Practice English Speaking&Listening with: ? Defensive Investing & the History of Recession (w/ Victor Sperandeo) | Real Vision Classics

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Victor Thanks, it's great to sit down to people that are you know dallas-based

Maybe I'll even start just by saying that there are a lot of people that have been on real vision lately that are talking

purely about the markets in kind of a

broad sense full market bear market

Credit bubble not credit bubble. Whereas maybe you have some kind of more nuanced views, but if we take a step back,

Maybe somebody watching the interview which would say that we could possibly be from different investing generations

but I think from what I know about you, we might look at markets the same way so

Here, you know maybe 10 years or so into a, you know monetary experiment

Just generally what do you think about markets now?

And and and where we are maybe in the market cycle the economic cycle, etc. Okay. Well these


integrated parts

To everything you do in Wall Street, and that's the fundamental and the technical simple

There's also the psychological and the emotional side of it, but set up just for the point of your question

We're in a bear market it's a hundred percent

Now why do I say that

perhaps a background to people listening would be important because it's a it's a very

Solid statement so I want to give you the background

Now I've been I started in Wall Street in 66 and I started trading in 68

Now I probably read three plus thousand books

one of the books

Was a book by by a fella named William Gordon

Who was the CEO of indicator digests now? That's before your time?

They were a major

force in

The technical end of the business in the 60s and they took the ten major

Indicators at the time though. They had a lot theory things that nobody even knows what that means

so they and they trace that back to

1910 different

indicators and then many permutations of those indicators

so the one that came in first

was the simplicity of using a 200-day moving average trading days and

When the price?

Whether you use SP the Dow was popular at the time

closes below that and

the moving average is

Sloping downwards. It's night and day if it's sloping out upwards doesn't count

Sloping down which you sell and then you would buy in the reverse

that concept from

from 1900 to

1966 book came out sixty-eight

yielded you eighteen and a half percent compounded I

Took it forward. We have a trading staff research firm and

We we have three

PhD math professors etc. And we ran it forward and they were

similar now the second the second best

Technical indicator was Dow Theory came in at 18%

again similar results

Compounded at eighteen now

The one thing that I did that that Bill Gordon didn't do was that using real money as such?

When you sold you put the money in one-year bills

He didn't add that dimension. So mine. Perhaps was a little less

Than the eighteen and a half because I added to it by getting yield when I was in cash

So now these two

Indicators gave bear market signals one in October the 200-day moving average was the first and then lot later in early

December dal theory confirmed so you're in a bear market and as far as I'm concerned unless

Something changes now, they're not a nothing is infallible. But but I leaned very heavily that these are accurate

the other

Part would be the fundamentals now. You heard the expression

that you know

The the market is predicted 14 out of the last recessions that a lot of people use that well, that's a very naive

statement by anybody who uses that particular

Phrase, why is because the market doesn't only predict recessions it predicts

Things that can occur that would make the market go down like war it predicts war it predicts

Political change for example in 62 and

I was young lad. I was a teenager then but I was following the markets and and

JFK who's a very well respected president at the time

He attacked

The steel companies for raising prices. No different than Trump today on many different aspects

He attacked them well in those days it was looked at as socialism and socialism then was not accepted

as even a consideration

because we were

fighting with the Soviet Union cold war so to speak so

The market dropped 26% in less than three months

But no recession followed

The reason was that JFK realized he blundered and he backed off

He dropped it. So he didn't attack the steel companies anymore for raising prices and

The markets reversed. So like I say there there are many instances of that over the over the years

It doesn't mean the markets wrong. It means the market predicts many things

now when you have the Fed raising rates as

Jerome Powell did in September and recently on December 19th. That is a fundamental event

everybody knows that's why everybody follows the Fed that if they're raising rates markets don't like this and

You usually you know, you're taking away the punchbowl as the old expression and and basically you

You you go into recession every time the Fed does this now?

Let me just preface that I think Powell and the other nine members

Voted to raise rates the extra quarter even though it was very well discounted

Was a major error. This is going to go down in history as

one of the worst errors the Fed has ever made including the the

29-32 debacle. So I look at that that as long as they keep on track now

They're already talking down the other cuts

Kaplan from from Dallas is already saying well

Maybe we should wait til after the second quarter and I mean they're already backing off

But if you change the fundamentals you change the outcomes

so if they back off from

right now selling

QT and the rice the two more increases in interest rates

You you have to consider that and that may change

the trends of the markets

Because the fundamentals are changing but the key is that right now

it's going to be very hard to do that and the reason is

the world is

Heading into recession

Europe, Japan China

the virtual world

We were the strongest

economy in the world

And now this psychological switch like turning off light

Changed everything. So we are weakening. The data is weakened if you looked at the Richmond Fed

And you looked at the Dallas Fed results

The economy is already weakening

So this was this was because of in my opinion ego and perhaps even some politics

Jerome Powell was adamant about what he did and

There were many other people besides obviously Trump that didn't want him to do that that it was the wrong move. So

We're in a bear market bear markets by the way, you go back to 1899

The market once it proclaims a bear market

Six months is the average you're in a recession

So what the markets are saying now all things being equal in July?

You're gonna be in a recession in the United States. So from what I know about you

you've been kind of skeptical maybe of the


global financial crisis monetary policy regime and that

Maybe the manipulation of prices interest rates being the most important, you know would eventually have consequences on the other hand. We're talking now about

Powell and the Fed

Making a mistake in raising at this point

So again, maybe a case that our central bankers our timing cycles incorrectly

But how do you square the two? Okay

Originally when we had the 208 crash

You what the Fed did was sort of natural and no one can critique them although


The purest would okay

But let's let's assume that that was the right move but to keep zero interest rates

For seven years and to do three qyz, and I believe there was at least one operation twist

maybe there was to

you that was a again an a huge error now if they were normal and you know you

May have heard this you're a young guy the four-year cycle, right? So you go up three years into an election

usually the first year is when you do all the damage because people forget

So it would have been natural

to raise rates in two thirteen

to some degree now even think of it this way into ten when we were in a recovery the

Recovery ended in June the recovery began in June of 209

So let's say in 210. You raised rates fifty basis points a year

For seven years, you know one in June one in December small steady

You know, you could change your mind

If you want to you you'd be at neutral rates, which is what the Fed uses

Is there being a talking point these days so they didn't do that. They didn't raise rates in 213

They can anything the recovery would have continued whether it was a market recovery or economic recovery speakers because you remember you're adding now

Cuties to this scale qyz, so you got to put that in conjunction if you were doing QE

Why not raise rates slowly and maybe in one year race at 25 basis points?

And then I'm not trying to you look back and program. What should be done

I'm only saying that you can't all of a sudden Trump wins

They raise rates eight times. They raise rate once under Obama to 15

December and

Then they raise rates in

December of 2

to 16

after Trump won and

seven other times so eight times

I mean not that two percent means anything it means something

psychologically and it means

that if you're you're on a almost the

Heroin addict of interest rate and low interest rates and you do too much


you you pop the psychology and

Pease are psychological right? There's no I

Come from what's called the Austrian School of Economics

What they would say is all value is subjective

so when people start talking about

value and Pease

It's subjective

In the in the in the 20 in the 30s

Laura lied which was a

tobacco company

traded at six times dividend

Now that's you can pay that to to

Amazon today, there's a big spread. So what is the difference in that spread?

It's what people think and you know a market is valid and what people think is what it is

but the key is it's

Subjective. It's not objects. Not two and two so

the bottom line is is that

you were

They they did too much and when

I can tell you because I was playing this and

Everybody knew they were gonna raise rates

At least that was the prediction as soon as they raised rates a market collapsed which meant they shouldn't have done it

Because even though people expected it it was the wrong thing to do and this was outlined very well by Stan Druckenmiller

And and Kevin wash in The Wall Street Journal Wall Street, Journal had editorials as well

But those are two prominent people and there were many other pros that that understood this

So it was a very bad move. So he so III hear what you're saying. I also like Austrian economics and

another cornerstone, is that the the

manipulation of prices inevitably leads to miss allocation of capital and so if if we've been in a decade

maybe of the the most abusive or the period where we have most abused the price of money is

all of this a big reckoning based on

violation of those

cornerstone tenants of

Austrian economics yeah without a doubt and and what the what the central banks of the world

23 major ones they have abused the the mat the Wizards wand

They have taken it to where if you wanted to let's say measure Austrian school versus Milton Friedman who I loved

But he was wrong about

The the increasing the money supply the steady rate because politicians don't do that

So this is living proof what's happened? You know since he died, unfortunately

But the key is the Austrian school said no politicians will never do the right thing

They will always use whatever power you give them to benefit themselves


The key is they they abuse the wizard's wand here by

Too many qyz, and like I said if you wanted interest rates to be a little normalized

During those qyz, they should have raised rates very slowly

But shrinking the balance sheet and raising rates, too. Yeah. Sure. Yeah. It's it's too much catastrophic. This is catastrophic

Okay, so you said something that maybe leads to a good segue we talked about?

politicians and their ability to use power

abuse power


Think another topic that you've written

elegantly about and that is of interest to you is how power shifts globally

Are going to be an increasingly important factor in various markets, right?

What what the most important thing to me is aside from as a trader. It's what the Fed is doing

Alright, but but as an investor

I will look at political

Trends now you very rarely heat people talking about political trends but political trends dictate what central bank's eventually do

Because they change the power structure of those central banks now Trump didn't do that

Probably his if I had to pick his worst fault. He doesn't have a higher people

I mean, he doesn't understand ideology of who he's hiring. So he picked pal who was chosen by by Obama

He's environmentalist you were in environmental fund. He's an establishment guy

He by nature doesn't like Trump


That was the wrong choice. Kevin. Walsh would have been the best but needy in there

he chose him and he's chosen many other people that he

Ideologically don't fit his bill but getting back to your point

the political trends around the world of moving to

the term that's used as nationalist populist and


center-right and

to give you an example of the power of this if you look at Europe night to


there were

946 elections within the European community 28 countries, so

They lost 94% of them

94% of

the center-left lost in

217 now that's obviously we're moving to the to the right now. What is right stand for here?

less regulation low taxes

less government dictates smaller government all of those have

Fundamental consequences to what happens to interest rates and what happens to the economy?

Trump was successful to a larger degree

Because he basically put forth some of those policies and you'll notice that Europe will never increase

taxes there

They're a socialist nation. If you want to include the people who run it, but then you look at the European leaders

Well any day


With this yellow vest protest. He's got an 18 percent approval rate. He's a dead man walking. He's never gonna win another election

He might be ousted at any time. This is his popularity is so low

He's he's angered the people and you you know you France has a history of when you anger them. They revoked

Theresa May same thing. She's a globalist. She's a New World Order globalist. She doesn't want to do what the people voted for

So she's trying to get around it. She could get a no-confidence vote. She should be out

And Allah Merkel, perhaps the the most powerful person in the world

After well during the Obama administration

And she's gone she's now just

staying in her place

but she says she's not gonna run again and she may get housed that early so you see these trends are

really what you have to watch because

The monetary policy will follow those trends. So that's a that's an interesting point, or maybe it raises an interesting question

So we have monetary policy under let's call them more centrist or center-left

policies globally coming out of the global financial crisis and

They chose or some people would say we're forced into aggressive monetary policy

We just finished talking a little bit about the US and maybe the finger trap that we're in here

Which is to say that the economy looked good?

We didn't raise it's we start raising rates were late cycle and maybe we're doing at all at the wrong time

What does some of these what options to some of these other countries these other economies have given that you're at?

extremely low historical interest rates already

Asset purchase programs and the liquidity that

They have given and to the markets and supported the markets are already out

Even if we have populist movements if we move to the right

Do you think that the influence you mentioned on this on? The central banks will have any effect?

well the the answer to

getting growth

Is the same as what what Trump did?

You you know, look you got a lower taxes

Ideally, you got a slow spending. See you never hear of Japan

Who by the way has a tax increase coming in October of to nineteen?

And the European Union

Doesn't even talk about tax

Decreases, but its harm the people the people are basically serfs and many people in the United States are serfs


Work to survive. They get a little piece of the action. That's what a serf does and

They can't make it anymore. And that's why when when when macron raised the gas tax

To seven and a half dollars a gallon

The people revolt abyss that can't afford it. They can't pay it. And therefore you you know you had this

Happen if you've seen the yellow vest movements and you know the fires of burning the cars and things that people are voting

So the point is the way that you know now I'm being an economist side of me I'm saying well

Why don't you lower taxes?

less regulation less spending

Ideally less spending Trump didn't do that so much spending and and you get growth and then you get interest rates

I mean, you know the three-year the 2-year

bond is

Is yielding I think it's - 30 basis points

could be more and

inflation 3% now

She's gonna drop but the point is how do you buy how do you but I think it's excuse me

It's the 10-year. They're too many numbers. The 10-year is minus


With a three percent inflation right now again

As I say inflation will decline this oil is declined and that's why again pal made a mistake in any central bank

that is right, you know trying to raise rates now is the wrong move the key is


Kept that policy in Europe because they didn't want to lower taxes

They're Global's they want to keep the people working for the people who you know

Steve bangin would call them the Davos party. So that's who they want

It's easy to solve. It's the ideology that's very difficult to get over the heads of the people in power

So tying this back to markets and central banks, etc

It sounds to me parsing through what you're saying that at least when we're talking about the developed world

and developed world central bank's who who have

perhaps been the most aggressive in their monetary response to

Really the crisis ten years ago now might just be hamstrung

even if the politics shift in the direction of

Attempted market friendly behavior at least from a policy standpoint their options might be limited

They are Europe is

Extremely limited so is Japan because they didn't raise rates. They should have raised rates. They were afraid now

They're in a corner. How do you can't lower rates when you have negative rates, right? And

So they're they're they're toast

They've killed themselves and I sort of mean that literally the European Union cannot survive


predicting when a

You know when a son of a nation ends is a very bad thing for traders to do

But you could see you know, you look at the Soviet Union they lasted 72 years

So you can't you can't they always have tricks, you know that they put forth

So, I don't know when the European Union will break up

But it will and right now it's probably in a more precarious state than it's ever been because the the three top countries of Germany

England and France in that order and they're all

in trouble, I mean the leaders are

Out already to get to be thrown out. So if we step back and take, you know view at the whole world, is there anywhere?

Maybe in the emerging markets

Where you think the combination of political change?

less central bank

Division s today leads to opportunity right now. You're you're in in my view

What what would be the cold defense or?

Preserving principle unless you want to play the short side

The short side is a difficult thing to play at this level


there's an incentive for Trump and

She Xin pinned to do a deal they do a deal on trade. The markets are gonna rally. I mean, there's gonna be a psychological

Big move up, that would be the time to short but you know

Not the first day of the first week of the even maybe after three weeks, but the key is that's coming

so you're really at this stage very difficult unless you're a trader to

Put on a short position and and you know sort of go away

But the bottom line is is is that the the the world is in a precarious position?

So you're gonna be on the defense we had to put your money. I mean if you're talking about a nation right now

Brazil I would look for investments in Brazil. I would do the Jimmy Rogers game, you know, I mean

this guy

Boston ro is gonna do good things in my opinion and

Switzerland because Switzerland is is is basically a place that is neutral all the time

They have negative rates because they don't they wanted to stop people from putting their money in the Swiss franc

So, you know that let's put this way that if I were

And I'm not recommending a trade but just in theory

I'd be long in Swiss franc short the euro, right? That would be a trade. I'd be long

The Brazilian reality short the Mexican peso although the Mexican peso technically looks very good

So I'm not saying P do this now. I'm saying from a fundamental pocket

Yeah, you're just looking at the backpack. But the chart on the Mexican peso looks very good

So you can't shut the Mexican peso here the key. Is that right?

now you want to look for nations that are gonna do what Trump did in theory and

You want to avoid the nations that are fighting it France?

Until McCrone goes is in turmoil. Yeah, right

Interesting. Well, so if we bring it back then to the US because you just now you have point back to what Trump did

He obviously was very vocal about his impact on the markets

while they were rising and

as recently I think is

Yesterday I've talked about the correction as a glitch and really a misunderstanding by the American people

Is there anything to comment on that in terms of your world, you know his weakness is?

basically his insecurity he has to tell you that he's the greatest, you know, I mean I

Kind of laugh at him. It doesn't bother me. Whatever. He says it's his personality

I don't care about his personality. I care about his policies but the point is his weakness is

He he speaks too much and to take the credit while the market was going up

Obviously he called it right he said don't raise rates the markets down because the Fed did raise rates too much too fast

So he's right but there's been times where he's been made very much in favor of raising rates

He seems to have two views. Yes who wants a strong dollar maybe because of the psychological I

Think Larry Kudlow was influential in that. I don't know if he ever wanted really as strong. He wanted a stable now

Let me see. He understands dollar goes lower. Your goods are cheaper. You sell more, but but yes he

he is all over the place because

He doesn't he doesn't have

What I'll call conscious to tional principles

that never change, you know, for example, you should never

Employ price controls right? That's a principle

And not that he's for them. I'm just using that as an example

the point is is that he has now gotten himself in some soup because he's

taking credit for the market increase and now it's gonna be

political because it's not his fault that the Fed raised rates, but he's gonna get the blame so he

politically harms himself

Far more than he would if he just shut up because people would would attribute

What's happening to the economy if you lower taxes and cut regulations and the market goes up?

You don't have to say well I did it, right

so he hurts himself in many ways and I repeat his worst mistake is

How he hires people he hires people because he thinks they're smart

Vladimir Lenin is very smart is the smartest dictator they've lived

Would you hire would you I don't know his ideology is

Opposite yours so the key is he makes these mistakes. Then he winds up learning about the people that they're different

He fires them and he looks bad right then. There's no continuity, right?

so if we if we maybe shift back to

Politics and power politics in the globe. You know, how do you as a traitor?

As an investor as an advisor

You know, how do you think about the next few years? Is it very much?

You said you use the word defense earlier in the interview, but are your time horizons shrinking?

In terms of how you look at at the markets or investments. Are you trying to be more tactical?

Or is it?

You know are we just waiting for the signal for a bigger trend again?

Well, let's examine two points to answer that question, but I can only do this

You know by looking at the past

the the the experience of the path helps guide you

to the future in

1854 the

Nber has a Bureau of Economic Research

Started to classify recoveries and recessions


They've been doing it ever since

now from

1854 to 209



average recovery

Was thirty eight point seven months

thirty eight point six months

since 82

It's a hundred months

What's happened is the Fed?

Got this magic wand this the Wizards wand and they said, you know

Why should we let them are this is a greenspan concept being too smart for zone good

how extend these say I put in the Greenspan put will keep the markets going will keep the recovery going and

so when you do that, however

when the game ends for whatever reason

You get far greater downsides. I mean the the



1854 there were a couple of depressions

one in the 1870s in 1929 thirty-two, but you had

2000 - OH - there were three years of decline. The only other time that happened was in 1929 - 30 -

29 30 31 32 actually wound up being up here not him than June and

The the point is that you had to await

so now

You're kind of in a difficult spot because even though we've raised rates of two and a half percent

You're not gonna get much Vig by dropping rates 200% you know

Although it would it would definitely cause a rally but the key is is that the Fed is is in trouble because it hasn't

It hasn't budget itself properly like Europe is in worse trouble. Japan is in worse trouble

but you know, we're the with the best of the bunch, but the key is

Is that you you really have to expect?

All things being equal meaning no change

you can have a

Horrendous bear market here horrendous because you're starting from a high plateau of ten years up

the longest bull market in history

3,000 and almost 500 days

And you have two thousand five thousand year old interest rates in Europe and since America was developed

Let's call it two hundred and thirty years ago. These are the lowest interest rates in two hundred years

And by the way, just for your your audience when the Fed started to raise rates December 16th

2015 from zero to a little corner. The thirty-year was 3% exactly on that day

It was 297 last night so you see the long end is is having

Seeing the problems. The bond market is a great for teller of

future economic news

So you really have an issue where?

You've raised rates nine times, but the long end of the market is lower than when you started

So now you the real curve is inverting in some respects last night that the one year was

260 and the ten year was 265

I mean, yeah

You are dropping can see that the Fed is never gonna be able to complete what it said it was going to do

That's not gonna help the key is what does it do with its balance sheet?

Because that is where the rubber meets the road if they continue to sell


Then we're we're gonna see something in the order of a thirty seven or a twenty-nine

thirty now to what extent you look at, you know different parts of the market because

Despite it not you know being my day job exactly

never really been us focused and probably have less of a technical Bend then you have

I think you'd have to have your head in the sand to not realize that we've had a very

concentrated leadership in the US markets for a long time maybe being

Tech tech heavy I think all of our all the people watching know the names

and the breath has maybe been absent and

Even though we look at the December that we just have we're filming, you know now here in January

We look at the worst December since the Great Depression

And we might say my goodness. The markets are just falling apart

You've had these miniature blow ups and major bear markets in different sectors

in the US markets and in many global markets over the last several years perhaps

foreshadowing that

Ultimately the the last shoe would drop being big US tech maybe healthcare

But to what extent are you looking at? The the

Sub industries of the S P. And is there anything that you that you take from the price action?

You know there or between them tech versus maybe the resource sector

okay, first a little background the

Early the late sixties early seventies. We had the conglomerate craze

There were these Conkle on everybody loved conglomerates. There were many of them

then in the late

70s we had the nifty 50 a von Polaroid

I was a block trader for we I sold my firm to Whedon and company and they made me a block trailer as an options

Expert and I used the options to hedge

The block trading I did in the nifty 50

That was kind of my the glamour stocks

They call them it so they all have they all get nailed if the if the market is going to come down 73 74

conglomerates died

50 50 80 81. They got killed I mean

Everything when the markets go down

Everything goes down. So the fang stocks are you know, the tech stocks are over bees they're overpriced

Relatively speaking. And don't forget all these. I mean not people talk about this the

Facebook's Google's of the world make their money from advertising right? So if you have a recession, which we haven't seen since 208

What's the first thing you cut?

Advertiser is nobody's buying anything

So there's a fundamental. Let's say behind the scenes

obvious to me that if you own these

Internet stocks, let's call them there

They're gonna get sold aggressively for fundamental reasons. Now if you want to call tech, you know, let's call

Microsoft and some of the some of the semiconductor stocks

Let's call that tech most of them have moved offshore South Korea, Taiwan, China

Build those things so we don't really have a big tech industry per se

In the United States all those jobs are moved offshore for the same reason the manufacturing jobs are just cheaper labor

So all I can say is is that you can't hide behind?

Any group and now because you have so many of these ETF indices and so many stock indices

You're really trading

stocks are stocks and

Being a stock picker. There are some excellent stock pickers like Lee Koopman who recently is a man

I know very well and friend of mine. I would say and and he's excellent

But he's best in bull market space a outperform

But if you're long stocks in the bear market, nobody wins, you know bees although stocks are gonna go down. Yeah

Yeah, it certainly looks precarious

You mentioned obviously how low rates are historical historically speaking can go back thousands of years and Europe hundreds of years in the u.s

The the debt role for u.s. Corporates looks pretty

Scary at the moment

Particularly in this rate environment, you know, you took incorporates to talking corporates. Yeah. Sorry true

He's another you know, I'm a man. That is a researcher

So I have a lot of facts and I'm losing my memory in many areas, but not in these years

if you

from 61 to 208

The end of to a beginning to all nine

if you took the thirty-year at the 30-day t bill and the

30-year long bond you add them together you divide by 2 you compound that?

From from from 26 to

19 to



interest, excuse me, in this case from 61, not from

2016 16 1961 to 208

The average interest rate adding a t-bill to the long bond divided by 2 is five nine nines. Let's say 6%


The average was 269

That's 2.2 times to get to six now. What does this mean?

There's not a price in the world

That's accurate

Coca-cola in India is not priced correctly now

I don't know. It should be higher or lower but there is no price correctness in the world. So all prices are going to be

Adjusted once interest rates go back up

And that is kind of obvious. But when you say it the way I'm saying it. I want to make people pause

There has been nothing but a huge

distortion of real-estate prices of stock prices of paintings a painting sold for 450 million dollars

I mean, I'm not in the in the art world, but I mean, you know

This is all based on the fact that stocks have been elevated and people have X, you know so much money

They try to diversify. So this gets back to your Austrian economics better. Right? The old value is subjective

the key here is is that you you must understand that this is

Going to be reset

One way or another it's going to be reset again

Timing is hard to predict here when like for example, if I said well interest rate it's gonna be 6% again on average

I mean, I can't predict that I can't predict when but someday well

the the conclusion to that is that

Anything with paper money?

Will not protect you so if you own if you're wealthy and you own stocks, or you own real estate

in paper-money terms

They're gonna they're gonna be depreciated

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I'm an investor in silver in the physical and


I'm comfortable and you know, I've been an investor a long time. It's just question of

Proportions, so to me, I that's a place to invest that's not a place to Train very hard trading

Gold and silver very hard, so I wouldn't recommend that but you know where you put your money we talked about, you know

Maybe places like Switzerland and now maybe Brazil but the key is also from from from a sector point of view

The mining stocks, which if gold goes up

They actually are leveraged up because costs stay the same and the price goes up so they have higher margins

So mining stocks are actually better than the physical

Unless the world has real problems and then the physical is better than the miner stocks

I should point out that Homestake mining which was the biggest mining gold mining company in the world in 1929 was eight dollars in


traded at


so you see mining stocks can go up button and you couldn't own gold in those days because

Roosevelt had confiscated the gutter. Have we missed anything?

Well, yeah, let me let me mentioned it and I've been a huge researcher on debt. Everybody talks about debt

and I


And with all due respect and great deference

To mr. Dahle. Oh

Maybe see he's recently done some

videos and he put out a new book I think and

What most people are not aware of is that starting in 2:14?

The rules were changed

That have a huge

Benefit to the US government when they sell debt now, we all know they got a trillion dollar deficit and


got 22 trillion on balance sheet and

You got 10 trillion off balance sheet, which very few people talk about forget the unfunded liabilities

If you want to know what the real deficit is

you got to look at the gap way of figuring the deficit because you got to take into account on funded liabilities you

Wouldn't have a deficit of a trillion. You have a deficit of six trillion

So you could see you know, there's lots of games that are played

But the key is most people are just not aware of these rules now

If you buy debt as a bank

This applies the banks and my let me give you the the bottom line before I explain why

the government can the US government could sell all of that at once there is no

Debt deficits and debt does not matter at all

Now it will Sunday

But it doesn't if you want to sell debt in other words

The government will always be able to fund itself has nothing to do with overseas most commentators

You know who went to school got master's degrees that they're not up on the x?

So what do I mean by this Basel three?

You have no capital hits to a bank they're exempt sovereign debt is exempt this goes for you know,

ECB and Japan

There's no harm done there

You buy government debt you don't have you haven't put aside anywhere Erbs

So there's no reserve hit

You buy government debt they have an account now, and this was in 214

where it's called whole to maturity HTM accounts

The other account is available for sales. If you're a bank and you want to buy a hundred billion of US debt

30 years, which is what you want

Because you get the interest on that debt

You have no risk, there's no mark-to-market

Because you put it in your yet

Okay, so I know enough about this to be dangerous, but I want to make sure everybody's following you so far

So we're talking about the US government and its ability to fund itself the US government sells

government bonds on the spectrum of maturities

some people would sit out there saying well at some point they'll be

Absent a buyer, but what you're explaining now

Is that because of rule changes in a closed system?

where our banks or global banks are able to buy sovereign debt without putting aside any capital meaning that there's no

Hit to their capital ratio owning it you're saying there's essentially an unlimited demand, especially given that there's no mark to market

So there's no earnings risk, etc. Correct, and they will always be the bidder for these

outside of maybe

It's a real

Rothschild arbitrage

The banks have put themselves in a position to purely arbitrage the interest

Nothing can happen to them and a matter of fact, they didn't get the last point

but they print the money right so they come in they just write a check to the to the Treasury if

They if they're bidding in the auction is one of the primary dealers and they print the money just like banking 101

Where you print money to people, of course, there's a reserve when you make normal loans in this case. There's no reserve because

The government will print the money and give it to you. I mean there is some logic behind it. That is

not prudent, but if there is logic if if you can't lose because

The Treasury will give you the money there if you if you're buying bonds below par

You have no risk, right? So I

only say that because

Again, I'm not suggesting that

You should buy bonds and you can't lose I'm saying that a bank can buy bonds and it can fund



without the normal

process taking place now, by the way, if you call a central bank and you ask them about this

It's not easy to get information and they won't talk to you. They don't really want this

Let's say you can research it and you can find these rules about what you know

what the what the reserve requirement would be if you buy a a 2-year US government bond or a note in this case and

You'll find it, but but they don't want to

Let's say tell you easily. So if you call they'll say well email this department. You'll email that department. You'll never hear from them

I tried it

So they really want to confirm they want you to confirm, but they don't want to tell you

so we started down this line of

Talk was debt generally and we started now and we started by saying, you know, let's talk about government debt

I think that's essentially where we're going and our ability to fund ourselves in perpetuity and there

Based on what you just explained there might be good reason to believe that as long as our banks are on board

Which maybe they would be strong-armed to be at all times that in a closed system

We could perpetually fund our deficits as long as everybody continued to be

Incentivized to do they're incentivized to do it

now if the only question I'd have for you again, since you brought up Austrian economics, you know ends up being

the definition of inflation which

Often times can prick problems and deficits and in bonds and we look at or I think the market looks at

Silly measures like CPI, and we believe that that's inflation. But if you are true

Austrian economists you'd say that the increase in the money supply and the growth and money supply is actually

inflation, so when

the government our government or any other one prints money and

Whatever money aggregate you want to use starts expanding? That's the true inflation number. Yeah, it's it's it's how you

Define what inflation is you're on the right track?

And by the way, avoid corporate bonds was the point of that story because this doesn't apply the corporates corporates

They got reserves and they don't have they don't have the same ability

To not take losses as I mean if it and we're seeing it but yeah

The markets are locked up there, right a corporate bond can go out of business. The US government doesn't want a business

It just prints more money

But getting back to the inflation point here is the key question and I was wrong on this

So let me put myself right out there when they were when the government was doing when the film was doing qyz

you would have assumed there'd be

hyperinflation and the reason there wasn't

and I

give the Fed credit for this one is

because they they basically

Took money and they didn't give it to the people

they gave it to wealthy investors insiders banks and

So let's say you worth a hundred million dollars hundred billion dollars and I come to you and I say look

I want to buy your bonds and

Here's 100 billion you give me the bonds. Well, you're not gonna go spend, you know, you can only Bible a couple of yards

So taking a step back what you're saying. Is that the velocity of money

Which is the critical part?

Money in printings impact on inflation never picked up velocities. It's at a

50-year low right because you're giving money to the people in exchange for an asset and

The people who you're exchanging that asset for are wealthy people who are not going to spend the money

But reinvest the money whether it be stocks, which most of them did or or bonds

But the point is you didn't give the money to the people now

Let me just put this into its context in

1920 when Germany lost world war 1 and there was this thing called reparations they have

For the expenses. Well, they bankrupt the Germany. Well Germany printed the Mont printed money, but they gave it to the people

So whether people do they spent it see so if you don't give money to the people

You're not gonna see as long as velocity is dropping. That's your key that you know, there's no turnover, right?

I mean in the 20s in


the the coming into

1922 and 3 which were the bad years you had money turnover velocity of 1.5, which is

About what is today in the u.s. It went to 12 so money turned over 1 see once a month

the money supply turned once a month instead of

One and a half times a year so you could see that's where you get your inflation, right?

So again just to to not you know

Not let's say put in context because governments have tricky ways to do things

so if they want to stimulate the economy and stimulate wealth

They just give it to the wealthy people who invest it and don't spend it and you don't see it in the CPI

You see it in the stock market the art market. The real estate market is etc

I don't want to complicate things, but I think when we talk about

you know wealthy people in this case the money that was printed mainly went to banks and


Mostly put that excess liquidity back to the Fed in excess reserves, right? So the big economic

Conundrum and I'm speaking a little bit above my paygrade here

But I think to synthesize what you've been saying

All of this money was printed but as you said instead of going to the people or instead of going into the real economy

it ended up really amongst the banks and

Because the banks weren't lending it we didn't have maybe some people would say would argue

We didn't have real economic growth which would come from lending it to the people which then meant

spending by the people and it ended up at the Fed in terms of excess reserves or

in other places where velocity of money wouldn't take up that liquidity again really became a

manifest itself in speculative activity like the market or

Frankly just on the bull fed know

exactly what happened, but but some of the people did get

Some of the money and they like to say they invested it not spent it and and that's a part of it

But would you says accurate 100 percent?

But that's why you didn't get inflation because the money they paid for the one of them

I think may been the first time in history, but I'm not sure they paint interest on reserves

So the banks didn't have the incentive to lend it to loan out the money. That's right. So where does that bring us today?

Because again, I don't want to make the conversation overtly bearish

it's been a

long cycle of people expecting that this you know


eventual mistake was gonna have its reckoning in the market and we haven't

Until very recently. So again, wary of crying wolf here, but when we look at all the things that you've talked about

You know political change but political change in places where?

Monetary policies already been extreme we talk about real economic activity

Waning despite again the punchbowl being in front of the economy for the last, you know, 10 years and also now turning over

Now we we've talked about velocity of money and and and why there's been no inflation and it's because throughout this

Apparent economic expansion that we've had over the last 10 years

Lending has actually in real economic

activity as some would measure it never really picked up and now we're potentially going into recession and there's even

Less probability that the banks are going to use that capital if they have for lending purposes

So a lot of moving pieces, but but how does this filter down into?

victors view of the world going forward

It's got lots of problems and unless things change

Less policies change we're back to where we started

You're in a bear market you're going to be in a recession and by July

Statistically speaking. Maybe it'll be August maybe September. Yes

Now if this major changes you have to filter the things being in all things being equal you're in a recession in six months

And it's begun. I mean the you look at

the the Dallas Fed

Manufacturing report and and and the other one that came out was Richmond. I

Mean they look pretty terrible to me. Yeah, so

You know the key here is

survival, right

Staying alive, you know Jimmy Rogers. I know him a long time every time I meet him

Sometimes we meet in the men's room in a restaurant. I mean he's now moved to

Singapore so I don't see him as much but every time I see him he said oh you still solvent I said, yeah

How you doing, Jimmy? Yeah, I'm still sobbing. So that was our favorite exchange of


Because you never know

But things you know, I mean the markets can be up going up and many pros could be short. So I thank goodness

I didn't lose a lot of money on the upside being short. I'm short once or twice on a trading level. Where where I

used the options and I lost a part of that but

you know, I

The market on the way up, but let me also say that I missed the bulk of the move

Because I never believed the fed would continue to play the game as they did. So I've been very conservative

for the last and so I

You know

This is all new to most of the old money managers who never seen things like this


I think that actually might be at least in my opinion one of the most interesting

lead ends of the conversation so far because as I said in the beginning of the interview, but I'll repeat we at least

Externally from an age perspective are from different investing generations. I was very lucky

To cut my teeth in the industry for a firm who was on the right side during the financial crisis

also big believers in Austrian economics

skeptics of extraordinary monetary policy, etc

so I think I've always kind of carried that chip along with me that that

That market scan can get very weird very fast

And that there is a such thing as a bear market mentality versus a bull market mentality

but one of the things that you know

I'd say maybe keeps me up at night or certainly keeps the wheels and in my brain moving, is that most investors today?

And getting to your point

Really are just of the bull market generation

Right and and you've done such a good job today of walking us through stats of statistics going back in some cases hundreds of years

Which shed a lot of light on you know what happens in different parts of the cycle

But one thing then makes me a little bit nervous here is that we have a lot of market participants

Who aren't really students of history?

They aren't even students of near-term history like 2008 or they certainly didn't live at first hand


If everything that you're saying is true

we we

Market as a whole might be woefully unequipped to deal with it

Correct the PT Barnum line, you know the annual crop of suckers

I mean, I don't mean that if people lose money and downside that they're suckers. I mean that they've been led

to drink this kool-aid and

The Fed would save them now the question yet. They ask is

Why the ten members vote?

to raise rates when

To anybody who knows markets they wouldn't have raised rates. Is it political?

Are they now become a political I mean inflation is?

one of their band-aids

Price stability they've got two percent going out for three more years in their projections

Unemployment is three point seven or whatever the way through foreign aid, whatever it is. I mean, so what are they targeting? They're targeting growth?

They're targeting GDP. Why?

That's not part of their mandate

The Trampas Trump is right. He just doesn't express himself. Well

Do you think

That if the Fed had stayed on hold that the market would have had a positive reaction

Yeah, I do. I think it would have been very pie because everybody was expecting it

Like I said to raise rates

But they didn't believe they really would do it

Because they said it see they guided you to what they were gonna do and then they did it

But they didn't change their the you know with all the editorials. Like I said of many in the Wall Street Journal aside from Druckenmiller

And they still raise rates. So they they really made a

Horrible error, they're gonna be on par with 29. Now. How do they get out of this mess?

Caplin eight hours ago it was saying well, maybe we should wait till after the first second quarter and you know

they're already trying to walk back some of it because they're seeing this seem like

Well, that's all very interesting, you know, there are definitely some people in the market that that

perhaps incorrectly

Thought that a hold would be a signal that the wheels were really coming off. No, it's not the way it works

That that is it's a great talking point. It's a great excuse

It's 2 and 2 if you raise right, you know what I mean, people are paying and all those two credit cards

Did I mean right now?

If you get a statement and you know obviously pay off for my statement

I don't have any good but the key is you look at the same. It's like

18.6 annualized rate

There's 4 trillion in credit card debt, so

You've Majan with what's happening to the people. So lowering interest rates would not look bad because the

the point is

The people would be paying less in interest. Oh sure and they've had more money to do other things with per se


that they should have how they should have stayed the the the excuses are just


Boggling that's why this company is doing so well


CNBC because they're losing viewership

nothing against CNBC Perce ASA pit bulls and

here people get to express and say

What they what they believe yes, so

One may be more nuanced question on this point just because I think we have a little bit of time

But how do you as a veteran trader?

Look at the kind of coincident news ie the Fed choosing to hike

Stay stay on hold or cut in the moment versus what the market is pricing in terms of probability of these moves

the reason I ask is because you talk about

responses and maybe the way that either policymakers or

Politicians will do an about-face to try and save the market

And potentially prevent the recession that otherwise would come in in six months, but the futures markets and interest rates

Are starting to price that in already that about-face?

How do you reconcile the two you know what you?

Kind of get in terms of future expectations in the futures market

Versus what happens in the moment on decision day? Okay. Well

You you you go back to technicals in fundamental. So you look at the charts

And aside from the charts as a trader you buy extreme weakness because you know the feds going to come in

at this point they have they don't want really the markets to

continue to go down they've stabilized them by I mean they

You know look

I've been buying things and selling things for

55 years

if you want to buy something and it's



Do you really?

Run up a hundred handles in the S&P. No, there's no news that day that

That's the Fed saying look we don't work. You know, we don't want to cause a crash here. So we're gonna stabilize the markets

So if the markets are going down in an extreme fashion

The later in the day the better

You you buy some

you don't buy the full boat because again

It can continue down you want to average in the feds gonna be there from here on in to stop any crash because they know

The eyes are on them

The shutdown has nothing to do with the markets, right?

these are just to be clear we're saying is that you do think that

We will have the Fed or the plunge Protection team is that's so affectionately known on extreme moves in the market participating

Right, there's one

There's one contingency of that

When you're a manipulator

You do not buy on bad news

like with this Apple news

The Fed is not going to spend their money if this Apple news and I'm expanding if there was bad news across the board

You're wasting your money because people will sell to you so you can only buy

When the markets are crashing and there's no news, you know in this people are unwinding is a margin calls or whatever

It might be sure so the key is that if there's no news and it's quiet and the markets are selling off

That's when you buy but if this if there's news

The GDP is gonna be revised down by the Atlanta Fed. Yeah to negative. Why fight?

The markets gonna go down if they can't stop that because people will sell to you right and so you have to be a

Manipulator you have to do it when it's quiet

Then you buy it up and you know

that's the way that the game works does that's a little bit of a trading pitch there about what I do, but

Really right now the key is if you're an investor you should be extremely conservative

And you should be in in debt. You should be in the yen's gone crazy here

That's just you mean government that you mean bonds government. Yeah not corporate it and you should be in

In gold and

silver and the mining shares which are

on the they're their bottom and as

You see gold has been going up and silver been going up because people moving their money

To to defensive positions. That's why the yen went up

Well, that is a lot of food for thought. I think it's been a great interview. Thank you so much for your time

You're welcome. Thank you. Bye ask the right questions you did

Until Roland grant. I appreciate you know their consideration to that

They got a great business and it's great to see the interviews that they have put forth

So, it's great that Victor. Thanks. Thank you for talking

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