. Fake device. Fake investment. This is a juicer
I talked about last year. It’s one of my favorite ones, Silicon Valley raised this
company tens if not hundreds of millions of dollars, it was a juicer that was
supposed to cost $400 and the whole shtick was that it was the Gillette razor
blade model. You bought the juicer and then you had to keep buying the pouches
to put in the juicer. Well, we come to find out that you could just order the
pouches and squeeze them with your hand. Squeeze the juice out. You didn’t
have to buy the $400 juicer. And I was saying in fact, you could just buy some
fricken oranges.

Here’s another one I talked briefly about last year when fake cheese is real. So
you’ve seen these containers of Parmesan cheese, the Kraft or the house brand
or whatever that says 100% grated Parmesan. Well, there was a study last year
that found that some of those brands that were promising 100% grated
Parmesan, that’s a Bloomberg story, contained no Parmesan at all. Fake cheese.

And then you have companies reporting fake numbers all the time. These are
publicly traded companies like Match.com that has a holding company that’s
publicly traded and they’re just lying about their data, this happens all the time.
Oh yeah, we have this many active users. Well, it turns out that we don’t, we’re
just lying to manipulate the market, to manipulate investors or so, to garner favor
in the market, or whatever it is.

Here’s one from Macy’s. You know how you guys like your smooth sheets, a
thousand thread count, 2000 thread count, somebody counted the threads, the
thread count is fake. A supplier of bedding to Macy’s is under scrutiny and Texas
for allegedly misleading consumers about the quality of one of its products. Yet,
they didn’t have enough threads.

Here’s a good one that goes back to the myth of religion. There was a Bible
Museum, this was just two weeks ago in DC. This is the museum that Hobby
Lobby built. You’ll remember when they got caught importing stolen artifacts from
Iraq. Well, not only that the Bible Museum that they created in which they were
displaying Dead Sea Scrolls, somebody investigated the sea scrolls that they
were displaying in a Bible Museum, the religion is a myth obviously, but it was
also a lie that they were Dead Sea Scrolls, the Dead Sea Scrolls were fake.

Kardashian butts are definitely fake.

There is a lot of fake outrage these days. This is one of my favorites and I love to
call it out when I see it though. You see fake outrage all the time. Just this week
there was some celebrities who may have worn offensive costume and you’ll see
it in the headlines, so and so defends this or such and such is outraged by that
or, whatever the headline is. You see this every morning when you wake up and
it makes you want to throw your phone against the wall.

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And I would say that instead of being outraged that what real Americans should
be outraged about, stagnant wages, an opioid epidemic, rising cost of living,
whatever it is, the wackiness of the two-party system, also an imagined reality.
Instead of focusing on that stuff we focus on stuff that is minute, stuff that doesn’t
really affect us in our day to day life. Should we tear down 100-year-old statue?
Which of the million genders should go in which bathroom?

You’ve got Republicans outraged at Obama for the same things that Bush did
and Democrats outraged at Trump for the same things Obama did and it just
makes me want to turn my head around like an owl.

Here’s some fake outrage. This girl, you may remember, this was about a year
ago, she wore a dress to her prom that had some Chinese prints on it or
something and people were outraged, she was appropriating Chinese culture.
This was just a fricken teenager going to her prom. This was headlines for days.
Headlines for days. People were boycotting the Peter Rabbit film because in the
film one of the rabbits couldn’t eat carrots and by God that’s food allergy bullying.

But maybe a fake world is a better world so this is something from an essay I
wrote last year. Deceit, fake, fraud, call it what you will, those things are business
as usual for multibillion dollar companies, governments and their agents,
because actual reality that place where two thirds of Americans can’t come up
with a thousand bucks and wages are stagnant and 30 million people are taking
antidepressants. Well, that place kinda sucks. And rather than make it better I’d
argue it seems the majority of our species is just too content to live in some
version of unreality. Some imagined order.

And now we just have things that can facilitate this. So now you can download
an app, if you take a picture, you can just scrub out the background and replace
things that aren’t in the photo literally altering the reality of the photo you took.
Erase some unwanted objects from your photos and replace your photo
backgrounds with just a click and much more. Well, that’s not a photo at all, that’s
just something ... that’s a picture, that’s a painting, that’s fiction.

How far do we go? Well, monopoly is kind of hard, life is hard, investing is hard,
so monopoly comes up with a cheater’s edition that just encourages you to
cheat. Sure, why not. Everybody else is doing it.

Finally, to gold. Oh, it’s bad. So that’s the GDX, the XIU gold bug’s index and the
uranium ETF URA, that’s just a YTD chart for the year. You can’t pick out which
one is which because they’re all pretty hammered down, 20 to 25%. People don’t
believe in gold even though it’s one of the few real things we’ve got.

This is Downtown Josh Brown, he calls himself the chairman of the Twitter
reserve, the Twitter Federal Reserve and he’s got a lot of followers. He’s a
mainstream guy, he manages hundreds of billions of dollars for Reichhold’s
Wealth, he’s on CNBC every week and this is a tweet he sent out in September,
he said there’s no gold in our asset allocation strategies. No disrespect it’s just
that gold doesn’t actually hedge that well and diversification works fine without it.
I’ll show you why that’s bull in a second. And here’s Max Kaiser, once a gold
enthusiast, but now a bitcoin enthusiast, erasing your memory with a Men in
Black flasher asking, “Does anyone remember gold?”

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Downtown Josh Brown said gold doesn’t act as a hedge but here’s the mayhem
of September, that’s the S&P on the bottom, it went down some 8 to 10% and on
the top you have the gold price and the gold bugs index. Obviously, mirroring the
carnage that we saw in the broad markets this week, it very much acts as a
hedge. It very much acts as a safe haven. I don’t know what imagined order that
guy was thinking about when he tweeted that.

So yes, it acts as a volatility hedge, gold does, but it’s also a real investment.
This quote comes from the Beaver Creek conference that went on a couple of
weeks ago and it’s from Resource Capital Funds, Josh Parel, Resource Capital
Funds manages on any given day five to $7 billion across a various spectrum of
funds and he was on an investment panel with Joe Foster from VanEck, he’s the
one that manages the GDX fund and the GDXJ fund, Steve Totterich from Sprott
was on the panel and it was moderated by Joe Mosumdar, who’s Brent Cooks’
partner at Exploration Insights and he’s saying what Resource Capital Funds, the
$7 billion guys, he says, what I would say generally is that the market has been
bad for many years, he’s talking about gold, we think we’re coming out of that
and it’s a good time to be deploying capital. Maybe not such a great time to be
harvesting capital. We are prioritizing gold as an investment space. So not just a
hedge. Now, after ... Call it six, seven years of abysmal underinvestment it’s time
to invest in gold again.

There are contrarian factors at play as well that are bullish tailwinds for gold.
Consider that in 2017 a record $750 billion dollars of private equity was raised
globally and only $3 billion of that went in to the mining space. Severely, severely
under invested. Institutional money, assets under management, I’m talking just
about gold now, fell from 54 billion in 2011 to $32 billion today. It’s hated, it’s
contrarian time.

And I won’t read all this but this is just to say that Russia dumped a lot of their
treasuries, they dumped 84% of their US treasuries this year going down to 14.9
billion while they increased their gold holdings by 37%. And so maybe the
imagined order is in some type of danger, I don’t want to say collapse but eroding
perhaps.

The gentleman before me also talked about currency crisis in Venezuela and
things, you saw the picture of how many bolívars it took to buy a banana I think it
was in his presentation. And that’s in many countries. So you’ve got the
Argentine peso down 49%, 35% down for the Turkish lira and on and on. If you
look at gold in those currencies, gold is actually going up, gold is ascending up
into the right. Just not in dollars because dollars remain strong right now. But if
you live in one of these countries gold is very valuable.

And I’ll quote, this is a Sprott article that came out a couple weeks ago called
Brinkmanship, I don’t pretend to be a Fed expert, so I’ll let somebody who is tell
you, he says, “The fuel of Trump tax cuts is now fueling GDP growth which the
Fed is interpreting, we believe mistakenly, as sufficient cover to normalize
policy.” He thinks that ... he’s saying that the economy is on the upswing so they
can raise rates. But what they see, Sprott, during the next few months, “we
expect asset markets to come to terms with grossly misplaced investor faith in
the sustainability of the Fed’s dual policy agenda of simultaneous rate hikes and
balance sheet reduction.” Which is a bit of word salad, it’s all to say that the Fed
is out of bullets. The balance sheet is five times bigger than it was in 2008.

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 We simply haven’t been investing in gold. Global gold production declined 1%
since 2000 despite a 850% rise in Capex. But since 2012, Capex has fallen 77%.
So if gold only went up, gold production only went up 1% when Capex rose by
850%, what’s going to happen now that gold Capex has fallen 77%? A fair
question to ask then. Is the gold price going to have to go up precipitously?

A quote from Agnico Eagle, Shaun Boyd, I mentioned on the mining share panel
last night, and he says, “there’s just too few high quality gold opportunities left
and far too many players.” So some of these assets are going to have to start to
go bye-bye. And you’ve seen that already. The Barrick and Rheingold merger,
Northern Star taking out Pogo, Zgen and Nev Sun, Core and Northern Empire,
recently Hekla and Klondex, but also strategic investments, not outright
acquisitions, this is something my partner, Gerardo Del Real wrote, I’m going to
steal it from him, he says, “it’s clear that mid tiers and majors will continue to
defer exploration expenditures by taking strategic positions in junior explorers as
opposed to increasing their own exploration budgets. It’s cheaper, there’s less
red tape. And the quality juniors tend to have a better pulse for the local politics.”
And here’s some companies that majors have taken stakes in just as he was
describing.

Midas Gold, Barrick came in and took out 20%, that’s the Stibnite project in
Idaho, some 6 million ounces. Revival Gold, Orion Mine Finance has taken a
chunk of ... They have a 2 million ounce resource in Idaho targeting a 3 million
ounce resource in the coming months. Newcrest, Australia’s Newcrest came in
and took a chunk out of Almaden Minerals developing the Ixtaca project in
Mexico. They have a mill that if you were to buy it today would cost some $70
million which is the entire market cap of Almaden at this point so you’re getting
no value in the market for the 4 million ounces of gold and silver that it has.

Quickly now, I only have 30 seconds left. Palamina is exploring the Puna
orogenic gold belt in Peru, it’s being run by Andrew Thompson. He sold his last
company to Agnico Eagle, his last company was called Saltouro. He sold it to the
benefit of shareholders in 2015. And then, two uranium companies, Fission
Uranium, Uranium Energy, I think that in addition to gold the uranium story is
very real. The electrification of everything story is very real. Fission and Uranium
energy, two ways to play that. And then Atlantic Gold, a very, very low cost
producer in Nova Scotia. Less than $600 all in sustaining cost, highly successful
management. And then one I’m actually writing up this week and last week,
Prophecy Development Corp. a pure vanadium play with a Gibellini asset that’s
been designated by the Trump administration for fast track permitting. That’s as
real as it gets. I either recommend all those companies or I own them myself.

I’m Nick Hodge, the founder of Outsider Club and I own Resource.Digest, go
check them out. I appreciate your time.

Ben Hunt
“Investing In The Fake News Age”

Gary Alexander: We’re running a couple of minutes over time, so I will not read the full bio
of our next speaker you can find it on page 60. 60 of your program book for Ben
Hunt. Trust me, he’s got a lot of real world experience running a billion dollar
hedge fund, and chief strategist for a $13 billion hedge fund. You heard him on

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 the “Booms, Busts and Bubbles” panel earlier this morning, and a few different
ideas than our previous speaker Peter Schiff. And, now he’s going to flesh out
the entire plan for you in “Investing in the Fake News Age”. Welcome back Ben
Hunt.

Ben Hunt: Thanks. It really is great to be here. You know, I’ve got a lot of slides, and I want
to present these slides, not with some eye towards saying, that this is good,
what’s happening in the world, or this is bad with what’s happening in the world. I
just want to try to describe what is happening in the world, because I believe very
strongly, that all of us as investors, and as citizens, we have to play the cards
we’ve been dealt, not the cards we wish had been dealt.

And, we can’t think about ... well, “I hope the free market fairy comes down and
saves the day.” We’ve got to make our own way. And, that’s what I want to try to
talk about today. So, I’m going to start with this slide, which I think gives a really
important backdrop for what we’re experiencing, not just in markets, but also in
politics.

So, this is from the Pew Research Center. They do wonderful work. And, the
point here is, that ... you know, they’re trying to make the point, that the median
democrat and the median republican are farther apart than they’ve been in the
past, and that’s absolutely true.

But, what I want you to focus on is the shape of the blue electorate there, the
republican ... sorry, the democrat electorate, and the red shape there. Because,
it’s not just that the median voter is farther apart. Look at how the shape of that
entire graph has changed, so that we’ve got this big gulf in the middle.

And, that a really important. It’s really important because, what we have in 2017
is a world where the center does not hold. So, that’s the notion of the widening
gyre, which the famous point by Yeats, about the “center doesn’t hold”. And,
what this graph is showing you is, that a centrist candidate on either the
democratic side, or the republican side can not win a primary, and certainly can
not win a general election.

It means, that centrist policies can not survive when you’ve got to use the ten
dollar phrase “a bimodal electorate”, like this. The way to understand this visually
is, when you look at that purple shape, the purple shape there in the middle, the
overlapping electorates, which as you see in the past this is where an effective
politician lived. Whether you were an effective on the democratic side, or the
republican side, you wanted to live in that purple area.

And, today we’re in a world where that purple area is smaller than either the all
blue, or the all red area, and what that means is, that there is no centrist policy.
There’s no policy, or candidate living in that purple area, that is not beaten by a
larger number of people, both in the democratic party, and in the republican
party. This is entirely new for American politics, at least going back to the 1930s,
at least for how long they’ve been collecting this data.

And, this is a tipping point, because it does not get better, it’s not mean reverting.
What happens is you get more and more, I’ll say “extremist” candidates on both
sides, and you can not get a centrist policy, or a centrist candidate to win. So, if
you liked your choices in 2016, you’re going to be thrilled with 2020.

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At the same time where we have this widening gyre, this centripetal force, this
coming apart in politics, we’ve had just the opposite effect in markets. What I’d
call a “black hole”, where everything comes down on the S&P 500. Now, what
you’re looking at here, the green line, that is the S&P 500. Right? And, that is
over ... since March of 2009 when the US Federal Reserve decided to save the
day. I think, correctly so. I think the Federal Reserve saved the world with QE1 in
March of 2009.

They did that. They did what a central bank is supposed to do. They’re supposed
to put emergency liquidity into the system, that syringe of adrenaline into Uma
Thurman’s heart, which is ... was, it stopped in Pulp Fiction, as the global
economy was stopped in March of 2009. That’s what central banks are supposed
to do. But, what happened is what always happens. Same thing happened in the
1930s.

Emergency government action becomes permanent government policy. So, it

wasn’t just the QE of March of 2009, but it was the QE2, the QE3, other central
banks adopting this philosophy of buying stuff. And, the impact has been to lift ...
to provide a rising tide, to lift all boats in public markets. So, that S&P 500, that
green line, that has quadrupled. It’s up 300% since March of 2009, when this
program started.

So, quadrupling in the S&P 500 over the last, close to 10 years. Now, what’s the
blue line? That blue line is an investible index that Deutsche Bank puts out. Goes
back to about 2000, that index does. And, it’s a quality index. It is trying to isolate
the factor we call quality. Now, why did I pick quality? I picked quality, because I
would bet that every person in this room including myself has a bias in favor of
quality.

Because, we’ve been very well trained that, that is what we should own when it
comes to our stock purchases. We want to own companies, that have a great
management team, and a fortress balance sheet, and wonderful and growing
earnings, and we want to avoid the companies that don’t. Well, that’s what this
index creates.

It looks at 1,000 global large cap companies and evaluates them on metrics of
quality. Return on invested capital, return on equity, positive accounting accruals.
It evaluates all 1,000 of those companies, and it goes along, it buys the top 20%.
Equal weighted investments in the top 200 of those 1,000 companies. And, it
goes “short” the bottom 200. The companies that score the lowest on each of
these measures of quality.

I get it. So, quality is like beauty, it’s always in the eye of the beholder, but this is
a pretty good proxy for what all investors think about when they’re thinking about
quality. And, that index, that market mutual index of quality has done absolutely
nothing for nine years now. it’s not up 300%, 290%, it’s up two and a half
percent. Not, two and a half percent per year, two and a half percent over nine
years.

And so, look, I’m not saying that your quality stocks haven’t gone up over the last
nine years. What I’m saying is, that the crappy stocks have gone up just as
much. What I’m saying is, that what we’re living in today is a world where there is
a rising tide for all stocks, regardless of quality, and that’s a hard lesson for an
active manager, for an active mutual fund, for anyone. And, I bet it’s everyone in

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this room, who has a bias in favor of quality, and against crappy companies,
because that has not worked for nine years now.

All right. There’s a common cause for both of these things. There’s a common
cause, both for the political polarization we’re seeing, and this monolithic market,
where if it’s a US large cap company, it’s just going up. And, that common cause
I think is shown in these next two charts, which is the relationship between US
household net worth, how rich are we as Americans, and US GDP growth, how
fast has our economy grown.

This data goes back to the 1950s, and what it’s trying to show is, kind of the
answer to this question. Is it possible to be richer than your economy grows? I
don’t think it is, and for most of the last 60 years that’s been the case. But, you
see we’ve got something odd happening, kind of at the tail end of this chart,
where that blue line, US household net worth, how rich we are, is now diverging
from the gold line, how fast our economy’s been growing.

So, if we just look at that tail end there, these are the three bubbles that we’ve
been experiencing since 1997. And, these were intentional, they were politically
motivated, as you can imagine, any president, regardless of party wants the
electorate to be better off, to be richer under his administration, than not. It’s
good for whoever’s there in the Federal Reserve, it’s good for whoever’s in
congress, it’s great for Wall Street, everybody loves this, this idea, that we can
pull forward growth and be richer than our economy has grown.

That is a bubble. That is the definition of a bubble. And, now we’re in the third.
The financial asset bubble. We had the “dot-com” bubble, we had the housing
bubble, and now we’ve got the financial asset bubble. Now, I think at some point,
whether it’s over some event, or whether it’s just a matter of time, that these two
lines have to meet again, and there’s about a $10 trillion difference.

US household net worth is about $110 trillion, and that’s about 10% above where
it “should be” if we were tracking that gold line, so that’s about $10 trillion to get
there, this is across all assets, but I’d figure in something like a 25% to 30%
decline in the S&P 500 would narrow that gap.

Now, it’s not what I’m calling for. Because, I think we’ve got, again, a dynamic
here that I want to talk about, that’s very different from these bubbles that have
been in the past. And I don’t know at all, that the way that this resolves itself is
through some horrible market event, some crash where it falls back down to the
gold line.

Let me point out one more thing, because I think this is really important. Again,
I’m not saying whether this is good or bad, I’m just saying it is. The benefits of
these bubbles, they’re not distributed equally in this country, particularly this last
bubble. Particularly this last bubble that’s been focused on the stock market and
the bond market.

Because, one thing, if the bubble was in housing, a lot of Americans own
housing. Few Americans ... particularly if you take away the pension fund
ownership of stocks, few Americans own stocks. And so, what we’re seeing ...
and, this data also goes back about 100 years, is that the relative wealth, of not
the top 1%, the top one tenth of 1% of Americans is now ... and, this chart is a
couple of years old, it’s now crossed each other. Right?

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The red line, the top one tenth of 1% of American, they own, they are richer than
the bottom 90% of Americans. That’s something that hasn’t happened since the
1930s, that sort of wealth inequality. Again, I’m not saying this is good or bad, I’m
just saying it is, and what’s fascinating to me is, that go over a hundred year
period, the 9.9% ... which is probably what almost everyone in this room fit’s that
category. So, not the top one tenth of 1%, but the next 9.9%, that group’s share
of US household net worth has been basically flat, has been basically even for
the past 100 years. What has changed over time, where the action is, is in the
wealth of the top one tenth of 1%, and the bottom 90%. That’s the battleground,
between those two groups.

And, you see that the blue line reached its peak late 70s. So, when Ronald
Reagan came into office in 1980, Margaret Thatcher outside the United States,
set in motion a lot of policies, tax, monetary policy, everything, that changed this
dynamic a bit. That’s where the blue line peaks, it’s been coming down since
then. What I’m saying is, that this most recent bubble we had, the financial asset
bubble has accelerated this, has moved the wealth inequality away form, kind of
more of a long term balancing point, to a point where, again, like we had in the
1930s, which was the last time we had political polarization like we’re seeing
today. It’s all of the piece. It’s all of the piece.

Right. So, my question is “How does this work?” Because, if we don’t understand
how it happened it’s going to be very hard for us to understand what could
change, whether it’s a popping of the bubble, or a slow deflation of the bubble.
We have to know how this works, before we can know how to react to it, I think.

So, how do you create a financial asset bubble? Well, part of the story has been
what central banks, not just our central bank, but the central bank of Europe,
central bank of China, central bank of Japan, what they’ve done, which is to buy
stuff. To buy trillions of dollars worth of stuff. So that, today the big four central
banks own more than 20 trillion dollars worth of financial assets, trillion with a “t”.

This is, as Jim Grant is fond of saying, he calls it “the thin, Swiss, mountain air”.
Because, a central bank that’s not on this list, the Swiss national bank is one of
the largest holders of Apple. What did they use to buy those shares of Apple
stock? They printed money. They printed Swiss francs. And, it’s the same that’s
been going on with every central bank, particularly over the last nine years. This
is part of the answer to “this”, and to “this”, the financial asset bubble, just buying
stuff, driving up the prices of everything in financial assets.

But, it’s not the whole story. It’s not the complete story, because central banks
are now tapering off their purchases. If you hear what central bankers say, they
say “Yeah it was the purchases, but there’s something else going on.” The
something else that’s going on is communication policy, what they call
communication policy.

What they call using their words to change our behaviors. To speak, not words
that they truly believe, but words that are meant to get us to act in a certain way.
You know, what we might call “lying” under other circumstances. And, I created
this picture. So, if you type in any one of these names plus finger pointing ...
these are the pictures of ... on the US side, the current and past, immediate past
two chairs of the Federal Reserve. You’ve got Mario Draghi, European Central
Bank. You have mister Kuroda there, the Bank of Japan, you’ve got the bank of
England represented here.

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But, you just type in these names plus “finger pointing”, and you get these
pictures. And, I did this, because when somebody is shaking their finger at you,
they’re trying to tell you how to think about the world. It’s not that they’re shaking
their finger at you and saying the sky is blue, they’re shaking their finger at you
and saying “Here’s how you need to think about the unemployment report that
just came up. Here’s how you should understand the policies that we’ve
implemented here.” That’s what somebody is doing when they shake their finger
at you.

In game theory, which is my field, we have a name for this action, it’s called a
“missionary statement”. If somebody is getting up there and is not just trying to
tell you what to think, not trying to tell you a fact, they’re trying to tell you how to
think. Because, if they can convince you of that, that’s so much more effective
than anything else they can do, so much more powerful than any policy they can
do. And, once you start looking for this, what I’m calling the “missionary effect”,
you will see it everywhere.

And, of course here’s our missionary in chief. Now, look, I honestly ... like I said, I
just want to live in the world as it is, and ... I don’t really ... Regardless of your
view of Trump’s policies, good or bad, what I think you have to acknowledge is,
that he is very good at playing this game. This game is called the “common
knowledge game”.

And, the way this game works is, it’s focused on getting the crowd to look at the
crowd. And, I really think ... I think this is because of Trump’s experience as a TV
host. He understands how this works, and it’s why I’m certain that he made such
a big deal out of the size of the crowd at his inauguration. Despite photographic
evidence that it was not the largest crowd to ever be at inauguration, he made a
big point out of this.

If you go to listen to any of his speeches, in his campaign speeches notice this,
the first thing he will say is he will call attention to the size of the crowd. This is
intentional, it is very smart. It gets the crowd to start looking around at the crowd.
In the middle of his speech he’ll say “Wow, what an incredible crowd I’ve got
here.” And, at the end of the speech that’s where he closes with it as well.
Throughout, the focus is on the size of the crowd and get the crowd to look at
themselves.

Because, that is an incredibly powerful mechanism for playing this game. It’s
something that politicians have known for thousands of years, central bankers
are just now getting in on the act. I’ll give you a couple of examples. The first
example, the big slide there, that’s Tiananmen Square in Beijing. Now, to this
day, more than 25 years later, if you even type in the date of Tiananmen Square,
June 4th, you will get a knock on the door from the state security apparatus in
China, and you’re going to be shut down, or worse.

Every year on June 4th, the internet shuts down in China. I’m not making this up.
It is the internet maintenance day. Honest to God, I’m not making this up. The
reason is, that the Chinese government understands, that the risk to their
government is not 200,000 people in Tiananmen Square, it’s that 200,000,000
people will see a picture of 200,000 people in Tiananmen Square protesting the
government.

It’s the crowd looking at the crowd. It’s why sitcoms have laugh tracks. You will
respond more positively to the TV show when you hear the crowd, a
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disembodied crowd, laughing to the lines that are delivered. Try it sometimes. I
mean I’ve done it. Watch a Friends episode without the laugh track ... I like
friends, but it’s not very funny without the laugh track, it’s the damnedest thing.

I’ve got Dick Clark up there. So, Dick Clark died about three, maybe four years
ago. He left an estate of about $800 million. Dick Clark did very well for himself.
How did he make his fortune? Well, American Bandstand got it all started. And,
what American Bandstand did, it was the core of his syndication and his music
publishing business. American Bandstand told middle America what music they
liked. And, he didn’t do it through ... like you might see in some, you know central
European ministry of “culture” with a “k”, you know they come and say “You will
like the oompah. You will like the polka.”

No, it’s actually much easier than that. He got a TV, he got a slot, a TV show with
ABC, and he hired a bunch of young attractive people, and he told them “I want
you to dance around and react very positively to this music that I’m going to be
playing.” Music that oh, my goodness, Dick Clark happened to represent and
syndicate.

So, he played the music. “Oh, it’s got a good beat and you can dance to it.” I give
it ... Did the slides go away? The slides went away. I’m sure one of the slides
went away. There we go, the slides are back, yay, hooray. So, what Dick Clarke
was doing, was he knew that people watching, the audience at home was
watching and it’s like “Wow, those are really attractive, good looking kids, and
they really like this music. I think I like it too.”

Now, we think we are hard wired ... We think we’re immune to this stuff, I
promise you none of us are immune to this, all of us are hard wired to respond to
these sort of signals, to these missionaries telling us to look at a crowd. You
know, it’s why another stage, American Idol, or The Voice, these are all filmed in
front of live audiences. It has nothing to do with the performances, or the
audience that’s there watching it live, it has everything to do with the audience at
home, because you will enjoy that show more when you see and hear an
audience responding positively to it.

That is what is happening when the Fed and the Fed governors, and our
politicians all get up there and shake their finger at us. It forces all of us as
investors, or as citizens to say “Hm, I think everyone else has heard this
message too.” Now, I’m going to go through this part a little quickly. And, the
slides here, I’m delighted to send them to everyone. So, at the end I’ll put my
email address up here, send me and email. Happy to send you a copy of the
slides.

But, this notion of shaking a finger at us, and telling us how to think has been
how Wall Street has behaved forever. I’ve got these three guys up here. These
three robber barons. Certainly you’ve heard of Andrew Carnegie. Jay Gould, he
cornered the gold market in the 1870s. And, here’s the commodore, Cornelius
Vanderbilt. I love reading the memoirs of these guys and their associates,
because they’re never talking about free cash flow.

They’re never talking about the fundamentals of companies. They’re only talking
about the narrative and the story around markets, about how to use their words
to get the crowd to look at itself and say “Oh, I need to buy.” Or, “I need to sell.”
We’ve got this expression “you get a corner on the market”, “win a corner of the
market”. Well, the notion of a corner comes from this notion that you were trying
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to create a corner. They meant it like a newsstand corner, where your message,
your narrative about a company would be heard by everyone, and so it would get
everybody to go to one side or another of the stock, so you could position
yourself to undo that. It happens again today. It’s happening all the time today. I
like to pick on this company. This is the CEO, Marc Benioff of Salesforce.com.
Salesforce.com is a ... it’s not just a large cap tech stock, it’s a mega cap tech
stock. it’s got a market cap of over $100 billion.

It is a company, that has never had a penny of gap earnings, of profit, and it
never will. It never will. It has a business model, that is not designed to ever
generate a profit. And, yet it is a company that’s worth well over $100 billion.
And, how does it work? How can this possibly work? Well, it works for everybody
involved. It works for the Street, it works for management, and that’s who carries
the game. It works for the media too.

So, four times a year Marc Benioff the CEO, he goes on Cramer’s show.
Miraculously, those are exactly the four times a year after he has his earnings
announcement, where he talks not about profit’s, but about something that’s
called “pro forma net revenue growth”. That’s the metric that the Street uses to
evaluate Salesforce.com. I’ll tell you, I have no idea what “pro forma net revenue
growth” means.

it’s a made up idea. Made up by Mark and his management team. But, that
becomes the story around Salseforce.com, and amazingly four out of five
quarters they beat on “pro forma net revenue growth”, and Cramer always goes
“Buy, buy, buy.” And, the same four or five sales side analysts, Street analysts
who write the reports, publish the next day. Marc Benioff has what’s called a
10b5-1 plan.

This is, you have to file a plan to sell stock. So, for five years Marc Benioff sold
10,000 to 15,000 shares of stock. Not every quarter, not every month, but every
trading day. Every day the market was opened, Marc Benioff sold 10,000 to
15,000 shares of stock. Marc Benioff is worth about $8 billion, and more
importantly he’s liquid. Hats off. Hats off.

Why? He understands how to play the game. Now, how does it work for
investors? Well, that’s a chart on the right. Over, again, a five year period of time.
If you only own the stock, for what I’ll call, are the “12 days of theater”, the four
earnings days, and the eight days where you have a Fed press conference.
Those 12 days of theater, where you’ve got people shaking their finger at you
and telling you why “You should buy, buy, buy this stock.”

If you bought it before that day, and you sold it at the end of the day, so you’re
only owning it for 12 days out of the year, you’re up 170% on the stock. If you
owned the stock for the other 240 trading days out of the year, you’re down 10%.
That’s how this game works. This is my poster child, I can draw you a picture of
every S&P 500 stock, and it’s going to have something of a look of that.

it’s how we are driven by these days of theater, by the shaking a finger at you,
and telling you the story, even if it’s as made up a story like “net pro forma
revenue growth” we still buy it, because we’re told to, we’re hardwired to buy it.
That’s Wall Street fake news in action. So, what can we do about this? You
know, ... again, I want to live in the world as it is.

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This is the president of France after World War I. He’s got that famous quote,
that “War is too important to be left to the generals.” I really believe, that over the
last nine years we’ve ended up in a world like this, where what I like to call “team
elite”, Wall Street, management, White House, media, what they believe is, that
markets are too important to be left to investors. And, that’s the world as it is.

Now, what can we do? Like I said, I don’t believe in this notion of the free market
fairy coming down and undoing all of this. So, what I think we have to do just to
survive is this ... I like the poker playing dogs, I like to play poker, and I think
most of us are aware of that famous saying in poker, that if you have been
paying for 30 minutes, and you don’t know who the sucker is at the table, it’s you.

What I’m saying is, just don’t be the sucker. Don’t be the sucker at the table. I’m
not saying to fight the Fed. I’m not saying to go against any of this. I’m not saying
to short Salesforce.com. I shorted Salesforce.com into my hedge fund for a
couple of years, and I got my teeth kicked in every earnings period, until I finally
figured this out.

What I’m saying is don’t be that sucker. Don’t be the sucker. So, when uncle
Wilbur comes on CNBC ... that’s Wilbur Ross our commerce secretary, and he
holds up the Campbell’s soup can to say “Oh, no, no, our steel and aluminum
tariffs, they do nothing. They won’t do anything for inflation, they won’t do
anything for corporate cost. It’s fine.” Understand, that what uncle Wilbur is
doing, is he’s shaking his finger at you.

He’s telling you how to think about the tariffs. And, all I’m saying is to step back
and understand that, that’s what they’re trying to do. All of them, that’s what
they’re trying to do. And, I think we need to have some tools, and some ability to
make up our own damn minds about what we’re going to do. And, in the last
minute here, or last few seconds really, I want to show, or introduce to you an
idea, a technology that I’ve been using a lot.

it’s called Natural Language Processing. What it does is, it basically takes every
article that’s been published about a certain topic, in this case I wanted to look at
inflation, and we create a snapshot of the sentiment and the relationships
between all of these articles. The sum total of the finger pointing, and finger
wagging that’s going on with us.

So, this is the sum total of the narrative around inflation, from two years ago to
one year ago. Here it is today. And here, over the same time period, over the
same media sources is the narrative around budget deficits. What I’m telling you
is, that inflation is happening. I don’t know, if it’s the inflation truth, but I know it’s
the inflation narrative. And, that’s going to change everything for every investor in
this room.

Again, I don’t know what the truth with the capital “t” is, but I know what the
narrative is, and I know there’s not some counter veiling narrative around budget
deficits, that could control that. I think it means we have to think differently about
everything, and I’m as worried about as anyone about the “three horsemen year”,
the Fed, the China, ... the China ... the Fed, China, and Italy, these event risks.

But, what I want everyone to pay attention to is this fourth horseman, that no
one’s really paying a lot of attention to today, and that’s our regime change in the

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 way we think about inflation. it’s something we haven’t thought about for 30
years, but I think it’s coming back.

So, as you can tell I love to talk about this stuff. I’ve got a website where we have
lots of articles and stuff about this. By all means send me an email, and I’d love
to carry on the conversation, I’d love to share the slides, if anybody’s interested.
Thank you so much.

Byron King
“A Nation On The Edge Of Forever”

Robert Helms: Right now, I’d like to introduce you to a Mr. Byron King. He’s going to talk about
The Country On The Edge Of Forever. Byron is a Harvard-trained geologist with
a strong background in geochemistry and mineralogy and he’s also a former
Naval Officer who served on the staff of Chief Of Naval Operations and now
Byron writes about precious metals and mining for Agora Financial. His
newsletter is called the Rickards’ Gold Speculator with Byron King. Byron
uncovers investible opportunities in precious metals looking for asymmetric
trades with minimum downside and strong upside. He focuses on applying high
tech to classic gold geology and he writes in a very common sense approach
that’s easy to understand. I think you’ll enjoy our next talk. Please welcome Mr.
Byron King.

Byron King: Thank you very much. Good evening everyone. I am the warmup act for Brien
Lundin and I want you all to know we have to be very, very nice to Brien tonight
and actually for the next couple of days because this conference is on the
weekend that LSU is playing Alabama and Brien has to schedule these things
like two or three years ahead of time to get the Hilton so I feel really bad. He
might miss that game. If you don’t see him on some evening, he’s at the game so
be nice to Brien when we see him but for now, I’m going to talk about The
Country On The Edge Of Forever.

My newspaper is the Rickards’ Gold Speculator with Byron King. It’s about gold
and silver. It’s about gold, silver, Western American decline in a constructive
way. It’s gloom and doom but you know we talk about it in a way that hopefully
will help. I work with a guy named Jim Rickards. He knows a few things. He’s
written a bunch of books on currency and money and gold and The Road To
Ruin, New York Times Bestsellers. I would usually talk about these books but
they told me to hurry up because we’re behind schedule and we gotta catch up
but I work with Jim. He’s fabulous to work with. His view is that if you take global
money supply and you back it with 40 percent gold, you need $10,000 gold which
gold is twelve hundred and thirty something dollars as it was an hour or two ago.
That’s an eight times rise on the price of gold but then in a world of $10,000 gold,
you might be paying $25 for a gallon of gas too. Be careful what you wish for.

I want to digress. Everybody’s seen Star Trek. You know The Enterprise, Captain
Kirk, all that stuff, and I want to talk about that because the best episode ever of
Star Trek, at least the original one, was called The City On The Edge Of Forever.
You may not know the title. If you’re a Star Trek watcher, you’ve probably seen it.
The Enterprise goes into orbit around this mysterious planet and naturally Dr.
McCoy, he gets infected with this virus which makes him crazy but down on the
planet is this old city that’s ruined. It looks like Roman ruins as many ruins did on

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Gene Roddenberry’s Star Trek. But there’s this time tunnel in there that you can
jump through this portal and you can go anywhere in the universe, anytime,
whatever. It’s the city on the edge of forever and so poor McCoy, he gets this
brain disease or something. He jumps through. He goes into the past and all of
the sudden, everything’s different. Here’s Kirk and everybody. They’re on this
planet but there’s no Starship Enterprise anymore. Oh God, what happened?
And of course, Spock with his tricorder which is really an iPhone, an advanced
IPhone. Spock said oh yeah, he changed the past. We have to go back and
unchange the past.

It turns out that what happened was Dr. McCoy had gone back in time to the
1930s and he had changed the 1930s so that Germany wound up winning World
War II. The US was delayed getting into the war and that opens up an entire new
idea but Philip Dick stole the idea with The Man In The High Castle. What if
Germany had won World War II? Well, among other things, there would be no
Starship Enterprise and that’s kind of what happened.

So anyhow, Captain Kirk has to go back and fix the past. Now, he winds up fixing
the past by falling in love with Joan Collins, a young-looking, beautiful Joan
Collins but she has to die which is very sad. It’s really, it’s a great episode of Star
Trek and it has to do with what we call counterfactuals in the history business,
you know, like what if the South had won the Civil War? That kind of a thing.
Probably the wrong place to be showing a Confederate flag. Forgive me but I
actually got this picture from the San Francisco Chronicle so blame them. The
San Francisco liberals out there so this was in an article of what if the South had
won the Civil War.

Let’s get closer in time because you may or may not be thinking about it. I mean
today is November 1st. Next week, you know November 11th, is Veterans Day,
Armistice Day is what it used to be called. The 100th anniversary of the end of
World War I and it’s not the 99th and it’s not the 101st. It’s the 100th. You only
have one 100th anniversary. Now a lot of people in this room, I’m not going to
embarrass anyone, many of us are old enough, perhaps, to remember the 50th
anniversary of the end of World War I. That was in November of 1968 but you
were probably busy doing other things. Maybe you were in Vietnam. Maybe you
were worrying about the election between Nixon and Humphrey. Maybe you
were worrying about, you were much younger then. Of course everyone here has
aged well, I’m sure.

But this is the 100th anniversary coming up and that’s important because it really
gives a lot of people time to reflect and think back. The Great War they called it
then. Such a victory, really? From what you perhaps know about World War I,
you don’t even have to be a great scholar of World War I. I mean, what a mess of
war that was. The war that kinda shouldn’t have happened. Everybody expected
it. Nobody wanted it. When it started, nobody could stop it. When it came time to
stop it, even then, it was just a total mess. It wrecked the world. But what if Dr.
McCoy, instead of changing, what if Dr. McCoy had gone back and stopped
World War I?

I mean, let’s counter factualize. Let’s just think about it. Put it all on one slide. I
hate to show you eye charts but just no war, no carnage, no wreckage, no
destruction of people and property. Think of all the European empires that may
have persisted. Otherwise, I mean the British saw the beginning of the end of
their empire. The French saw the beginning of the end of their empire. The
German empire was gone. Austro-Hungary was destroyed. The Russian empire
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died. The Turkish empire died. The Middle East was carved up and we’re still
dealing with that 100 years later. I mean all those boundaries in the Middle East
were drawn at the end of World War I.

There would have been no Russian Revolution, no Civil War in Russia. No

Bolshevik Revolution. No Soviet Union. Hmmm. No Treaty Of Versailles. No
World War II. Geopolitically, the United States may have remained on the
Western side of the Atlantic as opposed to inserting itself on that side at least to
the extent that we did such that we wound up going back 20 years later. We
would live in a different world. This isn’t a history class. It just sort of gets your
mind thinking what if Dr. McCoy had used that time tunnel to stop World War I?

I mean the world might even have remained on a gold standard. I mean these
are all gold coins from 1914. They were all minted in 1914. U.S. Dollar. There’s a
British sovereign. There’s a Russian five ruble piece. They got Austro-Hungary,
German, French, Belgian. So I mean, the world was on a gold standard up until
1914 and then when the war started, everybody went broke in a hurry. Germany
had these gold reserves in Spandau Fortress which became Spandau Prison
where they put Albert Speer and the war criminals after World War II. But
Spandau Fortress was sort of their Fort Knox. They ran out of gold within about
two months.

World War I was fought on credit. World War I was financed, in many respects,
by the bank, not the Bank of England, but by the United States Federal Reserve.
I mean Woodrow Wilson wouldn’t allow, he did everything he could to stop
money flowing out. But if you really examine it, World War I, in big, big parts on
the Allied side, was financed by US credit extended to the Allies. I mean, they ran
out of money but they still fought the war on credit.

But if the world had remained on a gold standard, that could have ended the war.
But no Dr. McCoy didn’t prevent World War I so let’s get out of the
counterfactual. We live in this world. In this world, in the US, we have problems
and we’ve got great things. You know we’re going to make American great again
and all that stuff but we’re make America great from a pretty tough base line.
Factories and industries, we’ve deindustrialize the country. We have homeless
people. I mean California is such a rich state but 40 percent of the people live
below the poverty line. We got troops all over the world dropping bombs, nothing
that can’t be solved with a few air strikes. That seems to be the ethic. We have
infrastructure problems. That’s the I35 bridge in Minneapolis a few years ago.
You know, pollution, EPA superfund sites that have never been cleaned up. After
40 years of the EPA, we still haven’t cleaned up hardly any of the EPA superfund
sites. $21 trillion worth of debt. That’s pretty interesting. You subtract that from
the GDP and we have negative wealth in the country so you can all work for a
year for free and we still haven’t paid off the debt.

But decline is a long-term thing. It’s been happening for decades and decades
and decades under all of these August leaders that we see here in this nice
picture and all elements of power are at risk because of the debt and because of
the commitments we’ve made, the promises that the country has made on an
individual basis, on a business basis. In the previous panel, one of the questions
was do you think blue chips are a rival to gold? Well yeah they are and they
cheated. When you think about all the blue chips, I’m just, this wasn’t part of the
talk but...you know blue chips for the last 10 years have been nothing but
borrowing money and buying back shares. So yeah sure. Blue chip shares have
gone up in value, competed against gold. Gold is sort of beaten down by that but
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how long can you do this? How long can you juggle these balls? Look at General
Electric, you know? Finally, the wolf’s at the door. Look at IBM. Wolf’s at the
door. The desperate bet the company, buy Red Hat, because if they don’t, who
knows where IBM’s going?

But anyhow, all elements of US power are at risk. It takes me to a book that you
may have read. You could borrow it from your local library. It will be a gently read
book, I assure you, as the librarians like to say. Samuel Huntington’s book The
Clash Of Civilizations, a fascinating book that talks about what is it that makes a
civilization great. I mean why does the West, why does the US, why do we
dominate the global order?

Well the simple answer is, I mean the basic fundamental two-line answer is
World War II ended and it reset the power game. Europe was destroyed. The
Soviet Union was destroyed. Asia was destroyed. The rest of the world was an
undeveloped world for the most part. There was the US with lots of people, lots
of money. We had atom bombs. We had the Bretton Woods made the dollar the
name of the game. But further than that, let’s use a couple of Samuel
Huntington’s ideas. What is it that makes the US run the world and as we go
through these, just think to yourself if we’re up here right now, is the US position
at risk?

It helps to understand why you want to own some gold. The West, the US, own
and operate the big banking systems, okay, but how healthy are our banks? Do I
need to really need to get into that? You control the world’s key currencies. Well
okay, the dollar is the key currency so far but we’re doing everything we can, the
US, to make people not want to use the dollar. Sanctions on this country.
Sanctions on that country. Pretty soon they start de-dollarizing. They start going
around you. India is buying defense equipment from Russia. They’re going to pay
them in rubles. China’s buying oil from Saudi Arabia. They’re using yuan. So if
you abuse your privilege of controlling the key currency, eventually you’re not
going to have that privilege anymore.

Dominating the international capital markets, well we like to think oh yeah, US,
are you serious? I mean you look at the world, China’s buying up the world. You
go anyplace and China’s owning, they’re buying oil fields. They’re buying mines.
They’re buying mills. They’re building railroads. They’re owning the ports and
harbors. They own the Panama Canal for God’s sakes.

World’s principal customer. Who’s the world’s principal customer? Whoa, it’s the
US. Maybe for Wal-Mart but the world’s principal customer, who buys half the
world’s copper? China. How much of the world’s oil does the US use? About 20
percent. That leaves 80 percent for everybody else.

Provides many or most of the world’s finished goods. Can you say that about the
United States? US companies provide a lot of important things, you know,
Boeing, Caterpillar, high-end computers, but most of the world’s finished goods,
eh, not really. Travel around. Look around. Do we have a ship building industry in
the US? No way. I mean why do you think we have tariffs. Tariffs because
deindustrialized huge parts of the economy. Corporate boards and corporate
management teams made these decisions over the years to outsource things.
Entire industries, entire supply chains left the country. They’re not here anymore.

Controls the sea lanes. I say this as a retired Navy guy on my own personal
account, not as a representative of the US government or the Department of
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Defense or the Navy, controls the sea lanes, are you kidding? With the Navy
we’ve got? The ships we’re buying? Are you kidding? It’s not working. It’s not
working. We sail around, show the flag, make a big splash. In terms of controlling
the sea lanes, I assure you, we don’t.

Capable of projecting significant military power ideally to win. Oh yeah. How’s

that working out? I mean 17 years in Afghanistan and what’s the theory of victory
there? I mean the theory of victory is pack all that shit up and get on the
airplanes and get out of there. We’re not going to fix that place. Pardon my
German. I’m sorry.

Conducts most advanced technical research and development. Oh we love to pat

ourselves on the back for that but really, if you follow this stuff and I do, there are
entire fields of endeavor where the US is certainly not the world leader, let’s say.
We’re the world’s leader in telling our children that they should feel good about
themselves but when it comes to what’s coming out of the laboratories and
getting operationalized, not so much.

Sets the global pace for technical education. Oh, you cannot be talking about the
United States. That’s for sure. In China, the China thing, they have entire
universities that teach geology. I sat next to a guy at a convention one time and
he was from China. I said what do you do? He said oh, I teach at the Wuhan
Geological University. I said it’s a university about geology? He said oh yeah. I
said how many students do you have. Oh, 40,000. I’m like you have 40,000 kids
studying geology. He says oh, I’m sorry. No, no, no. Only 20,000 studying
geology. That’s more than all the geology students in the whole country. This is
at one university and the other 20,000 are studying chemistry, physics, math.
Maybe they have a few kids studying dance or something but they’re all studying
math, physics, chemistry, engineering.

Then great countries exert moral leadership across borders. Well, I was actually
heartened the other day when I watched Secretary of Defense Mattis finally say
that maybe Saudi should quit bombing Yemen, killing all those people there. I
thought US jets, US bombs, US command and control, you know, but Saudi
pilots dropping bombs on Yemen. I mean, get over it.

How about a great country that dominates international communications

technology and access? Well, we like to think that we’re pretty wired here in the
United States but we’re also pretty hacked. I mean, a lot of people can hack us
and shut down our electric power about that fast, you know?

Dominates the aerospace industry. Yeah, okay we can say that except maybe
we don’t. I mean it depends what you’re talking about. I mean how much of a
Boeing jet is made in the United States? Fifty years ago, 97 percent of a Boeing
jet was made in the United States. Anymore, like the Boeing 737 I flew down on
here this morning, I would say on a good day, maybe 40 percent of a Boeing jet
is made in the United States. The rest of it’s all parts assembled but it’s made
everywhere else.

Dominates access to space. Oh that’s a good one. That’s a good one. How do
our astronauts get to space? They ride rockets in Russia, that’s how they get to
space. We shut down the space shuttle program 10 years too soon.

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 Dominates the high-tech weapons industry. Well now, there’s something. Ra! Ra!
America! Oh yeah. I do geology but sort of, it’s an old Navy thing, as a hobby I
follow the weapons of the world and I assure you that the Russians have really
come up with some incredible, incredible things. They can see the stealth. They
have, oh my goodness, they have missiles that can go from sea level to low
Earth orbit and shoot things down. They’re that good. If somebody says well
would you trade our F-15s for their F-35s? Yeah, actually I would. I actually
would. I’d trade them plane for plane.

So anyhow in every one of these elements, the US is facing competition. The US

relative position is in decline. It’s under challenge. Russia has the gold. Russia’s
making deals with the Saudis. China has their South China Sea. They’re looking
to space. Russia has weapons. I could go on and on and on but I won’t because
it’s too depressing and I say this to just kind of try to get you thinking about it.
This is the country on the edge of forever here.

To change the future, we have to, in some respects, change the past except we
don’t have a time tunnel. We have to change the past now by doing things now
today. Part of it which is invest in technology and technology metals and buy gold
and silver so that when something bad happens to the dollar, at least there’s a
few of us out there who have some serious wealth that’s sitting in our hands.

Three generations of American power squandered away in what I’d call national
decline. We face two nuclear industrial superpowers. One of which fields a world-
class armed force, that would be Russia, and a military political as opposed to
economic. Russia and China are formalizing a relationship. It’s not the unipolar
world anymore. It is a multipolar world and the US has to figure out how to deal
with it. If you take any photos at all, take a photo of that. Read this book. It’s on
Amazon. It came out in September. Andrei Martyanov is a Russian naval officer
who lives up in Seattle. Losing Military Supremacy, it’s a very readable, very,
very good book, a Russian Analysis, a Russian perspective of the problems with
US power.

And if you can’t save the world, find some gold because that’s kind of why we’re
here and then later on tonight, I’m going to go through a whole lot of gold
companies that I cover, that I write about that I’ve been following as we await the
monetary calamity whenever and wherever that is, I say gold leads the way. Got
to have a strong mining industry, a strong gold industry.

Thank you very much as I put a US dollar and a Russian gold Chervonetz on
there for you and I have used up every second of my time and it’s over. Thank
you. I give you now the next speaker who will talk to us about UEC, Uranium
Energy Corp, and then please be nice to Brien Lundoi cause he’s going to miss
the LSU-Alabama game. Thank you.

Robert Helms: Alright. Good stuff.

Robert Kiyosaki
“Why Debt & Taxes Are Making The Rich - Richer”

Gary Alexander: And now, for a real highlight, we’re going to welcome back Robert
Kiyosaki who is best known as author Rich Dad, Poor Dad. The number

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 one personal finance book of all time. He’s challenged and changed the
way that tens of millions of people around the world think about money
and real estate, for that matter. He’s an entrepreneur, educator, investor
who believes the world needs more entrepreneurs as we do and have
done from the beginning by our founder and great entrepreneur James U.
Blanchard. With perspectives on money and investing that often
contradict conventional wisdom, Robert has earned an international
reputation for straight talk, irreverence, and courage, and has become a
passionate outspoken advocate for financial education. His most recent
book came out this year, Why the Rich are Getting Richer, and More
Important Than Money, were published spring of this year to mark the
20th anniversary of the 1997 release of his Rich Dad Poor Dad original.
To learn more, visit richdadpoordad.com or rather, richdad.com. Who
needs the poor dad.

Now, he’s going to be joined today by Tom Wheelwright who’s CPA and
CEO of wealth ability in Tempe, Arizona. He’s a best selling author of,
Tax Free Wealth, and founder of Provision. He’s also a contributor to,
More Important Than Money, an entrepreneur’s team. I missed that. More
important than money, and Why The Rich are Getting Richer. Tom is a
leading wealth and tax expert, global speaker, entrepreneur magazine
contributor, who is best known for making taxes fun. I’d like to experience
that. And easy, and understandable. And specializes in helping
entrepreneurs and investors build wealth through practical and strategic
ways that permanently reduce taxes. He’s a rich dad advisor to Robert
Kiyosaki. And he frequently speaks at conferences worldwide to
entrepreneurs on all of these topics.

So, the subject today for both Robert Kiyosaki and Tom Wheelwright is
why debt and taxes are making the rich, richer. So please welcome both
Robert Kiyosaki and Tom Wheelwright.

Robert Kiyosaki: Before I begin, I’ll introduce Tom Wheelwright, who didn’t get the memo
today. He’s supposed to wear red, I wear the blue. We look like we work
at K-Mart or something. But anyway, Tom really is, he’s my personal tax
advisor. He’s a CPA. And how many people in this room have had bad
CPA’s? How many people have had great CPA’s? Good, thank you. How
many people have CPA’s that are cowards, who want you to pay taxes?
Those are the worst CPA’s, okay. But Tom, as most of you know if you’re
entrepreneurs, or you’re tax payers, taxes are the single largest expense.
And I’ve had great CPAs, but Tom is the best. And so I asked him to write
this book here tax for your wealth, really as my advisor. Anybody who
hates paying taxes, this is the book, and the best thing about Tom, he
makes it simple and understandable for entrepreneurs like me to
understand. The reason Tom is so good at what he does, he is also an
entrepreneur. He starts companies and things like this. I’d like to
introduce my advisor Tom Wheelwright. Big hand for him.

Tom Wheelwright: Thank you.

Robert Kiyosaki: Can I see a show of hands, how many people have read Rich Dad Poor
Dad? Good, thank you. Who has not yet read the book? Oh my god. I’m
always afraid that someday there’ll be no buyers out there. Well it’s been
21 years, it’s still top 10 on Amazon. Top 10, I think it’s number 1 in Japan
today. It’s even number six in France, the communist Republic of France.
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The only place that doesn’t sell well is in the communist Republic of
California. But anyway, the story of “Rich Dad, Poor Dad,” I’ll quickly draw
this schematic here. Okay. The reason Rich Dad, Poor Dad is so
successful, it’s basically a book on accounting. That’s all it is. How many
people in this book have studied accounting? Good. How many people
have never studied accounting? You’re lucky. It is the single most boring
subject on planet earth, you know what I mean? So that’s why Tom helps
me. This is Rich Dad Poor Dad.

I was born in Hawaii, I’m fourth generation Japanese-American, which

means I don’t speak Japanese, so. A lot of people come up and try to
practice on me, I say, “Hey, I don’t do that stuff you know. I barely speak
English.” But Rich Dad Poor Dad is simply a book on accounting. And
Tom’s been one of the best guides on it, because this is how it started.

When I was nine years old, my rich dad very simply said to me, he says,
cause I was flunking out of school. My poor dad was the head of
education for the state of Hawaii. And my rich dad was my best friend’s
father who never finished school. And the reason he never finished
school was because his father died when he was 13, and at 13, rich dad
had to take over the family business. So this was the difference, rich dad
went to school in real school. He didn’t have fake teachers. A fake
teacher is somebody who doesn’t do what they teach.

Rich dad was taught by his accountants, his bookkeepers, his attorneys,
his banker, his brokers. Everyday, they are in the business of business.
And one of the reasons I dropped out of my MBA program was because
the teachers were fake. When I was sitting, I was a marine pilot, I was still
just coming back from Vietnam in 1973, and I enrolled in the MBA
program in Honolulu, I was stationed at Kaneohe marine corp air station.
And I sat in the MBA class, and this teacher comes out, guy was younger
than me, cause I was already 27. He didn’t know what he was talking
about. And I asked him a quick question and said, “Are you an
accountant?” He said, “Yes, I have a masters in accountancy.” I said,
“That’s not the question.”

Being a marine, how many people remember the Vietnam era, I was not a
popular guy sitting in MBA class among all these communist students.
They’re spitting at me. So I’m sitting there, and these kids are like, 20
years old or whatever they are. And I’ve just come back, I’ve had friends
die and all this stuff. I’ve gotta put up with their BS, you know.

So, I’m sitting in this class, and I ask the instructor, “Tell me, are you,” I
just repeat the question. I’m a marine lieutenant, I just don’t like BS you
know? And I said, “Are you an accountant?” He says, “Yes, I have a
masters in accounting.” I said, “That’s not the question. Are you an
accountant?” He said, “I have a masters in accountancy.” I say, “Have
you ever been an accountant?” He says, “No.” I resigned from the MBA
program. He had no idea what he was talking about.

That’s one of the problems with young people today, they’re going to
school with teachers who don’t know what they’re talking about. I
remember I went to military school, the academy in New York, and I
asked my calculus teacher, I said, “When will I ever use this calculus?”
He says, “I don’t know.” I said, “Why do you teach it?” “Cause I get paid.”
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 And today, my brain is still messed up taking three years of calculus, I
had no idea what I was studying, okay.

Anyway, Tom has really helped me with those things like this. But Rich
Dad Poor Dad is about income, expense, assets, and liabilities. That’s all
it’s about. And one more thing, the most important word for those of you
who are in real business, is a statement of cash flow. That’s all it is. So
very simply, Rich Dad Poor Dad, the statement of cash flow says, assets
put money in your pocket, liabilities take money from your pocket. That’s
all the book’s about.

So the reason people are in trouble financially is they buy houses they
think are assets. But it’s really taking money from your pocket. Whereas I
buy a piece of rental property and put money in my pocket. That’s the
difference. So that’s all Rich Dad Poor Dad was about. Any comments on
this, Tom?

Tom Wheelwright: Now, that’s why I love Rich Dad Poor Dad, right? How many world
famous books are there about accounting? I think one. What most people
don’t recognize either is that liability is okay if it’s producing an asset,
because it’s all about the cash flow.

Robert Kiyosaki: The word asset is a noun. A house is a noun. But you don’t know if it’s an
asset or liability until you apply the verb, which is cashflow. So I could
have a rental property, and it’s producing income one day, but it goes
vacant, and now it shifts into a liability the next day. And that’s what
happened to many people in 2008, they got hammered. Because the
tenants moved out, lost their jobs or whatever it is. Basically, all Rich Dad,
was produced 1997, 21 years ago. It’s very simply about what they
should teach kids about money. That’s all it’s about.

This here, is a second book and it’s called the Cash Flow Quadrant. And
this is the cash flow quadrant. So again, I am nine or ten years old, my
rich dad’s teaching me assets versus liabilities, and then he started
teaching me about the four people in the world in business. How many
people read the Cash Flow Quadrant? Good, thank you. For those that
haven’t, very simply, E stands for employee. My poor dad always said, go
to school to get a job. That’s why they’re employees. My mom wanted me
to be a specialist, like a doctor, or attorney, or a lawyer, or a pizza shop
owner. And I said to my mom, I was a C student, I’ll never become a
doctor. She said, “You’re right, you’re not gonna make it.”

But this is where Tom comes in, is because, and as Tom will tell you,
employees pay 40%. All these guys who’re becoming entrepreneurs
today, they leave their jobs or their colleges of teaching kids to be
entrepreneurs. They move into a higher tax bracket, without financial
education. And business owner, which is 500 employees or more, these
guys pay about 20%. And this is worldwide, right Tom?

Tom Wheelwright: Worldwide.

Robert Kiyosaki: And these guys pay 0%. So when I was nine or ten years old, my rich dad
said, “Which one would you like to be?” Well that’s easy. Here. So this is
Shark Tank. These guys are passive investors. They buy stocks, bonds,

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 mutual funds. Save money. These are inside investors. They’re inside the
deal. Very different. So Tom’s gonna talk quickly right now about the
Trump tax cut, and how it affected those here.

Tom Wheelwright: Yeah, so fundamentally, when you look at these different weights, it’s just
a matter of what the government is rewarding. Cause the tax law is just a
series of incentives. It’s an incentive for things like, creating employment.
So these guys create a lot of employment, they get a lot of tax incentives
to do that. Or creating housing, or hotels, or whatever type of investing.
Agriculture. So these guys get a lot of taxes.

Robert Kiyosaki: Or oil and gas or food and things like that. Which is right here. See these
guys here have really good tax advantages, right?

Tom Wheelwright: Right, because this is what the government wants you to do. They’d like
you to put your money here. If you put your money here or here, they’re
going, “That’s fine, we’re happy to take your money.” The reason these
guys are so high is because they’re paying not only the employee share
of the taxes, but they’re also paying the employer share of the taxes. So
that’s why you end up in such a big tax bracket down in self-employed.
That’s again worldwide, not just the US.

Robert Kiyosaki: The numbers may vary a little bit, but generally that’s the way. Because
the government’s gotta have these guys as partners, right?

Tom Wheelwright: Well yeah, cause these guys are doing what the government needs
someone in the private market to do. But the government doesn’t want to
do themselves. So they’re encouraging people to do this. Now what
happened in the Trump tax bill last year, is fascinating. Because these
guys, the money had to come from somewhere, right? So these guys
ended up losing a lot of their tax benefits. These guys lost a lot of tax
benefits, and permanently, by the way. Not temporarily. These guys got to
see their corporate tax rate go from 35% to 21%.

Robert Kiyosaki: Amen, George.

Tom Wheelwright: 40% tax break, immediately. So they had a huge tax break. These guys
are the only people in the US who did better than these guys. They saw,
for example, a real estate deduction on a million dollar property going
from $100,000 the first year, to $300,000 the first year. In fact, I was
talking to Mike Miceli and I said, “How does it feel to actually have real
estate be a better first year deduction than oil and gas now?” That’s what
happened in the 2017 law.

Robert Kiyosaki: So again, the rich get richer, and these guys should move to California.
Well, I don’t know, how many people are from California here? Ever
heard of allied moving vans? Get out very quickly. But the point here, this
is poor dad, and this is rich dad. And again, these guys are insiders. Why
do I like real estate? Cause I’m on the inside. I don’t want to be on the
outside, I don’t have any stocks, well I might have a few. Stocks, bonds,
mutual funds and ETF’s, cause I don’t like being on the outside. Plus, I
don’t get the tax breaks.

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 And by the way, if I could say something, I’ve had a pretty checkered
career. My background, I went to the US Merchant Marine Academy at
Kings Point, New York, and my specialty is oil and gas. I was a tanker
driver. So I drove oil tankers for standard oil of California. That’s why I
invest with Mike Miceli and other oil companies. Let’s say I gave Mike
Miceli $100,000, what’s my tax break, immediately?

Tom Wheelwright: Immediately, $40,000 back in your pocket.

Robert Kiyosaki: Try getting that from Exxon. You don’t get it. So why would I touch Exxon
mobile or standard, my own old company? And so after I sale for
standard oil, that’s why I like oil and gas. I’m a resource guy. And that’s
when I joined the marine corp, cause the Vietnam war was still on. So I
went to Pensacola, Florida, which just got hit by that hurricane. And then
went to Camp Pandleton and straight to Vietnam. And then I realized
Vietnam was not about saving communists, or killing communists, it was
about oil. Because China did not want, I mean America did not want
China to get Vietnam’s oil. That’s why we’re there. Nothing to do about
communism.

But anyway. And then, as part of my career to understand this, I’ve taken
three companies public. They’re all resource companies. I took an oil
company public through the TSX Toronto stock exchange. I took an
Argentine silver mine public through TSX, and I took a Chinese gold
company public through the TSX. So when I walk these halls here, I get
the same vibes. I love it, because when I’m walking the halls here at the
New Orleans investment conference, I’m with real entrepreneurs. First
thing I ask them is, are you going public, or when you’re going public?
Because anybody that knows anything, the money is made before it goes
public. I’m not saying anything wrong about guys who already are public,
a lot of TSX companies here. Cause Vancouver, the wild west,
Vancouver where all the banditos hung out. And TSX, Toronto. That’s
where the resource guys are.

So I spent about 10 years up there doing these resource deals, just so I

could understand the public markets. And I feel for these guys. I have a
simpatico with them. And that’s why I love the New Orleans investment
conferences, because this is where the real entrepreneurs are. But as
you guys know, the money is made before it goes public. And I’ve taken
three of them public. I do a lot of business in China as an author, but my
company, back in 1996, 1997, we found the biggest gold play in China
was in Dalian province. Took it public under TSX, and we did a drill and
we came up with about a billion ounces of gold. A billion dollars worth of
gold, I don’t know how many million ounces.

What Trump is fighting for right now, as you guys now, what’s mine is
theirs. And my gold mine got confiscated. It’s called a country risk. But
they don’t teach you that in business school, you know what I mean? So
anyway, I love the New Orleans investment conference, but it’s where we
hang out.

Basically, this is my background. I do practice what I preach, I do do this.

Tom, do I have assets?

Tom Wheelwright: A lot.

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Robert Kiyosaki: Yeah. And the reason I have assets, is my rich dad taught me just playing
Monopoly. Four green houses, 1031 tax deferred exchange, red hotels.
So I own red hotels, that’s how I get up to 500 employees. Of golf
courses, oil wells, and gold. Lots of gold. Any comments on this stuff
here, Tom?

Tom Wheelwright: Well, I can say, being Robert’s personal account he’s told me I can say
this. What he’s done is pretty amazing, because if you think about it. So
the more income you make over here, the more taxes you pay, right? But
the more assets you buy over here, the fewer taxes you pay. So the more
real estate. Robert makes all sort of money selling books and in his
business and so forth. What he has to do is push that money into assets
or else he’s gonna pay a ton of taxes. It’s really that simple.

Robert Kiyosaki: So that’s where I go into right now, it’s called the infinite return. So, 1973,
when I came back from Vietnam, my poor dad wanted me to go here and
get my masters, get my PhD like he did, and my rich dad said, “Come
here.” So I went here as you can tell, because I didn’t like school,
personally. I liked military school, I loved flight school, I just hated
academics and school teachers. Because I don’t like fake teachers. And
Tom and I have taught all over the world, haven’t we?

Tom Wheelwright: We have.

Robert Kiyosaki: And the worst teachers are?

Tom Wheelwright: Accounting professors. It’s true.

Robert Kiyosaki: They wouldn’t know their ass from a hole in the ground. But they don’t
understand cash flow, right?

Tom Wheelwright: That’s the challenge. They don’t.

Robert Kiyosaki: Because they go operate on the definition of the word, versus the
technical, or the useful benefit of the word. That’s the big difference.
That’s why, as you know, Nancy Pelosi and Obama and many of our
leaders. That’s why the cash keeps flowing out. They don’t know asses
from liabilities. And that’s why we’re going broke as a nation.

Okay, so what we’re going to talk about today is an infinite return. And
very simply, if you have a real financial education, you’ll never need
money, and you’ll never pay taxes. But they don’t teach that in school.
And by the way, I’ve been working with the real estate guys for 20 years
now, and Tom and I will be on their summit at sea, and this year the
theme is: The Infinite Return. There’s only a few spaces left on the cruise,
but many of my advisors will be with me, with Tom and I on this cruise.
And the whole theme is how you make money with nothing. Because you
don’t need money to make money. It’s one of the biggest lies. And when
people say that money doesn’t make you happy, well working a job you
hate doesn’t make you happy. And paying a lot of tax doesn’t make me
happy. Being on this side makes me very happy. And I’m glad there’s
people who like being on this side, but I didn’t like it here. I wanted to be
here.

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 So this is called infinite return, and Tom will guide ... He is really my adult
supervision up here, okay? Tom is the A student, and I was the

Crowd: C student.

Robert Kiyosaki: Not even C. I flunked English twice, and I’m now known as the best
writing author. Bestselling author. On the side of teachers. But the
teachers that flunked me, one of them my father fired. He just, you’re out
of here. It was my sophomore year of high school, I was 15. So this guy,
Dennis Gibson flunks I think 80% of the class. So my father called him up
and said, “Hey Dennis, you’re out of here.” When my father fired the
teacher that flunked me, I suddenly became big man on campus. But the
good news is, I did get to one of the best schools, the United Sates
Merchant Academy in Kings Point, New York. I got two nominations. One
to Naval Academy in Minneapolis, one to Kings Point. I took Kings Point
cause Kings Point has the highest paid graduates in the world. Back in
1965, were making about $120,000 a year. And a lot of it tax free. Which,
not much money today. But $120,000 in 1965 was a lot of money for a 21
year old kid. And I gave it all up to go fly for the marine corp, which
proves not very smart.

But anyway. But thank god, cause I knew I was gonna be rich, I just
didn’t, I just wanted to have some fun and fly for a while. Initially the Rich
Dad company, from 1997 was to elevate the financial wellbeing of
humanity, cause ladies and gentlemen, we’re in trouble. We’re in very,
very big trouble. And the trouble is, our kids are leaving school stupid and
poor. There is now new evidence coming out more and more, if a kid is
born to a poor family, they will die poor. There is no chance for them.
That’s the problem. Cause family and religion and education has more
effect on them than anything else.

So in 1997 we formed this company. Today we’re gonna talk to you about
infinite returns. Infinity. And it’s called an infinite ROI. And we talk about
ROI, it equals return on information. Information we don’t get in school,
and information our political leaders should actually educate themselves
with. Trump knows this stuff, but unfortunately Pelosi, Obama and
Clintons, they only know one thing. Steal money. That’s the problem with
them. I’m not republican or democrat, I just don’t like people who steal.
Trump lies, but he doesn’t steal that much. I know some people love him
and some people hate him, and I don’t really care. We do need
somebody who knows money, at least.

This was Reuters. You can see I’m not the best student, I just tore this out
of a newspaper. October 13th, 2008. Kushner likely paid little taxes for
years. I mean they make it sound like a bunch of crooks for not paying
taxes. And it says, “Kushner’s tax will reflect the use of a tax benefit
known as depreciation.” Tom, is depreciation criminal?

Tom Wheelwright: Depreciation is very intentional, and the US has better depreciation rules
than any country on earth right now. The fact is that you buy a piece of
real estate that’s rented out, or used in your business, you’re probably
going to get to deduct about 30% the year you buy it. So it’s a huge
incentive right now. And way bigger than most countries.

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Robert Kiyosaki: I want you to know we’re not saying buy real estate. Because right now
I’m a net seller. I’ve never sold real estate, but I’ll explain why I’m selling
for the first time. But, it’s not a time to buy because of taxes, is that
correct?

Tom Wheelwright: Well the tax benefits are enormous right now.

Robert Kiyosaki: But you don’t buy because of tax, okay. So Kushner’s wife, Ivanka Trump
received at least 82 million outside income in 2017. How much tax did
they pay on 82 million, Tom?

Tom Wheelwright: My guess is? Zero.

Robert Kiyosaki: And that’s what we’re going to teach. And so, it talks about Kushner being
a real estate guy. Anyway, advocates of financial education are Trump
and I. 2006, we wrote, Why We Want You To Be Rich. And then Midas
Touch in 2011. I know some people love him, and some people hate him.
I think he’s a great guy. I learned a lot working with him for eight years.
And my wife, who, people think woman hate him. My wife loves him. She
says that he’s a great guy. Now, he is a womanizer, but he didn’t mess
with my wife, thank god. I’d have to kill him. What was your impression of
Trump when you met him?

Tom Wheelwright: I met him a couple of times. I actually met him back in 2011, and he’s, I
mean he’s brilliant. He’s a very smart guy. I think he says really stupid
stuff. But he’s very extraordinarily confident. Extraordinarily confident. In
what he believes.

Robert Kiyosaki: So this is how I got to ROI’s. My first real estate seminar was in 1973.
Again, I was still under filing for the marine corp. And it was a three day
course, I paid $395.00 for it. And the instructor said, “At the end of three
days, your education begins when you leave school.” And that’s what I
say to most young people today, especially millennials, “Your education
begins when you leave school.” And most millennials are finding out, they
don’t learn anything in school. That’s why so many of them are
unemployed.

But anyway, in 1973, the deal was, I have to look at 100 properties in 90
days and had to write a one page analysis on the property. Of the 30
something in our class, three completed the assignment. Most people
were too busy to get rich. So the ROI. Satori is a moment of
enlightenment. So as I was going through those 100 properties, my
instructor, who was a rail real instate investor, he showed us his
properties, he showed us his financials. He showed us everything that a
real investor does. A real I investor. Not one of these BS investors over
here. He says, “You will find this property, and the world will change.” And
a satori is a Buddhist word about not, I’m not pumping religion, I’m not
Buddhist either, my sisters are. But I’m not. Buddhist satori means. It’s
this moment you actually see. Holy mackerel. And what I saw was an
infinite ROI, I would never need money again. For the rest of my life. I
was a free man. Okay. That’s what satori means.

Certain people, I used to get it while reading Playboy, but I got it now with
money. You know what I mean? But anyway. The [inaudible 00:29:11]

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 island of Maui, or the hottest properties at the time, was a one bedroom,
one bathroom beach condo. Sales price was $18,000, ask for $10,000
down. I paid with a credit card so it was 100% debt, and I made $25.00.
That was an infinite return, my life changed. I went holy mackerel. Holy
mackerel.

So the reason I can do this is because I’m always going for the infinite
return, right?

Tom Wheelwright: Always.

Robert Kiyosaki: Always. So when people say how did you get here so fast, well it’s
because I don’t need money. That’s the difference. That’s the only
difference. If you need money, you’re always slow over here. Anything
you want to say about that?

Tom Wheelwright: No, not only that but remember, the tax benefits come from more assets,
and the more you use other people’s money, you get the tax benefits.
Banks don’t get tax benefits for lending you money, you get tax benefits
for borrowing the money. So that’s why the tax benefits are so big,
because all that money that Robert makes over here, here, and here, all
that money can go back into here. And go back into the asset.

Robert Kiyosaki: So get Tom’s book, it’s Tax Free Wealth. That’s why I kept changing, I
kept changing accountants, some were really good, some were big name
guys, a lot of them are stupid. But anyway. Without Tom’s guidance I
could not have got there so fast. Because you have to have a good, smart
CPA with, as my Mexican friends say, cajones. You know what I mean?
You’re going up against the government. We’re not going against them.
Like, a lot of accountants believe you should pay taxes. If some
accountant says you should pay taxes, fire them immediately. They’re
costing you money. Any comments on that?

Tom Wheelwright: Well, hopefully any IRS agents in the room here? If you think about it, and
you graduate from college and you’re an A student, the IRS probably isn’t
your first choice of where you’re going. To be afraid of the IRS, to me it
just means, wow you must not know much about taxes if you’re afraid of
the IRS. They’re good people, they’re doing their best, but the reality is, a
good tax accountant should know way more about taxes than the IRS.

Robert Kiyosaki: So what’s your background? How did you learn not to be afraid of the
IRS?

Tom Wheelwright: I have bachelor’s of arts in accounting from the University of Utah, and a
master’s of tax from the University of Texas. I spent seven years with
Ernst & Young including three years in their national tax department.
Back when the last big law changed, back in 1986, and then I spent 14
years as an adjunct professor in the masters of tax program at Arizona
State University. And for the last 25 years have bought and sold and built
accounting practices and Robert and I travel around the world talking
about this stuff.

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Robert Kiyosaki: Get his book. You can get there faster if you can drop taxes. Legally.
We’re in Russia talking to these entrepreneurs in Russia, what did they
say?

Tom Wheelwright: They said that that laws are really just suggestions.

Robert Kiyosaki: And the reason so many taxes is these guys.

Tom Wheelwright: Right, the challenge is, if you’re stuck over here, that kind of stands for
stuck. If you’re stuck over here and you can’t do much and you don’t have
a good advisor that kind of tells you what these rules are, what are you
gonna do? Cause nobody likes paying 40%-60% taxes. And so that’s
where they cheat. When you’re over here there’s no reason to cheat
because you’re gonna pay fewer taxes anyway, just by the fact of being
here.

Robert Kiyosaki: And people are afraid of audits. These guys are always audited, right?

Tom Wheelwright: Yeah. So remember the last election, and Trump said he would release
his tax returns when he was no longer under audit? And I burst out
laughing, that was the smartest thing I’d ever heard. Cause Trump’s so
big, he’s always under audit. We will never see those tax returns, folks.

Robert Kiyosaki: I hope there’s no democrats in this room. I’m not republican or democrat,
I’m a capitalist. I don’t like giving my money away when I don’t have to
give it away. And I would rather partner with the government. That’s how I
look at it, okay? Island of Maui, 1973. The Rich Dad company in 1996
was founded. I raised, my wife and I, we started the cash flow game, and
we raised $250,000 private placement. And we agreed to give the
investors $500,000 back, which in three years we paid all the money
back. And so we make millions every month. Our return is infinite. Rich
Dad’s was running purely, not on my own money, okay.

This was Tuscan, Arizona. Tom helped us on this one. This was a real
estate play. We had 144 units, 10 acres, the price was 7 million dollars,
we had 2.5 million equity. And that was the cash raise, much of it came
from my wife and I, but we had two other investors in it. And then we
borrowed 4.5 million in debt and 5 million in a construction loan. 144. Two
and a half years it went to 108 units. We’re now at 252 units. The new
appraisal came in at 15 million because of rents. Our NOI went up, that
operating income went up. So the bank gave us a 12 million dollar new
loan. 12 million dollars and [inaudible 00:35:02] were paid off the old loan.
Construction loan which left 3 million dollars. We gave back the 2.5
million to investors, and we split $500,000 each. We’re now infinite and
we’ve put money in our pocket.

Tom, that $500,000 that came into my pocket, why was that tax free?

Tom Wheelwright: You borrow money, it’s not taxable, is it? Cause at some point you have
to pay it back. So all of the money that came out, any time you refinance
a deal, that’s tax free money. You’ve borrowed it from the bank, no tax.

Robert Kiyosaki: And the reason for that, was in 71 as most of you know. Nixon took the
dollar off the gold standard. And for money to be created, we had to

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 borrow. So when these idiots tell you to get out of debt, that’s almost un-
American. Money is only created when you borrow, that’s why they give
you, what’s that, united plus mileage plus? We’ll give you extra free miles
if you borrow money. They want you to borrow money. And these
financial planners are telling you to get out of debt. I’d fire that guy, you
know what I’m saying? Tell me how to get into debt.

But again, that’s the difference between rich dad and poor dad. Debt is
good, debt is bad. It’s a matter of financial unintelligence. So we split
$500,000 in income a year, 2017. $103,000. Infinite ROI. Since then
we’ve gone, I don’t know how many units that was but now we have
6,950 units, treading. We can get there faster because we’re using debt
and we pay no taxes. So the 103,000, I don’t know what it is today, but
that’s how we did. Any comments on that?

Tom Wheelwright: No, in fact, I’ve seen them do this on multiple properties. This is the
formula. Right, this is the formula. It’s the formula in real estate, it’s the
formula in oil and gas. Frankly, it’s the formula in business. So if you don’t
have to pay tax, because you reinvest the money in the business, or you
reinvest the money in real estate, then you can use the taxes you would
have paid to the government and reinvest those, and you can even
borrow money. It’s almost an addiction, right? The more assets you buy,
the less tax you pay. The more assets you buy, the less tax you pay.

Robert Kiyosaki: It’s worse than that. If I don’t buy assets, I pay taxes. If I don’t borrow
money, I pay taxes. So for those of you that have an opportunity to go talk
to the real estate guys, the investor crews, next Spring is an infinite
return, I’ll be there with some of our other advisors. That’s what we teach.
I don’t teach you to go to school, get a job and then put your money in
mutual funds. I’m not that cruel. That is cruel and unusual behavior. Okay.
So anyway, go talk to the real estate guys for our cruise next year.

Rich Dad was formed in 1997, what does school teach you about money?
Go to school, get a job, work hard, save money. Get out of a debt, buy a
house and put your money in a stock market, 401k’s, mutual funds, ETF’s
and savings. That’s a recipe for disaster. And millions of people, my
generation the baby boom generation are about to get wiped out.
Because we’re the first generation without a pension plan. In 1974,
ERISA came in. Employee retirement income security act today is known
as a 401k. In 2008, it turned out to the 201k. People get wiped out.

This is the dial for 125 years. You can see that it’s been going up. But
with a giant crash in 1929. Look at 1929, that was not a giant crash, that
was a pimple. But you look at what happened, Nixon took us off the gold
standard in 71. I was flying in Vietnam in 1972. I have a new book coming
out next year it’s called Fake. Fake money, fake teachers, fake assets.
That’s when the rich, like the guys who own the central banks like the
Rothschild. That’s when they start ripping us off, was when they got the
dollar off the gold standard. Because up until 1971 the dollar was good as
gold, cause the Brent Woods agreement was backed by gold. But they
don’t teach you that in school. You go to school, get a job, work hard,
save money, and invest for a long term in the stock market. It is a suicide
mission.

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 So this whole Rich Dad company was formed in 1997 because I could
see today’s crisis coming. And if you look at this today we’re like triple
top. We’re going down, big time. Anybody who’s been an investor, a stock
trader, knows a triple top is worse than a double top. A double top was
2008. We’re down a triple top. There’s a possibility that we’re going to be.
You know, there’s booms, there’s busts, there’s crashes, and there’s
collapses. There’s I’d say about a 5% possibility the US economy
collapses, because of the fake dollars worth and bad education and
corrupt wall street and corrupt central banks. We’re at a triple top.

As a surfer, I always knew. The third wave was the killer wave. You better
not get caught at that one. How did I learn my technical training? I cut
school and went surfing. Anyway, next question.

October 11th, 2008, the IMF warns the biggest sort of risks come to the
state in local government retirement plans. Simon Black, sovereign man,
he talks at the Real Estate Guys cruise also. Spain’s pension fund is fully
depleted. You think the Spanish people have problems today? Italy isn’t
much better. Those are the two bigger countries on the EU. The UK has
trillions of pounds worth of unfunded public pensions. Switzerland has a
public pension that’s only 69% funded. Any comments on that, Tom?

Tom Wheelwright: It speaks for itself. Switzerland is what we think of as the safe country,
right? And only 69% funded. From an accounting standpoint, that’s a
nightmare.

Robert Kiyosaki: Martin Armstrong, the biggest, largest pension fund in the United States is
a CalPERS. For the state and local government. California’s state very
serious insolvency. CalPERS is under water one trillion dollars. One
trillion dollars. Who’s gonna bail them out, because states cannot print
money? All they can do is raise taxes. Social security they can print,
Medicare they can print, but they can’t print for calPERS. The state that’s
the worst is Obama’s old state, Illinois. Their pension fund is toast. So
Reuters, PBGC is going broke the pension benefit guarantee corporation
is insolvent. Every baby boomer today is in trouble. Because every
pension they’re counting, including social security and Medicare are in
serious trouble. That means, people complain that millennial’s are living
at home, but what happens when the baby boomers move in with the
millennials? Jane was talking about assisted living, I’m in assisted living
also. Some assisted living homes are $20,000 a month. That’s more than
people make a year. In a month.

So, assisted living’s a great business. Because it’s guaranteed we’re

going to get older. If you don’t die. Dying might be the better way out,
really. But anyway. This is the gap in America, the rich. You can see the
poor getting poorer. And these are working poor. These guys have jobs.
My brother’s a property manager in Hawaii, he interviewed these guys
sleeping in their cars. The homelessness in Hawaii, California, and
Seattle and New York is going through the roof. So my brother being a
property manager, to get these guys off his properties, he interviewed
these guys sleeping in their cars. Well they say, “I have a job. I just can’t
afford a house.”

And then my brother was at the beach, and he saw one of his classmates
living on the beach. “Oh, I’m so sorry you’re homeless.” “No I’m not
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 homeless, I’m living on the beach.” He says, “What’s the difference?” He
says, “I’m renting my house out, I make more money that way.” And he
gets tax deductions on that income, right Tom?

Tom Wheelwright: Right.

Robert Kiyosaki: That’s why I like the Real Estate Guys’ charts. Even the housing prices
went down, rents went up. Okay? That’s how you think. That’s not about,
“Oh, is a mutual fund a good investment?” Mutual fund, you put up 100%
of the money take 100% of the risk. Take 100% of the losses, and you get
20% of the gains. You’re getting screwed. The poor and middle class, this
is what happens. They go to school, they get a job, they pay taxes. Goes
to the government. It’s all cashflow. They put IRA goes to wall street, and
they buy a house, it goes to the bank. That’s why the poor and middle
class are going broke. Because they went to school, they’re told get a job,
work hard, save money ... 401k. Any comments on this cashflow pattern,
Tom?

Tom Wheelwright: What I see is, I look at that and it’s all cashflow going out.

Robert Kiyosaki: Yeah.

Tom Wheelwright: There’s no cashflow going in.

Robert Kiyosaki: They don’t know how to turn the cashflow back in, cause they went to
school. That was my poor dad. PhD. Poor, helpless, desperate. That’s
what it stands for. And they run our school systems. They’re teaching
your kids. And your grandkids. And we wonder why we’re in trouble. It
starts in school. No financial education in school. That’s why I started the
Rich Dad company. This is really simple stuff, you don’t have to go to
Harvard to understand a little squiggly line. This was all Rich Dad Poor
Dad was, this was all Cash Flow Quadrant. Still our best sellers.

This is why the rich get richer. Taxes. Debt. I reinvest 1031 tax referred
exchanges, and I buy gold and silver. I do not save money. I save gold
and silver. I have millions in gold and silver because I don’t need money. I
don’t need cash. I have cash. But it’s short term cash. I’m waiting for the
next crash, I can go back in. I save gold and silver. Any comments on
that, Tom?

Tom Wheelwright: Well, on all of this, every time you buy an asset, your taxes keep going
down. So even if you have income from other sources of business or a
job or something else, with the right tax planning, all of those asset
purchases over here, all of these assets that you’re buying over there
create more tax deductions. Which means that you send less money to
the government.

Robert Kiyosaki: Yeah. I use debt to buy assets, and the more debt I use the less taxes I
pay.

Tom Wheelwright: That’s right.

Robert Kiyosaki: And the more assets I buy, the less taxes I pay. Instead of selling, I don’t
like to sell because that’s a capital gain, right?
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Tom Wheelwright: Right. But if you just borrow the money out, if you just borrow against it,
then that’s not taxable.

Robert Kiyosaki: This is not hard, you guys. With a good accountant, a good attorney, and
smart advisors, you can get there. I was a C student, I really don’t know
much, Tom will verify that, right Tom?

Tom Wheelwright: It’s true.

Robert Kiyosaki: But I do have a smart wife, right?

Tom Wheelwright: Very, very smart wife.

Robert Kiyosaki: The key to success is marry a smart woman, okay guys got that?

Tom Wheelwright: That’s his key.

Robert Kiyosaki: Yeah. My wife wasn’t rich either, she just understood realistic. But she
says, “When it comes to money, women are much smarter than men.”
And I’d have to agree. So anyway, that’s why she wrote the book Rich
Woman. But this here is McDonalds formula, this was my formula as a
kid. If I get one million dollars what does that mean, Tom?

Tom Wheelwright: What that means is, I have to go borrow four million dollars to buy a five
million dollar asset, so you don’t pay taxes on the one million.

Robert Kiyosaki: Tom and I go all over the world. And some moron will raise their hand and
says ... What they say is, “You can’t do this here.” And what I say is, “You
have McDonalds?” “Yeah.” “Well what do you think McDonalds is doing
here?” If you read Rich Dad Poor Dad, Ray Crocks. When my friend from
University of Texas asked Ray, Ray asks the MBA class, “What business
is McDonald’s in?” Answer was real estate. McDonald’s owns more real
estate than the Catholic church. Because if you saw the movie Founder,
it’s in there.

All these [inaudible 00:48:28] all the countries we go to, these academic
types say, “You can’t do this here.” And all I say is, “Do you have a
Mcdonalds here?” “Yeah.” The trouble is, they can’t see it. Cause they
went to school. Anything else on this, Tom?

Tom Wheelwright: To me, it’s a very simple formula. I don’t think you can get any more
simple than that. That’s how you don’t pay taxes legally. Cause again,
everything we’re talking about is how not to pay taxes legally. Do what the
government wants you to do.

Robert Kiyosaki: Debt makes you richer. Debt and taxes make you richer. On this side,
debt and taxes make you poorer. On this side. Go to school, get a job,
work hard, save money, invest in the stock market, get out of a debt. So
how taxes make the rich richer. Any comments on that, Tom?

Tom Wheelwright: What’s interesting is, this is common around the world by the way. We
were in Australia earlier this year, and then South Africa before that. And
these are common tax rates around the world. So the US is actually, this
last tax law change has actually made us a bit of a tax haven compared
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 to the rest of the world. So we’re better. We’re still, E and S quadrant are
still pretty high.

Robert Kiyosaki: But the problem with the tax breaks, it’s making the US dollar stronger,
which may bring the economy down. Because if the dollar gets stronger
everybody gets weaker, cause China and Japan are in serious trouble.
So the dollar getting stronger means our trade defect increases because
we don’t expect export as much. So we have four problems facing
America today.

Number one is rising interest rates. Number two is China. Number three
is what was I gonna say?

Tom Wheelwright: Strong dollar.

Robert Kiyosaki: Strong dollar. Number four, retirement. That’s why we might come down,
those four choices. So this is tax free income here, depreciation. And
that’s that Jared Kushner thing. “Oh, he’s cheating using depreciation.”
What is that, Tom?

Tom Wheelwright: Depreciation is really just basically, supposedly the wear and tear on a
building. The difference is, if you buy a chair, or you put in carpet, it really
does wear out. Whereas buildings tend to last a lot younger than the
depreciation.

Robert Kiyosaki: Is this depreciating right now?

Tom Wheelwright: You can watch it.

Robert Kiyosaki: It’s accelerating. I can see it, can you see it depreciating in front of you?
Carpet depreciates, right?

Tom Wheelwright: Actually, carpet now we get to write off the first year, we don’t even have
to depreciate it.

Robert Kiyosaki: Are the lights depreciating?

Tom Wheelwright: First year.

Robert Kiyosaki: Furniture?

Tom Wheelwright: First year.

Robert Kiyosaki: Why is appreciation tax free?

Tom Wheelwright: Appreciation, remember, we don’t pay tax until we actually recognize that
gain. So we can appreciate all we want in gold and silver and real estate,
oil and gas, if we don’t sell it, we don’t actually pay the tax. So we can
keep it appreciating, we can borrow against it, not pay the tax.

Robert Kiyosaki: Amortization.

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Tom Wheelwright: Amortization is great because you’ve got debt that you used to buy this
over here, but that debt is being paid for by your tenants, customers, etc.

Robert Kiyosaki: And this is what the New York times says is some kind of criminal
offense. So anyway, ROI, satori, moment of enlightenment, ROI, infinite,
can be created with any asset. Once you see it, you can do it with
anything. That’s what we teach in the real estate guys, you can do it with
stocks, bonds options, avocados, anything. But you have to have the
education. And that’s what our school systems are not teaching us. And
that’s why we’re in serious trouble, because we’re run by idiots. So thank
you, thank you very much.

Mike Larson
“The “Uber Bust”: Causes, Consequences, And Profit Opportunities”

Lindsay Hall: So, up next you’re going to hear from a gentleman who has those answers for
you. His name is Mike Larson. He’s a senior analyst at Weiss Ratings, as well as
the editor of Weiss’ Safe Money Report and Under-the-Radar Stocks
newsletters. He joined Weiss in 2001, with the same organization for the last 17
years. He’s been an analyst, editor, trader, and writer during that 17 year career.
Mr. Larson has also been a frequent guest on CNBC, CNN, Bloomberg, and the
Fox Business Network. A fantastic analyst up next, Mike Larson.

Mike Larson: Morning, good morning. When I found out I was on the early slot, and I’m
thinking, you know they got the LSU game the night before. I didn’t know how
many people were going to be awake and ready. It’s unfortunate outcome of that
game, but it is what it is, right?

Anyways, I appreciate everybody coming this morning. The title of my

presentation is, “The Uber Bust: Causes, Consequences and Profit
Opportunities.” In the limited time that I have, I’m going to try and cover why I’m
nick-naming this environment, and I’m giving it that uber name, and some of the
ways you can still protect yourself and profit, from a generalized perspective, not
necessarily as a gold bug, but just sort of general markets guide.

We’ll start with the big picture, right? We’ve had this extremely favorable, and
you could arguably call it, artificial market environment, that began in March
2009 and lasted through, by my reckoning, about January 2018. I think, earlier
this year the clear bull market trend that we had, began to change. There’s a
number of reasons for that, but I’d argue that it starts with monetary and fiscal
policies that are increasingly diverging around the world. You have a greater split
between the winners in the market and the losers. You’re seeing other cracks in
the market facade, that are growing. Again, unlike what we had for that nine year
period leading up to January of this year. When you throw in herd-like investor
behavior, record high levels of risk-taking, extreme overvaluation in multiple
asset classes, and you kind of, stir it all in a pot, and I think that it tells you that
we’ve reached an important inflection point for the markets overall.

All this starts ...I mean, I’m a monetary guy, an interest rate focus guy, not
necessarily a gold bug. Don’t tell Brien, if he’s here. So, a lot of my focus in what
I do is based on what’s happening in those markets. I think you have to start from
square one, with the fact that we’ve had this interest rate policy, which is unlike

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anything this world has ever seen. You never before had central banks, both
here in the U.S. and abroad, doing what they did with interest rates, cutting them
as low as they did, and keeping them that low for so long. This chart here just
shows you the major world regions, monetary regions, the U.S., the Euro area
and so on. You can see, we had an unprecedented eight or so year stretch
where interest rates were essentially pegged at zero. The cost of money was
free, and negative territory, as you may know, in other parts of the world as well.

During that same time that we had this incredible rate stimulus being thrown at
the market, you never before had central banks engaging in quantitative easing
on such a massive scale. This chart here, looks at again, the major regions, what
the Swiss National Bank, the Bank of England, the U.S. Fed, the ECB, and so
on, did with their balance sheets. You can see the big spike at the initial stage of
the credit crisis in 2008, and then how we just kept on going. We were printing
more and more money, more than 20 trillion dollars globally, while roughly about
45-50% of world GDP, in terms of central bank balance sheets. So, truly
unprecedented, not just in what they took in the immediate aftermath of the credit
crisis, but in terms of keeping that going and going and going, kind of like the
energizer bunny.

Now, when you have this sort of monetary stimulus being thrown at the asset
markets, what I think it has done on some degree is, destroyed that rational,
traditional way of valuing assets. In my mind, it’s really ignited this speculative
orgy, if you will. What’s unique about this environment is, unlike in the late
1990’s, when it was clearly the manic behavior was centered in dot-com or tech
stocks or, even unlike in the mid 2000’s, where it was the residential real estate
market, that was at the core of this. I’ve been doing a lot of research for this book
I’m working on, and you’re finding how this bubble, this bubble-like environment,
this easy money has infiltrated almost every market and every place. You have
stocks of all types. You have high risk bonds, commercial real estate again,
housing again, but even esoteric assets we don’t think about a lot. I mean,
modern and classic artwork, baseball cards, the billionaire’s row penthouses in
New York City, things I call garbage IPOs, which I’ll get to shortly. The list truly
does go on and on.

That’s why I think that when you argue, what have we done this time? We’ve
created this “Uber bubble.” The uber term is sort of a play on the meaning of
uber. This is being a great, large example of a bubble, but also on Uber the
company. I use their services, many of you I’m sure have used an Uber before.
The company that has literally never made a penny of operating profits in nine
plus years, is now valued at $120 billion, as of the most recent reporting. That’s
up about 2 million, 200 thousand percent in that nine year period.

You have many other companies, especially in the private tech space, that have
absolutely ridiculous multiples too. It’s very much, with some of these food
delivery companies, and other things like that, it’s very much similar to what you
saw in the public tech markets back in the late 1990’s. So that’s where the name
comes from.

We’ll start with, probably what everybody’s most interested in, and that’s the
stock market. Obviously, a number of different ways you can value the equity
markets overall, but the CAPE ratio, which is the Cyclically Adjusted PE ratio, is
helpful because it smooths out PEs over the economic cycle. That ratio’s at
roughly 33, which is essentially, double the long term average of 16.8. As you

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can see on this long term chart that goes back many decades, the only time we
were higher was at the peak of the dot-com bubble.

Now, it’s interesting, when you hear on television and so on, analysts talk about
the price to earnings ratio of the S&P, and they say it’s relatively reasonable,
especially after it’s come down. What I never hear people talking about is,
valuing the market on a price-to-sales or price-to-book ratio. I don’t think that’s
accidental because when you do that, and you look at comparison-to-revenue
and comparison-to-book value, the ratios look pretty ridiculous. This shows you
here, your red line is your S&P, roughly price-to-revenue ratio there at 2.13,
essentially above where we were at the peak of the dot-com bubble. Also, part of
this chart shows you U.S. equity market capitalization, so you’re stripping out
foreign issuers, and you’re looking at a ratio of nominal GNP, gross national
product, and it’s roughly the same story. Again, price-to-sales is on this chart. I
didn’t include a table of price-to-book, but very similar levels of overvaluation.

As I mentioned earlier, it’s not just the stock market, right? It’s many, many other
assets. Ironically enough, given that we came out of the biggest housing bubble
in history, now you have house prices, this chart shows you the S&P/Case-Shiller
index of U.S. home prices, that have clearly eclipsed. You can see the original
run up, the slide down there, the recession shaded in gray, and then as prices
bottomed out, what happened? We took off again, and now on a national basis,
home prices are above their peaks, at pretty much what we all agree, was the
biggest real estate bubble in U.S. history.

As I mentioned, not just stocks, not just residential real estate, also commercial
real estate. This is a Green Street Commercial Price Index, so it tracks a broad
category of commercial values. Everything from, apartments to office buildings
and so on. You can see at this most recent reading, we’re at an index level of
about 130, which puts you essentially, closing in on 30% above the peak of the
2007 cycle, which again was, arguably, the worst real estate overvaluation
situation we’ve had in U.S. history.

When I talk about the potential for a bust or potential for overvaluation and bad
behavior, so to speak, it’s not just on a quantitative level. You have to look at
qualitatively what’s going on. Frankly, investment bankers and corporations, in
my opinion, have to some degree, been going wild. If you look at total corporate
debt, last time around the focus was what was going on in the mortgage industry,
total corporate debt now is running at 6.1 trillion at the end of 2017, which is up
84% in just a decade. That’s not just the quantity of corporate debt, it’s the quality
of it. Sub-sectors of the corporate borrowing market, things like higher risk
leverage loan lending is at all time records.

What’s going on with that money? What are the companies doing? Well, in a lot
of cases, it’s leading to financial engineering, stock buy-backs and things like
that, but also M&A. Mergers and acquisitions can be a bullish factor in the short
term, but when activity gets really, really far out on the spectrum, it’s actually kind
of a warning sign. Everybody can probably remember the AOL-Time Warner
deal, which happened right at the peak of the dot-com bubble. Deal funding for
deals is up about 23%, year on year, probably going to hit a record $250 billion.

The next bullet that I point out is SPACs, special purpose acquisition companies.
I don’t know how much you know about them, but they’re sort of like a vehicle
that is created just to go out there and buy companies, based on the reputation of
a manager. You did see the activity, the money raising of SPACs hit a record in
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2006/2007, the last easy money cycle. Now, we’re above those levels now.
What’s happening in the acquisition market, especially amongst private equity
buyers, is that they’re paying all-time record multiples in these acquisitions. Just
like you can pay a high PE for a publicly traded stock, you have PE firms that are
doing deals at 11.2 times EBITDA average at the end of 2017, which is an all
time record and up from a multiple, on average of about 7.7, in the last bottoming
out cycle we had in 09’.

Visually, here’s a couple charts that sort of illustrate what I just pointed out. This
is total corporate debt. What’s interesting about this, beyond the fact that it’s
been sky-rocketing the last several years, is that we had an economic expansion
coming out of the 01’/02’ cycle. You can see corporations borrowing increased,
but it wasn’t very remarkable, a few years of gradual increases. That was all
centered around mortgage borrowing and residential activity. This time around, I
think more of the excesses that you’re seeing, are stayed on the corporate
versus consumer side. This just briefly gives you an idea about what’s been
happening, again at the lower tier of corporate credit quality. Leverage lending
has gone from 3.5 trillion, in terms of overall outstanding, to around 8.7 trillion in
this cycle. Whereas, the amount of junk bonds outstanding, high yield bonds, has
doubled, from around 1.5 to 3 trillion.

This here is an illustrative chart about what’s happening in terms of the quality of
those loans too. It’s interesting, it’s not just that more lending has been done at
the lower end of the credit spectrum. It’s that what’s also happening there, not
just in terms of lower ratings tiers, but the individual deals. A lot more deals these
days have been done on a covenant-lite basis, which just means that the
corporate borrower is not facing as many restrictions when they go out to get
their loan, whether it comes to things like, having to meet certain targets with
earnings or certain corporate activities they’re not allowed to do if they take out
these loans. Covenant-lite, essentially gives the lender much less protection. In
the event of a default, covenant-lite borrowers tend to, if you’re making these
loans, you’re going to get back a lot less money on the dollar. The fact that 76%,
give or take, of these loans are now being issued on a covenant-lite basis, is
amazing, at this stage in the credit cycle.

This chart here just gives you basically, the last 10/11 year history of multiples,
like I said, when it comes to private equity buying. You can see it’s been
gradually stepping up, stepping up, and as of 2017, we’re at that sort of 11 and
change, multiple EBITDA. So, pretty extraordinary, extraordinary prices being
paid by private equity buyers.

This is a great one, again that’s more qualitative type chart. A lot of times, you’ve
gotta justify these deals if you’re going to make them. So, what happens when
you’re going out there to potentially buy a company is, you look at what the
target’s underlying earnings are, EBITDA and so on, and depending on how
aggressive you want to be, you can make adjustments to that. You can say,
“Well, this quarter was lousy, but because company x is doing this over the next
year, we’re going to adjust for that. We’re going to say that it’s going to be better
next year and so on.” That’s one example, there’s other ways you can do it.

The percentage of deals with EBITDA adjustments, to make them essentially

pencil out, as you can see, is off the charts. 27 some odd percent of deals today,
are now using this number fudging to make the deals look good. Whereas, back
in 2009, what? you’re talking about 3/4 percent, at the bottom of the last cycle.

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Even compare to 05’/06’, it’s truly astounding to see how much massaging is
going on at this stage in the game.

Now, I mentioned earlier, I want to talk about what I called garbage IPOs. We’ve
clearly seen the IPO fever start sweeping through the markets this year. If you
look at the overall volume of deals, 180 companies through the third quarter are
raising about 50 billion dollars in the IPO market. That puts this year on track to
be, essentially the second busiest for IPOs, behind 2014, since the peak of the
dot-com bubble. A lot of activity, a lot of money being raised.

What about the quality of the deals? Well, let’s talk about that. June was an
extremely busy month for the IPO market. A lot of tech companies, a lot of bio-
techs, and so on. There were 37 IPOs overall that priced in June, but once you
strip out some of those SPAC names and a couple other exceptional cases that
are a little bit different, you had 26 traditional companies that were going public.

I should probably make sure the second bullet’s blacked out, and then I could
ask, what percentage of those companies do you think actually made money, but
I’ve given it away already. So, four, four out of those 26 companies were actually
generating operating profits in the year leading up to the IPO, so 85% were
losing money. Every single one of those companies that lost money in 2017, also
lost money in 2016, so this isn’t like a short term hiccup before their IPO. They’ve
been losing money for two years consistently. If you net the losses of the money
losing companies out against the handful of companies that actually made
money, you get a negative balance of $754 million. That gives you an idea. This
isn’t sort of the cream of the crop that Wall Street’s dumping on Main Street. It’s
really junk.

This is my favorite way of illustrating it. If you look through the first nine months of
2018, and this chart goes back to 1980. This is on a percentage basis. There’s
fewer companies that are coming public now, than were in the 90’s, so this is on
a percentage basis. It adjusts for that. 83% of the companies in 2018, that have
come public, were losing money at the time their offering. You can see the only
time in recorded history we got ever close to that, was 99’ and 2000. Not exactly
great years to be buying IPOs, and that was a peak of 81%. Again, this is the
kind of companies that are raising money in this market.

I mentioned earlier herding behavior. What do I mean by that? Well, you turn on
CNBC, what do you hear about? FANG, FANG, FANG, Facebook, Apple, Netflix,
all day, everyday. It’s incessant. What’s interesting is, when you look at the
overall market, in terms of what people have been investing in, there’s been an
incredible rush into growth stocks, right? This chart here shows you a ratio of the
Russell 1000 Growth Index versus the Russell 1000 Value Index. Growth index,
as you imagine, contains lots of tech stocks and other things like that. Value is
your boring stuff, your utilities and so on.

This chart goes all the way back to the late 1970’s. There’s two big green peaks,
which show the points when you had absolute extreme sentiment buying growth
over value. Want to guess when the last peak was from? One year period
bracketing the peak of the dot-com bubble, and we essentially are right there
again. There’s lots of ways to illustrate what’s going on, but this is one of my
favorite ones. When you get in an argument, “Oh, it’s different this time. It’s not
like it was in the dot-com era.” Well, yeah it kind of is.

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If you look at asset values relative to GDP, another way of valuing the asset
markets right? There should be some kind of tie between what’s happening in the
real economy, and what’s happening in the asset economy. This chart shows you
household net worth, so again, the value of things like, your homes, your stocks,
and so on, and you compare it to GDP. At the dot-com bubble peak, we had
assets valued at 4.45 times underlying GDP. The housing bubble peak, we’re at
about 4.85 times. Now, because we have so many assets that have been swept
up in this, you’re at 5.24 times underlying GDP, something we’ve again, never
seen before in this country.

Now, I don’t know how many of you guys know the Yertle the Turtle book. It was
one of my favorites growing up as a kid, Dr. Seuss book. The general idea is, this
turtle gets tired of being stuck in the mud and swimming around, so he decides
he wants to be the king. He starts getting all the other turtles to stack themselves
on top of each other, better and better view, higher and higher thing. In the end,
Mac, if I’m not mistaken, is the name of the turtle at the bottom, he says, “To
heck with this,” and the whole thing comes tumbling down.

The moral of the story, at least from a market perspective, is that we’ve been
stacking risk upon risk upon risk. You’re making high risk loans to high risk
companies. You’re adjusting earnings at a never before pace, to make these
deals look better. You’re not requiring your borrowers to meet certain loan
covenants. There’s nothing wrong with making risky loans if you’re being
compensated for it, you’re earning high spreads, you’re earning high yields. But,
up until very recently, we’ve seen record low spreads, in terms of junk bond
yields versus treasuries or even investment grade yields versus treasuries, and
we’re charging record low rates. You’re doing record volume of this stuff, nine
plus years into the greatest, easy money cycle in history. From all those
standpoints, it’s really just stacking that risk upon risk. That’s what I think is one
of the major issues for the market.

So, what’s changing, right? We’ve had these risks building for a while, but the
market hasn’t cared or didn’t care, arguably, until January. What’s happening
now, obviously, is that the policies that helped enable this, are now starting to be
withdrawn. This is the Fed’s balance sheet. They’ve been talking about their
version of QT, quantitative tightening, to unwind some of the QE. Fed assets on
the balance sheet are now down about 350 billion from their peak. We’re still
talking about huge numbers, in the four plus trillion dollar range, but certainly
we’re up around 4.5/4.55, give or take, around the peak. The balance sheet is
beginning to shrink, and the pace of that shrinkage, is increasing.

It’s not just something that’s happening in the U.S.. This policy of QE is gradually
being unwound, or at least steps towards that are being taken in the Euro zone.
The Bank of Japan is going to, probably, print til’ infinity. They never do anything,
but you are seeing some of these other regions, where interest rates are starting
to go up, QE’s starting to be unwound. You can see here, this just shows you the
rolling pace of QE, in that at the end you’re forecasting out, and you can see that
that pace is going negative, or will be very soon. Again, when you lose a little bit
of that QE prop, it’s going to have an impact on markets. It’s not just, as you
remember from that earlier chart, it’s not just the U.S. Fed that is starting to raise
rates. You’re seeing the Bank of England tentatively going that direction, the
Bank of Canada, and so on.

So, what’s happened is ... and I’m a Patriots fan, so A, don’t hate me for that and
B, I’m sorry, that’s why I use this color scale for my chart here. This just
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compares the yield on the two year treasury versus the S&P 500 dividend yield.
When I made this a few days ago, you’re talking about a 96 basis point or so,
advantage to just parking your money in two year treasuries, if you’re yield
seeking only, not capital gains, versus the S&P 500. Clearly, for many, many
years, the balance was swung in the other direction, so that’s another change.

One of the benefits of working at Weiss Ratings is that, we’ve been issuing
independent ratings on stocks, mutual funds, ETFs, for many years, as an
investment standpoint. We’ve also been rating banks, credit unions, and so on,
from a safety standpoint. Is this bank going to fail? What’s it’s risk and so on? On
the investment side, I had my team pull a ratio of buys-to-sells. Now I will say,
our rating system’s a lot stricter than what you’ll typically see from other places,
other firms or other Wall Street firms and so on. The numbers on a absolute
basis are relatively low, in terms of the distribution. We have a lot more sells than
you’ll find in a traditional company. If you look on a ratio basis, it doesn’t really
matter what the absolute level is. It’s, are you getting more buys versus sells or
more sells versus buys? It tells you what the model is seeing behind the scenes.

The left chart is the shorter term one. The right is the longer term trend. We can
stay focused, for our purposes, on the left. What’s interesting is, our buy-sell ratio
is showing relative strength behind the markets, was the highest in the summer
of 2017. We actually made a lower peak, in terms of this ratio, in January. Not by
much, but slightly lower in January of this year than we did in July of last year.
Then, you can see, we made a third lower peak on this most recent rally that we
had in the summer of this year. What it tells me, and what the signal is, is that
this unbiased model, which is designed to pick up on what’s happening behind
the scenes, has been seeing weaker and weaker activity behind the scenes,
even as the market, especially the S&P, made a marginal new high a few months
ago. I don’t think it’s any surprise that after the marginal new high, we had what
happened in October. Pretty much, a short-term collapse.

One last thing that I think is worth pointing out too is, Goldman Sachs has this
indicator that they put together, it’s their bull, bear, market risk indicator. It kind of
throws all this stuff into a pot. It’s looking at things like, the ISM index, which
tracks manufacturing activity. It’s looking at the slope of the yield curve,
obviously, the flatter the curve, the more it signals potential future risk, inflation,
and so on. They’ve set this up on a back tested basis, seeing how it’s behaved
over history, and essentially according to them, and Goldman Sachs is Goldman
Sachs, their indicator had the highest bear market risk reading, just a few weeks
ago, that they’ve ever had or not ever, but back since 1969. You can see that
past peaks of this have tended to work out fairly well. They’ve preceded the
shaded blue areas, which represent bear markets for U.S. stock. Again, it’s not
just, I think what I’m seeing, both on a quantitative and qualitative level, it’s what
you’re seeing in other places as well.

If I had to bottom line all of this. What does this mean for you as an investor?
Well, in our Safe Money Report, a year or two years ago, I was pretty much fully
invested in the model portfolio. The types of things that were recommended, it
was stocks like, Texas Instruments or 3M. Growthier companies, multi-nationals,
plays on a stronger economy and a stronger market. Starting with what
happened in January, I think a lot of these simmering concerns that I’ve had for a
while, have come to the fore. You’ve seen more of this actually matter, for lack of
a better word, to the broad averages.

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Beginning in the February/March timeframe, I’ve gotten much more defensive. In
the model portfolio, went from essentially being 100% invested to about 50%. Me
personally, and again, I share this in my column, so I don’t mind. I slashed my
401k stock percentage or allocation to the lowest level it’s been, essentially ever.
Many, many years. Within that portfolio, and my recommendation to everyone
here, is that you want to be reallocating to that safer, higher-rated stuff.

The earlier chart, you can see that the Growth Over Value trade is so extended.
It is absolutely at the extremes. We’ve only seen one time in history, which was a
one year period bracketing the dot-com peak. Now, it’s been going on for a while,
and there’s no way to know exactly, when is this trend going to change. You
have to look for technical signals.

Well, what have we seen so far this year? What happened in July? Facebook,
favorite growth investment, lost almost $120 billion in less than 24 hours.
Through this previous Monday of this week, before we had that bounce, the
FANG stocks collectively lost $570 billion in market cap from the July peak. The
overall U.S. averages were down about 2.1 trillion, and globally, loss market cap
was around 5ish trillion dollars. This is not normal activity. This is not what we
saw in the previous nine year run-up to January. I think that that is the market,
technically speaking and confirming some of these risks that have been
simmering for a long time, are starting to change.

As a matter of fact, sectors like utilities, [inaudible 00:24:10], consumer staples,

on a three and six month basis up til’ recently, have actually started to out-
perform. You’re seeing money start to come out of what is overvalued, over-
hyped, and over-loved, and rotating into stuff that is undervalued, under-hyped,
and under-loved. I was joking at a previous conference that I was at, I said,
“Forget greed is good, the advice here is, boring is good. You want to own the
boring, undervalued stuff, at this point in the market cycle.” Maybe it’s boring,
maybe it’s not great for cocktail speech, but it does actually help protect and
make you money in a changing market environment.

Finally, a couple last things. Like I said at the outset, I’m not a gold bug, per se.
There’s times when I like gold, there’s times when I don’t. It really depends on
what’s going on in the markets, interest rates, and so on. As I’ve been discussing
with other people at Weiss, including Sean Brodrick, one of my colleagues, this
seems to me like a time when gold is beginning to make that turn. It’s beginning
to bottom out. Some interesting patterns on the charts and so on. I think that gold
as, for lack of a better term, chaos insurance is the kind of thing you want to own
here. More so than you may have wanted to for the last number of years. I think
that this is an environment that you’re going to see more market events. More
things like what we saw in January and February, with volatility and so on. I think
that that increasingly chaotic market environment is what we’re going to be
dealing with for the next couple of years. That’s a reason to own gold.

Lastly, I think I wouldn’t have talked about inverse ETFs or downside options
positions very aggressively in the last several years, because, obviously, the
trend’s been up. That’s been changing. Whether you’re looking to hedge or
you’re looking to be more speculative, I think there are some opportunities in
some of these growthier sectors that have been under-performing. You look at
that secondary high we had in the S&P a few months ago, and what happened?
As the S&P was making a new high, you had everything from financials that were
lagging badly, investment grade credit spreads did not reach a new tight to
treasuries, as they were previously doing for ever S&P peak.
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 The volatility, the VIX index did not make a new low, even as the market made a
new high. There were a lot of divergences, and those, again, are signals that,
some of these sectors, in my opinion, I mean look at semi-conductors for
example or financials, they’ve behaved terribly. You have a chart of a company
like AMAT, applied materials, that looks like it’s breaking down, just like it did
after the ‘99/2000 boom.

Those are the types of sectors and stocks you want to be avoiding, or if you’re
looking to hedge and so on, those are the kinds of sectors you may want to be
looking for downside protections. That’s what I’m doing. I think that, again, the
market is telling you that this is a change, this is a different environment. It’s like
the old saying, adapt or die, right? You have to adapt to it, and not keep continue
to follow the same strategies that you did for the last nine plus years.

That’s all I have. Thank you very much for coming out this morning. I’ll have more
on a panel later this morning.

Sean Levine
“The Oil Story Is Just Getting Warmed Up”

Robert: Alright. We’re gonna switch gears a little bit and talk about oil. In fact,
Sean Levine is gonna share with us - the oil story that’s just getting
warmed up. Sean’s Director of Research and Product Development at
Energy Capital Research Group. He’s an energy, securities, and policy
analyst with nine years of experience tracking the oil and gas industry.
Prior to cofounding the ECRG, Levine spent four years as a senior
analyst at PLS, Inc., a middle market land brokerage and oil and gas data
analytics firm. While at PLS, Levine’s coverage areas included oil and gas
prices, capital markets, and oil field services and he authored all content
and oversaw production of the firm’s three newsletters on those topics.

Before PLS, he spent four years conducting policy and equity research at
DeMatteo Monness, a boutique primary research firm and broker dealer,
culminating as Senior Research Director and Levine holds Series 7, 63,
86, and 87 securities licenses and he holds a J.D. and is licensed to
practice law in West Virginia. Additionally, Levine is co-founder of a
privately held Appalachian oilfield services-focused trucking concern, for
which he has served terms as Chairman and CEO. Please welcome, Mr.
Sean Levine!

Sean Levine: Hi everyone. Thank you, Robert! Just wanna give everyone a heads up.
I’ve been a little sick, so if I start sounding like a cartoon character or a
muppet, bear with me. So, I get to talk to you about oil today. One of the
few folks at the conference who’s gonna be doing that, which is great for
me because compared to most commodities, oils had a heck of a run
over the past year. So, if I want to be excited or enthusiastic, I don’t even
have to fake it. As far as the retail investment space, oil is so volatile, I
can make wild claims about the future potential outlook for oil and there’s
a pretty decent chance I might be right.

So, we’ve got ... we’ve had a pretty good run here for oil. Since the
bottom, roughly tripling in price. Now, is that gonna continue in a healthy

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fashion? Is that gonna develop into a healthy pattern like we saw in the
early 2010’s or is this gonna do some kind of a web saw things like we
saw with the financial crisis? It definitely would not be a good outcome.
The bottom line for me at this point in the cycle as an oil investor is, it
doesn’t really matter which one of those does as long as I’m confident it’s
gonna continue to rise from here. We can try and figure out the top later. I
think it’s gonna keep running.

Jumping into the supply picture, there are several key OPEC producers
that are either very volatile or having serious problems. Libya has never
normalized since Gaddafi was removed. It has come back some recently
from the very bottom levels, but it is by no means stable. There’s a lot of
risk in the area. There’s a lot of internal strife and... Sort of reversion to
the main idea, we don’t really think that that’s destined to stay where it is.
Similarly, Nigeria, there hasn’t been a single event, but it’s been more of a
death of a thousand cuts scenario where, again, lots of internal strife and
disruption and supply had come down. It has recovered somewhat, but
again, law of averages dictates probably not to be for that much longer.
Venezuela is essentially a failed state. Production has been collapsing.
We fully expect that to continue to do so with no solution in sight. Iran had
brought its production back quite a bit, post the deal, but with the new
sanction regime kicking off here in a few days we’re gonna see significant
fall off and as you can see, we’ve already, in the months leading up to
today, seen pretty significant fall offs.

This jumps into The prior slide was supply. This was exports, specifically
with lower number cause they consume some at home. We’ve seen
already down 1.1 million barrels a day or 40% just since April. We think
there’s another million barrels a day or so easily in the cards to come. So,
here’s ... The blue line at the top is global demand chugging along nicely.
Still continue to expect to see gains over the next few years and beyond,
driven by developing markets. We may see some economic risk coming
down the pike, but it still should continue. It’s more a question how much
growth not whether it’s gonna turn into corrective territory and start
declining any time soon.

At the bottom we’ve got OPEC spare capacity, that’s the red line. Kept
those in absolute terms so you can see how much ... how small the buffer
is relative to how much supply there is. The most interesting aspect of this
is if you divide the one into the other, you get that ... the bar graph which
is the percentage of spare capacity relative to global demand. As you can
see, that’s been shrinking, shrinking, shrinking. We’re down to ... For next
year, those 2019 projections at the end there, down to about 1%, near
record lows.

The other thing is, this was all ... These projections were made prior to
the recent Khashoggi events and the death and the fury in the states and
sort of Saudi’s effort to mollify by saying, “We’re gonna open the taps and
produce as much as we can. It’ll be all right.” That gets us back to kind of
where we were. You can see in 2015, right around there. Gets us back to
that level in terms of spare capacity, but the market, while it has been
selling off ... Probably, we see support around sixty. Pretty strong support
for these and additional reasons we’ll get to, but it hasn’t imploded like it
did in 2015 because the market needs the supply.

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 Here, we’ve got unplanned outages. If you look toward the middle of the
chart, the blue is OPEC, the green is non-OPEC outages. So, largely
OPEC. If you look at the middle of that range, 2013, 2016 running around
three, three and a half million barrels a day, on average outage. That’s
come down. That’s come down over the past couple of years, but guess
who that’s been due to. That’s Libyan and Nigerian production coming
back online. So, again, law of averages suggests sooner or later we’re
gonna see move back toward two and a half, three million barrels a day,
but this time, no spare capacity to alleviate any of that. Out of the
countries we’re talking about, we haven’t talked about Iraq, which is pretty
much near record production levels. Not exactly the most stable place on
Earth. Saudi Arabia, itself, is waging a proxy war with Iran via southern
border where the Houthi’s are firing missiles periodically at their
production facilities. So, there’s plenty of potential tailwinds that could
lead to a tightening of supply while we’re already producing almost all we
can.

The U.S., meanwhile, has been sort of the success story and saving
grace for a lot of the disruptions. Now, these are all in percentage basis
which you’ll understand why here in a second but U.S. production over
the past couple of years has risen very nicely, up 30%. Record 11 million
barrels a day and sometimes beyond and the Permian has been the
growth engine for this. Permian production is up 70% over the past two
years to 3.5 million barrels a day. No small feat. Very impressive.
However, they’ve produced so much and so aggressively that all the take
away capacity has been wiped out. There is no additional, there’s no
additional pipe. So they’re now using trucking and doing whatever they
can to try to get more out, but it’s gonna stymie additional growth efforts.
Give you a sense, by proxy, we look at drilled, but uncompleted wells.

So, the operator will bring in a rig and to save money, they’ll go ahead
and drill four/ six wells on the location. They’ll only frack one of them and
produce one of them. They save the rest. Get to it later. So that’s a DUC.
So, DUC’s in the U.S. have increased 50% over the past two years.
That’s nationwide. There’s been a decent growth of them. Just sort of
back log overall. In the Permian, it’s tripled. There’s 3,500 hundred DUCs
in the Permian now, waiting to be brought on line because there’s no
point, there’s no reason to-

Speaker 3: What are DUCs?

Sean Levine: Drilled but uncompleted wells. So, they ... Again, they drill the hole. They
don’t frack it. They don’t start producing it. They’ve got the rig there. They
want to save money. They don’t want to have to bring the rig back.
They’re big and expensive so they just go ahead and drill while they’re
there.

So, here’s what they’re trying to do about the Permian. They’ve got a lot
of pipes coming on line. However, ultimately this is going to lead to more
U.S. supply, but we’re not there yet. This happened so quickly,
everybody’s scrambling to deal with it. See, in the upper right there. That
Q319, third quarter of next year is the earliest that any additional take
away capacity is gonna be online. Even when it is, it’s not gonna resolve
the whole problem. So, everybody’s gonna be sitting there and waiting
and trying to produce what they can, but when you look at the U.S. supply
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growth projections that all the agencies make and everybody ... all the
analysts, they were a little over optimistic because a lot of them did not
take into account this dynamic. It’s gonna slow down U.S. growth, which
again, is kind of bullish on a global scale because it keeps that extra
supply from coming online.

This is sort of a macro point here. So, you think of global conventional
production. The stuff that has been supplying, providing the world with oil
for generations. Massive multi-billion dollar mega projects. National oil
company stuff. Saudi stuff. Everything. That production ... that supply
loses, on average, 3.5 million barrels a day, off the top. Existing supply
gone. That’s the decline rate globally. It’s about 3% of total global supply.
Every year when you’re increasing production ... anybody who want to
see ... You want to see production growth globally? You gotta hit your
three and a half million a day first. Just to tread water before you can start
to bring on supply.

Now, what drives that? Where do we get all that? Where do we get the
additional barrels? It’s the global capex cycle. The oil industry’s capex
cycle. Ultimately, again, it’s a multi-year cycle, planned years in advance.
Go out ... It’s not like shale. It’s a lot quicker. It’s been a more recent
development. The capex cycle ... If you see a reduction, It does have
ripple effects. So you look at the financial crisis, ‘09, ‘010, only lost 14%
year on year from global capex. Took two years to recover and then from
2010, 2011, 2014, we happen to see oil prices escalate to above a
hundred barrels a day even though U.S. is growing production like crazy.
We don’t think that’s a coincidence. It has an effect. It has a ripple effect.
It takes some time to bleed through, but it does eventually bleed through
and start to drag that global supply depletion rate down. Well, when oil
prices collapsed in 2015, blew that financial crisis number out of the
water. Fell over 50% over two years. The expiration piece of the capex
budget was hit even harder and fell 60% over two years. So, this stuff has
already happened and it has not bled through to current supply. It should
do that over the next few years.

U.S. shale is ... or shale just generally, is providing a little bit of a band aid
on that. You don’t necessarily have to get all the way back up to where
you were, but shale production depletes at a much more aggressive rate.
You know it talked about 3% for the global, kind of background radiation
rate. Shale will produce ... the first couple years a shale well will produce
a bulk of its production, like 80% of its production. So, you’re gonna see
aggressive decline rates. So again, you might get it cheaply upfront, but
it’s sort of elusory because later you’re gonna have to pay more and more
and more to keep drilling. So, it’s all gonna come out in the wash. Nobody
is really talking about this and it’s gonna happen. I’ve spoken with several
of the lead energy economists at some of the Seven Sisters major oil and
gas firms and they agree with me. It’s an issue and it’s just not getting any
traction. It’s pretty much the core of my long term bull case for oil.

Futures data, this is CFDC stuff that looks at how different parts of the
financial markets and hedgers and everybody ... how they’re putting their
money to work. Pretty good case for oil as well. We have seen a pull
back. Speculators in the upper left, they drove the move. They drove a lot
of the action last year. Leading up in to this year, they did pull back pretty
aggressively and that does play in to some of the declines that we’ve
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seen more recently, but there is some support right around here. That
light blue line, that’s sort of volumetric support, net longs and we’re
getting close to that line and we think... that support is gonna hold and we
also see, again, $60 a barrel WTI, that probably gets you to about that
level. I don’t think it’s breaking below that any time soon. There’s no
reason for it to. So then you move over to the upper right, you got refiners
and other crude consumers. The light blue line there has been rising,
because they are more concerned about future outlook. They don’t want
to pay that much for oil in the future. They want to control those costs so
they protect.

The bottom, that’s oil producers hedging. They shorted and that short,
that pushes things down, but they hedged like crazy as prices rose. But if
you look, that’s about from mid 2018 onward. They’ve been letting some
of those positions go. They’ve been winding down some of those
positions. Even though theoretically, They don’t want to leave money on
the table. When you put on hedges, you limit your upside. They don’t
want to limit their upside. So, we think the two more fundamental focus,
the commercial focus sides of the futures market kind of get what’s going
on a little bit better. Speculators are a little more fickle and once those
impacts start to bleed through, the financial bullish items start to bleed
through, we think that the speculators come back and that gives it a nice
pop ... rationalizes the next leg up.

A couple ways to play some of this. We like OILU. It’s a tripled levered oil
ETF. Essentially, every 1% that WTI rises, it rises three. Inception March
2017, so that’s why we start the time series there. It’s been doing a pretty
good job of that. Right now may be double of what it was because oil’s up
maybe 40% from a year and a half ago, but when oil was up about 60%, it
was up almost 200%. Pretty solid way to play it if you’re bullish.
Disclaimer, I own OILU.

This is a widget that we created called Secmo. I won’t get too deeply in to
the math on it, but it basically tracks momentum and it looks at a security
relative to a benchmark like the market. So, the midpoint of these graphs,
it’s the market, it’s the S&P. Those are, In this particular graph these are
the sector ETFs for the S&P. What we normally look at ... The securities
move in a clockwise fashion and the entry point that we really try to zone
in on is this area right around here. This is the sort of lagging and losing
steam quadrant and this is still lagging, but reversing and showing
positive momentum. So, it’s sort of like the perfect buy low point. Energy
is the bluish line here. So, it’s looking pretty positive and pretty
supportive. We think that’s an interesting spot for the sector to be.

This is getting into the equity level. Looking at some specific ... It’s not ...
The whole industry, picked about a dozen representative securities.
Some of the conventional and there been a lot of pull backs cause oil has
come down and a lot of the industry as well. A lot of the conventional oil
companies like California Resources and Denbury, like smaller
conventional focus guys have fallen off. They’re over there on the far
right. The yellow line is Continental Resources, there in the middle. It’s
kinda circling around, not doing a whole lot. Valero is that brown line,
down here, that’s a refiner. Refiners were doing really well for a while, but
oil prices rose and eventually started ... they kinda came out of vogue a
little bit. What we do like and again, eluding to that sweet spot, positioned
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around here. The one on the left, that’s Halliburton and a little further over
the pink line, that has had a very nice run over the past several weeks, is
Mammoth Energy Services. That’s a U.S. focus. Halliburton’s an
international services firm. Mammoth is a U.S. focused services firm.
Services tend to be one of the last legs of the oil and gas value chain to
get the real wind at their back. So the timing also seems right just from a
sort of sectoral cyclicality standpoint.

Little bit on gas. So, not exactly the worst of times, but not great,
particularly when compared to oil. Had a decent run up from the bottom,
up about 50%, but then where oil regrouped and continued to run higher,
gas has done really nothing and if anything, it’s done a little bit of the
opposite. If you plotted out a trend line there, that’d be to the downside
and the spikes that it sees are seasonal winter demand. There’s some
good reasons for why that’s falling.

Global supply is the green line, running higher. It’s supposed to run
between this year and next year 18% U.S. supply growth. That’s like
sixteen and a half billion cubic feet a day. That’s a lot. Meanwhile,
demand ... This year, domestically, that’s the squiggly line cause it
reflects on a seasonal, winter is the peak and summer is the lower bottom
part, demand growth, domestically this year, yes, six, seven BCF a day.
Next year, flat lines. No real growth expected and you see that gap. I try
to look at that gap. You see, that gap has just been getting bigger and
bigger year after year. That’s a problem. Next year, the saving grace is ...
Down at the bottom those are gas exports. So LNG, liquefied natural gas
particularly, but also some pipelines to Mexico. Things like that.
Supposed to see a very nice pop next year for that. About five BCF a day.
It’s still net not losing in terms of more and more over supply, but that’s
gonna be help. Only problem is, next year is the last year we have this
huge wave of investment in LNG several years ago and all those projects
are finally coming to fruition.

Again, multibillion dollar projects. They’re getting wrapped up. After that,
there’s no more. Companies are discussing right now the second wave in
getting that process started all over again, but that’s a three year process,
easily. So with additional demand growth uncertain domestically and
inability to export after next year, supply growth will continue to rise. Part
of the reason for that, here’s Appalachia. Marcellus, just an ocean of gas.
Dirt cheap ocean of gas. Just over the past month or so and through the
end of the year, we’re looking at another four BCF a day and new
pipelines that’ll help debottleneck that area and help get that supply out in
to the rest of the country to compete with Henry Hub. That ... Into the
Midwest and the southern markets, gonna create additional pressure and
we think there’s more projects coming. As a result of that we think again,
some of these growth estimates ... The Marcellus continually just knocks
it out of the park and beats on expect ... Compared to expectations, we
think it’s gonna continue to do that.

Future side ... People have got ... The upper left ... Speculators have
gotten out of this trade. They used to be 20% of the market ... That dark
blue bar at the bottom. Now they’re just down to ten. Utilities in the upper
right are propping up the market. They’ll buy gas up to $3, but probably
not above that so it makes for a floor, but it really doesn’t make much of a
bull argument above it. Note, the hedging ...the producer hedging at the
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 bottom, still very strong. It’s not selling off like it did with oil because gas
producers are not nearly as confident about the future outlook. Secmo,
touch on this just a little bit. Hard to find gas plays, but we again like LNG.
Golar is a shipper and Tellurian is ... they’re part of that second wave
that’s coming along. Disclaimer, I have some Tellurian. They’re early if
they can get final investment decision, if they can get their financing
together. Which they’ve done in the past. The guy ... The folks that
started this were very successful. They built out Cheniere, which was the
original first wave leader. They can get this going, lot of potential upside.
Maybe a ten bagger.

Again, there’s some risk. Trade risk with what’s going on in China right
now. So it’s a little bit speculative, but it has a lot of potential. Appalachian
operators who were smaller and get to ride more of this additional supply
or this additional take away capacity coming online. This is Antero over
here. The yellow line and the green line is their midstream division which
has also done well. So again, kinda right around that area that we like to
see.

Last couple comments on LNG cause it’s really the only good story for
gas. The shaded greenish line, that is the spread between U.S. Henry
Hub gas, the dark blue line at the bottom and the Asia price at the top.
Before prices collapsed, very nice spread, very profitable and that’s what
enticed the first wave of LNG exports in the first place. You can see, over
on the right, that spread’s improving again. It’s coming back and it’s
gonna continue to come back and there’s a very good reason for that.
There we go. So, the dashed green line, that is the projected expected
outlook for demand growth for LNG, globally. The developing world needs
lots of power. They’re relying on natural gas. China needs lots of power.
They are not only ... they not only need more power, they’re shifting away
from coal because they can’t breathe. So, it’s this double whammy.
Gonna be huge amounts of LNG demand and that blue bar, that is the
culmination and the end of the current development cycle. There’s
nothing. There’s nothing to fill this gap and there’s not gonna be anything
to fill this gap for several years to come. That’s gonna push the price of
LNG high. It’s gonna rationalize additional projects and it’s gonna help
existing exporters like Cheniere clean up.

So, that’s my time. Hope it’s been helpful. Thank you very much and I can
take questions out in the hall.

Brien Lundin
“What’s The Next Multi-Bagger From Gold Newsletter? Top Opportunities In Junior
Mining Stocks”

Robert Helms: With a career spanning four decades in the investment markets, Brien
Lundin serves as President and CEO of Jefferson Financial, Incorporated,
a highly regarded producer of investment-oriented events and publisher
of Investment Newsletters and Special Reports.

Under the Jefferson Financial umbrella, Mr. Lundin serves as the

publisher and editor of the Gold Newsletter, the publication that has been

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 the cornerstone of precious metal advisory since 1971, and is the host of
the annual New Orleans Investment Conference, the oldest and most
respected investment event of its kind.

As editor of Gold Newsletter, Mr. Lundin covers not only resource stocks
but also the entire world of investing from small caps of every type to
macroeconomics and geopolitical issues that ultimately effect every
investor.

As the host of the New Orleans Investment Conference, Brien has

annually brought the giants of investing, economics and geopolitics
together in an intimate presentation, a scenario with many of today’s most
sophisticated private investors.

In all of these endeavors, Mr. Lundin has driven to burnish the brilliant
legacy of the late James U. Blanchard III, his great friend and the founder
of both the Gold Newsletter and the New Orleans Investment Conference,
and his spirit is alive and well tonight.

Please welcome your host, Brien Lundin.

Brien Lundin: Thank you, sir.

Thank you, Robert. First, a quick comment. Yes, Byron King, LSU is
playing Alabama Saturday night. Yes, I do have tickets, and no, I will not
be using them, I will be here. The sacrifices I make. But, hopefully I’ll be
able to watch the game somewhere in the hotel.

Yes, as Robert mentioned, when I finish, we will have the reception, so if I

start to go over, don’t hesitate to start throwing paper at me or whatever
you need because we have a wonderful fare set up. We have open bar,
great food and I hope not to run over. So, let’s go through this really
quickly. I will be going into this in more detail in my workshop later tonight.

Why are higher gold prices inevitable, and what do you need to do about
it? Well, this in a nutshell is why the higher gold prices are inevitable. The
gross federal debt, it is too large right now to be managed by any other
means other than some significant degree of depreciation of the dollar.
That’s the only thing that can happen. They can’t raise taxes. They can’t
cut spending, obviously. They can’t grow their way out of it. We can’t
grow our way out of this debt. It’s crushing.

But let me tell you a few dirty little secrets on the federal deficit and the
federal debt. These are things that aren’t widely known and they don’t tell
you.

First off, the federal deficit for 2018 is projected to come in at only $793
billion. That’s up a good bit under Trump. $793 billion, yet somehow, for
the fiscal year ended 2018, our fiscal year 2018 ended on September 30,
the federal debt had grown $1.2 trillion over the previous year. Now how
is that possible if the deficit is only $793 billion? That’s because there’s
about $400 to $500 billion of off budget spending that the Congress and
the government and the treasury has decided to put off budget. If you and

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I decided to do off budget accounting like this in our businesses, we’d go
to jail, but they make the laws, so they can do it.

As a result, the debt is growing much more quickly than most people
realize, and the growth in the debt is accelerating. The debt grew $1
trillion in just the last six months of fiscal year 2018. Now, if you look out
there, there’s a lot of analysts that are yelling and talking about doom and
gloom, how the federal debt will grow to $30 trillion in the next 10 years,
but if you look at the chart I did earlier with the historic trend line growth
rate, that’s 8.79%. Since the Federal Reserve was ... Actually, since
1900, the trendline growth rate for the federal debt is 8.79% a year.

At that rate, the federal debt will grow to $30 trillion by 2022. That’s the
end of Trump’s eight year term if he gets that. The point being, the federal
debt is already out of control. So what does this mean? Is this
unprecedented? No, it’s not. This has happened over and over again
throughout human history. It happened in ancient Greece. It happened in
every instance of recorded history. It happened in ancient Sumeria.

You know? Back in ancient Greece, there were probably Peter Schiffs
and Rick Rules and James Grants walking around in their robes and
saying, “Debt’s outta control. Spending’s outta control.” It’s always
happened. Due to wars or entitlements, governments overspend, and
when they do, they make that debt cheaper. They make it essentially go
away by depreciating the currency or defaulting on the debt. That’s why
Cicero said, “To be ignorant of what occurred before you were born is to
remain always a child.”

But Cicero was speaking on deaf ears, because this is what happened
about 100 years after Cicero was alive. The Roman Republic had gone
away. We had emperors in Rome, and emperors had bread and circuses
and wars to maintain the empire. They overspent. This is the devaluation
of the Roman denarius. Now, if you looked at the last part of that, the
steepest part, if you look at those red dots, those red dots are emperors
that left office feet first, essentially. They were not voted out of office, and
that is what happened during that steep drop in the Roman denarius. The
steepest drop happened over a period of about 50 to 60 years.

Again, this is not unprecedented, but we think it can’t happen here. This is
what’s happened here. This is the purchasing power of the consumer
dollar. This is what’s happened to the dollar since we took silver out of US
coinage in 1965. It’s lost about 87% of its value, of its purchasing power.
And of course, this is by the government’s own measure. This is by their
estimation of inflation through the CPI and we know how trustworthy that
is. We know that there’s an inherent bias to under report inflation. So it’s
actually worse than this.

But, if you look at it, if you ... Hundreds of years from now, historians will
look back and say you and I right now are living through the destruction of
the dollar. And as you know, it can go lower.

So what happened over that same period? We had the purchasing value
of the dollar going from the upper left to the lower right, and generally, we
had the relative value of gold going from the lower left to the upper right.
Now obviously, it wasn’t a straight line. It doesn’t work that way. People
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will tell you. Pundits will tell you that gold is a lousy inflation hedge, and
they’ll bring up oil. They’ll bring up something else, or tips, and how that’s
a much better inflation hedge. Their correlation is much better.

It doesn’t work that way. There are periods. If you can pick your beginning
and ending points, you can prove any fact. If you allow me to pick data
points of 11:00 p.m. and 4:00 a.m., I can prove to you that the sun never
rises. What I’m telling you here is that over the general wide sweep of
history, when the dollar goes down, gold goes up. Sometimes, it’s much
more quickly. Sometimes, it’s not as quickly. But if you’re looking for a
way to hedge against the eventual, the inevitable destruction of the dollar,
then you need to be in gold. And silver.

Now, let’s look at it a little more closely. Let’s look at what higher rates
mean, what this debt means today, this out of control debt in an era when
interest rates are rising. It’s very difficult to get a handle on this. You can
get, in the government’s budgetary statistics, you can get the interest
payment cost in the federal budget. Now this is not the interest payment
cost on the federal debt, because as we know, or actually on the deficit or
the debt, because there’s off budget spending.

So, you’re not really dealing apples to apples, but we can get a close
approximation. Here, we see that federal government interest costs are
rising much more quickly here as the debt is rising very quickly.
Eventually, these interest rate costs ... And this again is in a very low
interest rate environment. So what’s going to happen if we get higher
rates?

Well, here we see the effect of interest rate burden, and I calculated this
by simply taking the interest cost annually with the size of the federal debt
that year. And you can see the effective rate. We’re coming now off a
very low period. In fact, an historically low period, even when interest
rates and the federal funds rate was at zero, our effective interest rate
cost was about 2% to 2.5%. Right now, it’s about 3.5%.

Historically, as you can see, though, it’s been in the range of 6% to 7% as

recently as 10 years ago. And of course, if you go back to the 1980s and
late ‘70s, you can get up to ridiculous numbers of 16%, 18% interest rate
burden on the federal debt. But now, we’re coming off again, a bottom in
interest rates. Rates are rising.

So what happens if we get back to even these levels of 10 years ago?

Well, this is what happens. Now, if you take the current debt, the current
debt, which is debt held by the public, which is about $15.7 trillion, and
you apply these effective interest rate costs, interest costs, at these rates,
this is what happens.

Typically, it bounces all over the place, but in a normal environment, the
effective interest rate is about three to four points, basis points. Actually,
in the three to four points above the fed funds rate. So, if the fed gets to
3% to 3.5% on the fed funds rate, which they’ll probably get to by about
mid year next year at this pace, then that means the effective interest cost
burden on the federal debt is going to start rising toward more normal
rates, which will be in the 6% to 7%.

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And as you can see, that means the interest rate, the burden, the interest
payments paid on the federal debt will rise to over $1 trillion. Right now,
they’re a little bit over, about $350 billion. So we’re talking about, in the
relatively near future, over a couple of years, if the fed gets the fed funds
rate up to 3%, 3.5%, we’re going to be paying over $1 trillion in interest
every year. That’s more than defense, more than entitlements, more than
just about anything else, and a large portion of that is going to be sent
directly to China.

Now you tell me what the political probability is of that going over. So, the
bottom line here is that we’re going to have to reduce the cost of that debt
through a significant depreciation of the dollar, or have some degree of
default on that at some point. The bottom line is we’re going to have a
market that’s very similar to what we had in the early 2000s, when we
saw the gold price go up tremendously, when junior mining stocks
leveraged those gains and multiplied in value and you had four and five
baggers, even 10 or 20 baggers in leveraged gold stocks. That’s going to
happen again.

And when it does happen ... Let’s take a look at what that means. This
chart, I like to put in all of my presentations, shows real gold, inflation
adjusted gold. If you get to the $850 level of 1980, that corresponds to
about $2,758 in today’s dollars. So just to equal the 1980 high in gold in
current dollars, you’re going to be $2,700, $2,800 in the gold price.

So just imagine if things get as they were in the late 1970s, a bit out of
control, people nervous, interest rates out of control, inflation rising, and
the fed has to come in and clamp down on things. If you have that degree
of monetary unease in the markets, then we’re going to have gold prices
approaching $3,000.

So what do you do about it? Let’s get into some companies. I’m going to,
in a little bit, go rapidly through the companies that are recommended in
Gold Newsletter that are exhibiting here, that you can actually go talk to
them. But here are about four or five companies I’d like to pay particular
attention to.

GT Gold, as you may remember, I recommended last year. It’s a

discovery play in the Golden Triangle. It’s had a tremendous move. It’s
come back a little bit since this chart was written. I think it’s at a good
buying opportunity now. They’re finding a porphyry where they had an
underground high-grade deposit that was getting too deep. Now they
found what appears to be a very large porphyry deposit.

Great Bear Resources. I didn’t recommend that last year. I recommended

it a couple of months after the conference at about 33 cents in our alert
service. It’s gone up about 10 time since then. This is a high-grade red
lake type deposit. I would buy this one still on weakness. It’s the only
junior discovery play out there that has this kind of potential to develop
another red light deposit. I highly recommend that.

By the way, I do not own GT Gold. I do own Great Bear Resources.

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Revival Gold is another recommendation of mine I like a lot. In Gold
Newsletter, I do not own this stock. I hope to, if I can get some money
clear. But it is a company that’s developing a deposit in Idaho that’s about
two million ounces right now. Well, it looks to be within reach of two
million ounces. The goal is to make it three million ounces. What’s
interesting about this play is the management team wants to develop a
mid tier gold company eventually, and use this project as a stepping
stone. There’s a very talented group, and I’m very positive on them.

Sojourn Exploration is, you may know, was a company that I was a co
founder of. I’ve stepped off the board over the past year. They’ve
completed revamped themselves, got in a management team, a new
management team that brought with them about a half dozen properties
in the Golden Triangle in BC. You’ll see a number of these Golden
Triangle properties talking about the red line, which is the key marker,
geologically, in the Golden Triangle, for the very large scale world class
deposits that are being found. The guy that developed that red line ... It’s
actually called the Kyba red line, after Jeff Kyba. He is the Vice President
of Exploration for this company.

I own a lot of Sojourn, so let me be very clear about that. I am very

conflicted on this one, but I like the team. You will have time on this,
because they’re not going to be drilling this year. It is a prospect
generator. But it is one I would advise you to accumulate on weakness,
and hold for next year’s exploration season.

Thunderstruck Resources is another company that I am intimately

involved in. I am a co founder and the Chairman. This is not
recommended in Gold Newsletter, precisely because I am an insider of
the company, and as you can imagine, I do own a lot of this one. But I
think you should go by the booth. Thy put out two news releases in the
last two weeks of really significant discoveries on the property in Fiji, and
most likely, will have more news coming. I do recommend that you go by
the booth and talk to them, and that’s precisely why I have the chart up
right here.

So I’m going to run through ... Well, one more company, Vendetta. This is
a special situation. Vendetta has a pegmont zinc lead deposit in Australia.
They are about to complete a PEA, a preliminary economic assessment
on the project. Once they do that, it’s kind of widely regarded in the
industry as the starting point for the company’s availability for a takeover.
There are about two or three companies uniquely, or well positioned, to
make bids in this company, and I would say ... I think they’re trying to get
the PEA done before the end of the year, so that’s kind of a near term
opportunity over the next month or so. I like that one. It’s a potential
takeover play.

As you know, as you can see, in Gold Newsletter, we like gold. These are
gold companies we like. Atlantic Gold, Aben Resources, Allegiant. These
are all companies, again, that are here, that you can talk to the
management teams. Auryn Resources, Cabral, Contact, First Mining,
Golden Arrow, Golden Predator, GoldMining, Gold Play, Great Bear
again, Klondike, Lion One, Medgold. Medgold’s a new recommendation
of mine. Integra, New Dimension, Nordic Gold, San Marco, Skeena,
TerraX, Torq, and Triumph. They are all here. I advise you, I recommend
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that you go talk to them. All these companies are recommended for
important reasons in Gold Newsletter.

Silver recommendations that are exhibiting here. Avino, Excellon, Great

Panther Silver, New Pacific Metals Corporation. There’s a lot of news on
all four of these companies. You can get updated at the booth, but all four
of these companies have made news recently.

Base metal recommendations. I like Copper Mountain Mining, Fireweed

Zinc, Group Eleven Resources and Trilogy Metals. These are all in the
base metal space, of course, but they’re ... And that’s really the only
common thread between all four. They all have unique stories to tell, and
I think ... I won’t put any of those four ahead of the others. You should talk
to all of them.

Uranium is recovering, as we know. There used to be about 500 uranium

companies in the uranium mania. Now there’s about a dozen that are
worth looking at. These are the four I’m recommending that are here at
the conference. Energy Fuels, Fission, GoviEx, and Uranium Energy
Corp.

And prospect generator recommendations. These are the companies that

go out, find early stage prospects, and they garm them out to majors to
do the heavy lifting and expensive exploration. Avrupa, Eagle Plains,
EMX Royalty, Midland Exploration, Millrock Resources, Riverside
Resources, and Sojourn again. These are companies ... In particular, the
prospect generator sector are companies that you should buy and put
away due to the management teams. They like to get other people to drill,
but these are companies that their business model is one that keeps you
in the game for the long term, and you’re really looking for a good
management team for those companies. All of these companies have
management teams that I like a lot.

Large scale resources recommendations. I developed this category

because when gold begins to move, these companies move first.
Typically, and an opportunity Is coming up. Typically, when the fed raises
rates in December, as they’re expected to do once again, you have a
rebound into late January, February, even going into late spring in the
gold price. This rebound since December of 2015 has resulted in these
types of companies multiplying two or three times in value from their
December lows. These are all companies you should look at as a buying
opportunity in mid December.

Altius, Bluestone, GoldMining, First Mining Gold, Revival Gold, Sabina

Gold & Silver, Sandstorm Gold, SSR Mining, and Triumph Gold.

This is how you can find me. Neworleansconference.com. Twitter,

@Brien_Lundin. Goldnewsletter.com Podcast. Please listen to our
podcast. I would like to say, “And now, off to our welcome reception”, but
they gave me something to read in that regard, so I have to go over that
to make sure I don’t skip over anything important.

Please go visit the company booths at the welcoming reception. They’re

all set up there and will have food and drink to make it a lot more fun. In

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 your registration packet, you’ll find a conference survey. Additional
printouts are also available at the registration desk. Please take time
throughout the conference to answer the questions and give us your
feedback.

We truly do read through each and every survey received, and our goal
for each year’s event is to bring a conference to you based on your
expectations and your needs. Your assistance is vital in order for us to
accomplish this. We ask that completed surveys be returned to the
registration desk here on the first floor no later than 7:00 p.m. on Sunday,
and as an incentive for you, we will be holding a drawing of all surveys
returned, with one lucky winner to receive a one tenth ounce gold coin,
compliments of American Gold Exchange.

Before you head across the hall to meet our sponsors and exhibiting
partners, please be sure to bring any notes and belongings with you as
the general session room will be cleaned by the hotel. After the welcome
reception, speaker workshops can be found on the second floor.

Speaker workshops will be held by ... And that is listed on here

somewhere. By Byron King, by Adrian Day, by Mickey Fulp, and by yours
truly. So that’s right after the reception. Head up to the speaker
workshops, please.

Tomorrow morning, there are sunrise sessions being presented by EMX

Royalty, Excellon Resources, Sabina Gold & Silver Corp, and Midas
Gold. That’s all on the second floor from 7:15 to 7:45. We’ll resume back
in this room tomorrow morning at 8:00 a.m. We have coffee service
provided prior to the official start of the conference.

So, that’s it. Let’s go. Open bar, and food. Let’s go. Thank you all.

Mining Share Panel

Rick Rule (MC), Brien Lundin, Nick Hodge, Lobo Tiggre, Byron King

Robert Helms: And Brien Lundin at the mic, ladies and gentlemen, from Gold Newsletter
and Jefferson Companies, Brien Lundin, your host, knows a thing or two.
All right, excellent. There’s Nick Hodge from the Outsider Club.

This is the order that they’re miced. That’s the order that we are picking
this up, all right, next, he’s ready to go, welcome back to the stage, Byron
King from Agora Financial. Excellent. This would be a really good time to
give credit to the amazing AV team who is just banging it up back there
and back here and back there and let’s give them a hand. They’re doing
an awesome job. The video, the audio, it’s all coming together. All right
and there is Lobo Tiggre from Louis James and I think those are our
panelists, let’s welcome the moderator of the Mining Share Panel, Mr.
Rick Rule!

Rick Rule: Good evening ladies and gentlemen, this is a tough crew. Brien started
you off at about 7:30 this morning and I noticed some of you are still here.
I need to say to begin with that we’re flattered by your attendance. We
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 know it’s possible to have some fun in New Orleans and the fact that you
chose to join the early part of the evening with us as opposed to the rest
of the city is very pleasant.

It amuses me, the segue from the last talk into this talk. You’ll remember
that the last piece of advice was to consider buying Greece because it
was down 88% in real terms. I wonder how many people in the audience
know that the Toronto Stock exchange venture resource index, which is
the preeminent junior mining share index in the world, also down
precisely 88%. I wonder if Greece is a buy if the junior minors are a buy.
We’ll explore that fairly thoroughly tonight.

I don’t think my panel needs any introduction, particularly, because they

were already introduced, they’ve all spoken to you so I’m going to pass all
that. I’m going to begin by asking them each a few questions. The first
couple questions, gentlemen, I want you to be nontraditional, which is to
say that I want you to answer briefly. Okay, I want quick answers to the
first couple of questions which I understand isn’t your want.

I’m going to begin on my immediate left, it’s interesting to hear Brien

being described by anybody as to the left, but anyway, the first question
which I’m going to ask every panelist is the following, risk to reward, right
now, okay, November 2018, would you see new money going into large
cap, mid cap, small cap or micro cap mining stocks. This is a mining
share panel, not necessarily the Penny Dreadful share panel. So if you
were talking to a range of investors where do you think the best risk to
reward parameter, coming out of a bear market into a bull market is?
Brien, you first.

Brien Lundin: I don’t know if I’d define it like that. I think the money is already, we’ve
seen over the last couple of weeks in some of these downdrafts in the
broader equity markets in the US, we’ve seen the miners, the broad large
cap mining indexes, we’ve seen those really go up in one of the big
downdrafts, the big selloffs in the stock market, we actually saw the
miners go up about, and the indices, go up about five or 6%. I think that’s
where the first money is going to go but I don’t think that’s the biggest
gains you can go.

One of the sweetest of sweet spots in the sector is, and has been over
the last few years, is that typical downturn in mid-December, right when
the Fed comes in and tries to squeeze in one more rate hike before the
years out. That’s usually when we see a bottom in the market and gold
usually bounces off of that and usually lasts, this year it didn’t last that
long, only about a month and 1/2 or so, or two months. But even at that, if
you can buy the companies that don’t exactly fit the size but the character
of those companies, the juniors that have large scale identified resources.
They might have economics in the ground, they’re define somehow, you
know that they’ve got what is likely a deposit in the ground. They tend to
move more quickly and from the bottoms in December, they usually go up
%100, even 200% over that 2 to 3 month period into the new year. If we
do have that kind of decline, that’s the risk here is that we don’t have that
kind of a decline into December.

Rick Rule: So juniors with large resource spaces. Is that right?

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Brien Lundin: Yes. Gold and silver.

Rick Rule: I was terrified with that long answer, that you weren’t going to get around
to answering the question. I’m delighted that you finally came back
around.

Nick. Large caps, mid caps, you’re a generalist, small caps, micro caps.
Where do you want to be in the mining space? You can do anything.

Nick Hodge: I think the mid-caps are attractive right now. I think you’re seeing a kickoff
to an M&A boom, we’ve seen some significant transactions in the past,
call it six months from Barrick to Northern Empire to some other ones that
you’ve seen. Pogo went away recently and so I think that the mid-tier
producers, I’m talking 100 to 250 thousand ounces, lowest cost quartile, I
think these are going to be the targets that are going to supply the next
round of reserves and productions to these majors who are so
desperately looking for it. Look there’s Sean Boyd from Agnico Eagle said
last week, “There’s just simply too many players out there looking for too
few projects.” And so if you look at quality projects, I’ll throw names now
like Terrango, or Atlantic Gold, for example. I think these are assets that
have to be acquired in the next round of M&A and at that it’s relatively
safer than the juniors at this point because they’re actually generating
revenues.

Rick Rule: Thank you. Byron, same question.

Byron King: Same question, similar answer to Nick’s. I think a lot of money’s going to
flow into the midcaps. I would add to his points that, where is this money
coming from, this money is coming from people in the big part of the stock
market who are watching their Apple stock and their Facebook stock and
their Google stock crater and they’re taking it off the table and they’re
saying, “Where can I go with this stuff?” and somebody says, “Oh, gold-
miners,” and they say what is gold, what is a gold-miner, they have no
idea what it is. But when they look at the large cap guys, they say, “Ooh, I
don’t know about that.” They look at their last history of the last five years
and they’re scared off, and then they look at the small and the micros and
they say, “I have no idea what these guys do.” So I think by the process
of default, much of the money would flow quickly into the mid cap gold
players.

Rick Rule: Lobo.

Lobo Tiggre: Uranium. Size doesn’t matter. High margin uranium.

Rick Rule: Large cap, mid cap, small cap.

Lobo Tiggre: I’m obeying your prime directive to be brief. I’m not omitting your
instructions on the side.

Rick Rule: But evasion doesn’t count as brief. There’s all size uranium companies.
Big ones, medium ones, or small ones?

Lobo Tiggre: I said high margin. I don’t care what size.

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Rick Rule: Okay. He ducks. That’s fair enough. We’ll get back to, well we’ll do that
right now as a matter of fact. We’ll go backwards. I’ll give Lobo a question
that he has a chance to answer.

I want to ask each of you to describe what your favorite commodity theme
is. And why. In other words, mining stocks cover all sorts of flavors.
Which commodity attracts you and why? Lobo, I think I know the answer,
but let me ask you the question. What would be your favorite commodity
at this point in time in the market?

Lobo Tiggre: That’s the title of my talk tomorrow morning, everybody gets to sleep in,
you get the sneak preview. I think uranium’s absolutely baked in the cake,
the production cost cuts that were just mentioned by the previous speaker
are huge. When you shut down one of the highest grade uranium mines
in the world, that really tells you something on the supply side what’s
going on. At the same time the demand has turned around, The Chinese,
I just saw a report in Reuters that they’re expected to increase their
consumption by ninefold. Ninefold. Consumption. Never mind the
leverage you get on the equities. By 2025, not 2050, or 2100, 2025,
ninefold increase. And the Japanese restarted and are continuing to
restart. So I’m extremely bullish, I do think the technical support
fundamentals, and I’m looking for high margins. It could be exploration
with high margins, it could be production with high margin, I want
something that’s going to make money.

Rick Rule: With the caveat of course that at today’s uranium prices, with the
exception of Kazakhstan, there is no margin. No margin.

Lobo Tiggre: Yes. Yes.

Rick Rule: So we’re assuming a higher uranium price.

Lobo Tiggre: Right.

Rick Rule: Byron, same question. Favorite commodity theme. Which commodity do
you want to be in to the exclusion, not the exclusion, but what’s your
favorite commodity?

Byron King: Well I think that the arc of supply/demand right now is bending towards
copper. Towards the red metal. Because really if you look at the next five
years to eight years of the copper industry, you pretty much know where
all the copper’s coming from. The mines have been built and you pretty
much know what’s happening to a lot of those mines and that is that they
are in terminal decline if not they’re going be closing in the next five to
eight years. I see a real shortage there, so I see support for the price. I
see some new projects coming on, but you’ve got all sorts of operational
and commissioning risk with that, and I see very strong demand from so
many different ways, world economic growth, the whole electric vehicle
thing, and so I see a supply issue, I see a demand boom, and I think that
the big copper guys have to refill the pipeline with some quality smaller
companies that they’re going to buy up.

Rick Rule: I’m interested in this. Let me ask you one follow on question. In terms of
playing this theme, would you be buying the Rio Tintos of the world,

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 would you be buying the dominant copper producers, or would you be
looking to buy more leveraged companies or the ones that the big guys
would buy?

Byron King: I wouldn’t really go for the big guys, not the Freeport McMorans or the Rio
Tintos of the world. It would be more like companies that have something
that you can put into development, can I mention names, are we okay
with that?

Rick Rule: Please.

Byron King: Excelsior Copper-

Rick Rule: Please, nobody here wants to make any money.

Byron King: Excelsior, down in Arizona just Southeast of Tucson, just got the final holy
water on their final permits from the EPA, holy water, that’s a pun, I didn’t
even realize that, because it’s an injection permit, and they just committed
to the 75 million dollars of funding that they need. These guys are ready
to go operational, build their mine which tells me that they’re either going
to build the mine and make some money for the shareholders or
somebody’s going to come in, buy them out, give the money to the
shareholders and somebody else will worry about building the mine.

Rick Rule: Nick, same question.

Nick Hodge: Is there a time frame or just until I’m right?

Rick Rule: [inaudible 00:11:13] long because I’m old, if you were going to tell people,
in the context of their mining investments, what your favorite commodity
was, reflected in mining stocks, what would it be?

Nick Hodge: I think I’m going to go with uranium as well, no one is making money right
now as Louis said. McArthur was just shut down, the Kazakhs are IPO-
ING their uranium production arm, which controls some 30-40% of the
market, which means they actually have to act like western capitalists and
not just flood the market with their uranium. There’s been a series or new
funds created, whether that’s the Uranium Royalty Corp that’s out there
now or the Yellow Cake fund that’s going to be absorbing supply off the
market, Cameco is out there buying supply off the market to fulfill their
contracts, there’s the section 232 petition that’s working its way through
the US Commerce Department on which the President’s going to have to
make a decision in the first or second quarter of next year that I think will
go positively and so there’s just a cadre of catalysts in the uranium sector
that are too positive to ignore.

Rick Rule: And finally, Brien.

Brien Lundin: I think we all agree that uranium is next year’s really big story, and I think
that makes it five years running that we’ve said that.

Nick Hodge: That’s why I asked about the time frame.

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Brien Lundin: I can’t disagree with that. It is a story that’s powerful, inevitable, and
hopefully imminent, so I don’t disagree with that one. But I would say that
I tell people all the time, if you like gold you have to love silver, and I like
gold, so I guess that makes silver my choice, because it offers an innate
leverage to gold, I think there are a lot of factors that are pointing toward
higher gold prices, and if that’s your thesis, then you want to get that
leverage. So you go to silver and there are a few companies out there in
that area. But they’ll be much more leveraged than a corresponding gold
company.

Rick Rule: And in just a moment, well, a couple moments, I’m going to give you a
chance to name some names. So be ready for it. The next question I
want to ask is a fairly complex question, so I have to explain it a little bit.
In my own talk today, I talked about sectors within the mining share
market that were attractive to me. Those sectors were take-over
candidates in the first instance which I think is timely. The royalty and
streaming companies where I think that the value proposition is
misunderstood by investors and prospect generators.

Knowing what I think, I want to know what you guys think. Not about
those sectors, but if you had to find a sector theme away from
commodities. Which sectors, would they be drill hole plays, would they be
take-over targets, and I’ll give you guys a chance to think about this
because this is a complex question. But I want to know what kind of
sector themes you think are particular attractive, particular sector themes
that you think other people aren’t thinking about for various reasons.
Remember that this audience didn’t come here for sort of mainstream
pablum advice, but they have a specific interest in information about
mining shares from people that make their living in mining shares. And
Brien, of course I go backwards and forwards, and we’re starting that
question with you. Sector themes in mining shares.

Brien Lundin: Yeah, I don’t know why I got seated on the end, I’m supposed to have
some pull around here. Just to repeat myself, I think short-term, I think
companies with large resource bases that are selling at near low-levels, if
we do have a decline in the overall area by December, and really even if
values stay flat, I think there’s a very good chance those companies,
those being the Almadens, the Sabinas, the Midas, the companies with a
lot of resource, Skeena is another good one that has a lot of high grade
resources. The list is fairly long right now, there’s probably a half dozen or
eight companies out there that qualify, but those are the kinds of things
that I think will move first when the metal’s prices start moving.

Rick Rule: So Brien, just to make sure that I and the audience understand your
answer, are you talking about the optionality plays where you have a
large resource base that might not be economic at this price point?

Brien Lundin: I think that’s a subset within what I’m talking about. I’m talking about a
large group of companies that have identified resources, I know that a lot
of people, well, Brent’s not here so that’s one less person that doesn’t like
the optionality plays on this panel. But I do like the optionality plays. I
think there is an argument for that. I don’t necessarily think they’re going
to be as leveraged to the immediate move as the companies that have
actual economics on their projects, but I think over time if you have an

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 extended bull market in gold, you have those resource bank plays will be
really big winners.

Rick Rule: It’s probably appropriate to acknowledge here in New Orleans that the
best early proponent of optionality that I know of, in 1990, was one James
U. Blanchard, responsible, among other things for causing me to finance
the Bob quarter Main and Silver standard, encouraging the formation of
Vista Gold, Seabridge. Jim Blanchard was a guy who believed in higher
gold prices, and he sure got the optionality play right in the 90s if you’ll
recall.

Brien Lundin: I remember that meeting, I was in that room.

Rick Rule: Stunning. Nick. Sector themes in mining. What’s attractive to you
particularly, or unattractive to you if there’s an overbought theme that you
want to talk about, we can talk about that too.

Nick Hodge: If you missed Rick’s talk, he’s interested in M&A and he’s interested in
royalty and streaming companies, and he’s interested in exploration via
prospect generation, and I believe he’ll be putting some list up January
15th. I’ll plug you. Cause I took notes. If I’m answering the question, I
think I’m going to say brown field assets that are being revived in some
way that we know there’s been a history, or a legacy, of past production
and we have some infrastructure built out that can reduce the capex and
that are somewhere on the road to permitting or restarting that mine for a
couple of reasons. One, they’ll have a known resource base, I mentioned
a company like Midas as well, something like six million ounces of gold,
and no, they don’t have to be optionality because if you look at Midas’
PFS, it’s something just under or just around 600 dollars all-in sustaining
costs.

And so you’ve seen over the past couple of years, mid-tiers and even
some majors have shedded some of their non core assets, but that
doesn’t mean that they’re not good assets, it just means they weren’t
getting attention in those mid-tiers and major’s portfolio and I think in the
next cycle, you’ll see those projects restarted, and it’s good to bet on
something that was already a mine as opposed to trying to build
something from scratch, it’s cheaper and it’s less risky. So I would take a
look at some of those brown field companies out there, Midas is one,
Revival is another that’s reviving the bear track mine in Idaho that they
got from Yamana for example, and so assets that have been in
production before, have some sort of infrastructure built out, a resource
tied to them, and are maybe in some of that boring part of the life cycle of
a mining company chart that you see so frequently, because while it’s
boring now, I think we’re going to be coming out of that for some of the
reasons we’ve discussed about M&A and things like that.

Rick Rule: Byron.

Byron King: Well I think if we want to look at, say between now, right now at this
conference, and a year from now when we’re all back here, which I’m
sure Brien will let you sign up for next year now, towards the end of the
conference.

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Brien Lundin: Thank you for that.

Byron King: I think the thing that will reward everyone who gets into it would be any
company that has a very strong, advanced stage development that is
ready to roll over into production inside of the next year. I’d look at a
company like McEwen Mining, M.U.X, MUX, they have the gold bar
project in Nevada that is almost ready to go. They should be moving rock
and moving machinery and pouring some gold in six months.

A company that I’ve been following for a while that’s doing absolutely just
on a tear, up in the Yukon is Victoria Gold. I was talking to the CEO a
couple weeks ago and I said, “How’s it going up there,” and he says, “Oh
we’re working,” I said, “Well when are you gonna quit for the winter?” And
he says, “We don’t quit for the winter.” And I said, “You’ve gotta be
kidding, it’s gonna be 60 below zero,” he said, “we’re working”. And
they’re gonna get that mine up and running and built and it’s gonna be a
happening thing by next year.

I like Midas, I like what I see in Revival, on another angle I strongly

suggest that if you haven’t yet, you pay a visit to The Great Panther. I just
had a wonderful talk with the CEO there. They’re not building something,
they’re buying something that’s already built and they’re buying it for quite
a steep discount. So again, it’s not quite a development but it is a serious
addition to the volume of production that you’re going to see very soon.
And it’s going to mean a lot of money at the bottom of the cash register.

Rick Rule: Note to Byron, when you visit with those development stage companies,
you remember to tell them that your friends at Sprott Inc are the largest
and finest providers of development finance on the planet.

Byron King: I never fail to talk about you behind your back Rick.

Rick Rule: Thank you. Ladies and gentlemen, take note.

Byron King: In a nice way. Always in a nice way.

Rick Rule: New Orleans has been wonderfully commercial over 31 years which is
why I do fine here. Lobo.

Lobo Tiggre: I agree with Byron, though I very narrowly define it as what my former
employers used to call the golden runway. As longtime readers know, I
sent some brave bright young fellows to dig into the data on this, we
found over a 100 cases of first-time mine builders. So it’s not just any
development, it’s not additional, but when you make the transition on that
famous chart, right from explorer to producer, we found, much to our
surprise that the average gain, crossover a 100 cases, was over 100%.

From the bottom of the trough in the boring engineering phase when you
decide to build your mine to that first pour, and by the way, they typically
came down again a bit after the first pour. But I was gobsmacked. I did
not expect that rise to be so great, and that happened in bear markets,
that happened in bull markets, it’s extraordinary. In a bear market the rise
was not 100%, it was around 30%, if you look in the bull markets, the rise
was higher. And here’s the real amazing thing, is that if you take the top

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 performers, the top five first-time mine builders in the data set, they
averaged around 700% gains That’s around the order of magnitude that
you’d expect from a discovery, right? A ten-bagger. Okay. 700%, not
quite ten-bagger, but it’s close enough. I’ll take the money and run. But
what are the odds of making a discovery? Even the best in the business
take years if they succeed at all. But the odds of completing a mine-build,
95% of the companies that started to build their mine completed it. That’s
extraordinary. 95% odds on a double or better.

Rick Rule: Lobo, I found that study to be very, very interesting when you first wrote it
up. Do you still have that study available?

Lobo Tiggre: It is property of my former employers at Casey research.

Rick Rule: So you can’t give it away.

Lobo Tiggre: So that data, I don’t have. I’m rebuilding it. It was my idea, and I’m
expanding on it.

Rick Rule: I was just going to suggest that if people wanted that study I found it to be
an extremely interesting study and also well-written. If people-

Lobo Tiggre: And I have an idea for what makes the top performance too.

Rick Rule: If people wanted to access it at some point in time, you may be able to
provide that.

Lobo Tiggre: Yes. There will be a new and improved version on my website. Thank you
very much. Independentspeculator.com

Rick Rule: So I’m going to move now into sort of a much more speculative venue, in
the sense that the answers that you’re going to give are almost certain to
be incorrect, but I think it’ll amuse the audience greatly.

My experience in terms of the cyclicality in the junior resource sector has

been that, in down markets, the sector as represented by a broad index is
down anywhere between 50 and 60 percent. This down cycle being the
exception, down 88 percent. I’ve also found in my career that bear
markets are of course the authors of bull markets and my good friend and
mentor, Ned Goodman told me that after the cycle has been down 50
percent, in the next five or so years, it can be counted on being up 400 or
500 percent. Now, I think you’re going to have some fun with this answer.
And depending on the answer you give, this will be the most popular
panel of the session. in a circumstance where the normal down cycle is
50% and this down cycle has been down 88% or 90%.

Do you believe that past is prologue? And that the up cycle will reflect the
depth of the down cycle. So the first answer, the first question, it gets
answered yes or no, but the second part is more fun. over the next five
years, how high do you think that the up cycle goes as the consequence
of the down cycle? Lobo since we ended with you, we’re going to start
with you. Is past prologue, yes or no?

Lobo Tiggre: Yes.

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Rick Rule: If yes how high?

Lobo Tiggre: Hesitant to say sky’s the limit, but I think not only ... I wouldn’t go on the
it’s down 88%, therefore it has to spring up higher. I just, I’m a
fundamentalist. I look not at the chart, but all these crazy things that have
been done since 2008, all that stuff is going to come home. The piper has
to be paid. I think we’re going to see a broad resource boom for the
record books. I mean we will not have seen anything like this before and I
think the precious metals, when the panic mode really sets in are going to
blow past most people’s wildest expectations. That’s the big arm waving
statement. I’m happy with my first time mine builders that gave me good
market, bad market, odds are a success. But you asked me a question. I
think all of you are going to see something you’ve never seen before in
that market.

Rick Rule: As your former employer Doug Casey would say, “Your lips to God’s
ears.” Byron, is past prologue, first of all. And if so, how high is high?

Byron King: Well, the past is prologue. Yes. I think that when the dam breaks, you’re
still going to have to have been a stock picker in the sense that you want
to be in the right kind of the best stocks. And if you’re here in this room,
you’re already there, you’re all special for being here as opposed to being
out there not caring about this whole sector, but the sector is going to go
up. It’s going to lift an awful lot of boats. The good, the bad, the ugly, the
good boats are going to get lifted a lot higher. Five to 10 baggers are
going to be the norm for quite a few of the better companies and some of
them are just going to be absolutely stunning. You’re going to be ... If you
haven’t retired yet, you will, if you haven’t figured out how you’re going to
pay your kid’s tuition to Yale, you will, it’s all good.

Rick Rule: As far as the audience is concerned, We’re two for two. Are you going to
fail us Nick?

Nick Hodge: Yep.

Rick Rule: Have at it.

Nick Hodge: I have no idea. That’s a crystal ball question. The previous questions
were opinion, so you simply can’t know the answer. What I would say is
that if you study the market and you study the history of the market. Let’s
take a slice of uranium, for example, when the mine flooded in 2006 to
2007, we had stocks running some 10 to 30,000 percent uranium stocks.
And so yes, I believe you can see that again and on the precious metals
side I’ve been talking a lot lately about Jim Dines and then he says at
some point we could see %3000 to $5,000 gold based on the amount of
fiat that has been printed in the amount of debt that the world has racked
up both public, private and sovereign. And so yes, I think you could see a
drastic melt up in which you will see fantastical gains. When that will
come? I have no idea.

And so my advice would be invest in the most quality companies you can
when you’re speculating, invest in people that have done it before and
invest in the lowest cost coretile of production because as we know, the
market can remain irrational much longer than we can remain solvent.

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Rick Rule: Finally, Brian.

Brien Lundin: I agree with everything that’s been said, but I think, yes I do think past is
prologue. Yes, I do think we’re going to have a really big, probably the
biggest ever extended bull market in gold. I hope we don’t have a blow
off. I think there’s a lot of evidence that we will, because of all the things I
talked about in my speech and my workshop last night, all the monetary
issues, all of the debt that’s out there and the stresses in the world
financial systems, but we should hope that it isn’t a really rapid buildup
and blow off. We should hope that it’s an extended market run like we
had from 2001 to 2008 and in a bit from 2009 to 2011. Because during
that period we had a lot of companies that went up four or five times over.

We had some 10 baggers. We had some 20 baggers, but what happened

was, the people at this conference and other conferences really involved
within this sector. They’d educated themselves and what the best placed
were, they’d have a stock that would go up four times over. They take the
money off the table, put it in an another one that might go up go up only
three times over. They’d deploy that in another one that might go up 10
times over, but you get the point. It’s that kind of exponential gains that
was possible during that period and ithento key ... Just to get a bit off
topic during that is to take money off the table and that’s a whole nother
story. I hope we get the chance to get to that. But we do want a longer
term bull market. I think we’ve got a real humdinger on the way.

Nick Hodge: I would echo that sentiment of it, but I would also say careful what you
wish for you, Rick you and I discussed last week $3000, $5,000 goal. You
have a lot more problems on your hands with the rest of the economy?

Rick Rule: Sobering statement, which I happen to believe in. So far I think the
panelists have done a great job of educating folks on a very wide variety
of subjects related to the mining share panel. And I have to say the
audience has listened very politely and astutely. Now the audience is
going to get their pens out because the education part is over. I say every
year in this panel, the panelists believe their job in a biblical sense is to
teach everyone how to fish, but that’s not what y’all want. You want the
panel to catch some fish for you and clean them and serve them up
perfectly done with appropriate garnish. So we’re not teaching folks how
to fish anymore. We’re delivering them some fish. I want each of you to
name a couple of names. At least one of them has to be an exhibitor here
and another one.

Brien Lundin: Thank you.

Rick Rule: And by the way, you can say that this company that’s exhibiting here is a
total piece of garbage and I think you should short the hell out of it. I’d like
to see Brien do that just for fun.

Brien Lundin: And yet I keep inviting him back.

Rick Rule: I’d like each of the panelists to name at least two stocks. The audience
would accept three and I’d like one of them to be an exhibitor here so that
the audience can practice the lessons that they learned earlier in the
setting in real time with exhibitors tomorrow. Brian, I ended with you. I’m

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 going to start with you. I’d like two or three stock picks and I’d like at least
one of them to be an exhibitor here.

Brien Lundin: Oh, you can count on that. In fact I’m going to give you seven quick
names and of those all but one is an exhibitor. One of the things you want
to do when you go around to talk to companies is gauge the width of their
smile. If they are an exploration company, that smile index. I think if you
go see Gina Roger at Midland you can’t wipe the smile off his face. So I
like that story. They’ve got a great discovery. The Mithrill discovery and I
think news is forthcoming on that, Nordic Gold is a company that will join
the ranks of gold producers by the end of this month. I think it’s
undervalued right now.

Thunderstruck, I can’t say much about, I just think they’ve got turned the
corner and making some good progress on their properties in Fiji. I’m also
the chairman and a big shareholder. So there’s that disclaimer, I’m a big
shareholder of Sojourn, love that management team that’s running it, it’s
a prospect generator, and I just had a chance to go by their booth and
they have some samples that they got from some properties that I knew
well over the last few months.

I haven’t heard from them over the last few months, but it seems like
they’ve made some really big advances. Vendetta is a company that will, I
don’t think will be around in six months. There’s a good chance it won’t be
around in six months. They’re getting a PEA done on their zinc lead
project in Australia and they have a lot of likely buyers. Great Bear is up
about 10 times. Is already a 10 bagger from our recommendation in a
gold newsletter alert last December. Hard to recommend a stock at that
level, but I don’t think there’s another junior out there that has the kind of
upside that it has. You should really talk to them and listen to their
presentations and get the story. Revival is another company has a sizable
resource right now. We’ll build that resource and I think the management
team is not satisfied with that project. It’s a very good management team
and I think they are going to go ... they are already on the hunt for other
projects right now and that’s my list.

Rick Rule: Nick.

Nick Hodge: I’ll just start right on Brien’s heels with Revival Gold, who I’ve already
mentioned during this panel. RVG in Toronto, RVLGF in the United
States. The resource Brian mentioned is 2 million ounces. They’re
targeting a resource update, 3 million ounces. There’s a couple hundred
thousand ounces sitting on the leech pad there from the project when it
was in the Amanas hands, and again ill echo Brien, I think they’re on the
hunt for something else. Midas Gold we’ve mentioned on this panel and
the MAX in Toronto, MDRPF in the United States, 6 million ounces in
Idaho, bipartisan support in the state, an important antimony credit, which
we’ve now deemed a critical metal here in the United States. They’re
going through permitting now. I would argue there’s much, much more
exploration upside on that project than, than anyone could imagine.
Barrick came in earlier this year for a 20 %stake.

There’s something going on with Barrick’s ore at gold strike. They need to
sulfur content to help their processing go better in Nevada. And so I think
you could see Barrick make a swipe at Midas. I’m going to keep going
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 down the list of sponsors. Energy fuels. We talked about uranium. They
are the largest US uranium producer. That doesn’t mean much because
it’s only 500,000 pounds. But nonetheless, the stock has nearly doubled
since January. They’ve got a vanadium credit now. They’ve got the only
mill in the United States that can process both uranium and vanadium.
UEC is an optionality play for uranium. They’ve got fully permitted
polygon and operations in south Texas, completely leveraged to the price
of uranium. They’ve got no production going on now. Fission uranium is
over in the hall. They’ve got the independently ranked best undeveloped
asset of uranium in the world.

Some hundred and change million pounds likely growing from their
updated metrics due out on that project by the end of the year. And I’ll
give you one that’s not over there. That’s an exploration play in the fast
heating up district. The Puno belt in Peru is Palamino. That’s PA in
Toronto. It’s run by Andrew Thompson. He did well by his shareholders to
sell his previous company Soltoro to Agnico Eagle, Agnico Eagle in 2015
during the previous downturn. The project he’s on to now has been
ground-truthed by local artisanal miners. There’s visible gold. He just
trenched over 600 grams per ton down there. They just finished flying it
last week and he’s got a very, very serious land package that is now able
to be accessed because of roads that have been built in that country.

Rick Rule: Did you take a breath?

Nick Hodge: I don’t breathe.

Rick Rule: Byron.

Byron King: I’ve mentioned a few names already. Ill mention them again real quick
just in case you didn’t get them, McEwen Mining, Mucks, Victoria Gold,
Excelsior. I mentioned Great Panther. Take a look have a talk. I like
Midas very well run company, wonderful company. Integra Resources.
Riverside Resources is a prospect generator. Wonderful. John-Mark
Staude is just first class. If you haven’t met him, please do. Auryn, they’re
here, please have a talk with them. Take a look at Golden Arrow. They
have some interesting things going on down in Argentina. There’s
probably more but my brain sort of a busy processing so much going on
here.

Rick Rule: Lobo?

Lobo Tiggre: I’ll keep it simple. I’m well known as a proponent of, advocate of,
champion of the Pretium guys. Super high grade, super big, permitted, up
and running. There’s been all this controversy. I think they’re starting to
finally show that they really do have a mine. It really is there. And if that’s
true, it’s deeply discounted. Could easily double all by itself without gold
going up with nothing changing. Simply the skepticism falling away and
then stock could double. And I think it gets taken over and that kind of
high grade, large asset with huge blue sky still out there in a safe mining
jurisdiction, that doesn’t stay outside of our majors. If they can prove that
it’s there, de-risk it, in the last sense, I think that gets taken over. I own
stock, full disclosure PVG on both in the US and Canada.

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 But I believe that one has extraordinary potential in the near term
regardless of what happens with metals prices. Another stock I like a lot, I
think of as the… No, maybe I won’t make that comparison. I like Silver
Crest a lot. I do not own the shares right now. I just sold them because I
made a bunch of money. It was very quick win in my portfolio. But I think
they have a project. It’s high grade silver in Mexico in an area where the
same team has done the same thing before and sold the deposit to a
larger company. And this one’s bigger and better and it’s wide open. They
keep discovering more veins.

It’s SIL.V, I like that one a lot, but I made a bunch of money so I’m no
longer long long and if it got cheap enough with nothing bad happening in
the company, I would buy it again, if market melts down, I look at that as
a buying opportunity. And finally, I’ve talked a lot about uranium, I have to
mention an exhibitor that’s here. So I guess I’ll mention Blue Sky Uranium
is here. They have that vanadium lining that I like. I like the vanadium
story. I get it. I’m long-term bullish. I’m concerned that it’s gone up too
quick. But if I could have a vanadium tailwind on a uranium story that I
believe in already, and I liked that combination a lot. So Blue Sky is BSK
and I believe they’re here. So you can ask them about that. I do not own
that one.

Rick Rule: Actually, many of you don’t realize this, but history was made on this
panel. This was the first time in 20 years in moderating this panel that the
panelists actually gave brief enough answers that we finished on time.
Normally, people talk about climate change. This panel has been
responsible for climate change off in the hot air that’s emanated, in fact
from the diocese has changed the ambient air temperature in New
Orleans, but we’ve actually finished on time on budget. So I get a bonus
question, which is unusually fun. It might be that the consequence of this
bonus session is that we wreck the panel in the eyes of the audience.

So far as I understand it. we have said risk to reward. All stocks are going
to go up. So it doesn’t matter what you do as long as you do something.
We’ve decided that our favorite commodity theme is everything except for
Uranium is our extra favorite. We’ve decided that our favorite sector is…
“yes.” All of us at plethora of stocks that are going to go up. I mean, how
could we screw this up? This is exactly what an audience slung gold
stocks wants to hear. So we have one final chance to screw up the panel.
One final chance. What I’m going to ask you briefly is what could go
wrong with our thesis? We’re in a bear market. Bear markets are the
authors of bull markets, the US dollar’s going to go to the toilet eventually,
US treasury is going to be great.

This is all the good stuff, right? If we’re unlikely the stocks are only going
to, go up 300 percent, but if they do what they should, they’re going to go
up a thousand percent. Okay? We’ve all heard all this pablum. What
could go wrong, Brien? What could go ... Not everything that could go
wrong. What’s the one thing that really keeps you awake at night? In that
next sort of 12 month timeframe?

Brien Lundin: Well, nothing’s going to keep me awake at night after this conference is
over, I assure you. But you mentioned and haven’t mentioned global
warming and that’s because Brent wasn’t able to make it this year. So
Brent, cook us in here. So we have a dearth of global warming
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 commentary and also I need to swear the audience to secrecy because
Brent and I always had this bet every year about whether the gold price is
up or down from the last panel and it is down. So I lost the bet. So
everybody keep really quiet about that because I don’t have a bottle for
Brent.

Rick Rule: I accept bribes.

Brien Lundin: Okay. And you’ll accept them in the bar. What could go wrong? I think my
thesis is that there’s no real dollar strength. There’s a long-term dollar
bear market that will resume very soon if it hasn’t already. However, there
is an argument that there is a dearth of dollars out there which you might
find interesting or contrary to your way of thinking after all the debt and
money that has been created. The issue there is that there’s been so
much dollar denominated debt that has been created. So to pay off those
debts, there has to be dollars to pay those off. So to me that in effect may
put a bid under the dollar and lead to some dollar strength. And that’s one
of the things I’ve been thinking of recently that might run counter to my
thesis. Might go wrong.

Rick Rule: So consequence of my greed of course. I’ve always had a dearth of

dollars. That’s an Interesting circumstance to contemplate. Nick. What
could go wrong?

Nick Hodge: Another high profile nuclear incident for me, for the uranium space,
Fukushima completely decimated the uranium market for the past seven
years now, while nuclear, as I often say, has been the safest form of
electricity generation per kilowatt hour that the human race has ever
seen. There’s always that risk that you wake up and there’s a three mile
island or another Fukushima. And so that’s one thing that, that I really
worry about in the uranium space. The other thing is that, the Fed just
finds more bullets. We often say the Fed is now out of bullets, but there
could be some unprecedented thing. You’ve seen some main street
pundits talk about minting a trillion dollar coin, for example, to pay off the
debt. And so someone, that’s serious, man, that’s like Bloomberg
commentators say in that. It’s some unprecedented event that, that the
government takes as a step to evade what we all see coming.

Rick Rule: That was a great answer. Byron?

Byron King: I’m going to look overseas for my great black swan type of event. But I do
hear the wings fluttering I suppose. I would say that the great thing that
could pull the rug out from under everything would be a total and
complete Chinese crash. They are highly indebted, over leveraged, dead
cities, dead banks, dead banks walking, all that sort of thing. If China had
its own version of the US great depression of the 1930s, because it all
just fell apart. All of a sudden all that demand for oil, all that demand for
copper, all that demand for cement, all at demand for the commodities
that we all so love. I could see that crashing the prices and chopping the
legs out from under, from under things.

Rick Rule: Lobo, what could go wrong?

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Lobo Tiggre: I agree with all of the above and I would say maybe one thing that injects
a little terror into my night time dreams would be the next Bre-X. We keep
hearing that this could happen and there’ve been some questionable
things, but nothing really on that scale. With my luck it will be the one
stock I just plugged. But a lot of expectations were that Pretium was going
to be the next Bre-X. I don’t think so. I think they’re showing their thing,
but if that happens, just think about it. We could be right, we could be
right about the economic trends. We could be right about the
fundamentals for uranium. We could do everything right and we could
pick the best companies and they’d still all go down because some you
know? so that’s ... And it’s completely out of our control. We can’t be the
best stock picker and avoid that. We’d all get hammered if that happened.

Rick Rule: I’m going to answer my own question on the last one. We’ve been in
expansion now for nine years. A tepid expansion on occasion, a rotational
expansion, but we’ve been in expansion for nine years and we haven’t
had a liquidity crisis of any kind since 2008 and I would nominate an
economic slowdown, a globally synchronous economic slowdown after
nine years of expansion. My experience in financial markets for 45 years
is that you very seldom get nine straight, pretty good years, and my gut
feeling is, this one’s a little long in the tooth and if you combined a slow
down with a liquidity squeeze, irrespective of the cause of the liquidity
squeeze.

What you learn is that stocks or stocks, when stocks go down, all stocks
go down including resource stocks, tertiary assets, when there is no
tertiary asset in the world, more marginal than mining stocks go down in
liquidity crisis. So my own answer to my own question is a global
economic slowdown accompanied by a liquidity squeeze. Ladies and
gentlemen, the key to having a good panel is to have good panelists. And
I had spectacular panelists and I’d like you to join me in a round of
applause for my panelists. Thank you very much.

Peak Prosperity
“The Crash Course: Our Unsustainable Future”

Lindsay Hall: What’s coming next: the Crash Course, our Unsustainable Future. Put
your seat belts on please. Up next, Chris Martenson and Adam Taggart
are the co-founders of peakprosperity.com where they’ve been educating
millions of readers about the risks in our economy, energy, and
environment systems since before 2008 and that financial crisis.

With degrees from Duke, Cornell, Brown, and Stanford between them,
both held executive positions at companies such as SAIC and Yahoo!
before consciously opting out of the corporate life for a more meaningful
purpose, to build awareness of the looming changes the next 20 years
will bring and to help individuals concerned to take prudent action in
advance.

They both moved their families to more rural, self-sufficient locations with
strong community engagement and launched the website
peakprosperity.com. The website is visited by four million people each

217
 year and its video series “The Crash Course” has been viewed over 15
million times and translated into 12 different languages.

If you would please, a round of applause for Chris Martenson and Adam
Taggart, two fantastic fellows.

Chris Martenson: Thank you, good morning, good morning everyone. It’s just fantastic to be
here at the New Orleans Investment Summit, if anybody’s having any
trouble seeing some charts, please feel free to move forward. I’ve got a
few charts to go through here.

So I retitled this, One if by Growth, Two if by Tears. You’ll see neither

Adam or I are wearing ties today, that shows how we ducked out of the
corporate environment, we gave it up.

But something happened to me along the way and I lost my ability to

believe in endless growth as something that’s going to cure us or is good
for us. In fact I now see it as harmful, particularly given what’s happened
in the monetary space, and the monetary policies that have been going
on in this country, and in the world, are going to be incredibly destructive.

So I want to set this up, One if by Growth, Two if by Tears, we’ll see
where we go with this. We’re going to be visiting the booth on your right,
this morning. Please bear with me, it’s going to be okay. We’re just going
to look at a couple of things here that I think are kind of unsettling at first,
but they represent enormous opportunities when we get through them.

One of my favorite quotes is from Leonardo Da Vinci who says, “learn

how to see, realize that everything connects to everything else.” So I don’t
know how to talk to you about just monetary policy without connecting it
to what’s happening in the larger world around us, I\in energy and in the
environment.

So I have these three E’s, I put them all in one spot. Once they get in one
spot, I think the future becomes clarified and where we’re going becomes
a lot easier to see. There’s another E in this story as well, which is this
thing called “exponential growth”, how many people here are familiar with
my story and have seen this particular part?

Good, a lot of hands didn’t go up as well, I love seeing that, so we can

step through this. Alright, this is the headwaters of the Nile. This is the
birthplace of the coming crisis. What we’re looking at here on this chart
are year over year changes in the balance sheets of the major central
banks.

I put little oval-ish circles under those to show you sort of the area under
the curve. I didn’t really have a lot of complaint about bailing things out in
2008 and 9, a little, but not a huge amount.

And then we saw that everything sort of came back down to the zero line
at the end of 2009, and then what happened? Well, 2011 sort of scared
the central bank so they printed some more, they dialed it back, they
printed a little more again, but look at the largest area of printing. 2016
and 17, what was the crisis?

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Every central bank was telling you that everything was okay,
unemployment is falling, we’re looking good, but they did the largest
printing in the entire series in 2016, 17. You know what scared them?
What you saw in Bob Prechter’s work where 2016 beautiful head and
shoulder tops, financial markets started to sell off, and the central banks
freaked out.

And they printed the most amount of money in all of human history. That’s
a big moment. That’s unwinding right now. This is probably the most
important chart you’ll ever see if you care about the direction of prices of
things.

And what did we get for all that printing? Well, we got the most expensive
stocks ever. This is a measure of the Wilshire 5000 against gross
domestic product. Most expensive ever.

We got the most expensive bonds ever. This is showing a European area
high-yield junk bonds that were trading at one point in 2017 way below
U.S. ten year treasuries. This is nuts. How’d we get there? Well, Mario
Draghi was buying bonds like crazy across the Euro zone.

There are still five trillion dollars of negative yielding sovereign bonds out
there in the world right now, that means you give your money to the
government and you pay them for the right to lend them money.

How nuts is that? We don’t know how nuts, but we don’t have any
historical precedent, but I’m here to tell you, it’s really nuts.

We are the most indebted ever. We went from roughly a 147 trillion in
global debt before the crisis to 247. What did we get for that? How much
incredible, amazing, awesome, sustainable growth did we get in the world
economies for that? Not a lot.

So this is where are, we’re at the tail end of the largest monetary
experiment in all of history which is actually a political experiment and it’s
a social experiment, and we’re feeling the bite of that right now.

Politically, the Catalonia break away, Brexit, the person who was just
elected down in Brazil, Trump, all of these things are just reactions of
people saying, “this isn’t better, this is harder.”

And so this is the context that tells us, “okay, look,” If we’re gonna get out
of all those things, including in the United States, the most unmet
promises ever, so this adds up. Under funded, unfunded, entitlements,
pensions, all of that. Plus the straight up and up debt that we’ve got:
Corporate debt, household debt, student debt.

And you measure that against GDP and you discover all those IOUs in
the United States add up to 1,100 percent of GDP. No country has ever
dug out from under a load that large.

So how are we going to get out from under this? When I was talking with
the former Director of the Pension Benefit Guarantee Corps, I asked

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Brad, how do we get out from this chart? And he said, “well, we have to
grow, we need really fast growth.”

That’s everybody’s answer in economics and monetary policy, to getting

out from all those charts, growth. Alright, so if we don’t grow, what
happens? Well, there’s a lot of tears on the back end of that, right?
Pension promises that are unmet, end in a lot of tears for a lot of people,
for example.

So let’s look at this one more, this exponential growth piece, ‘cause this is
really the key to the story. Once you understand this, a lot of things really
begin to snap into place. So this exponential growth, what’re we talking
about? Well, this is a chart of something that’s growing exponentially. It
looks like a hockey stick, right? Goes a long fairly sedately, turns a corner
and shoots straight up.

All you need to get a chart that looks like this is something growing by
some percentage over time. Ten percent a quarter, three percent a year,
one percent a decade, it doesn’t matter. So as long as something is
growing by some percentage over time, you get this.

Alright, so this is a hard thing to understand, though, because we’re

humans. We’re all wired for simple linear things. If I give you two erasers
and I said, I’m going to score you on how evenly you bring them together,
you’re going to score very highly, but if we replaced them with magnets,
really strong magnets, you would come along and that would happen,
because the magnets attract exponentially. It’s very hard to wire that up
with our brains.

So I have a thought experiment to help bring this home and help us

understand what this means. And this thought experiment goes like this, I
have a magic eyedropper and into your left hand I place a drop of water
and it’s magic because every minute that drop of water doubles. So after
one minute you have two drops of water, another minute passes you
have four drops of water. After about five minutes you can fill a thimble
up.

So here’s the question, we’re going to go, I’m from Massachusets, I had
to pick a stadium randomly that gets destroyed in this story. We’re going
here, and two things are going to happen here. I’m going to make it water
tight, okay, put a wall across the back, and I’m handcuffing you to the
highest row of bleacher seats.

Here’s the question, we start at 12:00 this afternoon, twelve noon, you’re
handcuffed to the top, we put the magic drop of water down, it starts to
double. How long do you have to escape from your handcuffs?

Think of your answer. You have 50 minutes. And if I’ve underestimated

the volume of the park by a 100 percent, you can think 12:51 if that feels
better to you, alright?

However, that’s not the important question. Here’s the important question:
at what time was this park still 97 percent empty space and how many of
you realized the seriousness of your predicament?

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Answer is 12:45. So now let’s take a look at this and put this into
perspective. For all of human history until 1960, which is about when I
was born, the first 3 billion people came in. In the next 40 years, we put
on 3 billion more people. We’re at 7.6 now. We’re headed to nine billion
or ten, we don’t know.

This is an extraordinary moment in human history, I’m going to be alive

during a full tripling of the population. We’re way past the carrying
capacity of the planet, in terms of all sorts of critical resources. That’s why
I love coming to these resource conferences because this is both the
place where we’re going to see a lot of the trouble and a lot of the
opportunities emerge.

We’re coming out of an extraordinary period of human development and I

mean human, not United States. We are surrounded by all sorts of
examples of things that are increasing exponentially. Here’s some from
the ecological space, but I could talk about airline miles flown, I could talk
about miles of road paved, we could talk about the amount of fish coming
out the ocean. All of these things, they’re all being driven by an
exponential process, which is human population.

And that’s just the nature of the times we happen to live in. The one thing
I want you to take away from this idea of exponential growth, though, is
that they speed up. Who has the sense that things are going faster and
faster today, right?

They really are. In many ways technology increasing exponentially in

some really amazing beautiful ways, but other things are happening, it’s a
mixed bag. It’s impossible to get our minds around it, ‘cause it’s
happening so fast and it’s not just one. Multiple processes are happening
at the same time.

So my shocking claim today is this, this thing is a stadium. It has limits, it

has a volume. It has a fixed amount of stuff, and once we get our minds
around that, then we get into some difficulty because the longer version of
this that I present, includes a complete breakdown of how our monetary
system works, and how our money and debt systems operate in a debt
based fiat money system.

And here’s the shocking conclusion, those always have to constantly

grow. Unless our credit marks are constantly growing, they’re threatening
to collapse. If you agree with me you say that’s not a very good system,
right? But that’s the system of money we all live in. 2008 was the first time
credit markets actually went backwards in 45 years, and what happened?

The whole system almost broke down. So we have a system of money

that’s either growing or it’s threatening to collapse, so where does growth
come from? So now we have to talk about that for a second. Here’s your
bonus chart of the day, there is one bright spot in all of this, which is that
commodities are super cheap right now, relative to equities. We’ve only
been here two other times in my adult lifetime.

So this is a really incredible time to be checking out what’s happening in

the resource spaces. Alright, growth, what do we mean by growth? Well,

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economic growth always means what? Four percent more houses sold,
ten percent more cars this quarter, we have six percent profits growth,
whatever.

When you sum all that up, what we’re really talking about is stuff being
pulled out of the earth, transformed, shipped, sold and then finally
disposed of. So when we talk about growth, we’re really talking about
more stuff. And when you look at that, you have to understand the
relationship between the economy and energy, because energy is the
master resource. No energy, you don’t have anything else.

And I understand energy really well because my past life was as a

scientist. My degree is in neurotoxicology and I looked at neurons on
plated glass and I would grow them, and if you fed them you got these
amazing complex, beautiful things. You could plate out neurons on a
plate and get axons and dendrites and they start talking to each other, it’s
amazing.

But then if you forget to feed them for a day or two, what happens is they
ball up into these little uninteresting things. And so the thing that I learned
really sort of in my gut level from watching this happen over and over
again is that order and complexity come from having energy, in this case,
glucose or a lack thereof.

And so the order and complexity that we have in our larger economy is
due to the energy that’s flowing through it. So energy is really important to
understand and we have to look at this really carefully, so naturally you
can trust me, I’m a scientist, I just told you that, right?

So energy, this was the worst traffic jam in history so far, it was in China.
60 miles long, took 12 and a half days to resolve. I would have been very
unhappy if I was stuck there, ‘cause I don’t even like a ten minute delay.

But look at that, I see energy now. Look at all the energy on display in
that story. Look at the energy as you look out across this city tonight, and
we’re just consuming energy like crazy. From space you can see it. This
is all energy. This is how we operate ourselves as a society.

And so if we back up a little bit, very important chart to understand here.

This is looking at total energy on the Y axis, the total energy that the
world is consuming. And then on the other axis we have total real GDP of
the world. Why world? Because you can export your energy consumption
to another country and then tell yourself a fancy story which is that your
country is now running a more energy independent economy.

So we have to look at it on a global basis to get rid of that little artifact,

and what we discover, this is the most robust chart I have in all of
economics. You get one more unit of this, you need one more unit of that,
right? Whatever those units are, but this is a straight line, that’s very easy
to understand.

Here’s the summary, if you want more economy, you’re going to be

burning more energy. That’s what 65 years of data tells us. Maybe

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something will change in the future, but I’m going with what we got. This
is an astonishing, robust chart.

Alright, so if we need more energy to have more economy, let’s look at

energy use over time. And look at the shape of this chart. Do you see is
that linear or is that one of those fancy exponential charts we’ve been
talking about? And what’s really important in this chart is this is looking
from 1800 on through, these are decade long periods of time and it’s
looking at the energy use of humans across the globe starting with coal,
crude oil, natural gas, hydro, nuclear and biofuels.

So all that on the left was all biofuels: peat, wood, dung, stuff like that.
Biofuels, right? And then look what happened, all of the sudden, people
discovered this stuff called coal. And coal is way better than wood. You
can run steam engines on it, and it’s amazing, so we started to use coal.

To this point right now, though, just to make it easy, that’s still the part
there in orange, just to show the scale, that’s the fossil fuels that we’re
using right now, okay? It’s about 80 percent of the mix, give or take. So
the first thing I want to point out is coal, we start using it back here about
1860 it appears on this chart, and then look how long it took before we
got to half, where coal is half the mix.

I mean I just told you it’s a much better energy source, right? So we
would switch immediately away from biofuels, right? Nope, didn’t happen,
do you know why? Because all the people who had those clipper ships
with the sails on it, they didn’t just trash them the minute they saw a
steam ship come along.

They waited for that embodied energy, embedded capital, to rot away and
then they replaced. So it took four decades to get to half, where coal went
to half the energy mix. And then we went to crude oil. Oil is amazing, it’s
way better than coal. It’s more dense, you can do more things with it, you
can make plastics out of it. It runs a better engine, you can get jets, it’s
just a much better energy source.

It really starts showing up on this chart right about here, in about 1910,
and then wow, 60 years later it’s a third of the story. Why? Why didn’t we
just immediately switch away from steam ships to oil based bunker fuel
ships? Heck, same reason. It takes a long time for market forces to sort of
transition from one energy source to the second.

A more subtle point to make here is that we were moving from worse to
better energy sources. Wood to coal, worse to better. Coal to oil, worse to
better. More dense, more compact, right? Well, this is where the story
gets kind of fascinating. There’s a number of studies out there that say,
“well when does the total energy content from fossil fuels, when does that
peak?” That’s the bottom blue line.

And by peak I didn’t say run out, I said somewhere around the year 2030
there’s going to be this long flattening process where it’s going to get
harder and harder to get more energy out of fossil fuels, right? We’re
already seeing that with coal, we’re starting to get there with oil. The

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United States shale story is going to peak out by 2022 according to the
EIA.

It peaks at some point. Doesn’t run out, I didn’t say that, but somewhere
around there, and if this is off by 10 or 20 years, it doesn’t really matter.
The substance is the same, eventually that happens, and what’s
interesting is the implication to that top yellow line, that’s how much the
world economy needs to grow in order to support it running as it has.

The implication is those two sort of boxes I put on there, pink-ish boxes,
those are the same height. And what the implication here is that a 100
percent of the complete output that we’re going to get at peak from fossil
fuels will have to be replaced by other means in 25 years.

A: humans have never done that sort of a transition, ever, it usually takes
40 to 60 years. B: we’re moving from better to worse, and I’m not here to
say that alternative energy is bad, but we’re moving from more
concentrated to less concentrated. From smaller capital to higher capital
energy sources, we’re going to do it, I’m not saying we shouldn’t, but I’m
just saying to underestimate the magnitude of this is a big giant mistake
to make, right?

And then, oops, we have to do it one more time, and it’s gonna take 20
years. We have to replace 100 percent of the output from fossil fuels in
order to keep the growth story going. In order for our capital markets, our
stock and bond markets to have the values that they have, this story
needs to keep going.

All the studies say that we’re moving onto alternative energies, but at the
current pace it’s going to take 400 years to transform our systems using
market forces. We don’t have 400 years. And so I’ll give you a few super
duper charts that are really important out of oil.

First, we’re not discovering it. We have now the worst, this is slightly out
of date, we now have four terrible years in a row of oil discoveries. You
have to find it before you pump it. Second, this is China, they admit that
they’re at peak oil right now in 2018, I think they hit it last year in 2017.
Doesn’t matter.

Their oil pumping is the bottom big curves, on top is showing their
imports. If you look at where they’re going to be, the dots show how much
they have been importing, the green is an extrapolation. By 2030,
according to this chart, they’re going to be importing close to 100 percent
of all available oil for export. Trust me, it won’t happen.

Something will happen before then. It probably rhymes with bore,

something like that. The shale miracle is topping out already, we’re
starting to see interference between the parent and the child wells in the
largest, bestest field in the entire world, in the universe probably, called
the Permian Basin.

This ends at some point in time, but that’s what it looks like. It’s incredibly
destructive in terms of its overall footprint. And this chart show how shale,
all the shale wells currently drilled by year, how they behave. Each one of

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 those is a year, so mentally remove some of the ones to the right, and
look at just one color and you’ll see that if we stopped drilling for shale, it
would deplete very very rapidly. It’s about 40, 50 percent on a year over
year basis for that first year or two.

So as long as we keep drilling more and more wells, it’s great, when you
run out of spots to drill, this happens very quickly. So my conclusion is
that when we just look at the oil story and it’s a huge long story, and I
could really break it down, conventional, offshore, alternative sources like
the tar sands and things.

Once you get in there you discover the easy stuff is gone. Talk to
anybody in the oil business, they’ll confirm this. The easy stuff is gone
and we’re doing some amazing, astonishing things to get the last bits of it
out. And I’m not saying we shouldn’t do that.

But if you understand the need, the imperative for constant exponential
growth of our credit markets which are claims against the real source of
our economy, which is the energy. Those are departing from each other.
That’s why things are getting uncomfortable. This begins to explain why
people are so anxious and upset, it’s because our story is breaking down.
Our narrative is not working anymore.

More to the point, come on, infinite growth on a finite planet is just not
possible, actually it’s a very bad idea. We’re starting to see the impacts of
that. In my own lifetime, the amount of animals on the planet has been
depleted by about 60 percent. And that can’t continue forever unless we
end up in a very bad place. And less politely, I will tell you the collapse is
what lies at the end of that, unless we take other steps.

So One if by Growth, Two if by Tears, either we grow our way out of this
and I’m completely wrong, or we don’t and it ends in tears. And so what
do you do about that, right? A good quote I love is “you never change
things by fighting the existing reality” to change something, build a new
model that makes the existing model obsolete. This is where we come in
and this is everything, all that other stuff is set up. Adam Taggart is going
to tell you about probably the most burning question in your minds which
is “well, what do I do?”

We don’t believe in data for its own sake, we believe in data that leads
you to actions. And actions that will make your lives more meaningful and
more purposeful, so with that, I will turn it over now to Adam Taggart.

Adam Taggart: Alright, so I have the enviable job of going after Chris just depressed the
whole room entirely. If you’re like most people, you’ve just seen the
economic and energy data that Chris just went through, he didn’t even go
through the environmental data, which trust me is the scariest part of this.

And you’re probably asking yourself, “what the heck should I do about all
of this?” Or probably more to the point, you’re probably feeling like this
guy right here, right?

Alright, so it is not all darkness. We call ourselves Peak Prosperity for a

reason, there actually is a very optimistic part to the story. As Chris

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mentioned it’s all really about finding better models, better ways of doing
things.

So just quick thought experiment, if there was an investment you could

make that could guarantee that you would healthier, wealthier, safer,
happier, living with more purpose, and being more valued by those in
your life, who would make that investment? I think all of the hands in this
room would go up, right?

There really is such an investment. It’s developing personal resilience and

I’ve only got a couple quick seconds, I’ll just give you a quick dial through.
But resilience is really the ability to recover from an insult no matter what
that insult is or more succinctly said, the ability to recover readily from
adversity.

And this is something that nature has already found out, it’s already
solved. We see it all the time. You see it in a spider web, right? One
strand is broken, there’s many strands still there to hold the shape. More
predators move into your area, it’s the species that have multiple young
that typically weather that introduction better because they’ve got
diversification among their progeny.

Nature develops solutions like wetlands, that are capable of holding

millions of cubic feet of storm surge, and if we have anybody here from
Texas who went through Harvey, they can show you what happens when
you remove these natural resilience safeguards and have to deal with a
major storm.

So basically we’re just borrowing models from nature. First and for most,
yeah, it’s really the ability to do this. No matter what life brings your way,
it’s not how many times you get knocked down, it’s not how hard you get
knocked, it’s how you get up, it’s how you recover.

So how do you develop personal resilience? We’re borrowing again a

model from nature, this comes from permaculture. It’s called the “Eight
Forms of Capital” it basically says, look, if you’re looking to develop true
wealth in your life, yes, money is important, financial capital is important,
but it’s just one element.

And there are seven other elements out there that are equally as
important. I don’t have time to go into all of them right now, but we do
have time later on tonight, I’ll mention that in just a moment, but quickly
it’s your money, it’s your personal health and wellness and the natural
systems you depend on, your food shed, your water shed. It’s the
knowledge that you carry around in your brain on how to do things, it’s
your standing in your social community, and what those who know you
are willing to do for should adverse times arrive.

So dialing through all this, you want to make sure that you are developing
resilience and excellence in each one of these and not just over investing
in one or two, and obviously, at a conference like this we see people that
are heavily focused on the money part, which again is important.

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Our core message, though, is it’s not the entire spectrum of wealth. And
the nice part about this is even if we are totally wrong, even if everything
Chris just told you about the trends that are going to drive the future.
Even if that is completely wrong and the next 50 years look just like the
past 50 years, you’re still better off making these investments. You’re not
going to look back later in life and say, Jesus, I wish I hadn’t gotten into
better shape. Man, I wish I hadn’t become respected in my community.
God, why was I such a good steward of my financial wealth?

Right? These are not things that you are going to regret, they’re life
enhancing in and of themselves. And even just in the short time that
we’ve been here there’s a number of people who have followed our
material, read our book, who have come up to us and talked about some
of the big changes they’ve made in their lives and the universal feedback
from all them is: I’m so glad I did this, my life is so much better now.

And if you have a chance to talk to some of those people, we’re doing a
workshop later on tonight. I highly encourage you to hear it from them and
not from us. How some of these changes are really transformational in a
positive way in your life.

So very quickly, I only have a couple of seconds to direct you to how to

solve all the issues that Chris just put on the board in the slides earlier.
So I’m going to give you four simple steps. One, we’re doing a workshop
tonight, it’ll be at 6:30 p.m. in the Churchill room upstairs. Chris and I go
around the country, conducting workshops on how to develop personal
resilience, we’re going to give you kind of a crash course version of that,
tonight.

Secondly, we have our book “Prosper” that goes into depth on how to
build each of those seven forms of capital, we’re going to be doing a book
signing for that in the exhibit hall across the hall, right here, right after we
talk here, there’s going to be a break.

A few lucky book buyers are going to get an actual gold bookmark for
their book, this is an aurum created by the folks from Valorum who I think
are perhaps here this year. Number three, educate yourself, lots of great
speakers here, lots of resources, websites that they run, we run our own
peakprosperity.com.

Most of our articles and reports are available for free, but our most
directive and most instructive guidance is behind a subscription paywall,
because you’re all good friends of ours, we’re going to give you guys the
opportunity to be a subscriber, a premium subscriber for free for 30 days,
so write down this URL, peakprosperity.com/free30, and you’ll be able to
be brought behind velvet rope at the site, and if you’re currently a
subscriber you can share that URL with a friend and gift it to them.

Lastly, we partner with a financial advisor who develops a portfolio

strategy with these large macro trends in mind that Chris just mentioned.
They’re here with us today, the folks from New Harbor Financial, Mike
Preston are you in the room? Here’s Mike right here, he’s going to be at
our book signing and at our workshop.

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 So make sure that if you’re interested in getting a free audit, a free crash
audit of your portfolio, talk to Mike. The folks at New Harbor will do it for
you at no charge. If you can’t make our workshop, you can go to
graylockpeak.com, there’s a quick little form there, you can fill that out
and they’ll get in touch with you and still perform that audit for you at a
later date.

So very quickly, just a reminder, come to the workshop tonight in the

Churchill room, get the book, we’ll sign it for you. Get that free premium
subscription, read our material, again read all the other sites for the other
speakers here, but the core thing is to get educated and lastly get
yourself that free portfolio crash audit.

Thank you very much.

Chris Powell
“Gold Market Manipulation Update”

Albert Lu: Now without further ado, please allow me introduce our opening general
session speaker. Our first speaker is the Managing Editor of the Journal
Inquirer, a daily newspaper in Manchester, Connecticut where he has
worked since graduating high school in 1967. He writes a political column
published in newspapers throughout Connecticut. He is also the
Secretary/Treasurer of the Gold Anti-Trust Action Committee: A non-profit
organization that aims to expose and oppose the manipulation of the gold
market and related markets by central banks. He is a member of the
Board of Directors of the Connecticut Council on Freedom of Information
and was its Legislative Chairman for many years. Please welcome Chris
Powell.

Chris Powell: Thank you Albert.

Since we met at this conference last year, much new evidence of

manipulation of the gold market by central banks and the region bullion
banks has been compiled and published by the Gold Anti-Trust Action
Committee. For example, a month ago, a major bullion bank, the Bank of
Nova Scotia, admitted to the US Commodity Futures Trading Commission
that it had manipulated the gold and silver futures market from June, 2013
through June, 2016. Ironically, in September, 2013, the CFTC had closed
its long running investigation of silver market manipulation announcing
that the Commission could find nothing actionable. That was three
months after the Bank of Nova Scotia now admits its market rigging
began.

In January, the US government charged three other banks and eight

traders with spoofing the monetary metals futures markets. The banks
paid 47 million dollars in fines. Also in January, GATA published the price
discounts given by CME Group, operator of the major futures exchanges
in the United States, to governments and central banks for secretly
trading all major futures contracts in the country. Not just monetary metals
futures, whose trading discounts are highlighted in the red box on the
screen, but even agricultural futures. Have you ever seen mainstream
financial news organizations report that governments and central banks

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get discounts for secretly trading all major futures contracts in the United
States? Even cattle futures?

CME group’s filings with the US Securities and Exchange Commission

and the Commodities Futures Trading Commission acknowledge that its
clients include governments and central banks, but otherwise the
surreptitious trading is a state secret preserved by our timid press.

In September, the second quarter report of the US Office of the Controller

of the Currency showed the notional value of foreign exchange in gold
derivatives held by US Banks and Savings Associations that soared from
about four trillion in 2001 to nearly 40 trillion this year. Perhaps, not
coincidentally, the chart shows the value of the foreign exchange and
gold derivatives and the derivatives for other precious metals jumps
markedly in 2010 just before the seven year smashing of monetary
metals prices that began in 2011. The value of those derivatives
increased steadily from 2010 through this year.

So, who are those commercial banks and saving associations and what
are their connections to the US government? Are they, for example, lots
of community institutions like the famous Bailey Brothers Building and
Loan of Bedford Falls, New York in the 1946 movie that romanticized
locally based banking, It’s A Wonderful Life? Or are they mainly primary
dealers in US government securities, banks that are formerly agents of
the Treasury Department and the Federal Reserve?

After all, who besides the US government and other governments might
have the money to take on so much risk in the gold and currency
markets, and who besides governments has the interests in doing so?

Last month, GATA reported that intervention in the gold market by the
Bank for International Settlements, the gold broker for central banks
worldwide, had declined substantially for two months. Shown here is the
BIS’s statement of account for September with the gold and gold
derivatives line item highlighted. This two month decline in gold
derivatives trading by the BIS corresponded with a steadying of the gold
price and then it’s substantial move up. That is, the more the BIS got out
of the gold market, the higher the price went.

Why is the BIS trading gold derivatives and for whom? Last year, GATA
put that question to the BIS. The BIS cordially explained that it doesn’t
explain what it does in the gold market nor for home. Other correlations
involving the gold price in recent months also have implied interventions
by governments and central banks. Newsletter writer and fund manager
Jim Rickards reported a few months ago that for the last two years the
gold price seems to have been closely tied to the International Monetary
Fund’s valuation of its central bank currency, the special drawing right.
The top line of this chart tracks the gold price in US dollars for the last two
years. The bottom line tracks the gold price in special drawing rights.

The leveling and tightening of the gold price in SDRs in the bottom chart
began when the IMF incorporated the Chinese yuan as a component of
SDRs. Others this year, particularly the Zero Hedge internet site noticed a
tight correlation that began in May between the gold price and the
Chinese yuan. In this chart, the upward trend signifies loss of value for
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both the yuan and gold. This correlation snapped apart last month as the
yuan continued to devalue but gold rose.

Of course, some central bank and government connections were officially

announced over the last year. Russian has continued to buy gold in
substantial amounts every month. Even western-oriented governments
like those in Poland, Hungary, and India recently announced purchases
for the gold reserves as the United States increasingly has been
weaponizing the dollar to coerce the world in trade and foreign policy.
China doesn’t regularly announce its gold purchases anymore, but almost
certainly has continued accumulating.

An equally telling development may be Barrick Gold’s formally becoming

a business partner with the Chinese government. In September, Barrick’s
CEO, Mark Bristow, announced that Barrick wants a, “distinctive and
preferred relationship,” with China and Barrick exchanged a huge block of
its shares with Chinese government owned miner, Shandong Gold.
Barrick is now partly owned by China.

While mining entrepreneur Pierre Lassonde, founder of Franco-Nevada

and a former chairman of the World Gold Council, says central banks
don’t care about gold, his former organization keeps contradicting him.
The Gold Council keeps holding annual seminars for central bankers
about gold reserve management. As you can see on the screen, another
seminar will be held this month in Singapore. Perhaps the most
interesting item in the seminar’s agenda is Gold Market Operations and
Accounting for Gold.

So central banks are in the gold market after all. But, what are they doing
with their operations? They’re certainly not accounting for them much. For
the secret March 1999 report, the staff of the International Monetary Fund
noted that central banks refused to distinguish their gold loans and swaps
from their gold in the vault because an honest accounting would
compromise their secret interventions in the gold and currency markets.
This memo is perhaps the best smoking gun that GATA has collected
over the years.

Of course, only central bankers and other government officials are invited
to attend the World Gold Council Seminar in Singapore. The public and
the markets aren’t supposed to know what central banks do in the gold
market. The public and the markets aren’t supposed to know even what
the World Gold Council is doing helping central banks and governments
in the gold market. Not even gold investors themselves are supposed to
know what the World Gold Council is telling central bankers about gold,
even as the Gold Council purports to represent gold investors.

Because control of the gold price is the prerequisite for control of the
markets and control of all of capital labor, goods and services in world,
the location and disposition of national gold reserves are secrets more
sensitive than the location and disposition of nuclear weapons. For
nuclear weapons can only destroy the world. By determining currency
values and interest rates, gold can control the world. But maybe the most
important development in gold market manipulation over the last year is
that it increasingly is being recognized and questioned at high levels, as
indicated by the more frequent purchases by central banks.
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Over the last year, GATA has peppered central bank and government
officials with questions they won’t answer. GATA hopes that mainstream
news organizations, fund managers and governments will take notice at
some point. The mainstream news organizations are as timid and useless
as the monetary metals mining industry itself, but some fund managers
and governments are watching and catching on.

In June, GATA questioned the US Controller of the Currency about the

explosion and the use of a supposedly emergency mechanism called
exchange for physicals to sell gold and silver futures contracts on the
New York Commodities Exchange. Suddenly the delivery of hundreds of
tons of metal purportedly was being shifted off the exchange to
somewhere else, presumably London.

So where were those metal deliveries coming from and what were the
financial risks for the investment banks that had sold the futures
contracts, banks regulated by the controller of the currency? In August,
the Controller’s office replied to GATA dismissively and evasively, stating
only that it has plenty of skilled professionals regulating the banks. The
Controller’s office did not address the point GATA had raised. So,
increasingly, the exchange for physicals mechanism seems to be cover
for some kind of accounting fraud.

In July, GATA wrote to the public relations department at JP Morgan

Chase and Company about the bank’s involvement in the monetary
metals market. That involvement occasionally has been controversial in
recent years. GATA’s letter ready, “In April 2012, Blythe Masters, then
Chief of the Banks Commodities Desk told CNBC that the bank had no
position of its own in the monetary metals market and was trading only for
clients. Can you say if this remains the case and if the banks clients in
trading the monetary metals markets include governments and central
banks?”

Morgan Chase did not even acknowledge GATA’s inquiry. Of course,

Morgan Chase might have to acknowledge such an inquiry if it ever came
from the Wall Street Journal, Bloomberg News, or even a gold or silver
mining company. Fortunately for Morgan Chase, the journal and mining
companies are not interested in the manipulation of the monetary metals
markets. In July, GATA wrote to each member of the Commodity Futures
Trading Commission about the huge new use of the exchange for
physicals mechanism to settle gold and silvers futures contracts. GATA
asked for an explanation from the CFDC about what is happening with
the mechanism.

GATA also asked the commissioners about the tight correlation then
prevailing between the gold price and the Chinese yuan. Was the US
government, GATA asked, allowing a foreign government to control the
price of the commodity whose trading is regulated by the CFDC. The
CFDC did not reply. But now questions about surreptitious government
intervention in the markets may become harder to ignore. For a member
of Congress, US Representative Alex Mooney, Republican of West
Virginia, has drawn on GATA’s research and is asking the federal reserve
and the Treasury Department to explain what they may be doing in the
gold market and other markets.

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In April, Representative Mooney asked Treasury Secretary Steven
Mnuchin and Federal Reserve Chairman Jerome Powell to describe the
US government’s policy on gold. Mooney cited documentation from the
US State Department archive, documentation provided by GATA,
showing that US policy long has been to drive gold out of the world
financial system.

Mnuchin replied through the Treasury’s Acting Assistant Secretary Brad

Bailey. Powell replied directly. But neither acknowledged and answered
Mooney’s policy question, what are the US government’s objectives with
gold? The Treasury’s reply denied that the department trades gold
through the Bank for International Settlements, Bank of England, and
other central banks or governments. Powell’s reply denied any
involvement by the Fed with gold swaps. But in July, Representative
Mooney followed up with another letter to the Treasury and the Fed.
Mooney’s new inquiry calls attention to minutes of the Federal Open
Market Committee from 1995 wherein Fed General Counsel, Virgil
Mattingly said the Treasury’s exchange stabilization fund has engaged in
gold swaps. Mooney’s new letter also calls attention to the admission
GATA got in 2009 from Fed Governor Kevin M. Warsh that the Fed had
secret gold swap arrangements with foreign banks and insists on keeping
them secret.

Mooney’s new letter asks Powell for an explanation of what seems like
Powell’s contradiction of the Fed’s own records. Mooney’s new letter also
asks if the Treasury trades gold through its exchange stabilization fund,
through any other government agency, or through commercial banks and
brokers. Mooney’s new letter also notes the recent close correlation of the
gold price with the Chinese yuan and the valuation of the international
monetary fund’s special drawing rights. The Congressman echoes the
question GATA recently put to the CFDC without result. Mooney writes,
“Do these correlations reflect surreptitious intervention in US currency
markets by China and currency manipulation by China? What do the Fed
and Treasury think of these correlations?”

Perhaps most satisfying for believers in free markets and limited and
transparent government, Mooney now has asked the Treasury and the
Fed to come clean about everything. Mooney wrote, “What markets if any
are the Fed and Treasury trading in and through what mechanisms? If the
Federal Reserve and Treasury are engaged in trading, what is the
objective?”

Mooney’s latest letter to the Fed and Treasury was sent July 27th. More
than three months have passed and the Fed and Treasury have not yet
replied. All this information has been dutifully provided by GATA to major
financial news organizations in North American and Europe. Last
November in London, I managed to get 45 minutes with a reporter for the
Financial Times, the newspaper’s headquarters. I provided him with the
major documentation of market rigging by government that was available
then and since then I have often updated him by email.

While the Financial Times has done nothing with GATA’s information, the
newspaper has more or less explained why it won’t touch the story of
market rigging by government. The explanation came September 7 in a
column by the FT’s Chief Markets Commentator Associate Editor John
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Authors. Authors’ Column was headlined, In a Crisis Sometimes You
Don’t Tell the Whole Story. He wrote that during the financial crisis of
2008 he was working for the FT in New York and came upon a bank run
at Chase, that Citibank and Chase Bank in Manhattan with nervous
depositors, people from the financial industry rushing to withdraw their
money from their accounts. Authors wrote that when he got to the front of
the line at Citibank he found a helpful manager who explained that
instead of withdrawing money, Authors should just transfer some money
by opening additional accounts in the names of family members.

This would increase his coverage by government deposit insurance. The

manager, Authors wrote, explained that Chase was encouraging to do the
same thing that he was now doing at Citibank.

Authors wrote, “using bullet points she asked if I was married and had
children. Then she opened accounts for each of my children in trust and a
joint account with my wife. In just a few minutes I had quadrupled my
deposit insurance coverage. I was now exposed to Uncle Sam, not Citi.
With a smile, she told me she had been doing this all morning. Neither
she nor her friend at Chase had ever had requests to do this until that
week.”

I was finding it a little hard to breathe. There was a bank run happening in
New York’s financial district. The people panicking were the Wall
Streeters who best understood what was going on. All I needed was to
get a photographer to take a few shots of the well dressed bankers
queuing for their money and write a caption explaining it. We did not do
this. Such a story on the FT’s front page might have been enough to push
the system over the edge. Our readers went unwarned and the system
went without that final prod into panic. Was this the right call? I think so.
All our competitors also shunned any photos of Manhattan bank
branches. The right to free speech does not give us a right to shout fire in
a crowded cinema. There was the risk of a fire and we might have lit the
spark by shouting about it. A few weeks later, the deposit protection limit
was raised from a hundred thousand dollars to two hundred and fifty
thousand via an emergency economic stabilization bill passed by
Congress.”

Remarkably, Authors admits in this column that he took care of himself

but left his readers exposed until weeks later. The government took care
of them by increasing deposit insurance. Would disclosure of surreptitious
government intervention in the gold market and other markets collapse
the world financial system? The Financial Times and all other mainstream
financial news organizations seem to think so. But what if that financial
system is built on fraud and deceit? Does such a system really deserve
protection by news organizations? The system is really a policy of
suppressing all commodity prices comprehensively. Through the shorting
of commodities in the futures markets, the creation of a vast imaginary
supply of commodities in favor Western Government currencies,
governments bonds, and other financial assets. This system has
destroyed the free and transparent markets the West purports to
advocate.

So the rest of the world, especially the commodity producing developing

world, the part of the world most exploited by the financial system may
233
 prefer the policy expressed by the old legal maxim in Latin Fiat, justitia
ruat caelum. That is “Let justice be done though the heavens fall.” Thanks
for your kind attention today. GATA will have a workshop tonight at 8:05
in the Churchill Room up on the second floor. GATA Chairman Bill
Murphy will be there with me. There’s our internet site and my email
address. We’ll be delighted to hear from you if you’ve got any questions
about gold price suppression, the documentation we’ve compiled, what
we are trying to do about it, why we think it’s important. Enjoy the
conference and thanks again.

Robert Prechter
“Three Key Markets Are Due To Reverse Trend”

Lindsay Hall: So next up is Robert Prechter. He has a book 1978 Elliott Wave Principle,
which forecasts a 1920 style stock market boom. His 2002 title Conquer
the Crash predicted the global debt crisis. His firm, Elliott Wave
International elliottwave.com forecasts stocks, commodities, and
currencies from intro date to long-term. Prechter has co-authored
academic papers on financial theory and predicting election outcomes,
which you can access at ssrn.com. Feel free to read more at
robertprechter.com. Now up, Robert Prechter.

Robert Prechter: Good morning, thanks for coming out so nice and early. We’re going to
cover a full five, all five major market sectors in the next 19 minutes. So
we’ve got a lot to do. So we’re going to dive right in. I’m going to talk
about two sectors that I don’t think are turning right now, but I’m going to
give a little history on them and see how those are set up to affect the
other three that we’re going to talk about.

The first sector is commodities. Now commodities, in my view, are not

making a major turn right now. And I’m going to show you why. This is a
history of commodity price changes, it’s the CRB index of commodity
prices reconstructed back to about 1749. And you’ll see a very interesting
shift in the way commodities behaved from the 1700s all the way up to
the year 1933. They were in cycles. You can see that on the lower left
hand side area of the chart. They would go up, they would crash back to
about where they were, they would go up again in a boom, crash back
where they were, go up again, come down, go up again, come down.
Why was that? Because commodities were priced according to money.
And money back then was gold. And gold is a commodity. Commodities
don’t change much in relationship to each other. So you’d have cyclical
booms and busts and go back to where you started.

Something very important happened after 1933. And I’m sure a lot of you
know what that was. In January 1934, President Roosevelt and congress
decided that gold should no longer be the nation’s money and that we
were going to have a new money based on accounting units put out by
the Federal Reserve. That of course, allowed inflation and it allowed the
inflation of credit on top of the inflation of the base money. So the
purchasing power of each dollar got lower and lower. So we got out of
this range where commodities were going up and down in cycles, and got
into what we call an Elliott Wave. In other words, a five wave structure, a

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much bigger boom, and ultimately a bigger bust. That boom started in
1933, and went all the way up to 2008. That bull market is way over, in
my opinion.

Now we were on top of this move, and I’m going to show you what we
were saying about oil at the time, as one of the major commodities and
one of the major components of the CRB index. We were showing this
from 1998 at the time, here’s another five wave structure under Elliott
Wave, another boom that’s coming to an end. Our headline at that time
was a spike top is due in crude oil in the 160 to 189 range. This was in
June 2008. The very next month, it finally ground to a top at $147.50 a
barrel, and then had one of the biggest collapses of commodities ever.
That was Wave A, the first wave down I showed you on the first chart of
commodities.

Now let’s look at a closeup of the bull and bear market from 1933 to the
present. You can see that nice five wave structure on the upside, that’s
the spike top in 2008 we were talking about. It occurred virtually across
the spectrum in commodities. They’ve been in a bear market ever since,
and this is despite the record inflating by the Federal Reserve, the QE
that was going on 2011, 12, 2013, 2014. And we said, “No, we’re in a
bear market, it’s going to continue lower,” and it’s nearly over. The way
we follow these structures is we’re going to get the A down, the B up,
which occurred in 2011 and 2014, and then a final five wave structure to a
low.

That I have projected out to about 2022, we’ll see what happens. Now
you might think, “Okay, big deal. There’s only one more wave down. Why
is that important?” It’s important because the last time that happened,
when commodities had been going down for quite a while and finally had
one more drop, was in the 1929 to 1933 period. They had peaked at a
much higher level back in the teens, shortly after World War 1. And they
were going down in a bear market, we had the big boom in stocks, and
then when they had their final leg down into 1933, stock market collapsed
and we went into the Great Depression. I think we’re setting up for
something very similar, so this is an important sector.

Another sector I don’t think is turning right now but had a very important
turn recently is the bond market, in other words, interest rates. Here we
have a long-term picture of interest rates going back to the 1940s. Notice
that from 1946 to 1981 we had 35 years up in rates and from 1981 to
2016, 35 years down in interest rates. That cycle, in my opinion, is over.
Rates have begun to rise, they’ve been going up for more than two years,
which means bond prices, which are the flip side of rates, have been
going down. And I’ll show you, if you want to do your own predicting on
interest rates, there’s a great way to do that. Just keep up with the
consensus opinion of economists.

So here’s an example. At the high in 1984, that was three years after the
ultimate peak at 16% in the interest rate. They were rising again in 1984.
The Wall Street Journal ran a special four page section so that they could
interview as many economists as they could find, and ask them what they
thought interest rates would do. To a man, they said they were going to
continue higher. The headline in the article is, “Higher Rates Predicted for
the Rest of the Year and 1985’s First Six Months.” One of the people
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interviewed said it would take a miracle for rates to fall. That was virtually
top tick at that time.

You’ll notice the biggest collapse in rates, the biggest drop, occurred
exactly in the time that the headlines say they were predicted higher into
the following year. Well they continued lower into 2016 and another
headline came out at the bottom, “Why Ultra-Low Interest Rates are Here
to Stay.” That’s another example of a great way to use contrary opinion.
And of course our opinions were the opposite at both times. Near the top
in rates, where we said bonds are the buy of a lifetime, and at the bottom,
the current juncture is the flip side of what happened in 1981.

Okay, this is a more recent closeup of what we were talking about in

2016. We said that the high in July, this formation is typical of a peaking
process for a top in bond prices and a low in yields. And the odds now
favor rising long-term interest rates. Now this is a picture of the bond
markets, so it’s upside down from interest rates. As rates go up, bond
prices go down. And it’s been a bear market in bonds for the past two and
a half years. Ultimately, I think the rising rates are going to have an effect,
or at least coincide with the decline that is coming up in the stock market,
which we’re going to talk about at the end of this talk.

Okay, now I want to talk about the three markets that I think are at a
major juncture. So you’ve got a little bit of history of how we think, and I’m
going to show you what we’re thinking right now about some very
important markets. The first one is gold. This is a history of gold, going
back to its top in 2011. You’ll notice another five-wave structure, the way
we label things, a bear market occurred into late 2015. Now when I was
here at the conference in 2011, it happened to be that gold was making
all-time highs right then. And I put up four charts saying this is a major top
and you can get out of this. And a year later, 2012, gold was holding up
near that two in parentheses there. We also said this is a top for all the
reasons that we use. And one of the reasons I’m going to show you right
here.

Now look at the bottom chart. This shows you how many futures contracts
managed money accounts are holding. You’ll notice at the major top in
gold in 2011, they held a lot of futures contracts long. They were very
very bullish. These kind of managed money accounts love to own things
when they’re expensive, and they hate them when they’re cheap. They do
it over and over again and they will never stop. You notice that that line
worked its way lower during the bear market, and then right in the middle
of the graph, the bottom graph, you’ll see it went below the dotted line.
That meant they were net short at the low in gold in late 2015.

So they were wrong again. So what happened? Gold rallied, we were

very bullish at that time and we said, “We think gold is going to go up to
$1550 as a major partial retracement of what we’ve seen in the bear so
far.” So it had a first leg up, and look what the people did at that time.
They loaded up on futures contracts. So at the top of that rally they were
record long. They had more futures contracts than they have ever owned
ever. That was the top of the first wave up.

Alright look where they are now. And this is the most important thing.
They are record short. This is the bottom graph toward the bottom right.
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They are record short. 103,000 gold contracts, and gold hasn’t even gone
to a new low. So all of that pessimism toward gold right now is so
powerful against a higher price. It’s a very rare event, it’s very bullish. So
we think gold is ready, probably already has started its move up to that
$1550 area, at least that’s our estimate. We’ll see how far it gets before
things turn bearish again. But I can virtually guarantee that that bottom
line is going to be way up near where it was at the top of the last rally by
the next time gold is ready to top out.

Okay a second big area that I think is making a major turn is real estate.
Now people recall in 2006, one of the greatest real estate booms in this
country’s history topped out. The setback from 2006 to 2012 was the
biggest since at least 1926. The biggest since the Great Depression.
Well, in some areas of the country, prices went to even higher highs. You
can see the 2006 peak. And the big setback, and a few areas such as
San Francisco, Las Vegas, Seattle, went to new all-time highs. I think
they’re topping right now. Now why do I think that? Here are some recent
headlines. “Home seller/Prices especially in California.” Next headline,
“New York City home sellers cutting prices like it’s 2009 and then selling.”
Third headline, “Atlanta home sales dive from September 2017.” And the
last one, “The first of the entire country, the U.S. existing home sales fall
to lowest in almost three years.”

Now this is the volume. This is not price yet, for the most part. It’s the
volume of home sales. But the volume always peaks before price.
Because sellers are reluctant to lower their prices. And they hang onto
their ask prices until they aren’t getting any bids, and they finally start to
lower them. I think we’re right there at the time when people are going to
start lowering prices on their houses. This is a picture of the rate of
change of mortgage defaults. You can see the big soaring rate of change
in defaults in 2008, when the housing market was really falling hard.
Since then, it’s bottomed out. But you notice it’s starting to pick up. I think
there’s a head and shoulders bottom, I think it’s interesting that the neck
line comes right about at the zero line. When that line pops above zero
and pops above the neck line, I think we’re going to be in our next big
round of defaults in real estate.

And the last one we’re going to cover today is the stock market. This is a
fascinating area right now, and I’m sure many, many people are
interested in stocks right now because the world seems to be, again, as
they were in 1999. So I’m going to show you three different things, and
they’re going to point to why I think stocks are making a major top,
probably we’ve already passed it. Here we have a picture of two stock
indexes. The top one is the Dow Jones industrial average. The one
underneath is the New York composite index. That is the aggregate
pricing of all stocks in the New York Stock Exchange.

Well in January of this year, prices soared up into a peak. And then they
had an extremely sharp drop from late January into early February. And
of course the big question was is that the end, or is it just a pull back? But
most people said it’s just a pull back, and in some ways, they were right.
The Dow Jones industrial average, the SNP composite, the NASDAQ, all
manage new highs in the September 2018 period, plus or minus a week.

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But look at the bottom chart. The New York Composite did not do that.
The New York Composite couldn’t get above its January high. That
means the experience of the average stock holder, for someone who
owns stocks in the New York Stock Exchange has been negative since
January. A few very hot issues, they call them the FANG stocks,
Facebook, Google, Netflix, and Amazon, were helping carry many of the
blue chip indexes to new all-time highs. But if you didn’t own those, you
weren’t doing very well. This is called a non conformation in technical
terms, when one of these sectors of a market goes to a new high in a bull
market and another important sector is failing to join it.

This works in all kinds of sectors. You might remember, back in 2011
when gold was topping, I believe it was October. September/October that
year, silver was not making a new high along with gold at that time, and it
had already peaked earlier in the year. So when you get these non
conformations they’re very very important.

Now the top chart shows you what’s happened since the third of October.
Actually, mid-September in the S&P, it was only the Dow that made it to
the third of October to a new high. So in the last five weeks, we’ve had a
pretty strong setback with several rallies along the way. And again, the
question has arisen, is this just a correction in a bull market, or is this the
start of a bear market? And I’m going to show you a couple charts that
say unequivocally which one of those we think it is.

Now the middle graph here, you’ll see a bunch of bars, and the headline,
“Large Speculators.” This is a group of people that are always wrong at
the turns. You would think that’s smart money, large speculators. But
they’re not. They’re just as wrong as the small speculators when it comes
to buying and selling futures contracts in the market. Notice toward the
left of that middle graph, where it was in negative territory, you see those
lines pointing downward? That means they were net short back in 2015
and 2016 when the stock market was bottoming out. And the
commercials, which are the bottom graph, these are the smarter ones.
These are the people buying low and selling high, were very long in 2015,
2016 at those lows.

Now look where they are. Ever since that time, the large specs have been
getting more and more excited about owning stocks, and the commercials
have gotten shorter and shorter. So the dumb people are as long as they
can get, and the smart people are as short as they can get. Which one is
going to turn out right? Well, it’s even worse than it might look. If you look
at that note up there, you’ll see that the large speculators were buying
more futures contracts as the price fell. They said, “This is a golden
opportunity. It’s only going to be a pull-back in the market.”

So they are still virtually record long as we speak. This has a long way to
go before we can see a bottom in this indicator. And the commercials are
going to have to go back to the plus side before there’s a bottom this
indicator. We’re talking months on the downside before this is over. Too
much confidence, in other words. The sentiment, the psychology. Too
much confidence. Well let’s look at another area, an area we call
momentum. This is how much weight is behind the market. There is an
index called the trading index. We shorten it off and call it TRIN, for
trading index. This is a 40-day moving average on the bottom of the chart.
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 It tends to get oversold when the market is near bottom, and overbought
when the market is near top.

So you’ll see that it was very overbought over on the left side of this
bottom chart, it was very high in January when the market was topping
out. By the time we got to late March, the S&P had had two legs down,
and by then it was very oversold. Now what does overbought and
oversold mean with respect to this particular indicator? It means that the
amount of volume going into stocks up on the day is greater than the
amount of volume in down stocks on the day. That gets you overbought.
When it’s the reverse and people are putting a lot of volume into the down
stocks, it means they’re panicking. That’s how you get oversold.

So this thing has been rising ever since the late March low. And you’ll see
that it was getting higher as we got into the top in September, but look
what happened. It stayed there. People are still putting more volume into
the up stocks than the down stocks, despite the decline in prices. So just
like the optimism that is continued among these futures contract owners,
people involved in the market are trying to buy it all the way down. I don’t
think this market is going to make a low until that line is at least back to
where it was in March of 2018. That’s a long way down. So the stock
market, I think, is at a major, major juncture, even though this looks like
big decline on here, we’re only looking at a daily chart. If you look at a
monthly chart, you can hardly see it. It’s a blip on the chart. I think we’re
going to see it on the monthly chart by the time we’re back together here
next year in October/November 2019. So put that note on and come and
slap me if I’m wrong.

Now I always get this question, “Can the Fed prevent deflation,
depression, bear markets, and all that sort of stuff?” Well it certainly didn’t
prevent the Great Recession that occurred in 2008, 2009. They didn’t
prevent the run-up in interest rates from four percent to 16% back in the
70s, so no, I don’t think they can prevent it. I don’t have time to make the
whole argument here, but I’d like you to know my argument. So what I’ve
done is I’ve pulled a chapter out of my book, Conquer the Crash, the
2018 edition, and I’ve posted it, no charge. I want you to read that.
Because so many people believe the Fed is in control of the markets, and
I’m hoping to disabuse you of that idea. I’m going to leave it up for one
week. So if you want to go read it, you’re welcome. Just go to
elliottwave.com/fedchapter, that’s two L’s and two T’s in Elliott, slash
fedchapter.

Okay, we’ve had to barrel through five major market sectors. There’s
much more to say about each one of them. If you’re involved in any of
them, I urge you to go see my colleague Steve Hochberg tonight. He’s
doing a workshop from 6:30-7:30, second floor, Churchill room. Go see
Steve, make your dinner reservations for 8 o’clock, go see Steve at 6:30,
you can ask him questions, he’s got many more charts than I was able to
show you here today. And I know you’ll enjoy him, he’s a great speaker
and a great presenter. So hope you have a wonderful day, enjoy New
Orleans, and I’ll see you next year.

The Real Estate Guys Radio Show

“Keeping It Real In An Unreal World”
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Gary Alexander: Now our very good friends for the last decade or so. They’ve been
enlightening us, the Real Estate Guys. They’re the group that speaks on
podcast. I hope you’ve downloaded them because millions of have done
so and enjoyed. They’re fun and their educational. The topics include
economics, the strategies, practical tips for building and protecting wealth
in real estate and all kinds of other real assets in your portfolio. Their
guests include literally the who’s who of the investment world, from Steve
Forbes, to Donald Trump when he was a businessman, Peter Schiff,
Chris Martenson, Brien Lundin here, James Rickards, who’s been at this
conference, Robert Kiyosaki who is up later on this afternoon and many
other notable experts.

You can listen online and subscribe to their free newsletter at

www.realestateguysradio.com, or you can listen to them right now as they
keep it real in an unreal world. First up from the Real Estate Guys, is
Robert Helms.

Robert Helms: Sir. Thanks, Gary. Gary Alexander, ladies and gentlemen, that’s a tough
job emceeing, so I hear. How’s everyone doing? How many of you wish
that you owned more real estate than you do? Who would like to own
more real estate in the future than they do now? Here’s the great thing
about the next 20 years. It’s going to be here 20 years from now, whether
you do anything about it or not. We’re going to share some ideas about
how you keep it real understanding that we’re at a resource conference.
We believe that real estate is maybe the ultimate resource. I mean, where
does oil and gas and gold come from? The ground, right? Before we’re
done today, you’re going to hear from not only Robert Kiyosaki, but Tom
Wheelwright who is Robert’s CPA who has really got a lot to say about
how keeping it real also will let you save more money if you understand
taxes.

We have lots to talk about. Our show is heard in lots of different places,
more than 190 countries. You can find us on iTunes and Stitcher, and all
your favorite podcast places, the podcast is free. We’d love to have you
listen to it. That’s enough about us. We’re easy to find, and we keep
showing up. Let’s talk about living in an unreal world. Who remembers
Bizarro world from Superman? Who’s old enough to remember that?
Where everything’s opposite, everything’s different, everything’s not real.
Growing up learning about economics, it seemed like it was all based on
sound footing. But in the last couple of days, we’ve learned that all is not
as appears. Apparently right now, unproductive debt doesn’t seem to
matter. People borrow and consume in order to prosper. I guess all you
have to do is rack up your credit card and you have a good high-level of
living. Consumption is production they say today, or at least the
Keynesians believe and profits are wealth no matter how you got them.

I’m not sure that’s true. We’re going to share with you some ideas that
maybe will have you think a little different and change your paradigm,
because paper investment and paper returns aren’t the same as real
money. But in this house, you probably already understand that. We
aren’t political in any way, we are just guys that look at how things that
happen in the business world affect our lives from an economic viewpoint
and even a bigger picture than that. So, here’s a chart you’ve probably
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already seen but here’s the context of this. Those things that we just
talked about the unreal nature of what’s happened in the markets, and
what’s happened in our world, in our financial system, in the Federal
Reserve and all of that, leads to people’s beliefs. The way you believe
effects your actions, and the actions you take effects your results. That’s
true for all of your life. If you believe something, and you take certain
actions, and you get results, if you don’t like the results, you got to go
back and change the beliefs.

Well, the way that’s manifested, is in an unbelievable amount of debt. But

all the charts seem to go the same way. There’s some clues in there.
Here’s the challenges all investors face, not just real estate investors.
We’re not going to show you the chart because lots of people have, and
we showed it to you the other day, but the dollar has trended in one
direction since it began. Was that direction up or down? Down, right? I
mean, it’s pretty clear it’s not a little bit down, it’s always down and that’s
a problem. At the same time, interest rates are headed which way? Up,
after a long time of being down. That’s a problem. We have a good
economy perhaps, but it’s sitting on a very fragile economic foundation.
Our system is a challenge. That creates unnecessary skepticism, I guess,
from investors. Then you’ve got all the stories of the pension funds that
are underfunded, and how people that are no longer productive or are not
getting the money they were promised and those kinds of things, which
are scary, scary time to be an investor.

You’ve got more and more debt just to cover the interest on the debt. It’s
crazy. We talked a lot about counterparty risk in real estate, because
there’s always somebody under the side of the transaction not in every
type of asset class, not a lot of counterparty risk in silver or gold and not
much in real estate. Then, of course, privacy. Today we give up privacy
for convenience and yet our privacy is eroding. A lot of challenges faced
as investors. We’re not here to say real estate can handle all the
challenges, but there’s some ways it can certainly help. We have to
understand our paradigm, we think and behave a certain way based on
what we’ve been taught. One of my favorite things about one of our
speakers coming up later today, Mr. Robert Kiyosaki, is he challenges us
to think differently. He says, “The rich don’t work for money.” He says,
“Your house is not an asset. It’s a liability because it takes money out of
your pocket every month instead of putting money into your pocket.” That
challenges is a long held belief. That, no, my house is my biggest asset.
No, it’s not. We have to take the red pill and see how things really are.

So, a big question is, what is wealth? Is wealth what your balance sheet
says? Is it your net worth or is wealth your cash flow statement, is your
income that’s coming in? There’s two sides of a coin there. There’s
certainly we want our net worth to increase but there’s income. So, we’re
going to challenge a paradigm a little bit this afternoon on that. Then
here’s the other thing, when we talk about value, value investing. This
concept of income versus comparative sampling. What do I mean by
that? Well I’ll show you in a second. How did Apple do last couple of
days? Apple stock, where is Apple stock, up or down? Down a lot, right?
So, follow me on this, a share of Apple stock is worth whatever the
market says. Today, it’s essentially a perfect market. I can’t go find the
guy that wants to unload and buy Apple stock at a bargain. It’s going to
be the price. It’s going to be what the price is based on what the most
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recent shares have sold for, the comparative sampling. In real estate, it’s
really interesting.

We have what we would consider value in our home, but do we really?

We would submit to you that’s perhaps a fake valuation. How can Netflix
and Tesla be worth so much money when they don’t make any money
and may never make any money. This can mess with your brain. Let’s
talk about how that manifests in real estate. Imagine there’s a million
dollar economy made up of 10 houses, and each one’s $100,000. That’s
our entire economy. That’s your little cul-de-sac you live on. Then
because the economy’s good, and stock prices are rising, and so forth.
Now, one of the folks on your street decides to put their home up for sale,
and you know what? It sells and it sells for $200,000. Well, the way that
comparative sampling works in real estate, it tells me that all of a sudden
every house on that street is now worth $200,000 if they’re all the same
size and utility and so forth. So, all of a sudden the entire economy has
grown by a million dollars. It’s doubled. But that’s just not true, and here’s
why. If every other of the nine houses were to go on the market, would
they all sell at $200,000. No, as soon as all the houses go on the market,
the price goes down.

So, the comparative sample method says that, well, my stock holdings
are worth this today, or an ounce of silver is worth this today, but that’s
going to change tomorrow. If everybody sells, then the price can’t hold.
There’s a part of real estate that’s not true for, and that’s the monthly
income, the rental income. It’s not a comparative sample that effects if
everybody moves in or out, because those transactions settle every
single month. My tenant pays me every single month, every single month,
every single month, and so do all the tenants. That is a comparative
sampling, that is a true indication of the value. It takes a lot to get your
mind around that, but here is the premise that unrealized gains aren’t
really real. Unrealized gains are not really real, really, they’re not. You
might stack up a bunch of gold coins, right, but if you’re trying to convert
those to dollars, which is the wrong way to think about gold in my opinion,
then you know as soon as everybody goes to sell ... Well, you know what
we’re saying.

All right, so Apple stock suffers worst day in more than four years. That
was yesterday, I couldn’t find any more current news than that. People all
of a sudden hit the sell button and that makes it worse. Prices go down
worse. America lost trillions. This is a chart from a little while back when
the housing bubble went through and, oh my gosh, look at all the money
we lost. The air came out of the bubble. But it’s interesting because was
that money ever really there? If everyone had tried to sell all their houses
at those inflated prices, it wasn’t going to happen anyway. Then it goes
the other way, household net worth climbed by $2.3 trillion in the first
quarter of 2017. But did it really? What if everyone went to sell those
properties, it’s not going hold. So, income is real. When you have income
from rental property that comes in every month, and they’re paying the
rent, and they’re going to work every day for somebody else, and you’re
not managing them, but they pay you a big chunk, 30%, 40% of their
income goes to you as the landlord. That’s real, because it settles every
month. But the price of the asset, that’s fake. That’s only today in the
bubble.

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 If on your street, you’re the only house that sells and it has good demand
this month for houses, you’ll do fine. But you can’t assume that just
because it’s on your balance sheet, it really is an asset that’s real. Real
estate equity has gone up, and gone up, and gone up, and our book
equity happens. We’ve cited that for 40 years in a row, the median price
had never gone down in real estate until it did. Look what happened at
the real estate bubble, oh my gosh, that was pretty ugly. Then it has
bounced back. Oh my gosh, who lives in a house in the market where the
prices have bounced back? Yes, and some of them have bounced back a
lot. Now, I’m no expert at this stuff but it looks to me like there could be
another bubble forming. I don’t know, it could be. Some people saw this
chart, here’s the chart you may not have seen. Where the asset price
change drastically, the income did not. These are rents. Even though the
housing prices came down, the rent came down a little but not a lot,
because those transactions subtle across millions of properties every
single month.

Here’s what a lot of people like to do when they invest. They take cash,
they invest in something like a house or Bitcoin or gold ... You can call
that an investment. So, they can sell it again later for more dollars. Cash
to asset to cash. Now we’re not sure that’s a good way to go, because I
think owning assets is much better than owning cash as Robert Kiyosaki
will tell you. Cash is trash. What we like to do is go cash to asset, to cash
flow. An investment that pays us every month or every quarter or every
year. It’s not just residential real estate, there’s all kinds of ways.
Agricultural crops might pay once a year, oil and gas pays when it does.
So, different ways to go from cash to asset to cash where the game is to
accumulate the efforts of others through cash flow, not to accumulate a
big pile of dollars. What are you going to do with that.

So, when you manage debt, equity, and Cash Flow strategically, then you
can use real estate to grow and preserve wealth, produce tax free
income, truly tax free. You’re going to hear about that from our good
friend, Tom Wheelwright in a few minutes and what we call infinite
returns. Infinite returns means you’re on the house’s money. Before we’re
done today, you’re going to hear about infinite returns. We talked about it
in a breakout session last night. Thanks to everybody who came, that was
the fullest breakout session at eight o’clock I’ve ever seen at this
conference. Crazy good. So, thanks for coming out for that. That will
hedge against inflation, deflation, and recession. If you didn’t see our
presentation the other day, real estate can actually hedge against both
inflation and deflation, and recession in case we get one of those.

So, how do you put the pieces of all that puzzle together? Well, it takes a
bigger brain than I have. Please welcome the cohost of The Real Estate
Guys radio program, Mr. Russell Gray.

Russell Gray: Thank you, sir. Right on time. That’s awesome. Thank you so much for
coming out. It has been a great conference. Here we are, I don’t know,
third day in, second day in, something like that. We got one more day left.
Tomorrow we get to hear from Peter Schiff. Peter Schiff is a big part of
the reason why we’re here, because in 2005, 2006, weird equity was
happening and just up, up, up, up, up. People were sounding the warning
bells. Two guys, Robert Kiyosaki and Peter Schiff were telling the world
that the real estate market was in trouble. A lot of us, including myself,
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didn’t listen. Now, I pay very close attention and I pay close attention to
those guys. It’s tough because you got to be brave. Those guys are very
brave. They will stand there all by themselves and they will say what they
think, they will back up what they think and everybody stands against
them, they laugh at them. We’ve got some videos on our website of those
two guys just getting heckled over trying to warn people what was
coming, and sure enough they turned out to be right.

Nobody wants to hear the Jeremiah prophet, nobody wants to hear that
the end is coming when it’s all fun and games. But you can clearly see
when you take look at what’s going on to the financial system. There’s
some things to be concerned about. That doesn’t mean that you lose
money. It just means you need to position yourself differently so that you
can make money. After the 2008 crash happened, I was in the mortgage
business, lost a lot of money in the mortgage business. I had a lot of
highly leveraged real estate that was negative cash flow, and I was using
the income from the mortgage business to be able to feed the real estate.
It all looked good on paper, but it was all dependent upon healthy credit
markets. I didn’t understand credit markets, so I couldn’t see the risk to
the credit markets. Today I see interest rates rising, I understand the
credit markets and the bond market a lot better. I see a lot of instability
and so I’m positioned very, very differently. I’m actually looking forward to
the next bubble bursting, because it’s a shopping spree if you’re in the
right position.

We’re here to help you understand some of those concepts from a real
estate perspective. Robert has done a great job there setting the table,
helping you understand a little bit about the way we look at real estate
and the major paradigm shift going from cash to asset to cash and trying
to generate dollars, to wanting to accumulate assets that put cash flow
into your pocket. It’s a premise that Robert Kiyosaki teaches in Rich Dad
Poor Dad. I mean, many of you have come up to him since he has been
here and just thanked him for how he has changed your life. For those of
you that haven’t had a chance to hear him speak before or hear his
concepts, you’re in for a treat in just a few minutes. So, solving this
puzzle, it looks like this, if you’re looking at the marketplace, and you see
a bunch of equity sitting there in real estate. You realize that equity can’t
be there forever. If the credit markets seize up, if for whatever reason we
have a recession, and wages don’t keep going up, but they go down. If
interest rates rise, and people can’t leverage their income into bigger
mortgages. If any one of the number of things happen, you could see the
market take that equity away.

A lot of people think, I got to pay down my loan in order to be safe. But
that’s crazy, there was a lot of people that were paying their loans down
going into the crisis in 2008. Then the market just took the money away
anyway. So, that’s not the way to do it. Some people got out of the real
estate market and tried to come back in, but it’s very expensive to move
in and out of real estate. It’s very, very hard to time the market. So, the
whole concept of what I’m about to show you is a way just to rearrange
things. So, it doesn’t really matter what happens. interest rates can go up,
interest rates can go down. We can have a recession, we can have a
booming economy. Credit markets can seize up, it really doesn’t matter.
That’s the point that we want to make here. So, let’s just start with this
idea that you’ve got some equity in some real estate somewhere. If you
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don’t, then imagine you have some other asset you could borrow against.
I just always use real estate, it’s my mortgage background, it’s my favorite
thing to leverage because you can take the money at very inexpensive
rates, lock it in for a long, long time and then put it to work doing other
things.

If we pulled $200,000 out at 4.5%, we’re going to have $9,000 of interest

a year. That’s our cost of that debt. Of course, that’s tax deductible. If
you’re going to be using it for investment purposes, but I’m not a CPA,
check with your tax advisor or talk to Tom Wheelwright who will be up
here shortly. But now you’ve converted your equity to cash. So, in
exchange for a $9,000 a year payment, you put $200,000 of cash out of
your property that you can put to work. You get to keep the property, so if
the property has upside you get to keep it. If you enjoy using the property
for whatever purpose, you can keep that. If it’s producing income because
you’re renting it out, you can keep that. You have no counterparty, in fact
you are the counterparty. You’re in a situation where you’re more liquid
going into a time when liquidity is not to be found at the marketplace, it’s
always good to be liquid. Now you decide, “Well, what do I want to do and
can’t just sit there and pay $9,000, I got to handle that payment.

So, you use private lending. If you’re not familiar with real estate, the
equivalent to bonds in real estate are mortgages, and you can make
private mortgages. So, you can go out, and you can loan somebody who
maybe doesn’t have a fit in the box credit score or financial
documentation. Maybe they’re a foreign national, but they’d like to buy
real estate, they’d liked about home. They’ll put 30% or 40% down and
pay you considerably more than the going rate. So, in fact, we got a guy
right here that does private lending from Nashville Tennessee. So, you
take $100,000, take half of the cash that you had, and you invest it out at
9% in two $50,000 mortgages on these little $60,000, $70,000 houses in
what they call Flyover America, and you get 30% to 40% protective
equity. Which means if the person stops paying, you would happily take it
at a 30% to 40% discount. Even if we had some deflation, you’ve got
quite a bit of cushion there. If it was underwritten properly, then there
should be enough income on the property that if the person who was in it
fails to pay, you evict him and put somebody in who will, you can’t evict a
bond issuer.

Somebody gives you a bond and defaults on the bond, you can’t kick
them out and put somebody else in their place. But with real estate you
can, whether it’s a tenant or a borrower. It’s one of the great things about
real estate. Anyway, by doing the math, you see that we got $9,000 of
interest going out, you got $9,000 of interest coming in, but we only had
to deploy half our capital to do it. So, we’ve got $100,000 of cash now
that’s free to do something else with. So, let’s see what else we could do
with it. Let’s say that we wanted to hedge against long-term inflation. Let’s
take half of that $50,000 and just go buy some precious metals. Let’s put
them in a safe somewhere outside the banking system. Now I’ve
mitigated the banking system, I’ve mitigated the falling dollar, no
counterparty risk, I have great liquidity, I can pivot into any currency I
want because there is almost always a bid in any currency for gold. Does
that makes sense?

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Okay. Now I still got $50,000 left over. I’m going to take my $50,000 of
which I have no payment attached. I might say, “Hey, you know what I’m
going to do is, I’m going to do what Jim Rickards says in Currency Wars.
I’m just going to go park that wealth somewhere in developable land and
just wait until everything falls apart. Then I will be able to get cheap labor
and cheap supplies, and develop that property and make a profit.” If
you’ve read Currency Wars, Death of Money, that’s an idea that Jim
Rickards put out. You may decide, you know what, I don’t want to do that,
I’d rather have some form of income, but I want to get something that’s
real and substantial, necessary. I don’t want to speculate on tech or
something that, discretionary spending. I mean, there’s not too many
things that are more essential in life than having a roof over your head
and having food on your table. The great news about farmland is you
don’t have to get the local economy right, because the crops grow where
they grow best and then people eat them where they live, and you just
ship them to get there.

So, when you buy a rental property, you’ve got to get the local economy
right. You’ve got to get the local jobs market right. You’ve got to
understand the supply and demand dynamics. A little bit different when
you buy productive farmland. We got a couple of people out here in the
exhibit hall that actually will let you get into deals worth $50,000 and you
can buy a chunk of productive farmland. If you haven’t talked to them,
make sure you go out there and do that. Last night at our breakout
session, we showed you how to do it with resort property. You can buy a
resort property or a piece of a resort property and you can have some
personal use, you can have tax deductible travel to visit your investment
property, you can have some income coming in, you have a
professionally managed quality asset. Because there’s one thing when
you have a tenant in a C-class property, and they don’t pay, they trash
the place, and you’ve got all kinds of capital expenditure to turn the
property.

Resort property is a little bit different, because the manager is in control of

the property. You don’t have that kind of damage to the property that you
do in a low-end investment property or a low-end rental property. You can
do it domestically or you could go offshore. We talked in our pre-
conference workshop about the advantages going offshore. It puts you in
a different jurisdiction, it makes it very hard to find those assets from just
a routine asset search. If you got a frivolous lawsuit attorney chasing you
around and trying to just find something to pin on you, they’re not going to
find those assets. If you structure yourself properly, you can hide many of
your assets. You’re not hiding them from the IRS necessarily, you’re not
trying to evade any responsibilities you have, you’re just taken the target
off your back. If you’ve done well, and you’ve accumulated some wealth,
all said you just got that thing hanging out there in the wind, every
account, your social security number, every single piece of property you
own in databases in the United States with your name attached to it, very
easy to find everything you own.

These types of structures, you can camouflage all of that and take
advantage of privacy. You may decide, I don’t want to own the land
directly, what I’m going to do is I’m going to invest in a private placement.
Our pre-conference workshop was about private placements. You’ve got
the Real Estate Fund Alliance out there, which is an alliance of individual
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fund managers, syndicators that are raising money from investors that
want to be hands off. They want to be in real estate, they want to take
advantage of real estate they just don’t want to get their hands dirty. Just
like a mutual fund, you turn it over to a syndicator and then they run the
project for you. The only differences it’s very, very flat. When you deal
with a syndicate or someone like that, you’re dealing pretty much directly
with the principal or maybe somebody who works directly with the
principal. If you think about what happens when you go do business with
Wall Street and fund managers, you’re dealing with people that are ...
There’s layers and layers and layers between the asset and the income
and the profit on the asset and you.

Those big buildings and those fancy commercials, and those jets and all
the things that you see, they’re a part of that industry. That money comes
from someplace, and I’m pretty sure it’s you. Just be aware of that. Then
of course, private placements give you the ability to keep your affairs
more private. There’s a lot of things that you can do. Just in closing here,
and I can’t believe it. We’re actually going to finish ahead of schedule,
which is great. Just want to cover this real quick. I’ve probably shown this
thing the last two or three years that I’ve come here to the New Orleans
investment conference. We talked earlier about the importance of shifting
a paradigm. One of the important paradigm shifts here that Robert shared
with you, is that asset values and net worth are very volatile, very fake.
Income is very real and much more stable. We can show that, we showed
the charts, we can show you that. That’s one paradigm.

The second paradigm is that when you invest, that you have to, the buy
low sell high, and the idea that going from cash to asset to cash. This is
the thing Brien Lundin and I joke about this all the time, because we
talked about gold. I look at gold very differently because I’m not a gold
guy. I look at gold as a store of a unit of value, and I want to have more
units of real value. So, when it goes on sale, meaning the price drops and
the dollar is strong, I get excited and go get more. So, I’m the opposite.
I’m not looking to sell it. If I need liquidity, I probably would borrow against
it just like I would borrow against real estate and then just arbitrage
whatever the cost. If I borrowed at five, I would invest it five plus. It makes
it worth the round trip. But the other thing here is just understanding that
you can take control of your financials and begin to structure yourself in
such a way that you aren’t a target. That you can have privacy in your
affairs, that you can have more direct control over the people you work
with and the assets that you have, and direction about what’s going on.

So, at the low hanging fruit where most people in America are, they own
paper assets, stocks, bonds, mutual funds, 401ks, insurance contracts.
They own bank accounts with their social security numbers all over them.
I joked about that, you put your money in a bank in over $250,000, you’re
not insured below $250,000. You have insurance from the FDIC. So, an
insolvent institution has insurance from an insolvent institution, that is
backed up by the printing press of the United States, which is an insolvent
institution. You got to think about that. It’s all good if the printing press
works. One of the things we spent a lot of time talking about and paying
attention to is the dollar status as a reserve currency. That’s under attack
right now. Now, it’s not going to fall apart tomorrow. It might take years,
but we don’t know. But Russia and China and many other countries are
looking for all kinds of different ways to circumvent the dollar.
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If the United States loses their credit line, which is the reserve currency
status and Jim Rickards calls that an ice nine lockdown, the system
freezes until there’s a reset. If you have everything in that system when it
freezes, then you’re like the people in Cyprus and Greece were when
they’re standing at the ATM, trying to get a few bucks to buy food and
gas. That’s low hanging fruit. The lawyers can find you, the creditors and
predators can find you, and everything is locked down if something
happens. But if you climb up the tree a little bit, then you can use
domestic real assets. Gold outside the system, private placements, direct
ownership of real estate and other things like that. You can use private
entity structures and private banking concept. Go a little bit higher, and
you go international. When you go international, you are very, very
difficult to go after. It could cost a plaintiff’s attorney hundreds of
thousands of dollars to litigate to chase your assets if you’ve got them
spread out in multiple jurisdictions, if they can even find them.

Now, they may decide to get a judgment against you, and then you got to
go in and tell everybody where stuff is, but I’ll be honest with you, I’ve
gone through that. Because I signed some personal guarantees on some
construction loans pre-crash. When those went bad, the projects failed, I
owed the money, and I legit owed the money. I didn’t fight it. They got a
default judgment, they called me, and I had to do the order of
examination. I had to tell them where the stuff was and fortunately,
everything I had was offshore. They looked at it, and they went, “All right.”
Then they walked, that was it. So, I’ve become a big believer in
international structure. So, if you’re not there yet, just take the red pill and
open up your mind a little bit and consider the possibilities. Because
you’re more of a target probably than you realize, and in desperate times,
governments and people do desperate things and go after people with
money.

So, international real estate assets, international private placements,

private entity structures, private banking. So, with that, I will thank you
very much ... No, I got a couple more things I got to tell you. So, getting
there from here. All right. If you’re sitting here, like, “Okay, that’s
interesting, these guys just force-fed me, like drinking from a firehose for
28 minutes. I’m interested, but man.” We call it the law of diminishing
intent. You hear like, “That’s intriguing. I want to follow up on that.” We
know what’s going to happen, you’re going to walk out the door, your
head is exploding because you had all these brilliant speakers filling your
mind up with all this stuff and then you’re going to go back home this
week and your schedule is going to eat you up. Is that what happens? It’s
exactly what happens.

So knowledge is only good if you act upon it. Our motto at The Real
Estate Guys for years and years has been education for effective action.
The way that works out is you got to have the knowledge. You’re at the
beginning of this knowledge some of you. Some of you that are listeners,
have been following us for a while, maybe this is old school, but if you’re
for the very first time, like “Wow, I never thought of it that way. That’s
pretty interesting.” So, we have podcasts, we do educational courses, we
do live events, we put on conferences, we speak in different places, lots,
and lots of education. We understand it takes some education. For you to
change your investment results, you have to change yourself as an
investor. It starts in the way you think and what you believe and that will
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 affect the decisions you make, which will affect the results you produce.
So it starts with knowledge.

The other key part is a network. Real Estate, you can’t sit in your diaper
with your crib with your trading app and dial up these kind of deals, it
doesn’t work that way. Our business is a relationship business. Getting
plugged into a network of people that are doing these kinds of deals that
are in the deal flow that are raising capital, that are able to either share
ideas with you or actually partner with you on deals, however you chose
to do it. Again, you can be hands off, you don’t have to be dealing with
tenants and toilets, but you do want to make sure that you understand
how to evaluate what you’re looking at and who you’re doing business
with and then you turn the money. It’s probably a lot more due diligence
than a lot of folks do on the paper assets they buy every day. They just
see him advertise, somebody gets a ticker symbol, they write it down,
they go buy it. They really don’t do the homework.

So, having a great network and a great team of advisors, great CPAs,
great mortgage people, tax advisor, people that can help you. That’s
really important. Those are kind of three things you go to work on right
away. To help you do that, we put on some events where you get to meet
some people. One of the things we’re doing is ... How many guys know
Peter Schiff, Peter Schiff, Peter Schiff is a pretty famous guy, pretty smart
guy. We’re throwing a birthday party for Peter aboard our 17th annual
investors’ summit at sea. Peter has been great attending this event and
teaching. This is probably at sixth or seventh year with us. Robert
Kiyosaki is coming back, just told us last week he’s committed to coming
back I think for his fifth or sixth time. G. Edward Griffin wrote the book
Creature from Jekyll Island. If you want to really get your mind bent about
the roots of the Federal Reserve System and this entire monetary system
that we work in, have a dinner conversation with Ed Griffin. He’ll really
blow your mind.

Chris Martenson who I believe spoke this morning, He’ll be with us. Tom
Wheelwright is just on the day. He’s a CPA and he can’t make it for the
whole trip because it’s tax season and there’s a lot going on, but he’s
going to come share a concept called infinite returns. I’m sure you’re
going to get a preview of that. Brien Lundin will be with us and many,
many, many, many ... Gene Guarino who you heard earlier, many people.

You will get more done in terms of your financial education in this space,
in the real asset investing space with real estate at the hub and building
relationships both with fellow investors and key people, advisors and
providers. You’ll get more done in week and nothing is for sale. It’s all
education and networking, and it’s a blast. I hope you decide to join us.
Thank you very much. If you want more information from us just send an
email to [email protected]. We got two free reports for
you, Real Asset Investing and New Law Breaks Wall Street Monopoly.
We’ll tell you about our investor registry where you can get into the deal
flow, tell you about the summit and tell you how you can get ahold of our
free podcast and free newsletter. Thank you very much.

Rick Rule
“With My Money, Natural Resources Investments”
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Robert Helms: All right, with that I’d like to introduce you to our next speaker. It’s always a
pleasure to introduce Mr. Rick Rule. He’s been in this business more than 35
years in the resource investment business, and is widely recognized for his
knowledge of the mining, energy, and other resource sectors. He’s a frequent
speaker at industry conferences, including this one, and his own conference.

He’s interviewed for numerous radio, television, print, and online media outlets,
concerning natural resource investment and industry topics. Sprott Global
provides brokerage services to high net worth individuals, and institutions
worldwide, please welcome back to the New Orleans Investment Conference, the
amazing Rick Rule.

Rick Rule: Thank you sir, thank you for that kind introduction. Good afternoon ladies and
gentlemen, I hope today’s been pleasant for you. I’ve had the good fortune, like
many of you, to be down here. I think this is my 31st year at the New Orleans
Conference, so I’ve been here a long time. I’ve derived a lot of benefit from it,
and I see a lot of familiar faces out there. I know you’ve all derived a lot of benefit
from it.

Many of you remember the founder of the New Orleans Investment Conference,
Mr. James Blanchard, an important man in my career, and a very good friend. I’d
like to dedicate anything that I say that you enjoy to the memory of Jim
Blanchard, who founded this fine conference. Anything that I say that you don’t
like, the blame will rest with me, but I’d like to remember Jim specifically.

He was a wonderful human being, a great friend of gold, a great friend of

America, and a great friend of all of y’all. I’d also like to take this opportunity
before I speak, to thank the staff of this conference. As some of you know, I put
on my own conference, and it’s a hellish amount of work. It’s like herding cats,
making sure you all get fed and watered, and all these dilettante speakers show
up on time, that the hotel doesn’t steal from people.

Anyway, and Brien Lundin of course is responsible for the fact that this
conference survived the death of James Blanchard. What I’d like you to do, is
join me in a round of applause for Brien Lundin, and the staff of this fine
conference. Thank you for that, an experienced speaker make sure he gets one
applause line during the speech, and I just tricked you into giving it to me.

Many of you know Sprott, how many people here are Sprott clients, or
shareholders, raise your hand please. Oh, this is great, this is great. In
southeastern parlance, I’m not trying to expand the congregation, I’m just
passing the collection plate through the choir, it’s a wonderful circumstance.
Sprott, for those of you who don’t know, is a publicly listed company in Canada.
We’re domiciled in Canada.

We manage or administer about $12 billion worldwide, focused exclusively on

natural resources, and precious metals. We have lots and lots and lots of
products, but that’s not what this speech is about. We’ll go onto that. I want to
start very briefly by describing the resource thesis to those of you who haven’t
had to suffer through this part of my speech before.

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The truth, is that the keys to investing in natural resources are only twofold, one,
natural resources investing is in effect investing in the ascent of man. There’s
seven point something billion of us on earth, and occasionally we do what people
do, and that makes more. Those people who are born want to eat, they want to
drive, they want to live, they want to live like you live. The bottom of the
demographic pyramid, as they get more wealth, spend money on stuff that
consumes resources differently than us.

Most of us already have too much stuff, but the 2 billion people at the bottom of
the demographic pyramid, as they get more money, they eat better, they might
upgrade their roof from thatch to metal they might upgrade their transportation
from shoe leather, to a bicycle, to a motorcycle, to a Toyota hi Lex. In other
words, their consumption patterns are extremely, extremely resource intensive.

It’s an important thing to know, another thing to know, and I don’t think I have to
explain this to the veteran investors here, resource businesses are the most
cyclical and volatile businesses known to mankind. Bear markets in fact, are the
authors of bull markets. I like to say from the podium, that bear markets are
sales. In fact, they’re good things, if you’re looking to acquire assets.

Of course, investors are afraid of bear markets, but that’s their fault, not the
market’s fault. Bear markets are when things are cheap. The idea that you would
buy low and sell high, necessitates the fact that in markets like the markets that
we’ve been through, you have the courage to buy. It’s interesting to note that
most people want to be contrarians when it’s popular, which is a very difficult
thing to do indeed.

Remember this, the stuff of mankind is what resource investing is about. The
idea, the way that you make money, is to buy it when other people aren’t. A
circumstance that describes very accurately I think that the market that we have
either enjoyed or endured, depending on your point of view ever since 2011.
Often when I come onstage, I talk about what I think you should do with your
money.

That’s what Brien has asked me to do for years, and what Jim asked me to do
before that. Brien asked me to do something different this year. He said, “Rick, I
don’t want you to talk about your recommendations for other people’s money, I
want you to talk about what you’re doing with your own money.” I’m going to do
that with most of the balance of the discussion, with the caveat that what I do
with my own money, of course reflects my own means and my own needs.

One of the things I’ve done from the podium here for some years, is made fun of
speculators in favor of investors. My wife pointed out to me that, that was
somewhat disingenuous, because all of the money I now invest, I made
speculating. I will be talking about speculations, I will be talking about
investments. I want to say, that this is really about what I’m doing with my money,
and may or may not be suitable to you.

You will recall, some of you at least, that last year’s discussion was about the
successes that I had, had personally, and Sprott had, had generally in two
different arenas, really three arenas. The first thesis was that money could be
made in resource bear markets, which we are decidedly in, by buying the very
finest companies in the space. The Exxon Mobil’s, the BHP’s, the Nutrien’s, the
RTZ’s, the Glencore’s.

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Simply waiting for time to do what time had to do in terms of commodities prices.
That thesis has worked out reasonably well in the last year. It’s a strategy that
will continue to work well, but that was last year’s story. I also talked about, and
you should consider natural resource lending. One of the things that Sprott does,
is that we provide on balance sheet financing for resource companies,
particularly providing construction loans for new mines.

The efficaciousness, if that’s the right word of that strategy, is evident by virtue of
the fact that the equity index among the juniors, the Toronto Stock Exchange
Venture Resource Index ... This is a great number, fell by 88% in the bear
market. That is, that index lost 90% of its price, if not its value over five years,
while lending strategies generated 17% compounded annualized internal rates of
return.

A 17% return is attractive in isolation, but a 17% return annualized, compared to

an 88% decline, is amazing, amazing out performance, but again that was last
year’s story. Finally, of course last year, we talked a lot about what we’re known
for at Sprott, which is private placement investing. The idea that you shouldn’t
participate in speculative stocks too often, if you don’t get a warrant to double
your upside while minimizing the downside.

Still a thesis that we like, and still a thesis that you heard about many times from
the podium, but as I say, that was last year. Let’s talk about this year, my own
belief is that we’re slowly coming out of a very bad bull market. We aren’t coming
out of it with any particular strength. That tells me a couple things. It tells me that
I need to be a bit more conservative with my speculative money, than I would be
at other times in the cycle.

I need to pick and choose my spots, there are 20 or 30 themes in speculation

that are all, at various points in time in the cycle, attractive. The attractiveness
has to do with how many other people are avoiding that sector. In other words,
how unpopular it is, because surprisingly, the least popular sectors are usually
the most attractively priced, and will cycle into favor over time.

In a very broad sense, in a very, very, very broad sense, there’s three
speculative themes that I want to talk to you about today. I should tell you that I
will be allocating a really substantial sum of money over the next 12 months into
each of these three categories. The names of the investments I make, will be
available to Sprott clients, and certain people who express an interest in
becoming Sprott clients.

The accounts that I’m talking about, the referenced accounts, will be in place
beginning January 15. What I’m doing, is actually establishing accounts at
interactive brokers, so that people in other countries can take advantage of this
too under Sprott management. Those of you who are Sprott clients, will be able
to get the information associated with the names that populate each of these
subsectors from your Sprott broker, or you can maintain a segregated managed
account where we buy and sell the names on your behalf beginning we hope,
God and the regulators willing, on January 15.

The first sector that really intrigues me for the next 12 to 18 months, are a list of
takeover candidates that we’ve developed. The truth is that the natural resource
industry has shunned merger and acquisition activity until very lately for six or
seven years. They shun it, because of the idiotic takeovers that took place during

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the last bull market. By our estimate, about $70 billion was wasted in the last
M&A cycle.

The consequence of that, is that many, many management teams were allowed
to pursue other employment opportunities, as the shareholders saw the mischief
that they had done in place. The new managers were leery to engage in merger
and acquisition activities, lest they suffer the fate of the predecessors. The
consequence of a long hiatus in merger and acquisition activity is twofold.

The balance sheets and the income statements of many of the larger natural
resource companies, has returned to health, and in some cases very, very robust
health. They have the ability now to do transactions if they want to. The second
consequence of a dearth of activity, in fact, a dearth of investment in natural
resources by large companies, is that the exploration pipeline, and the
development pipeline, and the new mine pipeline of existing mining companies,
is at a low point, that is in fact probably the most drastic of my 40 year career.

Remember that every year that you mine a deposit, your business gets smaller.
This business is in perpetual liquidation. None of us can stand at the mine mouth,
and pour in fertilizer and water, and have that hole in the ground grow more
copper. The truth, is if these companies aren’t exploring, if they aren’t
developing, they are dying. They have spent eight years making insufficient
capital investments, nevermind to grow, but in fact to continue to exist.

The consequence of that, is that we are coming into an M&A cycle, the likes of
which I don’t believe we’ve seen since 2001. Our merger and acquisition criterion
are several fold. The first, is that we need to believe that the deposit is a tier 1 or
a tier 2 deposit. That is to say, we aren’t interested in small, lousy deposits that
will be bought, simply because some issuer can buy it.

Something that happened in the last cycle, it has to be a deposit that we would
like to own irrespective of the takeover. Importantly, we have to know who the
asset is strategic to. In other words, we have to believe that the buyer will be
doing themselves a favor buying it, as opposed to buying it for the reasons that
happened the last time. The third criterion, is that we have to believe that more
than one buyer exists.

What we have learned in prior takeover cycles, is that auctions work best. That is
two, or three, or four people competing for the same asset. Very difficult of
course, to have an auction with one bidder. We’re looking for very good deposits,
ones that we would like to own irrespective of the takeover, but where a takeover
is much more likely than not, and where there would be several potential bidders
in the course of that takeover.

We now have a list of 34 candidates that we think qualify in this space. I’m going
to winnow that list down to 10, or with any luck at all, seven. The best picks out of
this 34 company universe, and as I say, the results of this search will be posted
on January 15 for Sprott clients, or those of you who would like to be Sprott
clients. In prior takeover cycles, early cycle, this has been probably the best
speculative activity that one can engage in.

The truth, is that a good acquisition ... Some of you will remember years ago
Francisco Gold as an example, where Francisco Gold was acquired by Glamis,
at a 40% premium, which was pleasant for the Francisco Gold shareholders. The

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acquisition proved to be so accretive to Glamis, and promised so much growth,
that after acquiring Francisco at a 40% premium, the shares of Glamis doubled
over the ensuing 12 months.

What you hope for of course, is that double bump. A premium on being acquired,
and then the acquisition itself causing the company that does the acquisition to
go up too. That is typical of early rather than late cycle acquisitions. The
secondary that I’d like to draw your attention too, and coincidentally employ my
own cash in, is an old theme for me that I think is misunderstood.

The royalty and streaming business is an extraordinary business. Let me give

you some arithmetic to demonstrate how extraordinary it is. The top seven
royalty and streaming companies that we follow have generated 65% operating
margins over the last 10 years, which means in a gross sense, $0.65 out of every
dollar that come in the door, stick in the jeans pretax, as compared to the
operating margins of the best and biggest mining companies in the world, where
the similar number is 14%.

That’s a different way of saying that the royalty and streaming companies
generate four times the operating margin that the operating companies generate.
People say that the royalty companies are overpriced, because they sell at EBIT
multiples that exceed the EBIT multiples of the operators. It’s easy to explain that
away, because they are four times as profitable, while having no reinvestment
requirement, no sustaining capital requirement, no upfront capital requirement.

Suffice it to say, they are better businesses. Now the knock that people have
against the streaming companies, particularly the big streaming companies ...
How many people here were at the Wheaton lunch today? Congratulations,
congratulations, I mean that’s a fantastic company. The knock that many people
have against the Franco’s and the Wheaton’s and the Royals and the Prairie
Skies of the world, is that they can’t continue to grow at the rate that they’ve
grown in the last 10 years.

In other words, you’re paying a multiple for growth that doesn’t exist. They’re too
big to keep growing. That’s wrong, I compete with those companies every single
day in the mining finance business. We lend at Sprott companies what you would
call in construction, development loans. Part of the new mine construction
finance package, is very often a royalty, or a stream.

Streams are unique, in that gold and silver cash flow packaged as a stream,
trades in the market at a 15 times EBIT multiple, while base metals revenues
trade at a six or seven times multiple. Meaning that a copper producer that sells
the gold or silver stream to Wheaton Precious, or Franco, can sell that stream at
a 10, lower his or her cost of capital, at the same time as create a premium for
the streamer.

Meaning in a billion-dollar transaction, there’s two winners out of two participants.

My suggestion to you, is that given that the non-investment grade construction
finance market on a global basis is between $12 and $15 billion a year, and
because streaming I think will take about 30% of that, the streaming companies
will continue to add assets at the $4 to $5 billion a year range for the next 10
years.

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In other words, the sense that this business that generates very high margins,
but can’t grow, is wrong. We’ve now identified a list of 22 royalty and streaming
companies worldwide in mining and oil and gas. I hope to reduce that number to
10, and again, the names in that will be published I’m hoping January 15. Finally,
I believe that we’re coming back into an exploration cycle.

As an industry, we have under invested in exploration, I’m going to suggest to

you since the middle part of the 1990s, which means that the industry has either
under invested, or mis-invested in exploration for about 20 years. The
consequence of that is twofold, when somebody makes a great discovery, look
back to Reservoir Minerals, and Teemok, or Hodmedod. The multiples that are
paid for tier 1 exploration successes, are mind-boggling, because they’re so
scarce, and because they’re so valuable.

The second thing, is that money will now flow back into exploration, because the
big companies, and some of the smaller companies, have absolutely empty
exploration pipelines. The best way, statistically, to participate in exploration, is
through the prospect generators. The truth, is that exploration is a very, very
seductive and very, very unprofitable strategy in the broadest sense.

There are over 2,000 publicly listed junior mining companies in the world. If you
merged every one of those into one company, the resultant company, we’ll call it
Junior Explore Co, in a good year would lose $2 billion, in a bad year, it would
lose $5 billion. What is the industry worth? Is it worth six times losses? Nine
times losses? 15 times losses? What’s the correct price loss ratio?

On the face of it, it’s a horrible business, 1 in 3,000 mineralized anomalies

becomes a mine. Why on earth would anybody invest in this, let alone suggest
that you invest in it? I’ll tell you why, 5% of the listed issuers, that is 5% of 2,000
companies, generate so much wealth, that they add legitimacy and even luster to
a business that in a good year loses $2 billion.

Truly extraordinary performance, and there are several ways to beat the odds.
One is to align yourself with serially successful explorers. Buffett famously says,
“Millions of people in the world can play basketball, but to win a game, you’ve got
to have a seven footer.” You can identify these seven footers, mostly because
they stand out above the others of course.

That really, really, really reduces the risk in exploration, but importantly, there’s
something else you can do, which is to understand that exploration is not at its
soul, an asset intensive business. If it were an asset intensive business, how
could you explain away the fact that 1 in 3000 anomalies becomes a mine? In
the aggregate, these aren’t assets, they’re liabilities. The thing that turns them
into assets, is the intellectual capital of the people exploring them.

When you begin to think of exploration as a research and development business.

If you think of it like software, or biotechnology, where people are answering
unanswered questions about a molecule, then you begin to understand the
essence of exploration. The real assets in these small companies are human,
rather than physical capital. There is a small subset of explorers called prospect
generators.

These are people who use superior intellect, to develop an exploration thesis, or
hopefully more than one. Develop a process by which they propose to test the

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thesis, and then bring in joint venture partners, who fund the exploration. They
dilute their interest at the property level, rather than issue shares and dilute
themselves at the intellectual capital level. I realize this is a bit of a lengthy
explanation, but it’s important to set the stage.

You’ll remember at the beginning of this discussion, I said that when I was in
University, back when these deposits were being formed I’m afraid, the ascribed
probability of success was 1 in 3,000. I have invested, in 35 years, in
approximately 65 prospect generators. When I say approximately, one’s memory
fails after 35 years of activities like this. Approximately 65 prospect generators,
I’ve participated now in 24 economic discoveries, and 22 takeovers.

If you look at a success rate of 22 out of 65, rather than 1 in 3,000, you
understand the efficacious nature of this style of investment. I had a young intern
much smarter than me, and much better at math than me, that suggested that
the result that I enjoyed was three standard deviations better than one would
expect in the market as a whole. This is really, profoundly attractive mathematics.

To the extent that you’re going to participate in exploration, and by the way, I
would suggest to you that if you can, please do. The prospect generators are the
place to be. Now a special note about prospect generators. My own preference
will be to participate in the prospect generators when I have the ability to
participate in a private placement. Because discoveries are rare, magnifying the
upside of the discovery in a private placement with a warrant, is an awful lot of
fun.

A warrant, as you know, turns a 10 fold increase, into a 17 fold increase. When
you look at any form of speculation, pardon me, where the probability on any
particular investment is failure, you need to know that your successes need to
amortize your failures, and leave over an acceptable rate of return. Private
placements, with the inclusion of a warrant, is statistically the best way to do that.

That notwithstanding, I will also buy the prospect generators in the secondary
market. That is the third sector that I will be allocating to personally. Again, the
preferred list of prospect generators. When I say the preferred list, they’ll be the
companies that I have actually spent my own money on, will be available on
January 15. I want to reiterate very briefly why and what.

Takeovers, because it’s early cycle, coming out of a bear market. In my

experience, the last three bull markets that I’ve been through, the early returns
have come from takeovers. Royalty and streaming, because they are better
businesses than other mining businesses, and because people believe them to
be overvalued as a consequence of the fact that they can’t grow, which is
fallacious, it’s wrong. They can, and will grow.

Prospect generators, because I know for certain that we’re coming back into an
exploration cycle. The returns that I’ve generated in my own portfolio over the
last 35 years with prospect generators, is three standard deviations better than
the result that would’ve been expected, had I merely participated in the
exploration market in the broadest possible sense. Now as I say, the availability
of this information begins January 15.

If you are a Sprott Global client, you can ask your Sprott Global broker about the
names, and how to populate your own account with that. We will also be doing

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segregated managed accounts that will give you the ability to track my portfolio
on an automatic basis. This all begins January 15. I’d also, in the short amount of
time that I have left, draw your attention to a couple of benefits that we have for
you here at the New Orleans Investment Conference.

How many people have been coming to New Orleans for 10 or more years? This
conference, 10 or more years? Okay, and this is a lot of fun, this tomb prepared
by Sprott. These are exhibitor stock charts, so every public company that’s
exhibiting over there in the exhibit hall, we have their one year stock chart here.
This is free to any of you who want it, come by the booth, we’ll give it to you.

It’s a lot of fun, sometimes you go up to an exhibitor, and they’re just the greatest
thing since sliced bread. This is happening, and that’s happening, and by God
they’re going to go up 10 fold next week, because whatever. It’s really fun to
listen to the story, and compare it to the stock chart. Sometimes these wonderful
stories have stock charts that resemble nothing, so much as a topographic map
of a ski resort.

Straight decline from upper left to bottom right, and definitely double diamond. It’s
useful during one of these discussions that you’re having with the ladies and
gentlemen in the booth, to compare the potential with the performance. In other
circumstances, the charts tell a very different story. I’m not suggesting to you that
you do all of your investing based on technical analysis, or charts.

I’m just suggesting that the exhibitor stock chart, as you walk through the
hallway, gives you an interesting point of discussion with the people that you are
talking about. If you come by our booth and ask nicely, I know you’re all nice
people, the people in the booth may be willing to tell you which of the exhibitors
in the hall I own, which may or may not be useful information to all of you.

I would also, at this conference, suggest that for any of you, whether you are a
Sprott client or not, if you would like your natural resource portfolios reviewed by
me personally, if you give me a list of every resource stock that you own, you can
email it to me, or give it to me. I need to know both the name and the symbol,
and if you email it to me, do not have it in an attachment that a 65-year-old can’t
open, okay?

Have it in the text of the document, or contact us at the booth. This will not
constitute investment information, because I can’t know enough about you to
know what’s proper for you. All I do, is I rank the companies 1 to 10. 1 being the
best, backup the truck, 10 being the worst, shoot on sight. Comment on the
companies where I think that I have a comment associated with the company
that is germane.

I really like doing this. I’ve found it’s useful for customers that have a life, to have
their portfolios subject to adult supervision. It also tells me what my customers
are thinking about what sort of needs they have in their own portfolio. It’s really
mutually advantageous. In summary, I’m doing some things with my own money
that I’m excited about this year. I thank Brien for having the foresight to ask me to
talk about what I’m doing, rather than what I think you should do.

Those are, once again, takeovers, royalty and streamers, and prospect
generators. The information will become available January 15. We’d like to share
it broadly, if that amused you. The exhibitor stock charts, just come by the booth,

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 pick them up. There’s a lot of information here, and frankly there’s a lot of fun
when you’re walking around talking to the booth.

Finally, if you want a no obligation portfolio review, come by the booth, sign-up,
leave me a card where I know how to get in touch with you, and we are happy to
review your resource portfolios. Note I said resource portfolios, don’t ask me
about defense stocks, or insurance company stocks, or anything like that, but
your resource portfolios, I’d love to rank them for you, and I’d love to comment on
them for you.

Ladies and gentlemen, it’s been a pleasure to be before this audience for 31
consecutive years. It was a pleasure to begin this speech by remembering the
late great Jim Blanchard. I wish all of you the very best of success in the next 12
months. I look forward to seeing you all here in New Orleans next year. I want to
remind those of you who are here for the first time, you can make some money at
this conference. If you put your mind to it, really put your mind to it, you can have
some fun in New Orleans too. Ladies and gentlemen, good night, and thank you.

Peter Schiff
“Is The Trump Boom For Real? “

Speaker 1: I bring to you an article from Weekly Standard, A Failure of Responsibility,

the first sentence really ties in with Peter Schiff’s talk, I know. Who says
there’s no bipartisanship in the age of Trump. When it comes to federal
deficits and debt the parties have never been more aligned. They both
agree, let’s run up the debt, let’s scratch each other’s backs and that, I’m
sure is going to tie into the talk with Peter Schiff.

You heard on this morning’s panel of the bubbles and the booms and the
busts. There was a slight difference of opinion between Peter Schiff and
our next speaker Ben Hunt and they’re going to lay out their cases in the
next hour, Peter and then Ben. Peter’s biography is on page 67 of your
program book, I’m not going to read the whole thing, you may read it. I
think you already know what it says. He’s CEO and chief global strategist
of Euro Pacific Capital. You can read the details if you wish. So let’s get
right into his talk now.

Peter Schiff is going to talk about is the Trump boom for real? Please
welcome Peter Schiff.

Peter Schiff: Okay, so I’m going to talk about what to do about what I’m going to talk
about right now, at my workshop at 5 o’clock. So if, anybody is still here at
5 o’clock come to my workshop.

You know, I’ve been coming to the investment conference in New

Orleans for probably more years than I’d like to acknowledge, but I
remember being here in 2007, same time, October November timeframe,
2007 and the mood at that time in general, maybe not necessarily at this
conference, but in general in the real world. People were very optimistic
about the economy in the fourth quarter of 2007. Now the fourth quarter
of 2007 is where, or when rather the great recession began. The worst
recession since the great depression began in the fourth quarter of 2007.

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Except during the fourth quarter of 2007 nobody knew that we were in a
recession. In fact, even the official numbers at the time didn’t say we were
in a recession. The GDP in the fourth quarter of 2007 grew at 2.5%. Who
would think that was a recession?

The unemployment rate was not as low, at least the official

unemployment rate, as it is today. Right now we’re at 3.7, we got on
Friday. In the last month of 2007, December, the unemployment rate was
4.7, higher than it is now, but it was considered pretty low back then and
of course the labor force was a lot different, we had a lot more people
participating in 2007 than we do today. So we had a lot more people that
could potentially be unemployed because a lot more people were still in
the labor force. A lot of people have left the labor force certainly, since
2008.

And so I think the employment picture actually was better in 2007 than it
is today. But the point is we had low unemployment and GDP growth and
the recession began. Because a lot of people now, looking at the stock
market beginning to drop, looking at the real estate market, looking at the
weakest housing market since 2007, looking at homebuilders having their
biggest collapse since 2007, looking at other indicators, looking at big
blue-chip bellwether stocks making multi-year lows, the autos, look at
General Electric or IBM or looking at a lot of things that are happening
that should be causing people to be nervous and then they simply rely on
the numbers, and they say, but the economy is great.

That’s almost a foregone conclusion. Even President Trump’s critics

agree the economy is great. In fact, Barack Obama thinks it’s so great he
wants to take credit for it. Nobody thinks that the economy is bad. In fact,
confidence right now is the highest it’s been since 2000.

Of course, consumer confidence was a contrarian indicator back then.

Consumers were very confident right before the dot com bubble burst.
You know they were also very confident in December of 2007 before the
financial crisis. They just were not as confident as they are now and one
of the reasons that you have so much confidence today, particularly
among small businesses, not just investors, but small businesses is
because small business owners by and large are Republican and
Republicans have never been this optimistic.

Now of course, we had four years of Barack Obama or eight years rather
of Barack Obama, so people were very pessimistic, and it was pretty
much a foregone conclusion that we were going to get four years of
Hillary Clinton. So obviously going into the election Republicans were
pretty depressed and so when Trump won, all of a sudden there’s this
wave of optimism that things are going to get better. And so people think
that they’re going to get better but you know, optimism can be wrong. And
normally the consensus is wrong.

You know, there’s an old saying I guess, it’s always darkest before the
dawn, I’m not even sure if that’s correct but that’s what they say. But the
opposite is probably true and I don’t think that that’s correct in nature that
it’s brightest before dusk. But I think that before you have a collapse
people are extremely optimistic right before the collapse. That certainly
how it was in 2008.
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Because when you have a bubble at the top of the bubble everybody is
happy because everybody’s made a bunch of money. People were happy
in 2000 because they got rich off of dot com stocks. So they were happy
about that. They didn’t realize they were about to lose all that wealth.
Same thing happened in the housing bubble. Americans were happy.
Homeowners thought they were rich because they had all this home
equity. Life was good, you didn’t have to work, just own a home and you
got rich. So people were optimistic.

And of course, when recessions start unemployment is always low. You

can’t say we’re not going to have a recession because we’ve got low
unemployment. Every recession starts with low unemployment. When the
recession is over that’s when you have high unemployment. Recessions
don’t start because people lose their jobs. People lose their jobs after the
recession begins. Because normally businesses are blindsided. They
don’t see it coming. They get surprised. And now they have to rearrange
their businesses, they have too much capacity, they expanded too much
during the boom, they hired too many people during the boom, they made
bad decisions during the boom, they don’t find out that the decisions were
bad until the bust.

So you can’t look at these statistics and think that we have a good
economy. In fact, I remember in 2007, one of the people I used to argue
with was Larry Kudlow, and he’s now the chief economic advisor to
Donald Trump. Now what was Larry Kudlow saying in 2006, 2007. It was
the greatest story never told, it was a Goldilocks economy. He was as
bullish as you could possibly be. I remember because he was bullish to
me. I was right there arguing with him. And I actually like Larry Kudlow,
he’s a nice guy. But he’s very partisan and he can be blind.

And if he was so loyal to George Bush as an anchor on CNBC, imagine

how cloudy his judgment is now, now that Trump has brought him over to
the White House. In fact, I remember that Kudlow was a little bit critical of
Trump’s trade policies before he was nominated and people were thinking
oh now that Kudlow’s going to be part of the administration maybe he’s
going to move Trump away from protectionism.

I said, no, no, no, that’s not why ... I said, Trump appointed him to silence
him. He’s going to adopt Trump’s view of trade and that’s exactly what
Kudlow has done. He basically took his enemy and brought him under his
wing.

But you have everybody who just believes that the economy is good. And
of course, the cheerleader in chief for the economy being great is Donald
Trump himself. Donald Trump every day is telling people that this is the
greatest economic boom in the history of America. Now of course, I
guess, most Americans don’t know anything about American history so
maybe they think that’s true. They don’t know anything about the Golden
age of America between maybe the end of the Civil War and the
beginning of the first world war but that was unprecedented economic
growth. What’s going on today isn’t even close to what went on back
then.

But we’re not even doing what we did in the 1980s. This is not even close
to the greatest economy ever. In fact, it’s very similar to the worst
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economy ever according to Trump, which is what we had two years ago.
Because when Donald Trump ran for office he said we have the worst
economy ever, the US was an economic wasteland, that we had
squandered our wealth, that we were losing on trade and all this bad stuff
was happening and I agreed with that Donald Trump. We had a lot of
problems before he was elected.

The problem is all those problems are still here. But now Donald Trump is
claiming that basically the same economy is now the greatest economy
we’ve ever had. He said NAFTA was the worst trade deal ever. Well now
we have the US MCA, the greatest trade deal ever, what’s the
difference?. Basically nothing. The main difference is the name. We used
to have a good name and now we have a stupid name but other than that
it’s pretty much the same trade deal but Trump is saying it’s great.

When Donald Trump was running for office he said that don’t believe the
government numbers on unemployment. He said the unemployment rate
isn’t 4% it’s 20%, it’s 30%, it’s 40%. Why was he saying that? Well,
because he was being honest. Because we weren’t counting a lot of
people, we weren’t counting all the people who were working part-time
but who wanted to work full time. We didn’t count all the discouraged
workers who weren’t even looking at all because they gave up. So if, you
counted the unemployed properly the rate would be much higher. I don’t
know if it would be 40 or 50%, I mean, sometimes Trump would get
higher and higher on his numbers.

But the unemployment rate is high. The U6 number which includes the
part-time people looking for full-time jobs and discouraged people, that’s
up around 7.5% - 8%, I forget the exact amount. But even that doesn’t go
far enough because it only includes the discouraged workers who have
been discouraged for a year or less. So if you’ve been discouraged for
more than a year then you’re not even counted and of course the vast
majority of discouraged workers have been out of work for a lot of longer
than a year, so none of these people are counted.

But meanwhile, while candidate Trump said the numbers were phony and
didn’t want to give Barack Obama credit for the low unemployment
because he said the numbers were phony, now every time he gives a talk
he’s patting himself on the back for having the lowest unemployment ever
and he’s pointing to the same statistics that he called phony. And he’s
saying that we’re creating all these jobs. Well, if you go back and get
whatever, the last 20 months of the Obama administration, we were
creating more jobs than we have created for the first 20 months of the
Trump administration. There is no significant difference in the job creation
that we have under Trump. It’s the same as we had under Obama.

Now Trump says we’re winning on trade. Really? On Friday, we

announced the largest trade deficit with China in history. The trade deficit,
I think, is going to be a 10 year high, last week we got the merchandise
trade deficit. It was the biggest trade deficit in goods, in history. We are
bleeding red ink. According to Donald Trump we’re losing on trade, we’re
losing more now than before he was elected. So by what definition are we
winning if the trade deficits are bigger than ever.

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But it’s not just the trade deficits that are bigger than ever, it’s really the
budget deficits too. I mean, this fiscal year, according to the government,
we’re going to have a $1.2 trillion deficit going forward. Last year’s was
about 700 or 800 billion, except that’s only about half the story. You see,
the government runs its books kind of like Enron ran its books. But a lot of
the expenditures are called off budget and so they don’t get officially
counted when they tell you what the budget deficit is and a lot of it is like
disaster relief aid, as an example, every year we get these hurricanes, the
government spends a lot of money. All that is off the books because they
say well, it’s an emergency. It’s not like something we should have in the
budget except it happens every year. Maybe it’s not the same emergency
but they just don’t score it.

So if you actually look at how much the national debt went up in the last
fiscal year, it went up by about $1.2 trillion, even though officially it only
went up by 700 some odd billion. So if the government is now officially
forecasting that it’s going to borrow on budget $1.2 trillion, the national
debt could easily go up by 2 trillion during that timeframe. Because that’s
what you should look at. If you want to know how much money we’re
borrowing, look at how much the national debt is going up because that
includes all the money we’re borrowing.

See, our creditors don’t care if it’s on budget or off budget. If we borrow
the money it’s part of the debt. So we’re having record borrowing under
Donald Trump. So we have record trade deficits, we have record budget
deficits. This is not an economic boom. This is the big fat, ugly bubble and
that’s Donald Trump’s words. That’s how Donald Trump described the
economy he inherited and the only thing he did was blow more air into
that bubble. And in fact, when he was a candidate he was critical of Janet
Yellen for enabling that bubble. He actually said she’s keeping interest
rates artificially low so that we can inflate this bubble and it’s going to be a
disaster when it pops. And he was absolutely right. But you know what he
saying now?

Now he’s mad at the Fed Chairman for raising rates and not keeping
them low so the bubble can get bigger. In fact, he’s lamenting the fact that
he doesn’t have 0% interest rates. He wants 0% interest rate so he can
have even more growth. He’s saying that my predecessor was playing
with funny money. Well, this money is almost as funny but it’s still the
bubble. Right? He hasn’t changed. Trump has not changed anything.
Trump campaigned to make America great again, now he’s campaigning
to keep America great. It’s the same America. What problems has Donald
Trump solved?

He has created optimism but it’s false optimism. People just think things
are going to get better. Now Trump was able to deliver some tax cuts,
right? Well, that’s easy, anybody can cut taxes. Just run up the deficit. But
it’s not a real tax cut because taxes are how we pay for government and if
you want lower taxes, well you need less government. So to honestly
deliver tax relief to the American public you need to shrink the size of
government. You need to make government less costly and then you can
let taxpayer off the hook. Hey, we eliminated these departments, we got
rid of these agencies, we cut back on this entitlement spending and now
we don’t need as much money so we can cut your taxes.

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The problem with that is somebody’s going to get pissed off because you
had to cut some spending. So all that Trump did was cut taxes. Now of
course, the Republican Congress was happy to go along with these tax
cuts. They don’t give a damn about the deficit. Now when Obama was
president, they were going to shut the country down, they had the whole
tea party. The tea party was born protesting the Obama deficits. The
Trump deficits are bigger. And the same guys that were in the tea party
are now leading the charge to even bigger deficits because the
Republicans are happy when the deficits finance the tax cuts that they
want to take credit for. And so we did get tax relief and so there’s some
optimism that that’s somehow going to help the economy.

But it doesn’t work. It’s not magic. Keynesianism doesn’t work, you can’t
just grow the economy by cutting taxes because now where is the
government going to get the money that the tax revenue used to provide?
There is no free lunch and it works for Republicans too. They like to say
that there’s no free lunch when the Democrats want to give out money
and government programs. Well, there’s no free lunch when the
Republicans want to give out money in tax cuts. So where is the
government going to get the money that it’s no longer collecting in taxes.
It’s going to borrow it. Well, that’s just a down payment on a future tax
hike because who is going to pay back the debt?

The taxpayers, the same taxpayers that are getting a cut now are going to
get an increase later. But also those deficits mean interest rates are going
up. Now they were going up anyway but they’re going to go up faster
because of the increase in the deficit and of course, we’re going to get
more inflation as a result of the larger deficits because ultimately the
Federal Reserve is going to create out of thin air the money that the
government is no longer collecting in taxes.

So yes, you get a tax cut but now you have to pay more for groceries, you
have to pay more for gas. In fact, one of the statistics that everybody likes
to point to to show that Donald Trump is doing a great job is that wages
are now up year-over-year by 3.1%. And this is the best wage growth that
we’ve had in about a decade and Trump is saying, see look, your wages
are going up. It’s my fault. I did it.

But of course what Donald Trump doesn’t want to acknowledge, or

anybody else for that matter is that wages are just one price that’s going
up. Wages are the price of labor but the price of everything is going up.
Prices are rising. That’s a nominal number. When they talk about wages
going up that’s not real wages. They don’t adjust it for even the
government’s version of inflation. That’s just a number.

But the cost of living is going up faster than 3.1%. Rents are going up,
utility bills are going up, food, everything that you buy, insurance, I mean,
you name it, the price is going up. Wages are going up too, okay. But you
know what? They are not going up as fast as other prices. And so even
though nominal wages are rising, real wages are actually falling. So
there’s nothing to take credit for. Inflation is not a success.

In fact, everything that we’re seeing is simply an illusion created by

inflation. If we actually had a booming economy like everybody wants to
believe we wouldn’t be running these big deficits. Booming economies
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produce surpluses or at least shrink the deficits. Historically, right, the
economy is booming, the governments collecting more in taxes from all
these businesses that are booming and all these people who are working
and the government doesn’t have to spend as much money on
antipoverty programs. So usually when the economy is good the deficits
are coming down. Instead, the deficits are going up.

Same thing with trade. If you really have a booming economy, if the
economy is really being more productive, if we really were having an
industrial renaissance, Donald Trump keeps talking about all the
manufacturing jobs that are coming back to the country, of course, none
of it is true, but it doesn’t stop him from saying it. But if all these industries
were really coming back, if America really was the hot place and
everybody wanted to be here, and we were producing all the stuff, where
is all the stuff? Why aren’t we exporting it? Why aren’t our imports coming
down? If the economy is booming where is the production that we have to
show for this booming economy? It does not exist.

That’s why the trade deficits are at record highs. So it’s not booming
economies that produce these big deficits, it’s bubbles. Sure, if you
borrow a bunch of money and have a party it feels good. The numbers
can look good if they’re influenced by a bunch of debt but the problem
comes when interest rates go up and the debts come due. And we know
from 2008 that that doesn’t end well. And as I said in my panel discussion
today, this bust is going to be so much worse than 2008.

In 2008, the government had the opportunity to do the right thing. George
Bush had the opportunity to do the right thing. He said he had to abandon
capitalism to save it. What we needed to do was embrace capitalism to
save it because it wasn’t capitalism that inflated that bubble. It was the
government that did that, it was the central banks that did that, it was
Fannie Mae and Freddie Mac. So instead of George Bush acknowledging
the problems that were created under his administration which didn’t start
in his administration, it predated him, it was going on under Clinton. But
they tried the stimulus, they did the bailout, I remember John McCain
interrupted his campaign so that he could vote for the TARP.

Of course, if he would have interrupted his campaign to vote against the

TARP I would have voted for John McCain, instead I had to vote
libertarian because I couldn’t vote for a Republican that voted for these
bailouts. But the Republicans got the blame and we did truncate that
great recession. As great as that recession was it wasn’t great enough. It
should have been worse because there were a lot more mal-investments.
Housing never really bottomed out.

The stock market never really flushed out. We never reallocated. The
trade deficits never went away. They started, in 2008, in mid 2008 we
printed the highest trade deficit in history. It took until just this last month
to have a bigger one. We had the highest deficit ever and the deficit
started to come down after the financial crisis. Americans stopped
spending, they started saving. That was the beginning of a healthy
process that was not allowed to continue because it was interrupted by
the Fed. We were high on cheap money, we come crashing down, we’re
about to check into monetary rehab and here comes the Fed with more

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drugs to make sure that everybody gets out of rehab and still stoned. And
gets even more wasted.

And so this bubble, as I said, what was done under Ben Bernacke, the
monetary mistakes made, the excesses, dwarf anything done by
Greenspan. Even Greenspan is amazed and is probably almost as
embarrassed as I am right now except he refuses to accept responsibility
for writing the playbook that they’re all following. Although, they’ve added
a lot of chapters that he probably never even envisioned. But they have to
keep this thing going. They have to keep the music playing and so we
had interest rates down at zero and we left them there for eight years and
now three years later of tiny little raises, of course, only one of those
raises took place before Trump was elected. Every other rate hike took
place after Trump was elected.

So all these things have been stuck to Trump. So Barack Obama had a
free pass. He got interest rates pretty much at zero for his entire
presidency and so the number of mistakes that were made were
enormous and a lot of Republicans were right to be fearful of Barack
Obama and the things that he would do. But now those same
Republicans are optimistic because of Trump, they don’t realize that all of
the problems that Barack Obama created or that were created during his
presidency, they’re all still here. Trump has done nothing to diffuse that
bomb. All he’s done is take credit for it, which brings me to the bigger
problem.

This is now the Trump economy. This is now the Trump stock market. It’s
like there’s a giant T on there, like it’s one of his buildings. And instead of
telling the truth to the American public, he’s feeding them lies. The same
type of lies that they were fed in the past and which is why he was elected
because he told the truth about how lousy things were and that he was
going to make it better. Well, he didn’t make it better, he allowed it to get
worse while claiming that he made a better.

So when it all falls apart in the next couple of years which it easily could
do. Because when I start off this talk by talking about 2007, this reminds
me so much of 2007. The only difference is now there’s more warning
signs of an imminent crisis than there was then. But it’s the same people
who are completely oblivious to it and when it happens they’re going to
say nobody could have seen it coming. Even though it was pretty obvious
and they’ll dismiss me because they’ll say, well, you’ve been saying it for
years. Which is true. I have. Because the problems have been building for
years.

In fact, because they’ve been building for years they got a lot bigger. Had
we done the right thing in 2008 and let the recession run its course, let a
lot of these big banks fail, let more people lose money, force the
government to cut spending, force the government to deal with
entitlements. Look at Donald Trump why is he ... We are never going to
cut, according to Trump, we’re never going to cut Social Security, we’re
never going to cut Medicare. Not only did Trump cut taxes, he increased
spending.

He increased welfare spending. He increased warfare spending, more

money on the military. And now as if the military wasn’t big enough he
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wants to have a space force. Where’s that money going to come from?
Talk about ... I mean, we borrowed a lot of money in the 1960s to go to
the moon. We didn’t have that money. We ran ... all the inflation of the
1970s was a byproduct of the money we printed in the 1960s. We ran the
big deficits back then, we had the guns and butter economy but now we
want more guns and more butter except we’re more broke. We were a lot
sounder, in the 1960s we were the world’s biggest creditor nation. We
were running trade surpluses in the 1960s. I mean, we’re a shadow of our
former self.

Not only are we the world’s biggest debtor. We owe more money than all
the other debtor nations of the world combined. And the thing that’s been
keeping us out of crisis has been that interest rates were ridiculously low.
That enabled us to borrow way more money than we could ever repay
and pretend that we could service it because rates were low. Well, rates
are not ultra low anymore. They’re still low but they ain’t low enough. If
you have a gigantic heroin habit and all of a sudden you’re not getting
quite as much heroin as you used to get, that’s a problem. Because you
have a tolerance, you’re accustomed to a certain amount.

Rates are at 2% and the economy is hemorrhaging. The housing market,

the auto market and they’re still 2%. And people are thinking well, we’re
just bringing rates back to normal. Why should that be a problem? Well,
because we don’t have a normal amount of debt. We have an abnormal
amount of debt. The government, and not just the federal government
with a 21.5, almost a $22 trillion national debt now, but you’ve got all the
states that have been loading up on debt while money was cheap, the
municipalities have borrowed a lot of money, corporations have borrowed
a ton of money, what did they do with it? They bought back their
overpriced stocks. Kids have borrowed a lot of money, we have $1.5
trillion in student loans, what did they get for that? Nothing.

In theory they have a diploma but what’s that worth? Not much. We have
record auto debt. We have record credit card debt. What do we have to
show for that? Depreciated stuff. So everybody is loaded up on debt and
we pretend that we have a great economy because we’re spending
borrowed money to buy stuff we can afford. Well, this crisis is going to be
the last one. Because the last two times that the bubbles burst, the Fed
was able to blow a bigger one and postpone the pain, and if you just rode
it out, if you didn’t sell your stock portfolio in 2009, well, you know, you’re
back, you’re ahead again. If you didn’t sell your house, in some markets,
real estate prices are actually higher than they were before the last
bubble popped. Not true for all markets but some markets you had a
complete reflation of the bubble.

But then we blew up bubbles in just about everything. But this last time,
it’s not going to be the third time is the charm for the Fed. It’s going to be
three strikes and you’re out. This bubble is too big to reflate. If we’re
running $1.2 trillion deficits, closer to 2 trillion in good times when the
economy is supposedly growing and we’re at peace. We are not at war
right now. Imagine the size of the deficits during the next recession
because we’re going to have one. I mean, we’re long overdue. This is the
second longest expansion ever.

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Of course, it’s required more stimulus than any prior expansion in history
and it’s going to give way to the biggest bust. But when this recession
starts, the deficits are going to skyrocket. They are going to be 3 trillion or
more per year. The national debt doubled under Bush, then it doubled
again under Obama. It’s going to double again in the next eight years at
least. And that is an enormous amount of borrowing in this next
recession. Where is that money going to come from? Right now
everybody thinks the Fed’s going to keep raising rates. Everybody thinks
the Fed’s going to shrink their balance sheet. Everybody is wrong.

The Fed is going to have to reverse course and go back down to zero.
The only question is when. Are they going to wait for everything to
collapse and then go? Or are they going to try to read their tea leaves and
maybe try to front run the collapse. I don’t know. They were totally wrong
in 2008, they had no idea that they were about to get blindsided but either
way rates are going back to zero. The Fed is going to do QE4. There’s
nothing else that they can do. And then, you know, the pretense is going
to be over. People are going to know that this is a permanent monetary
fiscal policy. That we’re never going to normalize rates, that we’re never
going to shrink the balance sheet and the dollar is going to fall through
the floor.

Right now the dollar’s had this big rally based on everybody believing that
there’s a successful unwind, a successful conclusion to this policy. That’s
premature. Anybody can get drunk. Anybody can get hooked on drugs.
It’s kicking the habit that’s the hard part. Well, this is the impossible part
and when the markets figure that out, everybody that’s been betting on
the dollar is going to get out. People are going to buy gold and interest
rates are going to rise. That is going to be really, the biggest problem. We
haven’t had a recession since the 1970s where interest rates went up not
down. The government was always able to fend off recessions by
lowering interest rates and that was kind of like a shock absorber. Even
though people lost their jobs and the economy slowed down, at least
interest rates went down and it made it easier for us to borrow more
money and to service our debt.

Well, the next time, the bond market is going to be the epicenter of the
crisis. Long-term interest rates are going up. I don’t care how much
money the Fed prints to try to influence the market, rates are going to go
up anyway and so it’s going to be stagflation, we’re going to have
recession, not just stagnation but actual recession, a contracting
economy as interest rates rise, as inflation rises and ultimately the dollar
is going to lose its status as a reserve currency. That is the writing that’s
on the wall and you can see that now, you can see foreigners already
starting to front run this trade. The appetite for US dollars is waning and
we’re actually accelerating that curved.

Donald Trump is actually antagonizing all of our bankers. All of the people
that are loaning us money and supplying us with merchandise, you know,
he’s vilifying them... we’ve got these tariffs, the trade wars, you know,
Trump keeps saying we’re going to punish China with tariffs. China
doesn’t pay these tariffs. It’s the Americans that pay the tariffs. They’re
taxes on American consumers who buy imported products. So if the tax
cuts were supposedly good. Why are these tax hikes also good. But all
this is going to backfire.
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 Oh, am I over my time?

Yeah, so all this is going to backfire which brings me to the conclusion of

this talk and I will continue it at my workshop. Because the important thing
is going to be how do you prepare for this? Because there’s nothing we
can do. We can all vote next week and it’s not going to matter who we
vote for. Because (a) it’s not going to affect the election but I do think that
there’s a good chance that we’re going to have a socialist Congress and
a socialist president in 2020 because Trump and the free market are
going to take the blame for this collapse just like the free market and
Bush got blamed for the last collapse. Everybody’s going to say or
everyone’s going to agree that Trump inherited a pristine economy and
blew it. And because he made the mistake of claiming credit for this
bubble and saying everything was good when it all falls apart he’s going
to be stuck with the blame and the socialists are going to throw gasoline
on the fire.

And so things are going to get very, very bad. The only chance we’re
going to have to turn things around is going to be 2024 when things are
so bad that maybe we can make a turn in the right direction. But in the
meantime a lot of people are going to lose a lot of money. But the people
at my workshop are going to make some money. So I hope I see you
there.

Precious Metals Panel

Thom Calandra (MC), Dana Samuelson, Omar Ayales, Matt Warder, Rich Checkan

Robert Helms: Alright, it is time for our annual precious metals panel. Who follows the
metals? How was today? Today was a pretty good day. That’s the
backdrop we have, so I’m going to introduce you to the panelists. Then
our moderator who you probably already know is going to have a great
time over the next course of this session. There may or may not be time
for questions. We’ll see, but you’re going to enjoy this a bunch.

Not only because each of the panelists brings something to the table, but
because of the active conversation between. We’re going to go ahead
and bring up our panelists. They’re having such a good conversation back
there, I want to make sure they’re aware that it’s time for them to go on.
You’re going to love this. You’ve already had a glimpse into what they’re
talking about. Let’s start with Omar Ayales from the Aden Research
Group and Gold Charts R Us. So Omar, come on up.

Omar Ayales: Thank you.

Robert Helms: Welcome. Also joining us, Rich Checkan from Asset Strategies
International.

Rich Checkan: Thank you.

Omar Ayales: Hey, Rich.

Robert Helms: From American Gold Exchange, our good friend Dana Samuelson.
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Dana Samuelson: Robert, thank you.

Robert Helms: And rounding out our panelists you just heard from, Matt Warder. All right.
Our moderator, Thom Calandra, Thom of course you know from the
Calandra Report. He’s got a lot to say about this. I know he’s got great
questions for our panelists, so please welcome our moderator, Thom
Calandra.

Thom Calandra: Whew, thank you, Robert. Hey, that is fantastic. Thank you, Robert. Real
quick, and I just have four or five images here, but what I wanted to do
was say that we’ve actually worked on this panel this year, the four of the
us, or the five of us, and for about, I don’t know, what, four or five months,
guys? We have some things that we want to go over that are very
important. But what a day today was in metals and metals equities. I
mean, a day like today, I think it has to be the best day of the past two or
three years. Everything was up, gold, silver, platinum, palladium, cobalt,
vanadium. Did I pronounce that right? Vanadium. You know? All the
battery metals, everything surged.

I think Brien Lundin had something to do with it. I know he did. He timed
this, and I think he got the timing right for once. I am going to go through
this real quick. These are just some images. We’re going to come back to
them. I’m not even going to talk about what they are. They’re just kind of
things that might come up. Our panel provided most of these images.
There’s just four or five of them. It’s just kind of like to lighten things up.
Of course we know, until today, this one was true, right?

I don’t know if you know what movie that’s from, but we’ll get into it later,
and that, which is a reference we’ll see that we’ll get into. That is definitely
not supposed to be in there. Okay, there, they disappeared again, but
that’s okay. Guys, I’m going to ask you each to tell me just one or two
words right now, real quick. We’ll start with you, Omar. If you could just
say one or two words to this whole crowd about what this panel should be
about, or what we all should be thinking about to make money. What
would it be?

Omar Ayales: Well, definitely it’s great to be here, and great to be here with everybody.
Great crowd, great panel. Thank you, Thom, even though you put your
little commercial there.

Thom Calandra: That was a stake.

Omar Ayales: You know, but aside from promoting the Calandra Report, I think it’s a,
like you were saying, really interesting day in the markets today. I think
it’s a great, gold had a really good move. I think platinum had a really
good breakout. I think this panel is about seeing where we are with the
precious metals, where we’re going, where we’re headed, so everybody
here can have a good idea as to longer term placement.

Thom Calandra: By the way, to return the favor, Omar is Gold Charts R Us. I’ll tell you, I’m
not a technician, and I technically am not a huge believer in technicals,
but he does a great job. He really does, because he puts it in language
that I can understand. So there’s your free ad.

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Omar Ayales: Thank you, Thom.

Thom Calandra: You’re welcome. Rich, as you know, is a bullion trader, and a specialist,
and a strategist. We share a lot of ideas. What do you think? If you’re
going to come up with just that quintessence of what we should be
thinking about?

Rich Checkan: Well, you didn’t play the clip, but if you recognize it, it’s from The Princess
Bride. Basically it’s where Billy Crystal says that, “Your friend isn’t dead,
he’s just mostly dead.” That’s kind of the way I look at the gold market
right now. Not that it’s anywhere near dead, but in my opinion we’ve lost
sight of why we’re buying gold in the first place. I like gold at $1900. I like
gold at $250, because I buy it for the right reasons, for insurance for my
portfolio. So I’m not super excited about what happened today because of
the price. I’m super excited that gold isn’t completely dead. But I think we
have a lot of work to do to remind people of why they bought it in the first
place, which is insurance.

Thom Calandra: Absolutely. To me, today seemed like a remarkable day. I was definitely
thinking we might even have to pull that mostly dead slide, because it
came to life a little, Billy Crystal notwithstanding. Thank you, Rich. Dana,
Dana is also a bullion trader and a great technician. In fact, that gold
chart, which we’ll bring back here in a second, shows different points
across the, what, the frame of the conference?

Dana Samuelson: Well, 20-year period.

Thom Calandra: Over a 20-year period.

Dana Samuelson: The last 20 years.

Thom Calandra: Right.

Dana Samuelson: Gold and silver, right now, I think are cheaper than they should be. If you
want to invest, you want to buy assets when they’re on the cheap, and
when they’re hated, and when they’re rising. That’s exactly what we have
in gold right now. Not necessarily in silver, although silver is trying to
climb out of the basement. Platinum is cheap too. Palladium is leading.
But I didn’t think a year ago we would see gold at this price today.

I didn’t think six months ago we would see gold at this price today, closer
to $1200 than $1300. I think this is a great buying opportunity. Get them
once or twice every couple years, and this is one of those times where
this is a great value right now. Gold is an insurance policy for the rest of
your money, basically. It will offset your paper assets, and it will always
be there as an insurance policy against a catastrophe.

Thom Calandra: Wow.

Dana Samuelson: Those are my thoughts.

Thom Calandra: Well, those are great thoughts. Dana and I share a lot of things in
common. We both grew up in the New York City area. We both like the
Grateful Dead. In fact, that’s a Jerry Garcia tie.
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Dana Samuelson: Shh.

Thom Calandra: If I had known that he was going to wear one, I would have brought my
Jerry Garcia tie, okay? Because Jerry Garcia may be dead, but the ties
live on, right? Now, Matt Warder. Matt is like a savant, you know? Come
on.

Matthew Warder: Not so much.

Thom Calandra: Don’t ask him any questions because he’s going to give it to you, and
he’s going to give it to you in like 20 pages, and it’s great stuff, but it does
take me a day and a half to get through it.

Matthew Warder: Well, in fairness, it takes me a day and a half to get it through it too,
Thom, so ...

Thom Calandra: I bet it does.

Matthew Warder: I guess from my end, just thinking about gold prices in general, I think it’s
encouraging that we’ve seen when prices get down into $1,180, right
around support down there, we see buying activity. People are there in
the market to catch that. Now that we’ve moved materially up over $1200,
which is functioning its support right now, prices have behaved relatively
well, so the price looks good. We’re generally optimistic about that for the
future.

It’s just going to ... Whatever the macroeconomic climate is, whatever the
geopolitical climate is, is probably what’s going to wind up driving things
going forward. You know, but my specialty really is on the equity side and
on the mining side. If I had to leave you with one idea there to sort of
cannibalize my previous slide, it would be, go big or go home. You want
to look for the best grades in the most opportune areas, that are run by
the best people. If you’re going to speculate, speculate in that direction, a
mine that can become, a deposit that can become a district, not a deposit
that can become a 500,000 ounce a year mine, or whatever.

Then I think similarly you want to be able to look at the operations that
have, or the companies rather that have the least risk. Sandstorm Gold, I
mentioned, who just came on here, is another one. Any of the royalty
streaming companies, I think, are a pretty decent place to park your
money over the next few months. I’m optimistic about both of them. I think
it’s going to take awhile for probably the majors to catch up, but ...

Thom Calandra: Well, they certainly caught up today. I mean, some of these things,
without mentioning too many names, were up anywhere between 8% and
12% in a day. If you remember the days, long gone, may they come back,
please, when twice or three times a week we would see these 5% to 15%
moves. The volatility in the metals equities, and not just gold, silver,
platinum, palladium, silver, but some of these other ones, including the
battery metals, right, vanadium being the hottest one right now, just
volatility led them all higher instead of lower, right, it seems like lately.

I want to go back to something that came up just to get a little more real
world. I don’t know if we could go back to those slides for a second, but

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 there was one that showed a camp in, was it Niger? I came across that
when I was ... Yes, this one. Not this one. Let me just go. This one. I saw
that one day, about three weeks ago, and I said, you know, one thing I
would love to talk about is, does gold, not just gold, silver, platinum,
palladium, et cetera, does it need a real world reason to rise? When you
go to camps like that one in Niger, and anywhere in the world where they
actually have to use a product that they pull out of the ground for
commerce, that’s when it becomes real.

I’m wondering, and before I go into the story that Rich and his uncle told
me, and Dana also, after the Vietnam War, maybe we just look at metals
too much as an investment, and don’t realize that some of these metals,
the ones that have precious status, actually can be involved in commerce,
and should be involved in commerce, but are not enough involved in
commerce to turn people on. Cryptos turn people on because they are
involved in commerce, allegedly, right? The blockchain. Then all of a
sudden Dana mentioned about how, was it your uncle also?

Dana Samuelson: My brother.

Thom Calandra: Your brother, his brother winds up, it was in the business that he’s in now,
and winds up going to a refugee camp in Florida where the Vietnamese
refugees that escaped are coming. They all have these tails.

Dana Samuelson: Tails, yeah.

Thom Calandra: The tails were ways that they smuggled gold out of the country. Then
Rich says, hey, guess what? My uncle actually was at another Air Force
base where they were bringing in these refugees, and they were bringing
in what, hundreds if not thousands of ounces of gold in these tails, the
tails Rich’s uncle Michael wrote about. These guys got called to these
places, why? Maybe Dana and Rich, you can ...

Dana Samuelson: Well, when the Vietnam War was coming to an end and there was
refugees fleeing the country, these tails were literally wafer-thin bars that
were like bookmark size, only a little bit bigger. They sewed them into
their clothes. When they arrived in Arkansas at the relocation camp,
which is where most of them went to, this is how they carried their wealth
out of Vietnam and into the US. My brother ended up going down to
Arkansas in 1975, that’s the year, and helped them to cash their gold into
dollars so they could get a start here in the United States. But that’s
literally how they carried their money out of the country. Rich has another
very similar story.

Rich Checkan: Yeah, so my uncle and his partner, who founded our company in ‘82,
basically worked at that time for a company called Deak-Perera. Deak
was sent down to Eglin Air Force Base, and I think maybe one or two
other camps, to go ahead and exchange metals and currencies for the
refugees coming in. This was the epiphany that led to them starting our
company in ‘82, was their experience down there in ‘75. They went down
with a bottle of acid and a briefcase full of cash between their legs on a
commercial flight. Try doing that today.

Thom Calandra: How much cash?

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Rich Checkan: Millions of dollars’ worth of cash to buy the gold.

Thom Calandra: Wow.

Rich Checkan: They went down to Eglin Air Force Base, and what they saw spring up in
front of them was from zero to tens of thousands of refugees. There were
basically two types. They were all successful professionals in Vietnam.
They had saved their money, done the right things, and then their world
was upturned. They came here. Some came in with suitcases full of
Vietnamese piasters. That’s the currency at the time. How much were
those piasters worth when Saigon fell? Anybody want to guess?

Thom Calandra: What is a piaster?

Rich Checkan: The South Vietnamese currency.

Thom Calandra: Oh, the currency at the time?

Rich Checkan: When the South Vietnamese government fell, how much was their
currency worth?

Audience: Zero.

Rich Checkan: Absolutely nothing. Can you imagine working your entire life, saving it up,
and then all of a sudden, it’s worth nothing? Some of the other folks came
down and they had converted their wealth from piasters into gold tails,
and precious gemstones, and so forth. They were able to come through
Eglin Air Force Base and the other camps, and they were able to transfer
their wealth across borders. Now, they’re still starting their life in a new
place, a foreign land, strange to them, but they didn’t have to start over.

That was the epiphany. You own gold as wealth insurance for the
financial crisis you hope you never have. The whole time you own it, it
stores purchasing power. The value of the gold will fluctuate, because the
measuring stick, the dollar, the Euro, what have you, changes. But the
purchasing power of the gold remains the same. That was an important
point that led to me sitting on this podium today.

Thom Calandra: We recently had the inside of one of our homes painted, and I noticed
this, the contractor actually said that he would take gold in payment, I
used a couple coins as payment. Of course I had to come up with a lot
more cash than just a couple one ounce coins, because the bill came to
like $8000, $9000. This is in Marin County, California, so it’s not a
spectacular house, it’s just everything is expensive in California. But I
noticed that people that actually work for a living, as in blue collar, are
much more comfortable with the idea of transacting in gold. Is that fair to
say? Was it too much of a generalization?

Rich Checkan: I think it’s a generalization, personally. I don’t know what the other
panelists think. You know, gold has its value, and I think sometimes we
lose sight of it.

Thom Calandra: Yes.

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Rich Checkan: We lost sight of it, I think, in the 90’s, when it was about the dollar and
dotcoms, and we relearned that lesson when the dotcoms crashed. I can
give you tons of examples. Vietnam, dotcoms, AIG, Bear Sterns, Libya,
Zimbabwe, Venezuela, Iran

Thom Calandra: Yeah, exactly. If we could go back to that image for a second on the
screen, you look at these people, they need their gold. I don’t know that
they can see the image, but that’s okay. They can see it.

Rich Checkan: When there’s a reason to remember it, people remember what gold is
there for.

Thom Calandra: Huh? Yeah, there it is.

Rich Checkan: At every level.

Thom Calandra: Look at these people. They need that gold. This is like the Sutter’s Mill in
1849 or something. Now, I wanted to move on, because actually, not to
stick to one person, but one of you guys, I think once again it was you
Rich, said that your uncle had never seen demand for gold products so
light, so tame, right?

Rich Checkan: Mm-hm (affirmative).

Thom Calandra: Was that you? That was you. I think that’s maybe in part, and I don’t
know, Matt, you can talk about this. I know Omar, all four of you can talk
about it. Maybe it’s because gold is way expensive in other currencies.
We don’t think about it, right, but let’s just take Canadians. Are there any
Canadians in the room? Even in Canada dollars, it’s expensive. You’re
not paying $1,200 for gold. You’re going to almost any other nation,
you’re paying what seems like an arm and a leg for an ounce of gold, and
it’s scary. That’s what depresses buying in India. Does anybody want to
tackle that?

Matthew Warder: Well, I heard, we just had a conference out in San Diego and I got to talk
to Rick Rule while I was out there. He told this great story, and I’m
probably front-running him here, but about how in the seventies, he
stayed at a Motel 6 and the Motel 6 cost six dollars, right?

Thom Calandra: Mm-hm (affirmative).

Matthew Warder: The price of gold was, I don’t know, $200, $250. Bought about 30 days’
worth of nights there. Fast forward to today, if you check into a Motel 6,
you’re looking at at least $40, $45. It turns out that $1200 gold buys about
30 nights of [crosstalk 00:18:43].

Thom Calandra: Yeah. There are a lot of stories like that, right, a lot of analogies that we
see like that, but you know, it would seem to be true.

Matthew Warder: Mm-hm (affirmative). The moral to me was that, regardless of currency
fluctuations or inflation or what have you, it’s that gold held its purchasing
power over time. You pretty much get kind of the same equivalent of what
you would have gotten even as long as 40 or 45 years ago. That’s pretty
important.
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Thom Calandra: Mm-hm (affirmative). Dana?

Dana Samuelson: Well, for most of my career, gold was between $300 and $500 an ounce.
Then it really started to take off after we got into war in Iraq and
Afghanistan, and we went into deficit spending. Prior to the financial
crisis, depending on where you start, gold was $700, $750, or $800 an
ounce. Debt at the time, and Adrian Day had a chart similar to this, where
world debt at the time in 2008 was about $97 trillion. Today, that’s about
$170 trillion, so debt has gone up about 70% in the last 10 years.

This debt is never going to be dealt with responsibly. It’s going to be

devalued or defaulted, that’s the only way, or inflated. It’s the only way it
can get paid back, right? If it gets paid back at all. If you take the pre-
crisis gold price of say, $750, and add 70% to that, you get $1275. If you
take $800 and add 70% to that, you get $1360. That’s pretty much the
range that gold has been in for most of the last year or so, until this sell-
off.

I think gold under $1275, or even $1250, is cheap. I don’t think the world
is going to let gold get much cheaper than $1200 because of the debt.
That is a testament to its purchase power, how it holds its purchasing
power, and how fiat money has just exploded. I don’t think it’s cheap. I
don’t think it’s expensive either, okay? Relative value, it’s about right
where it’s supposed to be.

Thom Calandra: But in other currencies, it’s hard for ... Most of us are probably Americans
here, and I’m sure there’s some Canadians, and I’m sure there are some
people from other nations too, but when you go to a ... When you’re using
something other than the US dollar to buy gold, and there are people out
there who think $1,200 gold is expensive, think about that. Put yourself in
their shoes.

Omar Ayales: Try buying it with Argentinian pesos.

Thom Calandra: Exactly. Right? Or, we just saw a report this morning that said that
Venezuela has been exporting its gold, legally or illegally, or illicitly, who
knows, to Turkey, in exchange for the kind of subsidies and the help that
Turkey gets, because Turkey supports Venezuela in many ways. The
Donald administration says that it wants to stop any possible imports of
Venezuelan gold, whether it’s from Turkey or not, so it could become a
supply side issue, even though I think we’re talking, what? Is it 2,000 tons
a year? Is that a lot?

Rich Checkan: Twenty-five hundred.

Thom Calandra: Huh?

Rich Checkan: Mining, average mining.

Thom Calandra: Yes.

Rich Checkan: Per year is about 2,500 tons, is that right, Matt?

Thom Calandra: For Venezuela.

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Rich Checkan: Yeah. Oh, no, for the whole world.

Thom Calandra: Oh, okay, so we’re talking 200 tons a year, for Venezuela.

Rich Checkan: Right.

Thom Calandra: Right. But these are issues, when you think about trade subsidies, and
other things, these are issues that could affect supply side. One thing that
we did that was a little exercise is, I tend to host this panel every year
since forever. About two or three years ago we were talking about how
supply side was going to be an issue, right, the diminishing supply. But it
hasn’t become an issue. Then you guys all said, it’s all about the dollar.
One of you said, gold has lost its investment oomph. It’s being seen
totally as a commodity. When you guys say it’s all about the dollar, what
do you mean? Does anybody ... I know Matt, you said that, didn’t you?

Matthew Warder: Yeah, although, to be fair -

Thom Calandra: What does that mean?

Matthew Warder: When we started talking about this a few months ago, my initial thought
was that gold was sort of behaving like commodities, but after having dug
into it for the purposes of this event, I think it’s really the other way
around, that commodities are forced to pay attention to currencies
because of their own fluctuation in value. You know, you have copper,
zinc, lead, that are so levered to Chinese economic activity, as is steel, as
I mentioned before. I think it’s more the other way around. Gold is
probably behaving in a way that is consistent with how gold has behaved
in the past relative to currencies, or at least in the short term. But it’s the
commodities sector that’s all of a sudden flipped around.

Thom Calandra: Right, but I guess I’m also trying, and I tend to agree with you, Matt, on
that, but I’m also getting at something, and Omar, I saw this in one of the
Aden Sisters’ newsletters, where they actually said, quote, “Gold is acting
purely as a commodity with no added oomph as an investment vehicle.”
Then, once again, it’s all about the dollar. Does that imply that it’s the
strength of the dollar that’s holding down gold? Is there, remember how
we talked about co-relation of gold and the dollar?

Omar Ayales: Mm-hm (affirmative).

Thom Calandra: That always kind of sends my head spinning when I see all the statistics
and stuff like that, but could we see gold rise even if the dollar stays
strong, Omar?

Omar Ayales: Well, I definitely do think that a big part of it has to do with the dollar, a big
part of it. I don’t think it’s the only factor. There’s others. You see, well
more of a recent example, and it’s towards the downside and the bear
side, you saw it for example ever since the whole tariff talk began in April,
you saw gold falling a lot more than the dollar rose.

Thom Calandra: Yep.

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Omar Ayales: This is, again, just a small example, but there are other elements there
that come into play, not only the US dollar, but for sure the US dollar is a
big reason for it to move up or down. I do think right now, I do think, and
I’m sorry, Rich ...

Rich Checkan: No, please.

Omar Ayales: I do think that at certain points, I don’t think in longer term ... Longer term,
I believe that they will move opposite, gold and the dollar, but short term,
you could see ... I think the dollar right now is strong, above 96, and we
had a really good up-move today. Gold has remained resilient, above
$1,200. In the short term, you could see them rise together, or fall
together, for that matter. But for sure, I do believe so. There are other
things in play, again.

Thom Calandra: I put Dana’s 20-year gold chart on here. I don’t know if you could flash
that for a second guys, but it has different events, and stuff like that.
Dana, that leads me to ask the question, do you have any guesses, these
are just guesses, predictions, forecasts, of a one-day event that could
really send gold up $100? I don’t know. Can you see? Did they flash that
on the screen already? Yeah. Yes. Just keep it up there for maybe half a
minute.

Dana Samuelson: A currency default.

Thom Calandra: Oh, okay.

Dana Samuelson: Anything that has to do with credit that is a devaluation or a default, well,
yeah, that will spike the gold price hard and fast.

Thom Calandra: Like any currency? Any currency in the world?

Dana Samuelson: Well, major currencies. But let’s go back to, let’s talk about Turkey for a
second. We imposed tariffs on Turkey. Donald Trump sent out a tweet,
right?

Thom Calandra: Yep.

Dana Samuelson: And the Turkish lira dropped 10% overnight. Then within about two days
on Market Watch there were stories about European banks having
contagion problems with Turkish loans. Now who would think that a tweet
by Donald Trump would spin all the way around into that, okay? But that’s
what happened.

Thom Calandra: Yeah.

Dana Samuelson: That’s real world in the last couple of months.

Matthew Warder: Italy, the same. There was some turmoil around Italy here about a month
ago. We saw a nice little pop in the gold price. Then even today, I mean,
we had Trump announce that his meeting with President Xi of China went
pretty well and today was a good day.

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Thom Calandra: Yeah. How serious should we all be taking the fall of the yuan in China
against the dollar, and whether that could be an influence on metals
markets?

Matthew Warder: I think we should be taking it very seriously because if China weakens,
that portends to have lasting knock-on impacts, I think, onto all of us. I
mean not just in the gold space either, for the US economy, for the global
economy. They’ve really been driving the ship now for a number of years,
and if they’re going to let go of the wheel, who’s going to pick it up? I
mean, it’s not us, climbing along at 4% every month or so, averaging
about 3% a year. You know, we can’t grow at 10%. We’re not building
that kind of infrastructure. We don’t have to urbanize like they have to
urbanize. It’s a concern. That’s why my free market leanings sort of would
steer me more toward catching more flies with honey, with regard to
China, than something more belligerent, like we’ve seen.

Thom Calandra: Thank you, Matt. Rich, I saw something today on the plane about
inflation, and we were talking about this earlier. You know how The
Economist has its Big Mac index? Well, I guess the latest report shows,
and one of the newspapers did a very good job, one of the wire services,
of actually calling companies to ask what their price rises are. We’re
seeing everything from cat litter to Starbucks coffee, just in the past three
months, rise 3% to 4%, some even 5%, in price. Then it talked a little bit
about subsidies, difficulty buying stuff.

We have a good friend at home in California who owns a business, it’s a

great business. I don’t know why he has it in California because it’s so
expensive to operate. They custom fit campers to almost any truck in the
world, pickup truck. It’s a booming business now, it’s getting ... And it’s
very, very cool stuff. He’s in Davis, California, which is near Sacramento.
He says, man, he says, like not four weeks after all this talk of trade
subsidies started, all of my parts, from anywhere in the world, including
the US, started rising in price. I guess, not to throw a question at you, but
just to think, commodities and inflation go together, right?

Rich Checkan: Yeah, and I think, again, I keep going back to this point. I know a lot of
people talk about gold as an investment. When I hear that, I think, okay,
they want to see profits. This gets back to that sentiment that we saw in
the 90’s, that we’re seeing, I’m seeing again now, where people are kind
of licking their wounds saying, you know, I bought gold at $1,700, $1,800,
$1,900 an ounce. It’s at $1,200. It’s been as low as $1,050 in December
2015. It’s a bad investment. I’m not making money. They’re losing sight of
why they bought it in the first place. I keep coming back to that point.

Back in ‘96, when I got into this industry, it was the same thing. Gold was
at $250. But where was it? It was at $850 an ounce prior to that. There
were a lot of people that bought it up there that were licking their wounds
saying, why the hell did I get into this? It’s not doing me any good. They
probably bought too much. They allocated too much of their portfolio to it.
You know, there’s credible scholarly studies out there that suggest that
there’s a sweet spot somewhere around 10%. That’s why you hear a lot
of people talking about 10%. I think it’s actually technically 8%, and we
went to 10% to make the math easy.

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 But where owning less than that percentage of your portfolio in gold, or
owning more than that percentage of your portfolio in gold, actually does
not help. But if you hit that sweet spot, it actually increases the overall
performance of your portfolio and decreases the overall risk of your
portfolio. That’s why you own gold. If you buy something, and you buy it
for the right reason, for that portfolio insurance, same as you would buy a
house, auto, health insurance. You buy that insurance for your portfolio,
and 90% of your portfolio goes up, who on Earth is going to complain
about that? You still have your insurance in place. I agree with Dana, right
now your insurance is dirt cheap.

Thom Calandra: Wow. Did we see the lows in gold and silver in December 2015? You
mentioned 2015.

Rich Checkan: Yeah, gold was $1,050 an ounce, silver was about [crosstalk 00:31:51].

Thom Calandra: Do you think those are the lows for, the lows for now?

Rich Checkan: I do. I’ll let everyone else weigh in, but I’ll take you back to 2009. That’s
where the Indian Central Bank -

Thom Calandra: Two-hundred -

Rich Checkan: Bought 200 tons of IMF gold, and it was about $1,045, $1,050 for the full
lot, that never hit the market. It went institution to institution. At that time
we were writing articles saying this is the end of three-digit gold. Now,
we’ve touched that level a few times.

Thom Calandra: Yes.

Rich Checkan: The last time was December 2015. Since then it’s bounced off of it hard.

Thom Calandra: Yeah, you mentioned 2000 ... Rich, you’ve mentioned the 2009, 200
metric tons.

Rich Checkan: Yeah. I think the bottom’s in.

Thom Calandra: Are there any other nations that we should be following aside from
Venezuela?

Rich Checkan: China, Russia, Kazakhstan, Turkey. They’re [crosstalk 00:32:35].

Thom Calandra: They’re all buying?

Rich Checkan: Right, they’re all buying. Yeah.

Omar Ayales: Well, recently, I don’t know if you guys caught that, but recently, not a
super relevant necessarily bank worldwide, but the Hungarian National
Bank just increased their holdings by tenfold over the past couple months.
I think Poland also added four tons to its total now, 117 tons of gold
holdings. Of course, you know, Russia, China, they’ve been buyers for a
while as well. But I definitely agree. I think that $1,200 is a similar floor
that one we saw when the Indian National Bank came and bought 200
metric tons back in ‘09.
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Thom Calandra: Right. Here’s a question at least two of you, maybe three, are actually in
the business of bullion trading, and coins, and stuff like that. Should we,
or do we see, more people become interested in bullion products, gold,
silver, platinum, palladium, et cetera, when there’s volatility in paper, as in
blue chips?

Dana Samuelson: Well, people come in and say, oh my god. Well, it’s hard to compete with
a stock market that goes up 25% in a year like it did last year. That killed
the physical sales of precious metals.

Thom Calandra: Right.

Dana Samuelson: Now that we’re seeing real volatility and real breakdown, potentially a turn
in the stock markets, where a lot of people have been, physical sales are
up. To see a sell-off like this come along, there are people ... And you
people are the smart ones. You’re not the market chasers. That’s why
you’re here. There are people who were taking advantage of the low
price. That’s why I think the bottom is in at $1,050. If it was going to get
cheaper, it would be cheaper now than it is. Not $1,235. It would be
$1,175 or working its way towards $1,150 if the world was going to let it
get cheap, and they’re not going to.

Thom Calandra: Well, you know, the blue chips have been competition for commodities
and commodities equities for forever, and they’ve been terrifically strong
competition the past 15 years. Somebody back there, one or two of you
guys, said you think that this rise the last three days in blue chips, the
rebound, is a, lack of a better word, a dead kitty litter bounce. Get it?
Dead kitty litter bounce? A dead cat bounce, okay. I got a couple laughs.
What’s your feeling about that? I mean, do we see, and Omar, this is a
layup for you. I mean, you think this could be a dead cat bounce on the
blue chips [crosstalk 00:35:21]?

Omar Ayales: For blue chips, yes.

Thom Calandra: Yes. That’s what I’m [crosstalk 00:35:25].

Omar Ayales: For the stock market, I believe like overall the S&P, the industrials, I do
believe that the current amounts that we’re seeing, after the washout, I do
believe is a dead cat [crosstalk 00:35:34].

Thom Calandra: Yeah. Then what about bonds? Like sovereign bonds?

Omar Ayales: Well, bonds, I do believe that bonds topped in 2016, and in the mega
trend. I do believe that the pressure for bonds longer term is down
sovereign bonds, but longer term.

Thom Calandra: Some people say bonds, sovereign bonds, treasuries, gilts, et cetera, are
the real bubble, not stocks. I mean, the bonds have had a terrific run. I
want to throw out a question. This one’s from my wife, because we own
some of this stuff. Don’t ask me how we came across it. What about the
TIPS, Treasury Inflation-Protected Bonds? Will they ever start
performing? I mean, they really haven’t performed.

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Omar Ayales: Well, I do believe, again, that the pressure overall in bonds, of all sorts of
bonds, I do believe is down in a macro level.

Thom Calandra: Right, so -

Omar Ayales: Of course, you can see demand come in and rise, and fall.

Thom Calandra: But theoretically, if we see inflation really pick up the pace, I mean really,
like 4% a year, 5% a year down the road, should TIPS outperform
ordinary treasury bonds?

Omar Ayales: I would think so.

Thom Calandra: Yeah, I would think so too. That could bode well for metals. I wanted to
throw another thought out here. I remember when we were talking about
copper. This doesn’t have to just be a gold, silver, platinum, palladium
chat. I mean, a lot of commodities behave in similar ways. Could we see
somehow this whole wave of EV metals, EV being electric vehicle battery-
like metals, could that boost the demand for precious metals? Could
demand for nickel, zinc, cobalt, vanadium, copper, could that help
precious metals in some way that we’re not thinking, that I’m not thinking
about? Whether it’s in the ground and in the mining process, or in the
investment dynamic?

Matthew Warder: In this particular market right now, over this year, probably not. I think
during the process of putting my presentation together, it became pretty
clear that base metals haven’t really reacted to broader market trends.
They’re kind of reacting on their own fundamentals, and now they’re
paying a little bit of attention to currencies. I find electric vehicles in
particular to be kind of distractive from the speculative space in a way that
... I’m not going to say it’s harmful to gold, because the market is tiny for
vanadium, for instance, which I do like longer term. But the other thing I
think you have to keep in mind about electric vehicles is that yes, their
market share is increasing rapidly from zero, so the incremental gains
that they make aren’t really going to offset the need for platinum, for
instance.

There was some talk, I did an interview with the world platinum
investment council at the Sprott conference back in July. The takeaway
that I got from was that there’s already ... You know, platinum is a unique
precious metal, and that a lot of it goes to platinum heaven. So there is
physical demand for platinum. There is industrial demand for it that does
not come back into the market. The news of its demise with the
Volkswagen scandal was probably overwrought. Now, with palladium
right around $1,050 or whatever, and platinum $200 below that, I know for
a fact there are US automakers that are at least hedging their bets a little
bit toward replacing some platinum for palladium and gasoline catalysts.
To the tune of, I think there’s about 20% upside in the US, 20% upside in
China. That equates to about a million more ounces of demand on the
market.

Thom Calandra: Can I throw one more thing out there, and then I thought maybe I would
ask for one or two questions.

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Omar Ayales: Thom?

Thom Calandra: Yes, of course, Omar? You’re [crosstalk 00:39:45] -

Omar Ayales: Just one question regarding the EV.

Thom Calandra: Yes.

Omar Ayales: I heard that. I don’t know. Maybe some of you can confirm, but I heard
that in China, one of the plans to counter their pollution is, I believe as of
2020 or 2023, they’re going to start demanding that that electric vehicles
be used as opposed to fossil fuel-burning engines, combustion. I think
that, for the metals that are involved maybe in those, or for the precious
metals that are involved in the production of those batteries, or in lithium
or whatever, I believe that they could have definitely ...

Thom Calandra: Omar, I don’t know. I go to these different places to look at mines. It
doesn’t matter where I am. Northern Morocco is the most recent example.
China is building mini cities for its factories, for its EV-related factories. It’s
unbelievable. But Omar, you saw last week that huge state loan that’s
going to the China car company, and three-quarters of that money is
going to go into EVs. That’s like a $20 billion dollar loan? Was it $20
billion or $200 billion? I have no idea, but it was a vast amount of money.
You have to think that China is still going to be the driver here when it
comes to EVs.

Omar Ayales: Definitely. Also, I heard something about them slashing their taxes on the
sale of vehicles as well, which should boost demand.

Thom Calandra: Yeah.

Matthew Warder: And all that’s true. The rub there is that the EV market is really, it’s a
nickel, manganese, and cobalt battery. Over time, that demand is going to
go from about, oh, about a ratio of three to two to one, nickel to
manganese to cobalt, to a ratio of eight to one to one, by the time that
that policy gets fully implemented. As I mentioned in my presentation,
there’s a nickel operation that Tsingshan is going to bring online in
Indonesia that basically fills that gap. The nickel market, which I was
really bullish on before, I’m less so now. It’s probably not so great for
cobalt off in the future, although supply risk there is going to drive prices.

Thom Calandra: We have four minutes left. Can you just switch to this image real quick? I
wanted to throw this out real quick because it’s the kind of loose end
here. Divisible goals, or fractional goals. We all have talked about it. Do
we need more products that are like one-gram products, or two-gram
products, that can make it easier, as in easier on your pocketbook, to own
gold and maybe even transact gold? As Dana pointed out, there’s a
bigger counterfeit risk with products like that, that may not be your
traditional gold coin.

Dana Samuelson: We are having a mild and growing problem with counterfeit bars out of
China, tungsten bars that are plated in gold. They’re a little bit more
creative than that, actually now too. The problem’s in the small bars
mostly, so be wary of those. That’s why buying sovereign minted coins,

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 whether they’re a tenth ounce gold eagle, or a Swiss 20 franc, or
[crosstalk 00:43:01].

Thom Calandra: But Dana, do we need more products ... You know, the Europeans love
this. You go to the Munich gold show in early November next week and
you see, for some reason Western Europeans love these like, you break
off the wafer. This one’s worth $50, and this one’s worth $30, and silver
too. Do we need more products like that?

Dana Samuelson: Well, the higher the metals prices goes, the smaller the products are
going to get. That’s just the way it is. I never thought I’d see a bulk
volume of half-ounce silver pieces until I bought about 500 of them back
that Peter Schiff put about five years ago during the crisis. It’s crisis silver.

Thom Calandra: Yeah. Then one of you guys sent me a link, I wasn’t aware of this. Not to
give somebody publicity they do or don’t deserve, but it’s a mixture of like
five different metals?

Rich Checkan: Four metals.

Thom Calandra: Four.

Rich Checkan: It’s the PMC ounce.

Thom Calandra: Yes, that’s ... Was it the P -

Rich Checkan: it’s something that [crosstalk 00:43:48] and Robert Kiyosaki have talked
about.

Thom Calandra: Right.

Rich Checkan: it’s not a real coin, just so you know.

Thom Calandra: Oh, it’s also -

Rich Checkan: It’s a proprietary -

Thom Calandra: Yes, I remember seeing that.

Rich Checkan: ... mix of the four metals that you own. They’re backed up by [crosstalk
00:44:00] depository.

Thom Calandra: What does it cost right now, $100?

Rich Checkan: But they’re sold in one-ounce increments.

Thom Calandra: What’s it like $100 right now?

Rich Checkan: A little under $100, maybe just above [crosstalk 00:44:09].

Thom Calandra: Yeah, products like that. We only have two minutes. Are there any
questions from the panel or from the audience? Throw them out there. It’s
okay. Anything. Yes, please.

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Speaker 10: How do you see other currencies, other than the US dollar? Is it really just
the US dollar backed, or [crosstalk 00:44:28] -

Thom Calandra: Well, John Mark, we talked about this, and great question. How do you
see, could we see, a rally in other denominated golds? As we said, gold
in almost every other currency, the SAR, for example, the Turkey lira, the
Russian ruble, right, the price is so incredibly high compared to ... Even
the Canadian dollar.

Rich Checkan: My thought here is this. I think this is the real story about gold right now,
that yes, it is expensive in virtually every other currency except the dollar,
but looking at the dollar, its resilience in terms of the dollar strength, and
the stock market strength over the past five, 10 years, is to me the story
about gold. Is gold dead? I think your answer’s right there. It’s holding up
when it should not.

Thom Calandra: Yes, very good. As you know, trends can last a long, long time, right?

Rich Checkan: [crosstalk 00:45:28].

Thom Calandra: Right? This dollar strength, I was in Tombstone, Arizona looking at a
silver mine about six or eight weeks ago, and even the CEO of the silver
company I was there with said, “As much as I’d like to see the dollar crack
here, a strong dollar could be with us for another couple years.” But that’s
a great point.

Dana Samuelson: The dollar’s stronger right now because the US economy is the only
economy that’s really performing in the world right now. China’s weak.
Japan’s been weak. Asia, I’m sorry, Europe is weak now. They’re still on
life support through QE and zero interest rates. It’s going to be a tug of
war whether the US can help lift other economies up, or whether they’re
going to pull us back. I don’t think we can sustain 4% GDP. That’s
impossible with the kind of debt that we have. That’s why the dollar’s
stronger now. It’s a temporary phase. We’ve gone through a couple of
them over the last five years. That’s why gold is cheaper in dollars but it’s
more expensive in other currency, it’s because the dollar’s strong.

Omar Ayales: To the point that Dana’s saying, there’s, I think, a lot of truth to that. The
dollar and its woes, the US and its woes, they’re still there, they’re very
real, the amount of debt, deficit spending, et cetera. Still there, not very
much different from other currencies and other countries, other
sovereigns. Which in itself is keeping the dollar lofty. But ultimately, that
should ... I mean, that’s what ... So I had, I don’t know if many of you
remember a great newsletter writer, he passed. Ian McAvity. He would
say, referring to the dollar, “It’s the cleanest shirt in the dirty hamper.” You
know? More than the US dollar being very strong because of strong
fundamentals, I think it’s more the fact that the rest of the world is pretty
much [crosstalk 00:47:22].

Thom Calandra: Okay, thank you, Omar. We have dirty hampers, kitty litter, you name it. I
just lost my bonus for not ending this on time, just like that New York
Yankees pitcher. What do you think about that? Dang. I want to thank our
terrific panel. Really. We’re going to have these four guys every single
year, through eternity. Thank you very much.

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Omar Ayales: Thank you, guys.

Mark Skousen
“A Viennese Waltz Down Wall Street: My Formula For Finding High-Profit Opportunities
And Avoiding Fools Gold”

Albert Lu: Our next speaker was recently named one of the top 20 living economists
in the world. In 2018, he was awarded the triple crown in economics for
his work in economic theory, history and education. He has the unique
distinction of having worked for the government, non-profits, and for
several for-profit companies.

Since 1980, Mark Skousen has been the editor in chief of Forecasts &
Strategies, a popular investment newsletter. He was an analyst for the
CIA, a columnist to Forbes Magazine, Chairman of Investment U, and
past president of the Foundation for Economic Education in New York.
He’s the producer of FreedomFest, the world’s largest gathering of free
minds, which meets every July in Las Vegas.

His investment books have included Investing in One Lesson, The

Maxims of Wall Street, A Viennese Waltz Down Wall Street: Austrian
Economics for Investors. Grantham University renamed its business
school the Mark Skousen School of Business. Based on his work, The
Structure of Production, the federal government is now publishing a
broader, more accurate measure of the economy, gross output or GO,
every quarter along with GDP. Please welcome Mark Skousen.

Mark Skousen: Thank you all very much. I’m going to grab some water here. I know on
some of the surveys from last year, people were complaining that I’m no
gentleman, because I wear a hat indoors. Well too bad. I firmly believe in
being a nonconformist. If I’m going to do everything I’m told to do,
democracy, then is life worth living? You have to do things that are
different. You have to be a nonconformist. You have to be a
nonconformist in investing. You’ll notice, you notice my blue suede
shoes? Blue suede shoes. Got to have style. Like Dennis Gartman. I
notice how well he dresses. When he comes out, make sure you look at
his socks. He has very unique socks.

Well, thank you all for coming. I have a topic that I have not spoken on
before. A Viennese Waltz Down Wall Street, this is a book that I wrote
some time ago, Austrian Economics for Investors, my formula for finding
high profit opportunities and avoiding fool’s gold. Of course the question
that we’re all asking right now, “Is the nightmare on Wall Street over?”
We’ve had a three or four day rally. How many, by a show of hands,
stayed invested in October, or how many stayed invested, or how many
sold? How many sold? How many didn’t even know there was a selloff in
October?

Well, I hope to address this question using Austrian economics. What is

Austrian economics? It’s based on a school of economics that got started
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in Vienna at the University of Vienna in the 19th century with Carl
Menger. Of course, today’s or the 20th century’s most famous Austrian
economist, Ludwig von Mises, 1881, palindrome, interesting year that he
was born. Friedrich Hayek, born in 1899. Then of course Joseph
Schumpeter. I have, I always carry with me an 1881 silver dollar. Why?
Because that was the year Mises was born. It’s a palindrome, 1881. Read
it backwards, read it upside down, it’s all the same, 1881.

Then of course, there’s Joseph Schumpeter, 1883, born in 1883, which

was also the year that another famous economist died. I taught for many
years at Rollins College in Winter Park, Florida. There was a Marxist
economist there. I walked in the room, his office, and there were posters
of Che Guevara and Karl Marx, not one of Stalin. You get the point that
he was a true Marxist. I presented him a 1883 silver dollar. I hand it to
him. I said, “This coin, I’m going to give you this coin on one condition.
That you identify the economist who died in the year of this coin.” He
looks at it and says, “1883,” and he says, “That’s easy. Karl Marx.” I said,
“That’s right. Don’t ever forget it. He’s dead.” But he had a great answer.
He said, “Yes, he’s dead, but I’m alive, and I’m teaching your students.”
That’s so true today.

But my heroes are, particularly the one in the middle, Friedrich Hayek.
What are the contributions of the Austrian economic economy? Number
one, supply side productive savings, capital investment, technology lead
to economic growth, and bull markets. Notice, it does not say consumer
spending. Consumer spending does not drive the economy. It is the
effect, not the cause of prosperity. Very important.

Number two, the dynamics of creative disruption. I prefer that over

Schumpeter’s term creative destruction, which I think is too negative. It’s
creative disruption that we see in the economy that brings about
progress. I’m reading right now Alan Greenspan’s new book, Capitalism
in America, wonderful book, by the way. I highly recommend it.

Number three, Austrian theory of the business cycle. This is extremely

valuable for investors. The boom must turn into a bust at some point, but
you can profit on the boom side and on the bust side, depending on your
approach to investing. The boom sews the seeds of a bust. There’s
always some artificial elements in the economic boom that we’re seeing,
especially with the manipulation of interest rates.

Number five, bulls should always be prepared to take profits and get
ready for the crash or the bear market. They don’t happen very often.
Historically in the United States, maybe once every 10 years, sometimes
even longer. We’ve had a bull market that has lasted 10 years, so if you
are a permabear, you are financially in trouble. Keep that in mind. Many
investment gurus and newsletter writers are permabears. They’re right
occasionally, and they get great publicity when they are right, but if you
want to be a successful investor, you need to lean on the side of the
boom phase, not the bust, but you must be prepared knowing that the
bust can come, and we don’t know exactly when.

Number six, mining stocks in particular are inherently volatile and high
risk. I’ll explain that a little bit more. Prices and Production by Friedrich
Hayek is a very important book that came out, that influenced my life in
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many ways, came out in 1931. Friedrich Hayek created this Hayekian
triangle, which I will talk about a little bit more, but basically the idea is to
create a structure of production that goes from the natural resource stage
to final consumer stage. You add value along the way, and thus you
create this triangle.

What can we learn from gross output, and what is gross output? It was
mentioned in the introduction. Gross output is a measure of spending at
all stages of production. A lot of people don’t realize that GDP just
measures final output. It’s all the goods and services that we actually use.
It’s consumer type products, and even tools and equipment that have
been finished, but there’s that whole supply chain. A lot of people don’t
realize that GDP leaves out the supply chain. The supply chain, which I
am now starting to measure, and the government’s starting to measure, is
bigger than GDP itself, because there’s so many stages of production.

Here, out of this, we see that gross output is much more volatile, that’s
the green line, it’s actually B2B spending including the supply chain.
Notice how volatile the green line is compared to the red line. The red line
is consumer spending. Not only is B2B spending, business spending and
the supply chain bigger than the consumer spending, that is business
spending is bigger than consumer spending, also it’s true that the supply
chain is much more volatile. The stock market is more linked to the supply
chain than it is to consumer spending. That’s why you get a great deal of
volatility.

You can see here the difference between gross output, which includes
the supply chain, that’s the green line there, and then GDP, which is final
output. Notice that what you have here is tremendous, much more
volatility in the supply chain, and especially you see the 2008 financial
crisis. The financial crisis was not so much in consumer spending as it
was in the business sector collapsing, virtually collapsing during that time
period. That was the crisis.

The other thing that I’ve discovered is that if GO moves up faster in its
quarterly reporting, if it moves up faster than GDP, that’s a sign that
growth is going to continue. Guess what. Yesterday, they just came out
with GO statistics. GO grew faster than GDP. That is a positive sign that
the Trump economy, or whatever you want to call it, is still in good shape,
and there’s no sign of a recession whatsoever. In order to have a major
bear market, you have to have what you had in 2008 and other times, you
have to have some kind of evidence of a recession, and there’s nothing
like that in sight. Globally there might be, but not in the United States.

Federal Reserve, those of us in Austrian economists, we focus on the

Federal Reserve, what kind of policy. You can see interest rates have
gyrated as a source of instability. Low interest rates, high interest rates,
tight money, easy money. This is something to really focus on.

The yield curve is an Austrian concept. The traditional Keynesian

approach on looking at interest rates is to look at the 10 year Treasury,
and to see whether it’s a real interest rate, negative or positive, but the
Austrians think of the structure of production, the structure of interest
rates, the structure of employment. That’s what we want to look at. The
triangle, the Hayekian triangle.
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The yield curve is the structure of interest rates, short-term versus long-
term interest rates. We look at the yield curve, and you notice the little
blue lines there. That’s an indication of a recession. The yield curve turns
negative, you notice it turns negative every time we have a recession.
Guess where it’s headed right now. It is headed towards an inverted yield
curve, but it hasn’t reached it there yet. So the 10 year bull market that we
have is probably going to continue, but we’re getting closer and closer to
the time where we could have an inverted yield curve, which is the
Austrian measure of trouble ahead. That’s the key factor to look at, but it
hasn’t reached there yet. It could be another couple of years.

This is a great chart demonstrating the volatility of the marketplace, the

inherent volatility, because one thing you have to remember is that the
stock market represents the capital markets. The capital markets, they
are further away from final use or the retail sector. They will inherently be
unstable according to the Austrian theory. You can see this, comparing
GDP, which is the red line ... GDP represents final use, or the consumer
spending. Notice how stable it is, but then you look at the stock market,
represents the capital markets, further away from final use, and it’s
inherently unstable. This is a chart since 1990 to the present. You notice
that we’ve gone through one, two major bear markets during that time
period. It fits with the basic view that I have made is that Wall Street
exaggerates everything. It exaggerates things even in the short term. We
saw this with the October selloff.

The question is, as an investor, can you handle this volatility that is
inherent in the stock market? We’re always trying to find the safe
investment that can provide regular income and so forth. It’s the topic of
my workshop at 4:15 today, which I hope you attend on SWAN Investing,
Sleep Well At Night Investing, that focuses on this strategy that has taken
me 30 years to develop on Wall Street. The question is, can you handle
the volatility there?

Just to show you where I stood. This is me appearing last year when we
were nine years into the market. Those of you who have subscribed to my
newsletter, just by a show of hands, how many subscribers do I have
here? Okay. I’ve got a number of you. I appreciate you coming. I consider
myself a survivor, a veteran now, after publishing my newsletter since
1980, when the greatest president of the United States was elected, of
the 20th century, Ronald Regan. I would like to think that I’ve improved
my skills in the marketplace.

You know, there were a lot of my friends who were in the gold bug camp,
who were predicting the mother of all bear markets. Alright, but I’m on
record to having predicted the mother of all bull markets. This year, it was
confirmed that we have experienced the longest bull market in US history.
How many of your financial gurus that you follow out there have done
that, have made those kinds of predictions? Not many. You’re raising
your hand, you’re probably referring to who knows? One of your buddies.
Alright.

But is the 10 year bull market over? There’s a couple of reasons why I
don’t think it is. We’ll discuss that at the economy forum that we’re having
this afternoon, but one is the spread on the investment grade spread. You
didn’t see a deterioration of that between the investment grade or the junk
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bond grade and the higher investment grades. You didn’t see a
deterioration there during the October selloff. That’s a big factor. Plus GO
is growing faster than GDP. That’s an indication that the economy is still
growing, despite efforts on protectionism and that sort of thing.

Gold stocks and the stock market, boy, you couldn’t have a better
contrast, right? The stock market continuing to move higher. Gold stocks,
inherently volatile, as I said earlier on, so if you want to invest in gold
stocks, they are not a buy and hold. They are short-term speculation. You
have to look for that opportunity. An opportunity may be coming, but the
biggest headwind is the strong dollar and higher interest rates, the Fed
aggressively raising rates. In the face of that, how can you expect gold to
be going up? I just don’t see it. That’s why I think it’s better to look at
other alternatives there, but you can see here, it’s been a real problem
with the gold stocks.

In fact, the long-term gold stocks don’t look very good either and one of
the reason is they’re highly leveraged. They’re constantly having to raise
money and they’re diluting the stock. There’s a lot of headwinds that gold
has to face, so one of my axioms in The Maxims of Wall Street is, “How
do you make a million dollars? Invest two million dollars in gold stocks.”

Alright. I do have, I am going to be talking, I’m doing a book signing at

9:30. I’m doing a speaker’s table, speaker’s table number one.

Oh, I did want to mention one other thing that’s really important. I had a
Eureka moment at my class at Chapman University, which is where I
teach now, in California from January through May. I taught financial
economics in the spring. We had a Eureka moment with the students. I
gave students a list of five stocks that were basically according to the
stages of production. These were energy stocks, so I started off with a
exploration energy stock, which is in the upstream. Then we had the
pipeline company in the midstream. Then we had, and downstream in the
energy sector, we chose a stock in the refining and retail.

It turned out that ... I had them check the beta. Beta is a measure of
instability. It turns out that the stock in exploration, furthest away from
final use, was the most volatile, and then pipelines were second most
volatile, and the least volatile were the refiners. It was just a Eureka, eye
opening moment for my students. I’m going to give you those examples at
the speaker’s gathering there, and look forward to talking to you about
how to use Austrian economics to make better investment decisions.

Then, of course, I also brought copies of my book, The Maxims of Wall

Street. There’s some really great quotes that apply during times like this,
where there’s a great deal of instability. One of my favorites is, “Nothing
can make the spirit fly higher than finding a bargain when you’re the
buyer. Nothing can make the spirit sink deeper than finding it later a
whole lot cheaper.” There’s a lot of cynicism and satire in The Maxims of
Wall Street. Another one that I really like is from Steve Forbes, who says,
“Everyone is a disciplined long-term investor until the market goes down.”

Anyway, you notice here I’m meeting with Warren Buffet. Notice I’m
giving him advice. That lasted for about two seconds, and he said, “Well, I
got to go now.” But actually he does endorse my book, The Maxims of
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 Wall Street. He says it’s the best quote book he’s seen. Of course, I quote
him more than anyone else. Dennis Gartman likes it a lot too. He’s
endorsed it in the past. I look forward to meeting you there.

I have additional appearances, the speaker’s table at 9:30, a book

signing, then at 1:35, I’ll be moderating the panel, the economy panel. I’m
looking forward to that, asking some tough questions. Then I have a
workshop this afternoon at 4:15 on the SWAN strategy. With that, I thank
you all very much, and look forward to seeing you at the conference.

Mark Steyn
“Steyn On America”

Gary Alexander: Mark Steyn, you’ve heard him already today. Earlier on, you heard Doug
Casey talk about the earmarks of Western civilization. Western civilization is in,
in Doug Casey’s language in great decline, if not in danger of disappearance if
we don’t guard it. He had five or six different aspects of Western civ. There’s art,
music, literature, science, finance, well-being and philosophy. Mark Steyn is very
deep into all of those in his website Steyn Online. I’m a member and very
satisfied with it. Music. He’s a great music master. He sings. He has albums. I
have played his Frank Lester album on the air. The music of Frank Lester. He
has several albums. He has a new one out called Feline Groovy, songs about
cats. Feline Groovy. I played his Goldfinger song selection here three years ago
when he appeared.

He’s great on history of music. He has a song of the week, composer of profiles
and so forth. He also is a literature master. He reads and reads the
characterizations of the characters in great works. The most recent is Franz
Kafka’s Metamorphosis. Over the Halloween week, he read that one.

Philosophy. He gets deep into the philosophical importance of capitalism and

freedom. He’s also into science and debunking the absolutists in the
anthropomorphic global warming arena. Especially a particular man named Mann
named Mann who has a hockey stick that is a disgrace to his profession. It
became the name of a book that Mark wrote. Now, Mark has been introduced in
the United States Senate by Ted Cruz as an international best-selling author, a
top five Jazz recording artist, a leading Canadian human rights activist. All of
those happen to be true.

As far as the best-selling author, it is the subject of his talk today actually will be
about America, America Alone: The End of the World as We Know It, which was
a New York Times best seller in the US and a number one best seller in Canada.
His most recent best seller is The Undocumented: Mark Steyn. He’s had a
human rights campaign in Canada to lead the parliament to the repeal of the
notorious Section 13 Hate Speech Law, a battle he recounts in his book. I have
all of his books signed at home as a member of the Mark Steyn Online. Lights
Out: Islam, Free Speech And The Twilight of the West. He is also a sub for Rush
Limbaugh. The number one radio show, Rush Limbaugh program and the
number one cable news show, Tucker Carlson Tonight where he appears once
or twice a week.

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 Every once in a while, he hosts his own Mark Steyn show originally aired on
CRTV until they fired him and sued him for $10 million. He won that case
resoundingly but CRTV and its billionaire owner, Cary Katz have refused to
comply with the court’s order and pay for the damages. He has fans around the
world and they’re building daily. He has appeared on stages, in musical and
philosophical and political stages across the world from Toronto’s Roy Thomson
Hall, Sydney’s Conservatorium of Music. He has sold out concerts coast to coast.
He has spoken to the Canadian Parliament, the Danish Parliament and the
Australian Parliament. Over the years, his writing in politics, arts and culture has
been featured and published in almost every newspaper in the English speaking
world.

The British Daily Telegraph, Canadian National Post, The Australian, The Irish
Times, The Jerusalem Post, The Wall Street Journal and many, many more.
Please welcome to the podium for the final speech of our 44th conference. Steyn
on America, Mark Steyn.

Mark Steyn: Thanks, Gary. Thank you very much, Gary. That was a great and fulsome
introduction. I’m very honored by it. I couldn’t see from backstage but when Ted
Cruz introduced me as a top five best-selling Jazz artist and leading Canadian
human rights activist, all the Democrats on the committee rolled their eyes in
unison like synchronized swimmers. I hope you weren’t doing that today. Thank
you very much to Gary for that introduction. I would also like to say, I wasn’t on
the panel remembering Charles Krauthammer earlier but the last time I was here
was with Charles. I just wanted to say a word about him. He was hugely popular
at these events. He enjoyed coming to them.

I don’t think many people who heard him speak understood how difficult it was for
him in his physical condition to fly around the country and muster the energy
required to get through and interact with people and be friendly with people. He
did all that with great charm and great ease so that most people had no idea that
he was in an awful lot of physical pain at those things. He was also incredibly
generous to a lot of us. When I first started writing in the United States, Charles
was very kind. If he couldn’t do some interview on the radio or television that he
was asked to do, he would always say, “Well, why don’t you call Mark Steyn?”
They’d say, “Who?” He’d say, “Well, he’s this Canadian guy. He’s good. He can
do it.” You’re grateful for that.

At that time when you’re unknown in America, and Charles Krauthammer doesn’t
want to do the interview on Midnight Merry-Go-Round on WZZZ AM in Prescott,
Maine and you’ve never been on American radio, you’re very grateful that he
recommends you. Charles was terrific like that. I miss him. I miss him physically
on things like this because if you remember he used to have that spectacular
wheelchair. You used to come. If you’ve seen the ski jumping at the Winter
Olympics, he used to come hurtling down it like the two-man luge thing. And
you’d think, “Holy cow. Why’s that thing coming towards me?” Then he’d brake
just in time and be right at the end of the table. He was a terrific guy and I miss
him. That said, I didn’t always agree with him. I will talk a little bit about some of
that tonight.

I remember the last time I was here with him a couple of years ago. I mentioned
that New Zealand was paying off its crown debt entirely. Crown debt as in
government debt as we’d say here. America had no plans whatsoever.
Nevermind pay off the whole thing entirely, which New Zealand was going to do
within five years. Had no plans to start paying it off at all. Charles was entirely
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 relaxed about this on the basis that it’s fine for America to run up debt because
America is the policeman of the world. We absolve nations such as New Zealand
and Norway from having in effect to pay for their own defense, which is true. It’s
not a good thing but it’s true. It’s one of the insanities of the modern world.

That the wealthiest societies in human history such as New Zealand and Norway
and other small societies have absolutely no means of defending themselves
while economic basket cases with undetectable GDP are planning to go nuclear
such as Sudan or actually have gone nuclear such as North Korea. That can’t
hold obviously. You can’t have New Zealand and Norway unable to defend itself
and countries like North Korea and Sudan becoming nuclear powers. That
arrangement isn’t going to prevail for long. The debt means something. I think we
all understand that nobody in Washington thinks it does mean something. If you
go back 10 years, the Republican party would genuflect towards the debt crisis.

People like Paul Ryan actually did some of the arithmetic and would occasionally
push back against Obama administration spokesman about the debt. When he
was running for President, Donald Trump quite rightly concluded that $20 trillion
in debt didn’t mean anything to anybody who earns 40 grand a year. It has no
real world meaning. In fact, the only meaning it does have is that the guy earning
30 or 40 grand a year concludes that if all the most important people in the
country don’t think $20 trillion in debt matters, there’s no reason why some guy
earning 30 grand a year should think it matters. Donald Trump quite rightly
concluded that there was no political advantage in playing up the debt. He didn’t
talk about it.

As a result, we now have 22 trillion in debt, which is just top of the iceberg in
debt. There’s another three trillion in state and local unfunded pension liabilities,
another 19 trillion in personal debt. Just the college debt in America is the
equivalent of the GDP of Canada. If you average it out per family, all the debt in
America, it works out to about $900,000 per family. This is in a country where the
average American family has about $12,000 in savings. They’ve got their
personal share of the debt is 900 grand. They’ve got $12,000 in savings. Now
this either means something or it doesn’t. The question is, what does it mean?

You all know the old joke that if you owe the bank a thousand dollars, you have a
problem. If you owe the bank a million dollars, the bank has a problem. We now
live in an age where America owes the world $22 trillion and thus, the world has
a problem. There are no precedence for this before. As I said, it either means
something or it doesn’t. It either means something or it doesn’t. The federal
government has to do something that nobody in human history has ever done
before. It has to pay back $22 trillion just to get back to being broke, to having
nothing in its pocket. Nobody in human history has ever done that. That ought to
be a problem. As I said, if you remember the old joke about the bank, if it’s $22
trillion, it’s kind of liberating. Who’s going to collect it?

Once you’re up to 22 trillion, is it really important whether it gets to 30 trillion? To

40 trillion? Is it really important if it gets to whatever comes after a trillion? Does
anybody know what comes after a trillion?

Audience: Quadrillion.

Mark Steyn: No. It’s cotillion. It’s a cotillion, yeah. They used to have antebellum cotillions in
this part of the world before the Civil War. Nobody cares about that. These are
terms that used to exist only in astronomy and now, they’re in accounting. That’s
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not human progress right there. I’ll pick another fight with Charles because the
nice thing about Charles Krauthammer is it’s always best to pick a fight with him
when he’s not around to push back. The last time I was here, Charles suggested
that caring about debt. In a certain sense, he articulated the liberating position.
Who’s going to call you on it? You owe $22 trillion. Who the hell is going to
collect? There’s no loan shark on the planet who can actually come and get the
22 trillion back from you?

Charles said, “There’s no point even worrying about this stuff. Apart from the
entitlements and military spending, none of it is even worth bothering about.” I
think that’s actually corrupting. I think that’s corroding of your soul. If you come
from rinky-dink Mickey Mouse countries like New Zealand, you notice waste. You
notice it everywhere you go. I think it’s bad if you desensitize people. It’s bad in a
moral sense if you desensitize people to not noticing it. I live in Northern New
Hampshire. In my part of the world, under the Obama stimulus package, they
built a $17 million border crossing at North Troy, Vermont. Anybody here from
North Troy, Vermont? That doesn’t surprise me. There’s about 200 people there.
It’s a border crossing.

I’ve crossed that border all my life between Quebec and Vermont since I was a
teenager. All my life, her Majesty, the Queen has had a one room hut on the
Northern Side. Uncle Sam has had a one room hut on the Southern side. This
little gate between and two-lane black top in the woods. You go through one side
and the gate lifts and you drive on. It gets two cars per hour. It got $17 million of
funding in the Obama stimulus package. They built the Starship Enterprise and
dropped it in the middle of the great North Woods. All of you know Google Earth.
Even if you’re dealing with a big shot, you go to Google Earth. You have to click
in. Fine, fine focusing, go in, zoom in, zoom in, zoom in to see the little building
and figure it out.

You don’t need to do that on Google Earth with this thing. You can just Google it.
Look at it from as far away. You can see it from outer space. It’s still there. The
Starship Enterprise dropped in the middle of the great North Woods. They widen
the road on the American side. Her Majesty, the Queen still makes do with the
one room hut on the northern side. On the American side, they widened it to
eight lanes. Two cars per hour. That’s one lane each for the two cars per hour
and six lanes for the department of Homeland Security to go bowling in. That’s
North Troy, Vermont. When the aliens prowling through the rubble of our
civilization, they will come to the ruins of this building. Say, “Welcome to North
Troy, Vermont.”

They will say, “What a mighty empire this North Troy must have been. Look at
the palace of the emperor.” It either matters or it doesn’t. Building an eight-lane
border crossing for a border post that gets two cars an hour is decadence. It’s a
kind of suicidal decadence. An even better one, I don’t know whether there’s
anybody here from Whitetail, Montana. That’s another small border checkpoint.
That had even less people. It served about three travelers a day, three cars a
day. That got $50 million in upgrades under the Obama stimulus on the American
side. They upgraded it to again, this usual eight lanes and everything. On the
Canadian side meanwhile, they noticed it only got three cars a day. They closed
it down. You now have an eight-lane super highway to nowhere.

It’s the Hotel California border crossing. You can check out anytime you like but
you can never leave. I think the small stuff is important because I think it
corrodes the soul of a people when you train them not to notice that kind of
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suicidal decadence. I agree with Obama on this. He used to say, “Only the
government can build a Hoover Dam or the Golden Gate Bridge or send a man
to the moon.” Okay. Where is that? Where is the Golden Gate Bridge of the 21st
century? The Golden Gate Bridge at that time cost about $35 million, which
would be about $530, $540 million today. Again, for the cost of Obama’s stimulus
package, we could have had 1,567 Golden Gate Bridges. 1,567 Golden Gate
Bridges.

You could have laid them end to end and had one uber Golden Gate Bridge
stretching from Bar Harbor, Maine to Limerick on the West Coast of Ireland. For
the cost of the 2009 stimulus. We spend a huge amount. This is the terrible thing
about this debt. We’re spending it on nothing but bureaucracy and bloat. Until
1956, 200 British civil servants governed the entirety of Sudan, which is a big
country even by African standards. 200. 200 English men in shorts with their
pasty white knees poking at the bottom, governed the entirety of Sudan. You
can’t find 200 people to govern the smallest outpost of the federal bureaucracy
these days. We don’t build a Golden Gate Bridge. We build bureaucracy. We
build regulation and we build bloat. Either this means something or it doesn’t.

We heard earlier, I forget who it was who said it earlier who said, “Boring is
good.” Which is what investors like. In an investment world, you like everything to
be boring except opportunity. You want a stable society but you want economic
opportunity and investment opportunity in it. Boring is good. It’s the inverse of the
Chinese curse, “May you live in interesting times.” We live in times that are
almost too interesting. The last time I spoke here, I spoke about demography.
Demography is everything. It’s particularly true for investing. In Greece for
example, 100 grandparents now have 42 grandchildren. Obviously, there’s
investment consequences to that.

If you build a new shopping mall and you built it because you were expecting
there to be 100 cars parked in there everyday. A couple of years later, you look
out the window and you noticed there’s only 42 cars parked in there. That’s not a
good sign. We live in a time of sweeping demographic changes. The Western
world is running out of young people. Japan, Germany and Russia are already in
net population decline. 50% of Japanese women born in the ‘70s are childless. In
Sweden, Finland, Austria, Switzerland, the Netherlands and the UK, 20% of 40-
year old women are childless. In Germany, 30% of all women are childless.
Again, this is one of those statistics that either means something or it doesn’t.

There’s no precedent for it outside World War or something like the Black Death,
the plague, a huge global disease epidemic. There’s no precedent for it. It either
means something or it doesn’t. The idea that you can have continuous economic
assumptions based on declining population and in particular, an ever greater
shortage of young people because a bank essentially is a mechanism by which
the past lends money to the future. Old people with money lend it to young
people with plans and ideas. If you have no young people, then you wind up
doing what the German banks did a decade ago. You wind up lending your
money further and further afield to markets where you have no real idea what’s
going on. And then at some point, somebody yanks the rug out from under you.

That by the way is why Angela Merkel imported two million so-called Syrians, so-
called refugees to Germany a couple of years ago to be the young people
Germany couldn’t be bothered having themselves. That has actually worked out
too well for Germany. I spent a couple of nights in a refugee house at Reutlingen
with some refugees from the Gambia, economic migrants from the Gambia who
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were pretending to be Syrian refugees. Anybody from the Gambia here? Nobody
from North Troy or the Gambia. I never had that at a speaking event before. It’s
usually both. I’ve never had nobody show up from North Troy or the Gambia. If
you know people from the Gambia in West Africa, you know they look nothing
like Syrians.

I spent a couple of nights with these very cheerful, 33-year old Gambians
pretending to be 16-year old Syrians. Nobody called them on it. Everybody gave
them massive tons of welfare. In return, they had little to do except sit in their
refugee homes, which were very pleasant apartments and smoke marijuana all
day long, which was the only bit I found a bit hard. Because it meant by the time
the evening came and I was staying in the rooms with them, they were a bit
heady for my taste not being quite as young as these lads. These are not normal
times. It is not normal for the head of government of a G7 economy to invite in
two million people to be the next generation of German software engineers. It
has not worked out well for Angela Merkel.

Most welfare states have premised on social solidarity. The young will pay for the
cost of the old. Because they are your actual grandparents. They’re your literal
grandparents. But as the West ages, that social solidarity will fray and I would be
surprised if Muhammad and Ahmed will be interested in paying 60% tax rates to
keep Hans and Fritz in their retirement homes. Demography doesn’t seem
terribly real to people because it doesn’t seem the sort of thing that’s showing up
next Tuesday. In fact, next Tuesday shows up quicker than you think. In 1990,
Europe had a larger population than Africa. 720 million Europeans against 630
million Africans. By 2016, that position had reversed. Africa had twice the
population of Europe. That’s 1.4 billion Africans, 740 million Europeans.

The position had entirely reversed in 25 years, from the ‘90s to now. I was
already middle aged in the ‘90s. It doesn’t seem that long ago to me. These
population statistics are determinative. By 2050, Africa, which cannot support its
existing population will have 2.5 billion people. By the year 2100, it’s expected
that 40% of the world’s population will be African. Except it won’t be. Nobody is
going to stay in a continent that cannot support the people it has now when you
can get on a ship and be in Southern Italy in nothing flat. They’re not going to
stay there. That’s why issues as we talked about earlier like Candidate Trump
putting immigration on the table in a real way in 2016 are interesting.

Because as hard and difficult as the choices are about immigration right now,
they’re not going to get any easier for the 500 million people in the developed
world versus the 6.5 billion in the rest of the world between now and 2030 or
2040. As this century goes on, none of the world’s biggest cities will be in the
Western world. Nigeria will have a population bigger than the United States by
mid-century. You will have cities of 80 or 90 million people that can’t support a
tenth of that number. Things change. We all accept that. I took my daughter to
Westminster Abbey in London a couple of years ago. We found ourselves
looking, standing there in front of the coronation chair, which has been used for
coronations of the monarch for over 700 years.

I think since the year 1300. Back at the time, the year 1300, the most populous
city on earth was Merv. Anybody know where Merv is? It’s not a Merv Griffin
theme park in Florida or anything like that. Anyone know where Merv is? Anyone
from Merv here today? That’s amazing. Nobody from North Troy, Vermont, the
Gambia or Merv. Merv, Turkmenistan. It was the biggest city on earth a
millennium ago. London was just this primitive little nothing on the fringe, on the
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edge of the map. Things change. Things change. The change that’s happening
to us, normally when you have a huge population growth, it’s to your economic
and geo strategic advantage.

The United Kingdom was the first country to eliminate childhood mortality, which
is how it had the surplus population to go out and settle the United States,
Canada, Australia, New Zealand and so forth. Because it had the demographic
advantage. That law is changing now. Automation reckons according to
researchers at Oxford that nearly half of American jobs will be replaced by the
early 2030s. A scientist at Rice University believes that in 30 years, humans will
become largely obsolete. World joblessness will reach 50% by 2048. The
consultancy fund PWC published a report last year that forecast robots could
take 38% of US jobs by 2030. McKinsey Global Institute figures that up to 800
million workers or 30% of the global workforce will be out of work also by 2030.

This is not a good time for the population of an already impoverished continent to
be increasing in the space of half a century from 700 million to 2.5 billion. Boring
is good as we heard today but boring is not the world we live in. I think that that
was actually one of the things that drove the Trump campaign is that those at the
bottom of American society were the first to see that something underneath, the
ground underneath is falling away between them. If you live in the communities
that have done well, the most prosperous counties in the United States are all
now around areas of government like in Washington DC. Not just Washington,
Sacramento in California. The most prosperous place to be is near government
so that you can plug in and petition the king in his palace.

You will get a piece of the stuff that still works. Out there in the fringes of the
map, the people who turn out for Trump are people who are downwardly mobile.
Whose grandparents worked on functioning family farms, whose parents worked
in mills and factories. Now the mills and factories are gone. Your daughter has a
minimum wage night shift at the quickie trap. Your son is a small time heroin
dealer because it’s more interesting than working at the quickie trap. They were
the first to discern that the ground under your feet is not as firm as it should be.
That’s how the president wound up winning in 2016. As I said, boring is good.
That’s true what we heard earlier. These are not boring times.

When you live in an age of mass migration, at a time when 30% of jobs are
predicted to disappear within less than a decade and a half. We are living in
tumultuous times, epic times. To go to something that Gary mentioned when we
were talking about issues earlier, Gary said that he watches the Sunday talk
shows. They’re never about any of this stuff. They’re about Mitch McConnell,
whether his move to do this or that in the senate is worth an extra point or two for
a Republican in a swing district in Ohio or whatever. They’re all small game.
They’re all small ball. They’re all inside baseball. They’re all the horse race stuff.
They’re never about any of the big tumultuous things that are going on all around
us.

We are like those. Have you ever seen the beginning of almost any Godzilla
movie and everybody’s amazed because something has happened and they’re
all standing around in this indentation in the ground. They’re wondering what it is.
The local police guy is there looking at it. The people are standing around looking
at it. The camera pans back and goes up into the sky and you’re seeing that
they’re standing in a giant footprint because Godzilla, the monster has stomped
there and he is now stomping on to stomp other places. We’re so closely focused
on this day to day stuff. We have the signs of a decadent society, too. Again, one
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of the reasons why people voted for Trump is because nobody was talking on
either party about anything that matter to them.

If you listen to the Republicans, Marco Rubio was doing all this soft focus ads. I
live in New Hampshire so we don’t get nice, healthy, normal ads. We just get
political ads. All the ads that the rest of you guys get, we get three years of
political ads while the rest of you guys are looking at normal ads for the self-
lubricating catheter or whatever it is. I have no idea. I wouldn’t know one end of a
self-lubricating catheter from the other because I’ve been looking at John Kasich
and Marco Rubio ads for three years. It’s completely different world. Marco Rubio
is in all these soft focus ads about a second American sanctuary. Where people
would just like what’s left of their life expectancy to be marginally less worse.
Then you have these ones like Lindsey Graham.

Lindsey Graham always wants boots on the ground. America has its military
forces in over 100 countries on earth at the moment. Something happened
during the last campaign. I believe it was in Mali. Anybody from Mali here? No?
We’re totally striking out in every which way. Anyway, Mali. And Lindsey Graham
said, “Whatever it was that happened in Mali was why we needed boots on the
ground in Mali.” It subsequently emerged that we had boots on the ground in
Mali. Lindsey Graham is a terribly nice fellow but when we’re in over 100
countries, it’s actually hard keeping up with all the places you have boots on the
ground. He then said, “I didn’t know we had boots on the ground in Mali. That’s
just why we need more boots on the ground in Mali.” Nobody understands why.

Nobody understands why. It’s even in Mali’s interest to have boots on the ground
in Mali. Meanwhile on the Democrat side, people are hearing about niche
demographics. Boutique demographics that they’ve never even heard of. Never
even heard of. Everybody is worried about transgender bathrooms. You live in a
town where the mill closed and the factory closed and it’s never going to have
any kind of bathroom. Again, it doesn’t need any kind of bathroom. People are
obsessed about micro aggressions. The more we ignore the big picture, the more
we fight over the tiny, little, irrelevant, small picture. At Wellesley College in
Massachusetts, there was a girl student who identifies as a “masculine of center
genderqueer” named Timothy. By the way, any masculine of center
genderqueers here tonight? Yeah, right.

There’s a couple at the back. There’s more than from Merv, Turkmenistan. That’s
good. A masculine of center genderqueer person named Timothy. She prefers to
be referred to by male pronouns. As a result, she was told that she could no
longer run for coordinator of the school office of multicultural affairs because she
was now a white male and therefore, insufficiently diverse to be a diversity
officer. Which is tough on a masculine of center genderqueer. She diversified a
wee bit too far and diversified herself right out of the diversity business and back
into the white man business and you don’t want to go there. You can laugh but
no one who matters in our society is laughing. That is what is so bizarre about
this.

We live in epic times with big questions. We talk about smaller and smaller and
smaller questions. There are natural cycles to decadence. The reason people
came to America, the American dream is a fancy and romantic term really for
upward mobility. If you were a peasant in 12th century Poland, your grandkid was
going to be a peasant in 13th century Poland. His grandkid in 14th century
Poland and so on and so on and so on until eventually, you think, “To hell with
this.” You get on a boat to Ellis Island. You know you’re going to be living in a
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tenement on the Lower East side but your kids will get an education and move up
town. Your grandkids will be doctors and accountants in Westchester County.
Your great grandchild will be a Harvard-educated environmental activist
demanding an end to all this electricity and hydro-power dams. Your great, great
grandson will be transitioning into your great, great granddaughter.

That’s the life cycle. That’s the natural cycle. It’s important therefore to
understand when you’re approaching the final stages of that cycle. I would like to
make one final point because these are big topics. The debt is a big topic. The
demography is a big topic. The automation is a big topic. It is worth considering
why we don’t really focus on the big topics. You can see that in the reaction for
example when somebody like Trump comes along and puts something like
immigration on the table.

This is perhaps one of the most disturbing things that’s going on in the world
today. We talk about less and less. We have a great campaign against free
speech going on throughout the Western world right now. Steve Bannon who is a
counselor to the President and is not to everyone’s taste. Steve Bannon
appeared in my hometown of Toronto on Friday. They campaigned to get his
appearance canceled. To say that Steve Bannon cannot speak in Toronto was
ferocious. It was only because a rather brave group stood firm that he was
allowed to speak. I notice a very disturbing trend. That is whenever we have
violence, we are told that we have to constrain speech. Just in the last couple of
weeks, people have said some guy, the world’s most inept bomb maker, sent
whatever it was, 12, 14, 16 non-bombs to multiple persons.

We were told that this is a reason why people have to reign in their rhetoric and
Facebook has to ban more people. Twitter has to ban more people. Then there
was the attack on the synagogue in Pittsburgh just over a week ago. We were
told again that violence means we have to constrain free speech. No. It’s
madness to say that more violence means we need less speech. More violence
means we need more speech. The less speech you have, the more violence we
will have because it will be the only form of expression. If you can’t say things, if
you can’t debate things, if you can’t argue your corner, there’s nothing to do but
actually shoot up store fronts and lob bombs through the windows. You’ve
eliminated the civilized alternative, which is free speech.

The vigorous debate, the vigorous of exchange of ideas which is why we have
been the most dynamic society in human history now for near a thousand years.
The other half of the Western world is going in completely the wrong direction. A
lady I have a minor acquaintanceship with because we both happen to be
speaking at the European Parliament. She gave her opinion that the Prophet
Muhammad was a pedophile because he married his bride, Aisha at the age of
six. He didn’t consummate the marriage until he was nine, which is awfully
sporting of him. Don’t try that in Louisiana or whatever, even in outlying parts.
You can’t do it here. She was prosecuted and fined about 500 Euros I believe it
was.

She took the case to the European Court of Human Rights, which ruled that what
she said about Muhammad was beyond the bounds of free speech tolerable in
Europe. In effect, the blasphemy laws on Islam now apply to all. Around the
Western world, we are in times when ... Incidentally, this is one thing that the left
and Islam agree on. Not that you’ve said something bad and we want to argue
with you and we want to debate you and we want to win the argument. We don’t
want to win the argument they say. We want to cancel the argument. Like the
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 campaign to cancel Steve Bannon’s appearance in Toronto. I’ve just laid out
issues that are difficult. Because in a sense, if you purport to be concerned as to
the fact that Swedes will be an ethnic minority in their own country by mid-
century, you’re a racist.

Because what’s the problem with that? What are the grounds for objecting to the
Swedish people’s replacement in their ancient homeland? You must be a racist.
You must be an Islamophobe. You must be a transphobe. You just be a this
phobe. You must be a that phobe. I’m a phobia phobe because all these phony
phobias prevent us from having honest addressing of the challenges that face us.
We do not live in boring times. I wish we did. We live in times in which like a
Rubiks cube, we are going to have to align automation, demography, debt and a
whole bunch of other primal issues perfectly in order to get through the next 30 or
40 years. The only way we can do that is if we hold true to the core Western
liberty of free speech and talk about them honestly. Thank you very much
indeed. Thank you.

Gary invited me to take a couple of questions before we all go and get face down
in the beer and nuts next door, wherever we’re headed. Put on hold your fancy
lines to try out with a cocktail waitress and focus on a question. First, this lady
here.

Audience: Hi, Mark. It’s good to see you back. I was here two years ago when you were
here. Yeah. I totally agree with you about the free speech thing. I think about
these things all the time. Constantly trying to have the courage to stand up and
speak about them and to resist the temptation to just go along to get along.
Thank you for being a proponent of those things and being courageous enough
to stand up against C16 in Canada, the new law that they put into effect.

Mark Steyn: Yeah. The Islamophobia thing, yeah.

Audience: Yeah well and then the transgender thing, Jordan Peterson.

Mark Steyn: Yeah, pronouns.

Audience: Yeah.

Mark Steyn: The government regulating what pronouns.

Audience: Right and Jordan Peterson, people like him standing up against it. I think we
have to as a people be more courageous in our everyday lives so that we can
resist this. Don’t you think?

Mark Steyn: Absolutely. That’s really the point about the border crossing thing in North Troy. It
lets everyone off the hook if you say all these issues are just so difficult that
they’re above my pay grade so I won’t bother thinking about them. That’s not
how it works at all. They manifest themselves all the way down. Anybody here
with young children, you know that this starts in your kid’s first grade and
Kindergarten classes, a lot of this stuff. That’s the place to push back. I didn’t
really understand school boards until my kids went to school and I started going
to school board meetings. They’re not terribly interesting in many ways. They
give you a heads up on a lot of big things. You should push back. I remember
one teacher. Of course, I have an excuse because I’m a writer and a
commentator and so forth.

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 I remember one teacher saying to me accusingly after I’d asked. He’s saying,
“You only come to school board meetings to get material.” That’s true. But
everybody should be going to school board meetings to get material. Because
the material is actually quite valuable. Whenever people say, “Well, we need an
international agreement on this. We need an international agreement on that.”
That just serves the people who want to take it away from you. A guy called
Herman Van Rompuy, anyone know who Herman Van Rompuy is? I’m relieved
to hear that. He’s an obscure Belgian. As one of these European backroom deals
because the French and the Germans didn’t want the other guy to get their man
in the job. This obscure Belgian wound up being an obscure Belgian whose
business card read President of Europe.

It could happen to anyone. If you meet an obscure Belgian and he hands you a
business card saying he’s President of Europe, don’t necessarily laugh in his
face. Because he could well be. He said when he was elected, “This is the first
year of global governance.” “Oh, really? I don’t think I got the memo on that. I
don’t remember signing up for it. I don’t know which polling booth I need to go to
to vote against it if I happen to disagree with it.” Most of these problems percolate
down to the very lowest level in society. That’s why they should be resisted at the
lowest level until obscure Belgians come along and put them way out of
anybody’s reach. Thank you for the question. The gentleman behind.

Audience: Do you think there could ever be any media attention paid to the thousands and
thousands of architects and engineers and pilots and firemen and policemen who
dispute the propositions and the official conspiracy theory about 9/11?

Mark Steyn: The official conspiracy theory about what?

Audience: 9/11.

Mark Steyn: Whether there’s any… Whether there’s any…

Audience: The official conspiracy theory-

Mark Steyn: By the official conspiracy theory, you mean that we were attacked by Osama Bin
Laden.

Audience: Buildings were brought down by fires.

Mark Steyn: The buildings were bought down by the planes flying in.

Audience: Well building seven was not hit by It-

Mark Steyn: Right. Right. No. No. I understand that. I’ll tell you why I’m not a conspiracy
theorist. Because I don’t believe our government is that competent. If you ask me
if the federal government was capable of blowing up the heart of Lower
Manhattan because it wished to have a pretext to invade Afghanistan or Iraq, I
don’t believe there’s a chance in hell that people who were in on that would not
over the years since, the almost two decades since have leaked out elements of
it all across. You know how leaky every aspect of government is. With the
present, the so-called Russia thing with McCabe. McCabe is now on the outs
with Peter Strzok. Peter Strzok is on the outs with this guy. They’re all leaking
against each other and all the rest of it.

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 The idea that the United States government could have organized the planning of
the destruction of the 9/11 towers is just about credible. Just about credible but
the idea that it would have had the discipline to keep that to itself for 17 years is
not credible. I well remember listening to the tapes of the so-called FAA, basically
government fell apart that day. Which is another reason not to put your faith in it
because the only thing that worked that day was those free born citizens on that
flight that came down in that field in Pennsylvania who didn’t do what the
government’s stupid 1970s hijack procedures that the stewardesses on the other
flights stuck to were barking out at the passengers. Government failed that day.

The tape of the air traffic controllers is very interesting. Because at one point, the
pilot says, “We’ve got a situation here.” The woman who answers him says, “I
don’t know what to tell you. Everybody’s just left the room.” If you’ve got a choice
between government conspiracy and I have a high degree for certain kinds of
conspiracy. This Papadopoulos chap in Russia, I think my old friend, Alexander
Downer who was Australia’s high commissioner in London. I do believe that my
old friend Alexander was actually in on that in some entrapment thing. But I don’t
believe that the United States government is capable of taking down the Twin
Towers and covering up. I would challenge you this. There are evil societies in
the world. There are completely evil societies that kill thousands of their own
citizens consciously.

Assad in Syria has just spent the last few years doing it. If you really believe that,
that’s a challenge to you. That’s a challenge to you. I remember the Bushes.
People drove around with bumper stickers saying, “Bush scares me.” If you were
in Poland in the 1940s, people didn’t drive around with bumper stickers saying,
“Stalin scares me. Hitler scares me.” Generally speaking, if you’re free to drive
around with a bumper sticker advertising your terror of the leader, he’s not that
terrifying. But there’s a challenge in that. If you seriously think that the
government of the United States slaughtered 3,000 Americans on September
11th, 2001, you can’t just sip your latte at Starbucks and watch the world go by.
Either that means something or it doesn’t.

You then are obligated to act upon that. Because that is an evil country. We’re
not even talking about the government. Bush is gone. Congress has turned over
except for Pat Leahy and a few of the other old dinosaurs. The permanent
bureaucracy to pull that off is still there and it’s disciplined according to what you
have said to have kept quiet about it all these years. In that case, we have a
moral obligation to do something about it. The problem with conspiracy theory is
people they always, “Yeah. Bush did 9/11.” “Another cappuccino?” “Yeah. Bring
one for me. I’ll have a decaf macchiato this time.” It doesn’t work like that. There
are seriously evil societies on earth. The idea of just the free storm of evil as a
societal accessory is not credible. Let’s have your question.

Audience: I won’t hold against you, your comment about New Zealand actually. You didn’t
speak much about the arrivals from Central America. That demographic change.

Mark Steyn: Right.

Audience: My observation is that these people only turn around with some sort of very
aggressive confrontation. If you saw them coming across the border from
Guatemala to Mexico, what can and should the United States do to avert that?
Or should it just somehow accept that this is just destiny now? That there’s really
no way to turn them around?

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Mark Steyn: By the way, you are a documented or undocumented immigrant today.

Audience: I don’t live in the United States.

Mark Steyn: You’re here from New Zealand. Okay. Well when you go back to New Zealand, I
don’t know whether you’re going tomorrow or whatever. All of you, you don’t go
back to New Zealand. For internal travel in the United States now, you’ll go to
that airport to whatever it’s called, the Louis Armstrong International Airport.
You’ll take your shoes off. You’ll take your coat off. You’ll shuffle like a great herd
through the TSA security theater because we are supposedly a country on Code
Orange alert. Half the illegal immigrants in this country have walked into this
country since 9/11. That’s to say they broke into a country on Orange Alert.
That’s simply not credible. You can’t have it both ways.

You can’t be telling people. When grandma comes to see you for Thanksgiving in
a couple of weeks and she brings with her her homemade pumpkin pie that
you’ve had to be politely enthusiastic about for the last 57 years. At the airport,
they test the constituency of that pumpkin pie because if it’s not dried out
enough, that’s why they taste the pumpkin pie. It’s getting worse and worse every
Thanksgiving, by the way. That if that pumpkin pie is too liquid, it counts as a
liquid and it will be confiscated from grandma because grandma could weaponize
it and take down the plane. Yet at the same time, 11 million people walked
across the Rio Grande into the country. This is again what I was talking about
earlier. It’s the contradiction between a dynamic energetic society and
bureaucracy.

I live on the northern border. We don’t have millions of people trying to walk
across the northern border. We have certain unusual issues there. For example
in Vermont and New Hampshire, there are a lot of people who like to play
bagpipes. They occasionally go to bagpipe competitions in Quebec and Nova
Scotia and New Brunswick. When they bring their bagpipes back into the
country, the United States Department of Agriculture, which for some reason
regulates bagpipes, I have no idea why that comes under the Department of
Agriculture as opposed to the United States Department of Musical Instrument
Security. They confiscate the bagpipes. And if you want to get your bagpipe
back, you have to go to seven border posts away and have a lawyer. Because
we’ve got immensely powerful bagpipe security.

My solution to immigration is that we should actually just carpet bomb Latin

America with bagpipes and not a single lad and American would ever get across
the Rio Grande again. These are the contradictions of big government. The
bigger it gets, the smaller and smaller and smaller its focus. This is a conspiracy
theory I’ll throw at you. If Osama Bin Laden had only played the bagpipes while
he was studying at Oxford, he would never have got anywhere near the Twin
Towers. Thank you very much indeed. Party on at Brien’s expense. Thank you.

Lobo Tiggre
“The Single Best Commodity To Speculate On Today”

Lindsay Hall: Next up, you’re going to hear from Lobo Tiggre. He’s the founder and
CEO of Louis James, LLC, and the principle analyst and editor of
IndependentSpeculator.com. He researched and recommended

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 speculative opportunities in Casey Research publications from 2004 to
2018, writing under the name Louis James. While with Casey Research,
he learned the ins and outs of resource speculation from the legendary
speculator, Doug Casey. A fully transparent, documented, and verifiable
track record is a central feature of IndependentSpeculator.com services
going forward. Another key feature is that Mr. Tiggre will put his own
money into the speculation he writes about, so that his readers will
always know that he has skin in that exact same game. Up this morning,
first off and foremost, Mr. Tiggre.

Lobo Tiggre: Thank you very much. Wow, that was really enthusiastic. I want to meet
that guy. Good morning, good morning. Still people coming in. Should we
be punctual, or should we give them a chance? Be punctual, okay. My
kind of crowd. I have a long list of bastardly qualities I’m known for and
the one that really irritates people the most is punctual bastard. It just
seems to really get under peoples’ skin. Now, Rick Rule kind of outed me
yesterday on the panel as for what my number one commodity pick of the
day is, but I’m going to go ahead and stick with it. We have a little bit of
time, so it’s a pretty general overview. I encourage everybody to stop by
IndependentSpeculator.com for more. I hope to have some time for Q&A
because I think that’s one of the most valuable things I can do from the
podium. I can answer questions that I can’t in person. So here we go.

Most of us here are, if not official gold bugs, we’re enamored with
precious metals. I am extremely bullish on the precious metals, but that’s
not the number one play today in my book. We have seen a very strong
inverse relationship between gold and the dollar. That’s not rocket
science. Gold is priced in dollars, tends to be opposite. But that does
break down sometimes, we see gold take off. We are not seeing that
now. We did see a couple days of it in October. That was very
encouraging, but the dollar is still in the driver’s seat. Until that really
changes, until we see gold marching to its own beat, then I think we’re
vulnerable.

As bullish as I am on the new energy paradigm, you know, I really do

believe that is a game changer on a global scale. This is a decades-long
trend. The world is embracing a new energy paradigm, and I mean that
literally. I think in a generation people will find the idea of burning fossil
fuels for energy to be sort of medieval. They heard about that. Nobody
does that anymore. I really think that’s happening. That has gigantic
implications for resource investors. But, that doesn’t mean today. You
know, Rick Rule’s famous quote about not confusing imminent with
inevitable, they’re not the same. We have trade tensions or other issues. I
think while the global economy is considered wobbly, you have to look at
industrial minerals, even the best ones, as being vulnerable.

The hot metal of the year, the number one metal of the year, is vanadium.
I like the vanadium story. I see it as part of the new energy paradigm. I
get that the vanadium batteries are what you need to store electricity from
a wind farm or a solar farm on an industrial scale, or for a city. I think the
vanadium price is going to correct but come back to a higher level that will
make for very profitable vanadium mines in the future. But as you can see
from this chart, the metal has a history of spiking before, and for good
reason. That first big one was when the Chinese changed from being net
exporters to net importers. A significant change, but as you can see, the
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market kind of overpriced that change and then had to come back to
reality.

I’m not anti-vanadium. I like it a lot. I just think it’s risen a bit too quickly,
too much, and I think we’re going to look for a lower but higher, more
stable price going forward. It’s very vulnerable, I think. This chart is
actually, just in the couple days since I made this chart to come down
here, it’s gone higher. The current peak is now higher than the previous
peak, at $33.90, the last quote I saw. Okay, it’s uranium. No surprise.
Rick outed me yesterday. What I like about uranium is that it’s
irreplaceable at the moment. I just said the new energy paradigm is going
to replace the old one. Uranium is somewhere in between. It’s not a fossil
fuel.

Clearly, it’s unpopular. Nobody wants a nuclear power plant in their back
yard. I think uranium eventually goes away, but that takes decades. We’ll
get to that. Basically, just keep that single fact in mind for the moment. It’s
irreplaceable at the moment. We have to have uranium. And, so you have
the fundamental, and this chart, I’m not a technician so I don’t have cups
and handles and pennants and heads and shoulders on here, but it
shows what we call carving out a bottom. The most significant things my
technical friends tell me about a chart like this is that you see a series of
higher highs and higher lows, particularly the higher lows are important. I
find it very encouraging.

It’s hard to see on this little line on this chart, but we did actually have a
much higher low recently. Uranium dropped a nickel a couple weeks ago.
Technically that was a retreat, a small one, and it’s come back and it’s
going up again. I’m very encouraged that the price wants to go higher, if
you will. That’s a highly technical description. But it is. It is moving up.
You have the very strong fundamentals, and you have the technicals. I
think that’s unique. A key thing to remember here is, a nuclear power
plant doesn’t have an option. I said that already but I can’t stress it
enough.

This is important because, if we’re worried about industrial metals, is

uranium an industrial metal? Kind of. If we’re worried about the price of
oil, is energy an issue in a faltering economy? Absolutely. We’ve seen oil
retreating already. But uranium is different. You have to have it. You can’t
shut down these plants, and you can’t mine it profitably at today’s prices.
The rock and the hard place are here. About those facts, fundamental
facts, uranium is the cleanest, most reliable form of base load power
available in the world today. Even run a river, which is 24/7 as an
alternative, and if you have a very good river, it’s very stable, but not
always. There are times when you have unusually low water flows in
rivers.

There is a big dam like the Hoover Dam. That’s stable. But you can’t have
a Hoover Dam anywhere you want, whereas anywhere you have solid
rock, you can put a nuclear power plant. It’s unpopular, it’s unloved, but
it’s necessary. As I was saying before, it will take decades to replace.
People talk about thorium instead of uranium. It’s safer and can’t be
weaponized so easily. That’s true, but today’s plants use uranium, not
thorium, and you can’t just convert them. It’s not like flipping a switch.
Twenty percent of the United States’ electricity comes from nuclear power
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plants. That can’t be replaced overnight, even if you wanted to, and the
US is actually looking at building new plants.

China went from four nuclear power plants to 20 now they’re completing.
They’re heading for 60 plus officially. You know, who knows high that will
go, but they are going gangbusters. They have no choice. They get that
they have people dying because of pollution in their cities. All these coal
fired power plants must be replaced. Not should be replaced, not
politically correct, it would be nice to be replaced. They have a serious
problem. They know it. In typical Chinese fashion, for some things, the
command and control economy is good. You decide we’re going to get rid
of this pollution and gosh darn it, they move. That’s a trend that is huge. It
meted something, and it’s not going to be reversed.

The Chinese demand, I just saw this in Reuters a couple days ago, is
projected to increase nine-fold for uranium. Nine-fold. That’s just on the
demand, never mind what the share prices of the affected stocks do. The
Chinese demand is expected to increase nine-fold. Not by 2050 or 2040
or some long-term goal, by 2025. That’s not too far around the corner,
folks, and that’s huge. India, of course, they have their own issues with
pollution and they need this part of the solution... I think of basically all the
bricks as being the sorts of places where the lawyers don’t run the show.
The politically correct crowd can’t stop a necessary technical solution
from providing something that people desperately need, like the lights to
go on.

The fundamentals are just so strong here. Even Japan, where they shut
down all the plants after the Fukushima disaster, terrible disaster. I’m not
minimizing that, but Japan’s an island, and they don’t have oil reserves. I
mean, they tried, and are now seeing that they have to bring the nuclear
power plants back on and they’ve officially planned to bring 30 of them
back on. I think in terms of that chart that we saw before, I think what
defined the bottom here was really the Japanese deciding, you know
what? We are going to need our uranium after all. The Japanese utilities
had all their plants shut down. They had huge stockpiles of uranium, like
decades of stockpiles of uranium, and suddenly they had no functioning
nuclear power plants.

What are they going to do with this stuff? They decided to sell it. That’s
why the price of uranium is so far below the actual cost of mining,
because there are sellers out there who don’t care how little they get for
it. They just, they don’t need it anymore. They’re just getting rid of it at
whatever price they can get. I think the evidence is now telling us that A)
they’ve officially decided to restart 30 of the plants, and B) the price is
now starting to recover. I don’t think that’s a coincidence. That’s a game
changer. The fundamentals really couldn’t be stronger. This is something
that we absolutely must have, and it can’t be mined at today’s prices.

Uranium is now selling for the gloriously high price of $27.90 as of the last
quote. That’s still peanuts. It’s about, the average cost of mining you see
there is about $40. If you look at what the uranium projects have in their
feasibility studies, you’ll see that the average price quoted is, you look, it’s
like twice the spot price today, $60, $65. How can you quote a spot price
that’s twice or, I’m sorry, how can you quote a price, that your project
needs to make sense, that’s twice the price of the metal today? Well,
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they’re not crazy. They’re not dreaming something. The price will go up.
They’re telling you, this is the price that we need to build our project. This
is the incentive price.

Yes, there are low-cost producers like the Kazakis, and they can do well
at $40, but most of the projects that will be necessary to keep these
power plants going and the lights on in large parts of the world need a
much higher price. We all like to invest in resource stocks because they
give us leverage to the underlying commodity. It’s dangerous to keep
uranium in your basement but you can own a uranium stock that will give
you leverage to the underlying price. If the underlying price has to at least
double for the supply to come online to meet the demand, then the stocks
that have leverage to that price should do much better. I’m kind of
embarrassed about Rick’s question yesterday. He had us do a lot of arm-
waving about how high might it go, but when push comes to shove, things
can just go vertical.

We just saw that with the vanadium price. I think this is setting up for that
same kind of thing. Here’s the sort of bonus point here. Did Donald Trump
just start a new nuclear arms race? I’m not sure. You know, he’s pulling
the US out of that treaty. Maybe the Russians were cheating anyway, so
who cares if we’re in a treaty the other side isn’t abiding by. I’m not
actually criticizing Donald Trump. I like criticizing him, but I’m not
criticizing him on that. The point is though that if we start saying, oh, we’re
going to build more nuclear weapons, the previous major decline in
uranium prices came from de-weaponization. You have highly
concentrated uranium in weapons, and you blend that down to make
nuclear fuel for power plants, and you have a lot of extra uranium on the
market.

Swords to plow shares, this is literally what happened. Prices were driven
down by ex-Soviet missiles being turned into fuel. That’s not happening
anymore, and if Trump pulling out of the treaty turns into a tit for tat and
it’s off to a major new arms race, and both sides are building more
nuclear weapons, that’s a significant source of new demand that isn’t in
anybody’s models today. You look at any of these brokerages with their
giant phone book sized research reports on the uranium market, nobody
is assuming anything like this. That’s a tailwind. If it doesn’t happen, don’t
worry about it.

If it does, it could take what already looks like a setup for explosive
growth, no pun intended, and it could go nuclear. Sorry, the pun was
intended. Wake up, come on. Actually, I really want to thank you guys for
being here. Eight in the morning on a Saturday? You guys are
masochists, or you love me. I don’t know what it is, but thank you very
much for coming down here. I had to drag my sorry butt out of bed and
I’m so happy I’m not alone. I really thought there would be like two of you.
My best friends. My mom’s over there, you know.

Okay, so, my teachers, my mentors, the folks who taught me everything I

know. Rick’s one of them. Doug Casey’s one of them. Brent Cook’s not
here this time but he’s one. Bob Bishop. That was the name I couldn’t
remember the other day. Learned a lot just standing next to Bob Bishop
and watching him ask questions in field trips. People taught me that the
ideal speculation, the ideal bet, is not an “if,” like, do they have a
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discovery, might they have a deposit, could they get a permit. These are
“if” questions. If the answer is no, I think the technical description of that
situation is, they’re screwed. Whereas if you have a “when” question, then
all you need is a little patience, and you get to a “yes” answer, and you
get to profit from your risk-taking. The ideal speculation is a “when” not “if”
question.

I’ll go back to what Brien said yesterday. Uranium has unfortunately for
years been a “when” question. We all knew basically the facts that I just
went over. We’ve all known that for years. The difference is that chart I
showed you. The difference is that we seem to have a durable bottom
now, and we have rising prices. Some people want to dismiss it, well, you
know, $27, $28, that’s still way below the cost of production. That doesn’t
help me. My project needs $65 uranium, so what do I care about $27, $28
uranium? Well, we were looking at $18 uranium not too long ago; $28
uranium is much better than $18 uranium. More significantly for us as
investors is that we have seen the share prices in uranium companies
respond to higher uranium.

The best part of all this is that it has a long way to go. Sorry, I got ahead
of myself here. It has a long way to go. It’s just starting. Going from $18 to
$28 is great. We saw the stocks respond, but it has a long way to go, and
you’re not too late. For whatever reason, I honestly, I will tell you, I’m not
the guru here. I don’t know everything. I do not know why, but basically all
the uranium stocks sold off over the last month when the major markets
melted down. That makes no sense. Uranium is going up. No bad news
from the companies. Nobody discovering an endangered mosquito on
their project site. Nobody getting their permit yanked. Nothing bad
happened. Only something good happened, uranium went up. All of the
market darlings, your NexGens, Fissions, their prices all went down.

I think that’s fantastic. When prices go down for the wrong reason, like
whatever the reason was, if it was the broader scare on Wall Street and
around the world, the market selling off, that’s a buying opportunity. When
prices go down and value goes up, that’s an opportunity. So you’re not
too late. I think it’s right here, right now, you guys happen to be at a
perfect moment. If you have been skeptical and you haven’t been willing
to trust that this is the time that uranium really will get going, I may be
wrong, but I am putting my own money where my mouth is on this. I am
investing in this space. If you want to find out what I have already bought,
of course you can sign up at IndependentSpeculator.com.

I have others I’m researching and I’m looking forward to deploying more
here, because I see an opportunity right now. This is not just rhetoric of
what I think is the best or whatever. This is where I am looking to deploy
my cash right now. The final chart here is there’s a sort of a bonus idea.
We’ve talked about vanadium and companies out there are now tacking
vanadium onto their asset bases. Even though I said that’s due for
correction, and I think that’s likely to happen in the near term, that doesn’t
mean that I don’t value the vanadium. I think if you had some vanadium in
your uranium deposit or some other deposit and it didn’t really matter at
five bucks a pound, it wasn’t enough to move the dial, but now at $30-odd
a pound, that actually makes sense.

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 There’s nothing shady about a company saying, “Oh, we have vanadium
too.” But if it’s going to correct, I don’t want to chase a pure vanadium
play. I just think of this as a bonus one. I’m absolutely convinced about
uranium. The “when” is now. It’s already started. There’s time to get in
while relatively cheap. But if you can find a uranium play, and there’s one
out there, at least one, that has vanadium in it as well, you could
conceivably get a tail wind. If I’m wrong and vanadium just keeps going
up and up for a while, your uranium stock could get a boost from that. So
I find that quite interesting. The one I know that’s out there is Blue Sky. I
mentioned that on the panel yesterday.

The other two that I mentioned previously as ones to keep an eye on, and
these are freebies. I don’t own that stock, and I don’t own the two that I’m
going to mention, but all of them have shown that they will move with the
price of uranium. The other two are NexGen, NXE in the Canadian stock
exchange, and Fission, FCU up there in Toronto as well. All three of
those stocks have shown they can move with the uranium price. Blue Sky
gives you a potential vanadium lining to it. All of them can do well. Well, I
talked longer than I thought but I have a minute left. Any pressing
questions? Yes, sir.

Speaker 3: What about Energy Fuels?

Lobo Tiggre: Well, okay, you’re kind of outing me. I’m interested in that one. I’m
researching that one. I may buy that one, so I kind of didn’t want to give
that one away yet. But the thing about Energy Fuels is they produced,
according to their guidance, they produced most of their production for
the year already. I think they’re poised to retreat. I think their next
financials may disappoint people that aren’t paying attention. I think that
would be a buying opportunity. It’s not going away. I think it’s a good
company, and they are this month going into the vanadium business. Not,
“Oh, we have it too,” but they have an existing circuit that they’re putting
back into process so they can produce vanadium now. So, okay, there’s a
freebie for you. I haven’t bought that one yet. I’m researching it. I think it’s
likely to get hammered in the near term, and I would love that. One more
quick question. Okay. Sorry, go ahead.

Speaker 4: I think the panelists are bullish on the grains.

Lobo Tiggre: On the grains?

Speaker 4: Yeah. Do you like any phosphate or potash stocks?

Lobo Tiggre: Conceptually, yes. Tricky market. Every time somebody’s pitched me on
one of those, the stock has gone the other way on me, so I’m very, very
cautious. If I was that bullish on grains, I’d probably just buy a grain ETF.
I’d want to see the fertilizer prices in a solid up-trend before I jumped in.
All right, thank you very much. I’ll be outside if anybody has more
questions. I’ve got business cards. You can get my email. I am happy to
do what I can to help out. Thank you very much.

Matthew Warder
“Current Status Of Commodities Markets”
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Robert Helms: Our next speaker is also from Energy Capital Research Group. Matthew
Warder is the Director of ECRG’s Research and Product Development.
He’s an energy, metals, and mining analyst with more than a decade of
experience covering the coal, iron ore, steel, base metal, and precious
metal markets. Mr. Warder co-founded ECRG after nine years at Wood
Mackenzie, the final two of which were spent on the ground-up
development of the company’s asset by asset cost research in the ferrous
sector, while serving as Principal Analyst for iron ore and steel costs.

In that remit, he authored over 150 reports annually covering individual

assets, regional supply studies, and emerging trends in the steel raw
materials markets, in addition to providing the spoke research and
consulting services for industry clients and institutional investors.

Prior to that, Matt led various teams at WoodMac covering supply site
analysis of the U.S., Canada, and Latin America coal industries with
emphasis on metallurgical and thermal coal production from the
Appalachian region. Mr. Warder holds a Bachelor of Science in Chemistry
from the College of William and Mary.

His talk is current status of commodity markets. Let’s welcome Matthew

Warder.

Matthew Warder: Thanks a lot. All righty, well thanks a lot for that introduction. As Robert
mentioned, I am the other half of Energy Capital Research Group. Sean
had 20 slides to cover two commodities, oil and gas. I have about 30
slides to cover 10, so we’re going to go pretty fast if you guys don’t mind.

What I want to talk about right now, in the metals and mining spaces, how
tariffs have changed the commodity sector. Fundamentals, and I’m a
fundamental analyst, so I’m partial to these sorts of things, should be
driving the markets. But we haven’t really seen that. Currencies have the
wheel now. We have an elevated dollar. We have a yuan in decline.
Commodities can’t decide which one to follow.

For our purposes in this analysis, we’re going to look at four time frames.
The trailing 12 months to get a base case sense of how things react.
We’re going to look at after U.S. tariffs took effect in April. We’re going to
look at after China retaliated with their second round of counter-tariffs in
June. Then we’re going to look at the past two months.

First, let’s talk about the timeline here, the dark blue line is the U.S. dollar.
The light blue line is the yuan. On March 1st, steel and aluminum tariffs
were announced. Put into action about a week later. About a month after
that, China retaliated. Then almost immediately, we saw the dollar shoot
up by about 7%. The yuan declined by just only about two. That’s pretty
important.

Right around that time the two countries met to discuss some sort of
agreement, which they reached and made an announcement. But three
days later, President Trump, who had initially wanted to include a
measure to prevent technology theft, backed out of that agreement for

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that reason. A month later, he slaps on another $50 billion in tariffs. China
responds in kind. The dollar, which didn’t have much more elasticity to the
upside, all of a sudden goes up just 2% to 3%. The yuan just tanks and
declines by 7%.

Fast forward to last month, President Trump imposed about $20 billion
more in tariffs. China retaliated with $60 billion. But currencies have really
kind of fallen into a range where I think the market has absorbed what
has become this new normal.

For our purposes now, what we want to look at is how has that affected
precious metals? I want to take a longer term look here. These are
correlation charts, gold versus the dollar, gold versus the yuan. The top
band there, the dark blue area is gold. When it gets up into the green, that
means they’re positively correlated, meaning the currency and the
commodity move in the same direction. At the bottom, they’re negatively
correlated, meaning they move in opposite directions. In the middle, in
that no-man’s land, there’s no discernible correlation whatsoever.

As you’re all aware I’m sure, precious metals are very correlated with
currencies, or at least have been for the last 10 years or so since the
financial crisis. Longer term the correlation is a little bit lower, but in
general this is how precious metals have been functioning, as a currency.
Now, after U.S. tariffs in March during this period right here, what we saw
is everything including palladium, which had long been in a bull market
and not really paying much attention to currency, declined as the dollar
increased by 7%.

Fast forward to post China retaliation, and that relationship kind of shifted
because the dollar didn’t move too much but the yuan really declined. I
think the average correlation during this period of time was around .97,
.96 with the yuan. As the yuan fell, precious metals fell step by step along
with it, which gave the market kind of a double whammy. We’ve got about
a 7% decline as the dollar rose. Now we got a 7% decline as the yuan
fell.

Fast forward to just the last couple of months, and there’s not really much
that’s been happening. We’ve had a little bit of a recovery. But as far as
currency correlations, there really hasn’t been much to speak of.

One of the things that we’ve been tracking is net shorts in the managed
money sector, which are the total long bets minus the total short bets. All
precious metals, with the exception of palladium, have gone net short
over the past year. Now over the last few weeks, that has changed a little
bit. Gold has come back. Platinum has also come back. But silver has
been a really wild ride. It’s gone net short not once, not twice, not three
times, but a full four times in the past 12 months. It hasn’t quite recovered
into that net long range yet.

But since the broader markets have faltered here over the past month,
precious metals are faring just a little bit better. My colleague, Sean,
explained the graph on the right, the relative rotation graph. To reiterate,
momentum increases as you go up on the axis. Relative strength
increases as you go to the right. That divides the market into four
quadrants, leading, lagging, worsening, and improving. If you look at
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palladium, which is right out here, it’s been leading the pack for some
time.

Now the others are beginning to catch up. They crossed from the bad
quadrant into the improving quadrant here in October. That is generally
for us, that’s a at least watch it if not buy signal. What that corresponded
with is a decline in the S&P 500. As the S&P 500 broke lower, all of a
sudden you start to see precious metals prices improve a little bit. We’ll
talk a little bit more about that in just one second.

Our outlook for precious metals, investment demand needs to return.

We’ve seen gold, silver, and platinum all go net short. But now we’re
seeing currency movements become a little bit less violent. Really, what
we need to see is one of those super drivers, geopolitics, bad equity
markets, inflation, central bank purchases, we need one of those top level
headlines to drive the market and encourage a little bit more investment
demand. And maybe try to drive those prices up higher than we see them
moving up at least here over the next year, which is fairly slowly.

On the equity side, because the prices aren’t performing really well, that
leaves us a couple of options, which I think are generally positive over the
longer term. Better deposits mean better investments. There’s M&A still
needed in the precious metals sector. Major companies are running out of
reserves. We’ve seen Barrick and RandGold merge here recently.

Quality deposits like Ivanhoe, who has a great deposit in the Platreef in
South Africa as well as a couple of solid copper and zinc deposits in the
Congo. Quality deposits like Ivanhoe’s eventually become takeover
targets like Nevsun. If you’re going to put your money on a speculative
play, make sure that you find the grade necessary to turn a solid deposit
into a really big mine.

Absent that, we’ve been looking really closely at the royalty and
streaming space because on the whole over the past year, they’ve held
up comparatively well to the rest of the sector. Right now, they’re actually
crossing quadrants up into the improving sector. For us, they’re all on a
watch list. This is companies like Sandstorm Gold, who we love, who is
going to speak right after us. Wheaton Precious Metals, Altius Minerals,
Franco-Nevada, companies like those basically just collect checks. They
shift the operating risks onto the miners themselves. That’s a business
model I think we can get behind when prices are going to be fairly, or at
least comparatively weak for the near term.

The bottom line here is if you take away one thing, free cash flow
generation is king in this sector right now. If the gold price isn’t going to
perform, you at least need the companies to be able to perform
themselves. We think those are probably the best two areas to look in.

Now let’s take a look at base metals. Industrial metals are not as strongly
correlated to currency over the longer term. This is copper versus the
dollar and yuan, same scale as before. Over the past 12 months, they’ve
become a little bit more so with the trade tensions. But in general, far less
than precious metals, and slightly more levered to China.

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After U.S. tariffs, however, we saw kind of a pause in the trading market.
So copper, zinc, nickel, which had been doing comparatively well, all of a
sudden dissociated from these moves in the currencies and hung out in
this range where they didn’t really break through highs. They didn’t really
break through lower support. They were range bound for a period of time
as traders tried to assess where markets were headed.

Now post China’s second retaliation in June, that changed. So as the

dollar climbed, the entire sector eschewed the dollar and declined step by
step along with the yuan. Now not only would we have precious metals
declining along with the yuan, we also have base metals moving down as
well.

Finally here over the last two months, we’ve seen that relationship kind of
dwindle. We’re back to no correlation whatsoever. Currencies really aren’t
moving very much. Base metals have settled comfortably into this range.
Not much going on. In fact, unlike precious metals, they’re not reacting to
that broader market. This is the same graph as before, just with base
metals. We see zinc, and copper, and tin leading the pack north. We see
that same crossover into the positive quadrant in October. Here’s the
S&P breaking lower, not really much change in base metals. That’s a little
concerning to me.

Base metals fundamentals appear solid. We’ve seen inventory declines in

copper, in zinc, and nickel, and aluminum. But really there’s not much to
say right now except we think they’re going to stay in a holding pattern.
Supply and demand are at or near deficits. That’s positive. Inventories are
coming down. That’s positive. Currency movements have become less
violent. That is positive.

But investors are leery of the global economy right now. Nickel, which is a
metal that I was previously very bullish on, I think now is at some longer
term risk due to Chinese producer, Tsingshan, opening up a facility in
Indonesia. That facility’s going to be purportedly 50,000 tons. To give you
an idea of how that changes things, the market deficit in laterite ore that I
projected for 2019-2020, was in the 45,000 ton range. This completely
obliterates that deficit. They’re well capitalized enough to do it. We’re still
watching the space, but we’re concerned.

Recovery for copper and for zinc, we think is going to be fairly positive.
But it’s going to be gradual. There’s not much reaction to much of
anything other than economic news right now. You can see it in the equity
space. There is just absolutely not much to see. Nickel’s still
comparatively strong. We see no risk there. Copper has turned a corner
price-wise, but the major miners aren’t quite reactive. Freeport-
McMoRan’s still in the worsening quadrant. Diversified miners, like
Glencore, look a little bit better. But you get exposed to so many different
commodities, it’s hard to project what their price cycle’s going to be.
Really what we need to see is we desperately need to see some
improvement on the trade side that would, in this case, that rising tide
would lift all boats we think and improve markets for the near term.

Now we don’t usually talk about steel too much at these conferences. But
I want to talk about it here because it’s more connected than you think to
these other markets. Steel is a lumbering industrial commodity that is not
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at all in general connected to currency movements at any point in time.
But after we raised tariffs in March, all of a sudden they started paying
attention. U.S. steel prices rose in step with the dollar. Asian steel prices
rose in step with the dollar. Think about that for a second. Steel prices in
China rose in step with the dollar.

Post China, after China’s retaliation in June, all of a sudden those

commodities stopped paying attention to the U.S. dollar, leveled off, and
now are starting to decline with the yuan. In over the past two months,
unlike base metals, that hasn’t stopped. The U.S. price is now starting to
pay attention and correlate with declines in currencies.

Let’s take a deeper look because it’s causing some concern in the
broader market. From a production perspective, pretty solid, up 1.5% on
the year. Apparent demand up 3.2%. But growth next year is according to
Worldsteel is supposed to slow to 1% and possibly worse if trade tensions
continue.

Now most of these ... The tariffs were brought on a protectionist action for
the U.S. We have seen a pretty positive recovery over the past two years.
Plus 5% in 2017, plus 6% in 2018. But we’re near our capacity utilization
limit. That’s not the headline number that’s reported in the press. It is the
functional limit of steel producers to actually match output to demand.
That functional limit is around eight million tons a month. We’re at about
7.4. There’s not too much blood that can be squeezed from this turnip as
we see it right now.

More concerning is without an infrastructure bill, contraction is likely for

the steel market. Auto sales have begun to decline. The National
Automobile Dealers Association called for peak car sales in 2016. They
got a little bit wrong in the sense that Hurricane Harvey hit in 2017. The
insurance buys afterwards caused a peak there toward the end of the
year. But in general, peak to peak here, we’ve seen a 4.5% decline.
That’s bigger than anything we’ve seen over the past few years.

Housing is also starting to show some weakness. Four straight months of

new home sales declining, four straight months of new home starts down,
to the tune of about 22.4%. Now if you add those two together, that’s a
full two thirds of the domestic U.S. steel industry. Anything that happens
in these markets can make a serious move in terms of demand.

Now we have these inflated steel prices as a result of these tariffs to the
tune of a 55% rise to a 25% tariff, which is just mind boggling to me. Not
surprisingly afterwards, we saw steel tariffs announced in March, and
inflation took off in April, May, and June to peak at around 2.9%. Causing
Chairman Powell to add another rate hike in 2018, which iteratively
affects the housing market, which iteratively affects precious metals
prices. So although you don’t really think of steel as a commodity that can
affect all these other things, it’s really more connected than you think
these days.

Inflation also puts a cap on how well the industrial sector can do. It
essentially wastes the tax cuts that we passed last year because the
middle and the lower class are spending more money on the same stuff.
While base metals and precious metals markets, I think, have a pretty
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elastic upside once these trade tensions dissipate, steel prices not so
much.

Part of the reason for this bubble, which you can see here, U.S. prices on
the top, Asian prices in the middle, is that we cut off our NAFTA partners
in Canada and Mexico when we didn’t have the capacity to make up that
demand ourselves. Because we were unable to ramp up and capture
share, the price went up. Push the forward curve into backwardation we
got up to about $1,000 per short ton.

Now ironically, with Chinese exports at $650 a ton at that point in time, it
was cheaper to buy steel in China, ship it to the U.S., load it on a train,
take it to a tube and pipe facility, fabricate tube and pipe, and take that to
your project, than it was to buy domestically. I don’t think that’s what the
administration had in mind when they initiated these tariffs.

Now we see U.S. supply tighten is transitioning into surplus. We see

prices weakening. Our expectations of these here are 750 to 800 for Q-1,
probably worse in Q-2. The other thing that we need to watch now are
Chinese steel margins. Historically, the margin at a Chinese steel plant on
the coast is around $4 a ton. Right now, it’s about $140 a ton. The prices,
I think the spread to October is around $100 right now. There’s a lot of
play at stake here in China.

Raw materials costs are creeping up. Margins are getting squeezed.
China’s curbing production again this winter purportedly for environmental
reasons, but also we think to prop up the price somewhat.

Exports are down over 50% over the last two years. As much rhetoric as
you’ve heard about Chinese steel exports, look at that chart at the end.
That is market decline from just two years ago. Because of all this, what’s
happened is that China has turned inward. They’re now satisfying their
own demand for one belt, one road, and that makes them a pretty decent
proxy for their own economic health.

If China demand slows at all, you’re going to see it in terms of either more
production cuts in steel or falling steel prices, one of the two. That’s
important for us because any weakness in China bleeds into these other
sectors. Net coal market’s tight. Iron ore market is a little bit tight, but it’s
range bound. Steel demand falls, so do those prices.

We know that price inflation in the U.S. is coming to an end. We know

that Asia Pacific markets are in decline. We know that high margins in
China means there’s a lot of play in that price. Then if Asia Pacific prices
fall, we now know that U.S. prices must come down to meet it, or else
incentivize imports.

If you look at the equity space, there’s really just not much here. The U.S.
steel was the biggest initial benefactor from tariffs. But they’ve given back
most of those gains as Wall Street really caught onto this trend in the
middle of summer.

On the momentum side, we see all those integrated blast furnace

producers. U.S. Steel, ArcelorMittal, AK Steel, they mostly produce flats.

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Flat steel is connected to the auto industry, which is in decline. It’s
connected to white goods for housing, which the housing market is also
beginning to weaken just a little bit. If you’re going to make a bet in this
sector, what I would suggest that you look at are EAF producers who
produce rebar. That’s going to be companies like Nucor, Steel Dynamics,
and Gerdau.

The other added advantage they have is that they can flip a switch and
turn the facilities on. Whereas, blast furnace producers can take months
to ramp up and ramp down. They’re unionized operations. Takes a long
time to react to anything in the market.

Raw materials producers are doing fine for now. But as we said, it’s pretty
connected to steel demand, so it’s hard to say how much longer that’s
going to last in general. I think they’ll probably market perform to declining
from here on out.

I don’t want to leave you with a bummer. I do want to talk about a market
that I think does have a positive outlook here over the coming years, and
that’s uranium, really, swear. A couple of things have happened over the
past year that have really helped. Cameco shut down the McArthur River
mine, the largest in the world. And KazAtomProm took 20% of production
offline for three years. The market’s now likely under supplied. We’ve
seen a 40% run-up in prices. That’s very good.

Unfortunately, that’s still not enough for producers to make money at $28
a pound. There’s only about four to six mines in the world that make
money at that level. To meet 90% of the world’s demand, the price needs
to be at $45. I know you guys have heard this story I don’t know how
many years coming to this conference, but with the production cuts, we
think that this time there’s actually something to it. The production cuts
put the market in deficit, we think this year, possibly early next year.
Inventories are going to start to come down, we think, over time. More
importantly, when that production is reintroduced at a later date in 2019,
2020, we don’t think that supply is going to be able to get back up to meet
that demand line.

In addition, there’s some other entities that are coming out to soak up
some pounds out of the spot market. There are a number of contracts
that are rolling off over the next couple of years that will need to be
contracted at higher prices or else they risk putting their suppliers out of
business.

Supply cuts plus demand growth is a pretty solid outlook. We see prices
getting up to test $30 in early 2019, probably up in the 45 range by the
beginning of 2020. It’ll be a gradual move that moves with the seasons,
but we’re generally pretty excited about it.

If you guys have any questions, Money Map Press’s booth is booth three
right outside. I’m going to be here all week and I love talking about the
resource markets. Thank you guys so much for your time. Look forward to
talking to you again.

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