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 two 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 post 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 pure 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 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 so 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 I 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 so 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 its center-right and to give you an example of the power of this if you look at Europe night to 2017 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 Macron 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 they 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 sixty 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 they 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 now 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 because 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 and They've been doing it ever since now from 1854 to 209 The the 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 declines from 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 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 2008 the 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% Yesterday 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 The most unvalued thing and me and many of the other people on on Your you're the sponsor here real vision TVs gold and silver are the most the cheapest things in the world Relative to other products in the world or other objects in the world. So, you know, I'm an investor in gold I'm an investor in silver in the physical and basically 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 1936 traded at $70 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 Believe 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 you 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 something without 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 1920 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 banks 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 policy 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 words 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 well 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 so 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 so that they should have how they should have stayed the the the excuses are just mind Boggling that's why this company is doing so well versus 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 your stuff 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
