The Intelligent Investor’s Guide to Gold, Central Bank Manipulation & The ‘Future of Money’

[Music] hi I'm Keith McCullough and welcome back to another real conversation where it's my pleasure and privilege to welcome Roy soo bahk who is the founder and CEO of gold money that's a company that you've seen Josh Crump from now and Josh partners for how many years now almost a decade almost a decade on Wall Street it's not a Wall Street company that would be classified as a very long period of time but Congrats on everything that you guys have built so far thank you and thanks for having me it's really incredible being here it's it's a I've been trying to track you down in particular for a long time so when you ping me that's it maybe just a little bit of history and melding you know your thoughts on gold into the founding of gold money so that people just have some background yeah sure so I grew up in in finance I've been investing in the stock market since I was a young boy 12 and I had the opportunity to have a few good mentors in Southern California that taught me essentially the distressed long short game specifically a bankruptcies reorg spin-offs things like that so I grew up with a traditional Graham and Dodd background bottom-up valley investing you know I at first I did try a lot of different things but nothing really made sense to me until I use that prism to understand markets and then once I got into that type of investing because I didn't have a lot of capital I really gravitated towards distressed where you could buy these 10 cent dollars or these cigar butts as grant used to call him when I started investing in distress I think a lot of things started to come together for me intellectually the first was that you it really pays to think in a contrarian way every year I would see these companies that would file for bankruptcy trade on the Pink Sheets have a queue at the end of their symbol and most of the institutional investors would sell at that point but there was sort of this cadre of long short guys to stress investors to stress shops that specialized in analyzing companies at that moment onwards and really learning about the chapter 11 process in the u.s. especially in place like Delaware is extremely insightful because you you learn all about how you're at your debts get frozen and your assets become sort of this you know nonlinear dynamic reflexive line-item and when you get into industries that are cyclical or when you get into industries where the line items on the asset side of the balance sheet can have a symmetry or convexity or things like that you'll all of a sudden find that going bankrupt could be a blessing and many times in my career you know starting again like a very very young age I saw how these waterfalls would result in a situation where company has no equity value and all of a sudden has tremendous equity value and I and I made a lot of money doing this and in other cases I would see that there would be bankrupt equities where there was clearly no equity value to the point where a judge had already approved a bankruptcy reorganization process and investors were still stupidly buying the equity like you know I've shorted equities where DTC was deleting the equity in 30 days and investors were buying at a 30 40 cents and as long as you got the you know the borrow you still borrowed at 6% so this I've seen some really interesting things and I think that conditioned me to think as a contrarian yet to the point where I started to question everything the sky is blue why explain and I guess it really goes back to my curiosity like all the way since I was a child but I think being a contrarian also imbued in me this sense of I guess first principles thinking where when I try to analyze something I'm not trying to appeal to any authoritative Dogma or a theory or an axiomatic system I'm trying to figure things out for myself the same way that a philosopher what a natural philosopher I'm just trying to figure things out how does this work how does that work and it's not always a reductionist approach either so the way I came to Gold was all of my mentors in finance hated gold I was the guy that was in the value investing clubs on the message boards going to the annual meeting I had lunch with Warren Buffett twice I've you know met and didn't have to pay for I didn't have to pay for it it's it's actually a pretty good story the one time Becki quick but but the the poll point is that everyone hated gold Eden and I couldn't understand why and all I knew was that their their analysis for why they didn't understand gold always went back to it doesn't have a financial statement it doesn't produce cash flow and so it's in the too hard to decide bucket and I found a lot of contradictory evidence especially with Buffett for him in my view knowing a lot more about gold than he let what leads on and and as well with Munger so for example one of the things that were pretty crucial for me was when I discovered that Berkshire Hathaway bought you know six or seven percent of the world's silver in 1999 and in the press release of Berkshire Hathaway put out buffett quoted i've been following the price of precious metals since their demonetized and you could still find this on bloomberg and so eventually he sold the silver position and he I think lost a little bit of money but had he held that silver but it would have been one of his best but you and I made like a hundred billion dollars but the point is that if you have you read Howard Buffett's writings as a congressman literally as a congressman and if you read what Buffett would even use to say in some of the early BPL letters there is this digression and thought where initially he seemed to understand gold and and view it as money and then at another point he recognized that rather than being long gold as money he could be long other assets that would benefit from structural inflation I think that's what he ultimately did but but I digress of it too so so for me it was starting to recognize that either people didn't spend enough time trying to understand gold or they were just all making so much money within the system that it didn't matter to them and I had other interests aside from finance and like physics and I kept finding that in in the world of physics and geology and chemistry gold was a very special element on its own account just doing a first principles analysis based on scarcity based on its properties and attributes the most ductile metals the best conductor of energy the only metal that doesn't oxidize or erode or rot or tarnish and at some point I began to recognize that the reason I was successful in the distressed world was because I really recognized the value of time when investing and and ultimately you know like you've had Josh here so josh is very much about the energy and I totally agree with that it's all it's a function it's a thermodynamic function economy energy and entropy but I sort of see time as the wrapper around that for me it's always been about time and I've always found that when you when you go along something without an expiry day a perpetual call option you're always gonna do okay and in a Fiat money economy that's especially true and when I began to see gold as being timeless being something that not only is extremely scarce so it can't be cheated but also is the one thing that's timeless that's when I begin to sort of reconcile that understanding with my understanding of monetary history and it happened at a great time for me around 2006 and 7 so I started learning about this and realizing that the valley investors were really really good and in fact I do believe it's the best method for constructing a long short portfolio of equities working within that arena but when you try to take a step back and understand well why does a house go up I'm looking at this thing just it looks the same to me in fact if anything it's decaying I have to keep fixing it why is it the house going up or is there more money bidding the house up and when you try to think about things like commodities or macroeconomics valley investing is not the right framework you have to think about something else and I think ultimately for me I recognized it was all about money and if I was going to understand money I ultimately reconcile that gold was money whether we agree whether we don't agree it's got another new with economics it's it's part of the laws of nature of physics mm-hmm well I mean and and you've actually had if you look at a lot of what you'd consider modern value investors because it's almost like you have to put them in two different buckets you know you go back to Graham and Dodd and you can say okay this is what value investing is and this is what it's always going to be but the world's changed dramatically since those I guess rules were invented or at least put into a textbook and people kind of become you know fully body and now I see vow and David Einhorn believes in goal I mean I'm pretty sure I don't think benjamin graham if he was alive I think he'd be turning in his in his grave if he saw some of what's going on with money I mean his the premise for security analysis is a risk-free rate of interest right I mean you're always basing the decision off of the cost of money the price of money is a signal of money the measure of money that's where I believe there is this sleight of hand in the intellectual tradition of value investing where you have these guys that are you know in my opinion a little bit less rigorous just following what Buffett and Munger say but you have other guys like Dalio who isn't a value investor but but totally gets gold Einhorn gets gold but so does Paul singer Paul singer gets gold and he's a value investor by the way Seth Klarman the the author of margin of safety gets gold I've invested with with him in gold mines in Colombia so people get gold when they take a step back and try to understand what the hell is money why do we need it and what should it be and when you take that approach at least you get into this other debate about whether money should be fiat and abstraction or a tangible commodity and when the argument goes there at least you know someone's mind is on yeah but when they just say things like Krugman well fiat money is you know weapons and stupid things like that the powered attacks and there you know you know it's actually funny I I was preparing for this interview so I watched some of your videos and the one that I found kind of by happenstance was was you and Kudlow from like 2014 and I watched the whole thing it was really interesting and I and I just found this is a perfect example where you were so on it and everything he was you're like we'll look there's inflation the MIT project and he's like well no I can't really count they and then you're like well the CPI is wrong is like well we're gonna adjust and you say well you guys can't just adjust it and at some point he just turned you and he said listen you want to make money or you want to talk about this stuff and you're like well but you're wrong about all these things and I think that's really where it comes down to is in this echo chamber of finance and economics and academic economics at a certain level people don't just don't want to admit that they haven't considered the policies of the last 40 years it hasn't been well articulated in a book or a theory there is no general theory of employment for QE or tarp no one sat there regretting it's just been kicked the can down the road almost like this ad D style I'm just gonna I'm just gonna fix this and fix that and we don't recognize that we've run over the cliff and and I think that this is leading towards massive structural problems in our society that no one is wants to recognize yet and it's ultimately going to resolve itself through politics because it I mean effectively you're saying that it delays actual learning the finding of truth because you're stuck with academic dogmas to some degree or in other degrees some people will fully admit riod that they cannot change what it is that they believe or do because they've won a Nobel Prize and or that's how they get compensated I they admitted to me some have worked for me my fiance is an academic she studies at Oxford and she is a philosopher she pursues a realm of philosophy that's a very contrarian and she will not get sponsored by a Pete for a PhD if she doesn't take the baton from the prior professor and advanced that arrow of inquiry she can't go back to the initial axiom and say I want to change that and that's really the problem with this walled garden of academia it's this self-fulfilling feedback loops and it's it's been corrupted and I think Peter Thiel talks about that a lot and other great thinkers but again the natural order which is what I like to use a lot resolves all of this at the end of the day people have to wake up in the morning negotiate with nature feed themselves generate a surplus and cooperate with fellow man they don't care about what these guys are saying in academia really yeah and and if they try to take this theory and as talib says fit it in a procrustean bed you know it's not gonna work and it isn't working and as you told them at one point in the color you say well it's a chart it doesn't lie it's a chart it's a time series yeah and and even then he's like well I look at the yield curve or something like that at a certain point they're not gonna be able to lie anymore you know you see what's happening in France you see what's happening even in the United States they're not gonna be able to lie if if people can't feed themselves pay for energy pay for food pay for clothing pay for education they're not going to subscribe to these theories anymore and the the magic here in all of this is the fiat money system yep because the fiat money system conveys this share of societal wealth to these people in the power structure and then they get reinforced to chase this carrot whatever the latest theory is the the are are star or a statistics of this it's they at a certain level if you get them drunk they know it's a bunch of BS but they don't even have time to think about that they generally believe that science nor do they have do they actually have the downside associated with being wrong on that and a for you know on a forward-looking basis like this here's a good example I'll have had the macro-environment wrong on many levels you know you can be a billionaire today and have it you can be down 20 percent year-to-date because your premise is starting to be proven to be wrong literally wrong I mean if I look at the rate of change space and how to measure map economies on a nonlinear basis as opposed to using some econometrics model or some deterministic model you know use a stochastic model let's start with that for a Bayesian process let's change as the data changes there are so many things ROI today that I almost wonder if this is the question you started your company ten years ago let's just round off yeah I did too we've been paid to teach ourselves the truth for a decade if I don't come up with the truth and I'm talking about a scientifically ordered or math and or mathematically or ordered process that people can test process themselves question and then we have to evolve in kind there I've certainly don't have all the answers but why is it that I've come up with a process or you've come up with a process it's a better way is it because we started from a different we history would say that timing matters in that regard well are you allowed to come up with new ideas in my case I actually think about this a lot because I actually believe that I know how to play the game I know how to play the Keynesian long assets short currency game I've done very well doing it I know the arena I know the rules but I believe that ultimately the killer instinct that's made me successful would allow me to be successful in any system I know full well that in a gold standard there will be severe deflation but as we have productivity growth prices come down I know that I will be less rich relative to my maid and relative to my workers but I don't care I've never been purely motivated by money and so I actually know that and it's the I think the issue with me is I came from nothing and most of my family is still extremely poor so I see every day how my cousins and my uncles and my aunts and my grandparents the social contract you know has been as has been violated you know they work for 30 or 40 years as a plumber or as a factory worker as a farmer in construction and they put away money believing that the money is something that will preserve its purchasing power and when they reach the state of retirement you know Warren Buffett tells them while your quality of life is better what are you worried about and and and that's that's a lie you know the quality of life isn't federer and I've written some papers about this so to me it's just been about at first I worshipped all of this and I believe you know I used to believe that the Keynesian economists and the Federal Reserve economist of three thousand people that get paid whatever three billion dollars a year that they just print and pay them a salary they have a cafeteria just like here just think about they get to print the money and pay for stuff when they have a cafeteria or when they pace it they don't take it from the Treasury because they're using the base money so they actually print money to pay salary I just find that crazy but and I've been to the New York Fed's cafeteria I'm sure it's wonderful but I used to worship those people and think you know though these are the smartest guys if spent a lifetime reaching the point and they genuinely that what they're doing is right but I've come to recognize that there is an elitism and and there's no that there's no sense of disquietude about what's going on and the causal factors they they they genuinely can't conceive that that the whole concept of wealth and debt is illusory and it can be forgiven but they're always working with this axiom we'll look how much debt we have we can't let it deflate we've got to inflate it away it doesn't matter if that's going to result in the rich getting richer because they own all the assets and we've been doing this for 30 years so they've been getting along ahead of us for 30 years because there's this thing called the trickle-down which never works and and I think the Gini coefficient shows this I think Thomas Piketty shows this so for me I'm I'm I'm a conservative guy but I when it comes to economics I think that a lot of what's being written on the there I say liberal left and even some of the neo-marxist thinking is correct in the sense that there there has this pendulum swung between capital and labor for so many years and it's clearly on the side of capital now and I don't believe that the reversion back is going to be so easy it's it's it's it's really gonna have to result in real losses of purchasing power on the capital side 100% I mean we have a chart where we quite simply show going back to when you and I were born which i think is a important period just looking back if you go back even 50 years and we're just showing labor against corporate profits you know in the US and what you'll note is that labor has never been at this level this low level in you know in over the course of our lives labor had always been high and rising wage inflation is procyclical and it would rise rate in to and during a recession we're perpetuated recession so as you can you can see in this chart basically you effectively have a big red bar as appearing as wages are spiking so what's happening there is now wages are competing with capital and capital doesn't like that especially if that capital is a debt security that depends on the cash flows of the underlying so we're at a very unique point relative to what you just said well you just said if there is a breaking point that is to occur it we're already on the path of that point of entropy where labour shoots higher and the Federal Reserve cannot centrally plan and control labor wages down they can control the dollar down they can try to control the illusion of inflation or the illusion of growth by inflation up but they can't systematically eliminate or eliminate wage inflation a recession eliminates wage inflation so would also almost have to be what it always is the economic cycle itself shocks that and says ok now I'm going to go back to maybe a different place but for now we have profits up here and we have labor down here all-time highs is the spread between the two and I don't for the life of me I you know I don't think you have to be on the left or on the right to understand that back to the point to Kudlow it's a time series yeah that's where we are that's why everyone is pissed off about it that's why the social contract feels broken because capitals getting paid and labor is exactly and and you know there's even things that are just even on the micro scale that haven't been properly covered like this whole phenomena of shrink flash and you know I know it's just this thing that we talked about but it's it's a real problem like when you buy cereal today it's smaller in weight and size physical size that was a year ago and the price is higher yep and the CPI does not account for that so so these are things that consumer see I speak I have 1.5 million customers that gold money you know I if I go to a city and I say hey I'm gonna be at this bar 200 people show up and I get to talk to them it's it's kind of like a political thing and I learned from them and I see what they say and I see people's daily issues and shrink flashin is something that has really bothered people because it's like Nestle and General Mills and all these companies are laughing at the consumer they're laughing at them and so I agree with you I think ultimately what this always comes back to is you have to have either a debt Jubilee where you tear up old all the debt and and that's where the conception of wealth is wrong you know this idea of the well if we have today so illusory it's not really the only that matters is people waking up tomorrow you know people wake up tomorrow they want to cooperate the farmer wants to produce tomorrow I need to brush my teeth well that's the other thing that the boogeyman of the intellectual academic is well there's going to be a recession and all hell's gonna break loose I remember sitting with one of the biggest hedge fund managers of all time I won't say the name but you can figure it out one of our early investors in the Hamptons in his house and I said to him why are you so scared about deflation why and he said I don't want people revolting you know it's it's this elitist belief that he is the philosopher king he knows best the people revolt I don't think the people will revolt if you can't so all the debts they'll just wake up the next day and cooperate you don't have the debts they don't have that's the whole point well that's it I mean if you look at it I mean a large in any nonlinear system or any point of entropy that it was born out of it you have an imbalance yes so what is the imbalance I mean right now today you have 8 trillion and corporate debt half of that is considered triple-b or less junk triple B paper what is triple B paper I mean gee is the fulcrum credit with a fake interest rate like today a fake real interest rate it's it's not a real trip will be in my opinion the way I was taught so so who gets pounded if you take and obviously the prior total of corporate debt was 60 percent less of what it is today if you want I can tell you my view on that I'll take a few minutes so I need your view on this one okay well so I really think that's safe well I I have problem with as I've gotten older and wiser I have a problem with analyzing the economy using instant spaced mathematics because I think the economy is fluid and it's simultaneous so the flow is what matters more than the debt at any given point and when you're you know reminds me that cool all this flux nothing stationary you know or or arc light it's not you never step in the same river twice for you aren't the same man isn't the same river like everything is always changing because of time so the the amount of debt outstanding relative to this industry or to that industry is not what matters to me what matters to me is the rate of flow of earnings if you want to use earnings or job growth or energy surplus caloric energy fuel energy that that industry produces so I'll give you a perfect example for this Google is an incredible company incredible it sat on a service layer of economy incredible business makes a ton of cash but ultimately Google employees I believe I might have the number wrong now fifty thousand humans fifty thousand humans depend on Google for their for their labor for their wage Walmart employees two million people now you can say well the people at Walmart don't get paid as much and the people at Walmart you know are getting subpar wages etcetera but the fact is not only is Walmart paying two million people wages but Walmart is also distributing food to the rest of society in a very complex way lots of important distribution points around around the world so to me the debt that Walmart has if it even has debt is not really relevant because the the point in the economy that Walmart serves both in terms of employing people and distributing food is extremely sustainable now China when they organize their economy in this socialist Marxist ideology they think about things like that they think about things like what I just mentioned in a free-market capitalist system the way it was originally conceived and intended money should have regulated the system such that you wouldn't have these asymmetries but when the money is centrally controlled artificially manipulated suppressed you have these regressive cycles and in that cycle it becomes very difficult to say well this eight billion of debt is bad for these guys are good for that guy who should we bail out well will we bail out the bankers we know that that's what happened in o8 I think there's a more revolutionary way to look at the economy in terms of it being simultaneous and trending to the future what happened in the past is powerless I don't care about the past I care about the future you know amedy shells wrote this book The Forgotten man that's a great it's a great book and it's all about how the most important thing for humans is to wake up in the morning and look to the future that's what keeps them happy whether it's their kin kin altruism or whether it's just something that's gonna happen in the next week or two we could fix this economy by focusing on the future and that's the other place where I disagree with the gold bucks you know the gold bugs wet dream is there's this much gold outstanding and there's this much debt yeah and if we rear ated that based on the pyramid it would be fifty thousand an ounce no I don't care about how much Gold's outstanding I don't care about the price of gold I care about that flow rate you know what's required to maintain the economy and savings will emanate once we get back to this natural cycle we don't even have real savings right now you know because the savings is in a bank deposit which then is owed to the government the government has its own problem so we don't really know anything you know I think if you speak to the smartest guys today in the world like drunken Miller like Dalio like people like that they will agree with with me on this that we don't really know anything the price signals all messed up the numbers are all messed up certain companies have figured out how to play this game perfectly with the vivax and the EPS growth rich people have figured out how to perfectly hedge their themselves with art and luxury real estate and and tea bills and things like that but the average person the this this sort of black hole is taking in more and more hostages and I think that's the peep the you know the yellow vest people and that's the populace that voted Trump in and I don't see that abating anytime soon no that's where we agree a hundred percent I mean the flow or in in in and hedge a nomenclature of the rate of change yes the rate of change will give you some point of entropy it's mathematically impossible not to measure in map rates of change changing which you're always changing and they don't always have to change the way that you'd like them to change and that's the other thing a lot of people have views that are siding towards where they'd like the world to go or where they need the world to go rates of change don't care rates have change in this case I mean if there's a lot of low quality debt and that debt hinges on the basis of low-cost labor and the rate of change of Labor and wage inflation continues to accelerate and corporate profits the rate of change starts to deteriorate your point of entropy is about to occur and on what order who knows I mean it's you don't know you don't know but what you do know is they have control over it because they have these levers so even if you start to get debt deflation than they then they rate reduce interest rates and then they go to QE and then they go nur then they go Newark Orser the the thing that I'm trying to say is that at a certain level all you have is money and the money should be allowed to flow like water and if the money is flowing then it goes to where it needs to go and and and and you start to see the productivity but when you have this system even if you like they can even control I don't really believe that this is the end of the system I think that what you're gonna see is a deflation they're gonna go back the other way with interest rates they're gonna go to QE and then you're gonna have people like Alexandria Ocasio Cortez come up with ubi the Silicon Valley Wizards love ubi so I'm certainly gonna see some form of ubi in the United States in my lifetime and so they're they just keep taking it the other way and I think it ultimately comes back to them genuinely believing that they're smarter than the populace so trop the mathematics they can still figure that part out well they think they can they think they care but there comes a breaking point so again you're either of the belief that you weren't born to this earth to been you know you know bend the moon and part the heavens and and and reorder the seas or you do believe that you can do that so if you're seeing a deflation and you're effectively saying no I'm gonna create a dam here and I'm gonna print money there and I get inflation back over here there's nothing there is no reason to believe that that's that has to end well all the time well you know what the key to this is is is the dollar see ultimately the vulnerability in this whole plan and we are seeing signs that the game theory is changing around this is the twin deficits the budget deficits and the budget ups and the trade deficit because so long as the dollars have to be created if there is a moment where the rest of the world doesn't play that game and us loses that hegemony yep then you will get the hyperinflation see the hyperinflation is supposed to bring the pendulum back to labor - it's supposed to help so that they can't put up those dams but surprisingly since oh eight we haven't had the hyperinflation in the US which is why gold hasn't gone well that's it that's a real important topic because I mean this is this is a good year for example where you know for better horses so my job to try to get the market rate and timing right and a big misnomer was that the dollar was doomed we're at the beginning of the next phase people the biggest net long position in the history of the euro okay and it's not like the u.s. is unique with twin deficits I mean that's another thing that people forget is that if you're gonna start talking about the dollar we have to start talking about the ECB's monetary Porsha the BOJ spent so it you have to have a global macro process to again attempt to understand what could be going on and what happened I mean until determine otherwise the dollar is the world's reserve currency so when the Argentine peso collapse the Brazilian rail went down 10% this was all a function of their economy slowing their monetary you know plan was asked for an IMF bailout in Argentina it's amazing but can you say can you say in good faith though that the dollar the the rate of change of the dollars share of the global hegemony of foreign currency reserves isn't slowing no no no not at all but the rate of change of the economies that had an alternative currency that was liquid and people had a choice like you wake up in the morning you have the want to buy more argentine pesos in dollars or you want to sell them all these decisions had to be made and these decisions are also rate of change base sure so again central banner central banker is going to go double and try to devalue the currency in response to a slowing economy and or slowing inflation we know that yes that's seen you can be at the Bank of South Korea have gone to Harvard or you can be over fed and having gone to Harvard you have the same playbook yes so when that happened to all at the same time the world slowed while the US was still accelerating we had tax reform they did not the relative trade into the US dollar this was actually bad for gold in the first part of the year less so now didn't care about the twin deficits in the moment the water went out of for short where it needed and and the other thing that happened was Bitcoin people thought that when we started to have a the next emerging market currency crisis which clearly we had this year you would be buying Bitcoin yeah instead of dollars yeah where did that go like I mean that's another I mean there's so many things that we could talking yeah but the dollar really de-facto in the intermediate terminus I'm not saying it is long term I've gone both ways on this well I I would argue though that a lot of that happened though because interest rates went up in dollar terms yes I agree so remember well remember when the Nigerian central bank's wrote a letter to Jerome Powell to stop raising rates because it was causing all the corrupt politicians to not have any Nigerian REI yeah so they had they were moving it out but look it's clear I totally agree with you that the twin deficits are kind of like a melting ice cube it takes time yeah but I would if we had more time I would argue that there are rising powers whether it's China or Russia or other countries that don't have as bad of a hole in their ship in their in their dynamic system that if they get their their stuff together you could see an issue now I'm not going to use as an example because it's a not a great one but it is interesting that this year the rushon index is up in dollar terms and all other indices are down and Russia is a country that has a very large reserve of gold runs budget surplus and a trade surplus and has very low debt to GDP and and the same is true for China and even a country like India and in India you also have about a trillion dollars of gold being adorned and worn in in the country which isn't on any official official numbers so the the issue I guess for me is if the united states sees the deflation coming and begins to lower rates the dollar loses its comparative advantage over other currencies at which case you can start to see a hyper or a you know 1970s style inflation and it could also coincide with people discovering that the decline rates in fracking are very high and there isn't as much fracking reserves as people think and that would then elicit this political reform that you and I were hoping for earlier all things being equal if the US retains its intellectual hegemony then you're right the guys in Harvard and all these other countries make sure almost that the US can still play with it and hopefully you get growth I mean I'm not a bear you know I I don't want to see things materialize negatively I if there is a way to grow out of this or inflate out of this I would love to see it but I would need to see indicators that would transcend just economics like economics to me are not the only signals I'm looking for I need to see an end to shrink flash and I need to see real you know growth in productivity you know real growth in productivity and sustained wages you know again fortuity rates you know people my age aren't having babies you know they're not forming households I'd like to see a higher household formation rate yeah I'm seeing today and all those those longer-term decisions and again I love your point that you know God willing we get up two feet on the floor every morning and that's the future I mean that's people are making that decision every day Neil Howard demographer shows this every single time he gives a presentation and it really is shocking in some what sad that mortality rates fertility rates everything's going to an extent the wrong way yeah and that's these are long-term trends that are hard to turn around there's certainly no central banker that has a plan for that they know how to devalue the dollar cut interest rates but I'm pretty sure they're not signed on for that they don't even believe that the causation links that effect to their decision well I mean it took Ben Bernanke couldn't handle two back-to-back questions at a dinner table with David Einhorn without getting uncomfortable and not willing to talk ya know it's incredible I've spent time with him too in person and he's he's completely useless as a thinker I mean he just has this paradigm that he understands and he believes even the way he interprets the great the Great Depression in my opinion is wrong so so yeah these people are you know I think Jim Rickards once said it best is like if you talk to them about you know anything other than what they know it's like they asked for the potato chips yeah that's the problem and I and no one in politics recognizes that you can't defer your decisions to these people yeah you know I mean well because it's classic I mean science the ivory tower to received wisdom it's the establishment and the good news is that somebody like I mean even if you look at the the what we would have now Ferguson call his most recent book he square in the towel you know you so you have some prolific academics that you know do have a voice that are starting to speak this way and challenged and received wisdom but my guess is that they're probably gonna be in there thirty 40s and 50s they're not you're 60 to 80 year old Economist's I have a more dire picture actually for you because I've spent a lot of time now in Oxford in these places the the academic professors that I've been meeting in economics that are rising through the ranks are actually socialists really they believe that capitalism failed and they believe in ubi Oh and this is the best well this is a millennial view yeah and they believe that automation and robotics will eventually lead to us not needing jobs and so we should begin to plan for obsolescence well if you if you're in your if you're you're trying to become a PhD in or your early 30s you are a millennial yeah you're not a millennial Ari yeah I'm 33 oh you're late yeah I mean so I'm Gen X where they screwed up ones yeah you know the Gen X population has worked like been gainfully employed again so to speak throughout the last two economic crisis that's what they know totally I mean if you're in the early forties that's what you know every five to ten years it blows up you get your deflation yes and then you get your monetary policy response and then you get raging bull markets or throughout that period you're discounting a raging bull market and things like gold people start to feel differently about what they used to feel and that's you know it's a big open question are we on the beginning of another one of those a lot of people think that that's not possible this year you've gone from a globally synchronised recovery to now the Fed pretty much people are trying to discount that there will be no more rate hikes and the next move will be rate cuts I mean that's not what other people are saying but I would not be surprised to find that in our own nowcast of what is happening so we're kind of right back at the same place again and for a Gen X person like fooled me wants ok twice maybe lost all my money that time what about a third time is it our own biases that have us concern about this or is it the flow I think that you and I are still relatively well-off in this quick no matter how this turns out and the the issue is that if you could truly conceive of how poor the average person is the average person in the United States doesn't even have $2,000 in their bank account and what it's all being fed by is is that based consumerism so so there's this consumer economy fueled by debt and then there's these 50 million people I believe who get the handouts in some way the transfer economy and then you've got the older people on the Social Security but there's only like probably 20 million people that are doing okay and then there's probably like 50,000 people like me and you and and everyone else and literally it's that little it's like 50 or a hundred thousand families amazing yeah because you know how you can back it out you know all the census data is BS just go to like Zillow or go to MLS comm or Trulia and do a search for how many houses are over five million dollars in various cities around the United States that you would think and you'll see it's not a lot or how many houses gets sold for over five minutes it ends up being a handful of people you just hear about them all the time they're just they call the Dunbar numbers so you think there's all these rich people and then Forbes uses it well Forbes does it okay but they there's a lot of paper wealth in there but there's a company called wealth X and they are Capgemini they say there's this many people with over five and if you read how they do it they didn't count all the people they use something called the Lorenz curve so they put a bunch of inputs from Forbes and then they see the rate of change between say Bezos to buff it and then they assume that the guy that has 50 million there's X amount of people that have 10 million that's not how things work the guy that got the 10 million may have worked ten times harder the guy that made 100 million the guy give me a hundred sort of the private equity firm at the top but a multiple so they're actually aren't that many more rich people as you go down from those 1,000 people on Forbes that have a billion to say the people that have ten million it's just that you keep seeing them all the time and hearing about them all the time and and the number is actually in my view closer like fifty thousand or a hundred thousand and once you get there and once you've met everyone and once you've seen everyone you realize that there's another hundred million people that you run into if you just went out on the street that are barely surviving they're barely surviving so it's ultimately those people that are gonna decide what to do in the future not us we're trying you know people like us in agony are trying to hold on but those people now the problem is that those people are angry they're angry and and and what they ultimately decide that's why I like the idea of a debt Jubilee because because the debt Jubilee can help them and you know this goes back to like ancient Mesopotamia whenever a new ruler would come in off so the first thing you do is tear up the old debts there was a party it was called the debt Jubilee and it worked very well in France I see you of one of those rooms over there celebrating the Revolution but you people have to start thinking about this the economies have started thinking with the sociological aspects of this and you know what I've been trying to do with gold money and and with the new jewelry brand with monnet is I still am naive enough to think that people do care about liberty and self-actualization and self enrichment and I I think this can be solved through gold if if if people even in your own interview with Kudlow he said well we could peg the price back to gold the twelve and I was you know it's pretty cool to hear him say that but if we went back to a gold standard it would and and did something with the past debts we would instantly the rich people would be poor real estate prices would decline big time on on an adjusted basis but so would the cost of everything else and the next day day - after we woke up the next day everyone would feel far richer and then you would hopefully get back to that 1776 - to that nine - sorry 1914 style American Republic where there is this small government but you know very very Liberty based self cooperation and actualization and I think that can happen we've been trying to do it with gold money by building the digital gold bank and showing people they can live in gold and it does work and it works much better than other currencies where Gold's going up every year but we're just trying to teach people that again that that this ultimately comes back to your measure how you measure your productivity and you know if you measure it with this tangible element gold then you ultimately at least have control you have self-control if you're deferring that decision to the government or the politicians or to academics then you're just a mouse on a pinwheel you know you're not really in control and that's what I hope happens and how about the I mean maybe a little bit of time on the jewelry component to that men a granddaughter of Pablo Picasso or have the yes lineage right yes so that's who you've partnered with and that's a new business but you're applying the same principles in terms of what you think the value is and starting there yes so the thing that always perplexed me was they always say gold standard started in Lydia in 1700 BC when King croisus coined a coin of gold and when I read history and I would do this research I would always see you know the word gold and silver and gold and silver going back you know to Hammurabi 2,000 years earlier so I wonder well what were they using if they weren't using because they were weighing it and and the answer is that for most of human history the the gold standard was actually a gold jewellery standard the the gold when you find it in nature it's the element a you it's not 18 karat of fourteen care that's a chemical alloy it's a man-made and that's interesting there's just one kind of gold real bitter gold that's how you find it in nature they would just take that Pierre goal and they would mold it into a ring into a bracelet into an earring and that was their money so they would go and they would weigh it and because it was pure 24 karat gold it could be weight easily and the it had an objective value so that way of consuming jeweler buying jewelry jewelry is an investment I call it investment jewelry it's still alive and well in the east it's how a hundred billion dollars a year of jewelry is purchased every year and there's about two trillion dollars of jewelry gold jewelry being worn that way and when I started gold money I started noticing that you because we're one of the largest precious metals custodians we have about 1.5 billion dollars of precious metal assets 35 tons we also trade a lot of metals so a lot of counterparties come to us big banks say I need you know 10 kilos 100 kilos right now at this vault or at that vault and one of the things I would notice was a lot of the big jewelry brands you know would come to us to buy some metal gold or platinum it you know various points of the year and I would study their business models and I'd see how Tiffany or you know Pandora or Cartier would just buy this gold from us and then sell it for you know 700 or 1000 and I just the marginal market yeah this is pretty good business I'm sitting here making half a percent and they're turning you know just there's no diamond or gem on it so there's nothing that would cause you to say well yeah but they did this was they just took the metal turn it into a ring and sell it and I thought could I do this could I build a brand that would sell you know jewelry and and after I studied the history of the jewelry so I wrote a paper called the gold jewelry standard and Josh and I actually traveled to India and China and we spent three weeks there and we did in-depth you know research got a lot real research and we said we're gonna take this ancient tradition of jewelry and we're gonna bring it to the west again okay and we're gonna make it direct consumer luxury brand we called it monnet and I partnered with Diana Picasso who's the designer and we've been absolutely killing it it launched in January of this year we've so close to ten million dollars of jewelry online the way it works is there's thousands of items terms and necklaces and all this stuff but the price changes every day so whatever the price of gold is that's the price and our premium is always 20% so if you buy something for $500 you have 400 on your wrist and a hundreds our profit so your your the value of what you purchase floats yes and you can track the value like a stock what you paid for it you can see the percentage return you can sell it back whenever you want you you oh yeah yeah we built a whole fulfillment center in New Jersey and the airport where we can take back like old jewelry and sell if I it's a whole concept is it very very and it's what I've been doing for you I've been talking about I cannot my day job you know as I build these businesses so this was the business I've been building for two years and we we just launched it we just finished a 30 million dollar funding round and you know it's it's it's a it's incredible visit because believe it or not the jewelry industry is a 300 billion our annual industry it's it's twice the size of the digital ad market that Google and Facebook everyone buys jewelry so how quick can I get something yeah I don't have much much time on the clock in December here you go to man a comm yeah and you can buy something you'll have it in three days so read it make it for the holidays awesome yeah because I used to go to Tiffany yeah and pablo picasso's got that big aroma picasso that's aunt correct yes that's that's Diana's aunt so you see how much I know yes well I don't know I actually didn't know what I mean all you wanted or particularly before we got married was I wanted to have that damn blue box you know with something in there that she probably liked and she turned we have a blue box too and it's better and people people claim weights it's made by the same factory that makes Chanel's box so what what would be the difference if I was to buy the same thing what's the difference in the mark so if you were to buy something from Tiffany's today for $1000 and you went and melted that down it would have about $100 of intrinsic metal value Oh wonderful if you buy something from me for $1000 you'll have $800 of intrinsic metal value moreover if you place the alloy the highest quality goal that Tiffany sells is 18 karat which means 76 or 78 percent gold and 20 32 percent whatever of nickel and zinc and copper that's no longer pure gold pure gold looks different yet feels different it doesn't oxidate doesn't tarnish and it's antimicrobial it kills bacteria on touch you literally don't get sick when you wear pure that's why the ancients were gold everywhere so you know it's why when they were mining for they drop a gold coin in the glass of water from the river and they drink it those things people used to know ancient wisdom but she will you know if you we've had thousands of reviews since we launched and one of the main things people say is I couldn't believe how pure gold feels compared to the alloy that's awesome yeah I mean talk about the most basic level of education that's that's fantastic and you're I mean I got to say I've had a lot of discussions on real conversations you can go anywhere with depth and specificity like almost no one I've sat across from before so thank you for educating all anyone who's watch this is probably like oh my who's this guy where'd he come from but thanks for taking an interest in that because a lot of time I meet people on Wall Street and they say to this day I get this question all the time a hedge high is a great idea but if you're good at this why don't you go run money and I say I say the same thing that you said money's not the only thing that again gets me up in the morning building a company is quite interesting and it's quite fascinating it's a lot about people and if you like people it seems like you love people you want people to do really well exact and look at the things you're building it's awesome thank you I appreciate yeah I'll say Wall Street is such an amazing place to educate young people about hard work rigor waking up in the morning when I was an interactive be at a 5 a.m. meeting every day you know in the tech world I'll tell you they don't work that all and and I love the idea of self-evident truth on Wall Street you know everyone ultimately agrees you get raided you get ranked there is that intellectual rigor but at a certain level you can take that model and that psychological process and you can apply it in other realms building great companies yeah well thanks writing congratulations thanks a lot I appreciate thanks for having me again I appreciate he's Roy Tsubaki you can find him I he's got a Twitter handle you can see it right there you can also see gold money.com and men a all the fun things that he's not just fun things fascinating things that he's built you

Channel: Hedgeye

Views: 40,805

Rating: 4.940866 out of 5

Keywords: finance, wall street, markets, stocks, trading, macroeconomics, hedgeye, keith mccullough, bloomberg, options, day, roy sebag, goldmoney, gold, money, investing, currency

Id: 4uiWC1hiEnA

Length: 53min 5sec (3185 seconds)

Published: Fri Dec 14 2018