Will Russia Sanctions Trigger A Worldwide Credit Crisis? | Gordon Long

it's almost like a um a lehman moment in that what happened with lehman on on friday when they were in the middle of their situation they didn't think they had a credit problem but by monday they were bankrupt because of the cascading effects when you stop payments in their case it was short-term funding uh markets that weren't allowing them to roll and get the the credit or credit they needed for payments on a monday well to a large extent that's the frightening part that's now going through the market actually as we talked another point i'd add also in this sovereign debt um adam is that russia russia took got out of the u.s treasuries oh in 2018 and has primarily went to gold and to a heightened level of liquidity and it has about a trillion dollars of open liquidity and about two to three hundred billion is used in short-term funding that is overnight funding for a lot of the banks or institutions etc around the world and every time we have a credit problem it's usually associated with overnight short-term money money fund funding this is this is how the contagion starts how the credit starts with credit welcome to wealthy on i'm wealthy on founder adam taggart here welcoming you back for another special interview made all the more important by the current ongoing developments in ukraine the world has quickly become a less stable place over the first two months of 2022 financial system stability especially in the all-important bond market was eroding at a concerning pace prior to last week but russia's recent invasion of ukraine is serving as an accelerant to the situation to give us an understanding of the key risks to monitor we welcome investor and market analyst gordon long to the program gordon has issued several recent warnings about the credit markets in his latest investor letters and i'm eager to hear him explain why gordon thank you so much for taking the time today to join us adam thank you very much for asking me i appreciate it our timing couldn't have been any better actually you know what i i i you were the man to reach out to and uh man then this weekend happened and you're right it just made it even more relevant so let's let's dive right in here um i got a lot of specific questions that take into account what's going on right now um in in ukraine uh but before i ask them i just want to ask you the question i kick off all of these interviews with which is what is your current assessment of the global economy in financial markets i'm concerned but then i you know i'm always concerned when there's risk at stake but uh that this year you know at the highest level we can say we're in the fourth turning and if you look at any of the long-term cyclical charts one of the things that's consistent is we're in about a three-year window where all of these long-term cycles are reaching bottoms and of course then you get into those who've studied the fourth turning so you get a lot of major social change for whatever reason ever and that comes with economic and financial change and clearly that's what we're in the in the in the midst of and uh it's this is the first time in my lifetime i've been through a lot of market crashes and uh they i didn't see this this kind of geopolitical issues and social unrest i've seen before so the bottom line is so we're very concerned about 2022 uh there'll be a lot of money made but a lot of money lost and so just make sure you're paying attention okay great and for folks who maybe aren't familiar with the term fourth turning it is a descriptor of generational cycles that that society goes through that are each categorized by certain types of developments fourth turning tends to have a lot of upheaval i actually interviewed one of the two demographers that uh that whose research basically defines the fourth turning a guy named neil howe uh if you haven't yet watched that and want to uh you can watch that video right here um all right gordon so as i said um we're recording this on monday february 28th um over the weekend uh things have really intensified in ukraine so russia made an incursion there on wednesday night last week u.s time uh over the weekend uh things basically escalated there i think it's becoming a more attractive so far at least a more um protracted engagement than maybe a lot of people thought it was going to be i think a lot of folks thought it was going to be over really quickly um so you have written that we had this very um unstable situation developing in the credit markets i think you referred to them as brittle and that was pre-ukraine invasion and you're saying that the ukraine invasion is now really adding an awful lot of additional instability to the system can you explain why uh it's because of the it's actually it is centered on ukraine but it's more about our policy response it's really shaking the market right now adam and i say ours this is the whole area of sanctions we've been doing sanctions for years at least the u.s so i don't think there's anything really new in that regard nor new to to russia it's the degree that we've now taken them and specific that we're now putting sanctions against a central bank and specifically the russian central bank and then second to major banks within uh russia not all of them and there's a well you can see the rubles dropped 50 percent in russia here in the weekend and the last time we had the ruble crash or dropped like that that was the ltcm crisis and that brought the market down so i'm not saying that's going to happen i'm just trying to say the magnitude of doing that because it's almost like a a lehman moment in that what happened with lehman on on friday when they were in the middle of their situation they didn't think they had a credit problem but by monday they were bankrupt because of the cascading effects when you stop payments in their case it was short-term funding uh markets that weren't allowing them to roll and get the credit or credit they needed for payments on a monday well to a large extent that's the frightening part that's now going through the market actually as we talk and all weekend i'm not saying that it's about crash please don't i'm just trying to say these are symptoms we've seen before because when you start to put limits on flows of money stop you don't know whether you're going to get the money from which bank because they don't know whether they're tied into what part of the credit flows that are coming out of russian banks and central banks to kind of net it out so that that's the ripple effect but the ripple effect is already in in areas that in um in sovereign credit was having problems before this um in corporate credit it's a whole discussion in itself and soon to evolve in the in consumer credit all right so if we can let's let's kind of pick each of those apart and first at a high level you know sort of what i hear you saying is is uh the economy is is just so hyper connected these days that it's almost impossible to know if you cut the flows of money in one place what that ripple effect is going to have on the rest of the system and it seems like we've we've we've now put some pretty uh pretty substantial blockages in place in the system or we're scrambling to do that right now in terms of a lot of these russian sanctions and we don't really know yet um again what impact that's going to have and who is exposed to that so yeah and i'm curious if we may be seeing over the next week or two headlines of hedge funds or pensions or whatnot that were much more exposed than we realized or maybe even they realized and that are now kind of waking up to that so it'd be really interesting to see what happens down there but you mentioned that there's sort of issues across the the credit spectrum here sovereign debt corporate debt um uh there's other types of debt you talk about as well emerging market bonds and a few other things and maybe we could just pick each of those apart briefly so you said that this let's start with the sovereign debt um you know that's the debt of nations um uh we have a lot of you know certainly over the past couple of decades um many nations have been adding debt at a greater and greater magnitude i think we could have had a big discussion before what's happened in ukraine about kind of the global debt overhang um but what was what was worrying you about the sovereign debt market going into what's just happened uh with russia and ukraine we um we watch uh credit default swaps for sovereign debt fairly closely and frankly it's sometimes it's just like watching paint dry there's not much change in it but over the last six months we've noticed it very much accelerating and increasing specifically sorry interrupt you but for folks that don't understand what a credit default swap is could you just give a brief definition oh i'm i'm i'm sorry uh adam i thank you for uh clarifying that yeah credit default swaps are basically an insurance policy that is that you take out to protect you yourself or your investment from a default from one of the uh the sovereign debts that you might be buying so the debt of america is u.s treasuries uh if you've got them and you think there's a risk when you can buy these credit default swaps they're typically very inexpensive but to protect you from the possibilities of a default but these they have been increasing and we've noticed in the last 30 days and we were just basic discussions of ukraine it wasn't a heightened situation um they were they had really climbed and up up in last third as i said the last 30 days and of course in the last week and with the inflation everything exploded even further so to give you you know a perspective on that that's something that moves very very little uh russia's credit defaults have surged 70 percent they've been cut to junk their default rates now at six percent uh poland is shot up to 65 percent so you can understand that's kind of an immediate that's happened here in the last week but it spilled over into the scandinavian company countries with finland and sweden because they could be potentially at risk with the nato expansion or or or putin's assessment of a potential nato was uh expansion there they're in the 35 percent much significantly higher the eu members themselves uh usually five eight percent are up in the fifteen twenty percent of what we used to call the peripherals in the in the in the forty percent range so they're dramatic and and when those credit defaults grow it's costing people a lot more money and and we have to understand too that these debts sit on banks around the world with basel ii agreements and there's something called value at risk so when the credit is is more exposed it forces banks irrelevant of actually whether they're involved in this their banks have to charge changing their strategies or adjusting their books automatically for value at risk this is this is how the contagion starts how the cr it starts with credit and then it starts to potentially in the worrying part right now and and appears everybody we're looking at it is what what the collateral that's under underlying that so that's big a big part of the problem another point i'd add also in this sovereign debt um adam is that russia russia took got out of the u.s treasuries oh in 2018 and has primarily went to gold and to a heightened level of liquidity and it has about a trillion dollars of open liquidity and about two to three hundred billion is used in short-term funding that is overnight funding for a lot of the banks or institutions etc around the world and every time we have a credit problem it's usually associated with overnight short-term money money fund funding and that comes out of things like a reverse repos and i don't i won't get into those tech now technicalities but that's what's stemming in the sovereign summer did okay so um thank you that's super helpful um and just to process it in my mind here um you're saying that uh uh you know credit issues i'm gonna say credit crisis even um they often they're at the the base of them is is a lack of liquidity that liquidity dries up uh and then and then you know all of a sudden all these people across the system that are are dependent upon continued access uh to credit uh they start getting into trouble and so if if we're all of a sudden sort of shutting off uh the hundreds of billions of dollars that russia was sort of lending out overnight to lots of banks around the world they're either going to have to get that money from somewhere else or they're going to have some some liquidity issues um you talked about the the credit default swaps um all dramatically rising in price relatively recently and and that's um that both just sort of makes credit more expensive for the system that's relying on it significantly makes it more expensive yeah and there's a chart you should you shared in your latest uh letter here i'll put up here but it shows uh bloomberg showing how financial conditions even here in the u.s have tightened quickly really over the past uh you know week week and a half um so it's not just you know weaker countries around the world it's even happening here in the u.s there's another chart you put up here uh from goldman sachs showing how kind of the global financial conditions index uh is tightening as well um which you know what i want to underscore here is that you know tightening basically means that credit's becoming more expensive and when you have a system that's so dependent upon credit um you know the more expensive it becomes the sort of less uh bounty you have left in the system to do other things and i guess rising credit default swaps too or maybe just an indication that people are a little bit worried that default risk is now higher and obviously if you have a default well then you know then you can really start getting some cascades going on here so am i kind of putting my finger on the right reasons to be concerned about this uh yeah yes absolutely adam but you know i need to caution i you know i'm saying these are potential issues and we've seen these before that don't underestimate that right now the central banks themselves i can assure you uh they have spent most of the weekend and will this week going through how to ensure that the liquidity is maintained the last time we had i'll call it a real liquidity shock was during covet and as you saw then the federal the banks came out federal reserve with facilities uh we actually started buying corporate bonds for example in the set with the the secondary market corporate credit facility at the time so the uh the the federal reserve and the central banks right now have to decide what needs to be done uh and how it might be done and that's what everybody's really watching and the clock's ticking for and to put it into just a perspective um right now just in the u.s we finance about 1.6 trillion dollars overnight every night 1.6 trillion and i i suspect it's even much higher um at the in the last few days so that two to three hundred billion of russian money that is in short-term funding is in some central banks it isn't just us that it's funding overnight a lot of the central banks eu specifically are and so what happens to that uh what what happens to that capital and is it available because as they say it's overnight so you're you're literally by landing short or borrowing short and lending long so you new you have to have that money if you're a lender um or you're in trouble you're you're you're on the wrong side of the uh of the um of the lending curve okay right so that the system really is dependent on or a lot of players in the system are really dependent upon being able to get those funds night after night after night um to do what they're doing or else they get into trouble so it sounds like you're saying look um you're not staying up nights right now worrying that the system's gonna kind of snarl to a halt tomorrow you think that the other world central banks are going to find a way to step in and provide that liquidity on an ongoing basis at least in the near term but this is a good segue to a question about just the fed and then and i i don't know the form that it'll take but if if the problem is mounting they will and and maybe i i wasn't clear the the issue was they they anticipated that the sanctions were coming they did not believe that it was going to re direct it at the central bank of russia and as of last friday last thursday um even germany was saying we need another 30 days so when when biden made his speech he was talking about sanctions he wasn't talking about that but germany changed its position dramatically changed his position on nato sending military equipment it did 180 degrees and said uh the the sanctions were a go um as some of the other uh g7 members said on central bank so it cut it it's caught the markets flat the credit markets flat-footed and that's the adjustment process and uh so it's today tomorrow it's kind of flowing through the markets that's why i thought your timing couldn't have been any better yeah thanks and specifically that that important reversal you're talking about policy reversal by germany uh that happened i think saturday right that happened over this weekend so it's something that that you know we're still very much in real time you know trying to react to here um okay so is the rest of the world trying to figure out as i said where is all of that russian liquidity and where you know how are they going to operate and are they going to start moving you know we get into the whole discussion on the swift swift system and will it force them to start moving their money through there's an alternative and that's the chinese alternative system they've been anticipating this sort of thing for a long time and what everybody's trying to read is uh i don't want to get too technical here but just is this going to be the catalyst that starts to make things happen faster and there's been a big movement because the united states has been using these sanctions so consistently because remember the sanctions go not only against the country you're targeting it at but any country who deals with that country and so they get caught in it and they've tried to protect themselves by moving away from the us dollar and more and more countries have tried to reduce their uh currency reserves from the united from the us dollar to other areas so we get into the euro all right so i'm really glad you just mentioned all that you mentioned the word swift if you could just very quickly define for folks uh what the swift system is and i'll take a crack at it real quick it's just it's really how banks send uh money to each other basically around the world um but if you can talk about the importance of the swiss system and the role that it has here as a weapon against russia here if you know by cutting them off from that swift platform it's it's nothing more than to be simple a glorified email system is really what it is uh but it's as it's well it has tremendous amount of security and confidence between the banks so you can trust the content as in fact uh money that's being transferred or commitments that are being uh being made so it's the same the equivalent would be if you got your email cut off you couldn't communicate nor to anybody nor anybody to you and if you're in the middle of a business transaction how do you go forward and that's in the bank's case when money is measured in seconds and milliseconds and and days uh this this a big deal because suddenly you're caught on a liquidity problem or a counter what they call a counterparty risk okay so by cutting russia off from swift uh obviously we isolate them you know economically from being able to you know send and receive transactions but adam we as much hurt everybody else around the world as uh as russia that's what that's what's missing right i know i know one of your concerns which we'll get into in just a second is the contagion factor of this right which is we're not just hurting russia we're creating kind of dominoes that are going to blow back and and hurt a number of other players around here and i want to get to not just because of the contagion and credit i'm saying that in fact it hurts them directly any of the players that deal with russia even if they have credit it hurts their whole trade uh process and so they start adjusting your they'll start adjusting commodity prices very quickly because of it that that's the point i'm trying to differentiate from credit to the whole buying and supplying in the in the supply chain um of what you take as risk and preparation and order flows great clarification thank you yes um it it does exacerbate some of the credit risks we were talking about but i was right there with you is we're basically interrupting global trade right and what i hear you saying is is um a you know tbd we're going to find out all the ways in which there are knock on effects there that we sort of didn't expect from this and we'll have to react to those but on a higher level i you know i think what you're saying is is look you know the world for a long time there have been countries around the world that have been trying to figure out how to become less dependent upon the us dollar it's the world's reserve currency it's the petro dollar it's how you you know pay for oil and um you've had countries like russia and china and iran and others that have been trying to create you know trade arrangements that settle in other types of currencies it sounds like you're saying you think this is going to potentially really accelerate that and that this could be you know kind of a catalytical moment for a chunk of the world to really get more serious about coming up with competing systems both to swift and to trade in non-dollars is that all correct that is correct this is almost no doubt um a lot of countries are are frustrated uh with american policy they don't agree with american policy in some cases and and they're they're really third parties to this issue and it's forced them to move more and more away uh from the dollar but the problem expands itself adam it's not the u.s dollar just it's the euro dollar and remember the euro dollar is based on the is the united states dollar that's being leveraged through the entire global banking system so we create you know the old the old theory was that we create a we put a dollar in our bank account here the banks can lend out ten dollars those days are long gone but let's just be simple here for a second one of those dollars goes to a european bank they land out ten dollars but if that done and it just keeps cascading all around the world of that debt just keeps growing all based on one dollar that was lent out here in the ten dollars and one of it went to europe and so what happens is where's the collateral to underpin that in the euro dollar system so if the dollars start to weaken and there aren't as many dollars out there there's a whole contraction that's that is forced to force to begin to happen and the underlying part of it is something that again i'll be technically here called a re-hyphen rehypothecation where the collateral is not identified and people can't track the collateral for example you have a car you've lent the money the car the car is in fact a collateral well if you really track it that car could be on figuratively on 30 or 40 people's books as collateral against their loan and that's what's happening in me and being very simplistic here in the euro system the euro dollar system and that that's why even minor little disruptions here um can have such profound impacts and force people to take actions that they don't necessarily want to take i mentioned earlier something called var value at risk that our basel ii basel iii are forced requirements in the lending and banking institutions okay great so you know for the folks that aren't as familiar with all the technical jargon as you gordon the underlying point that we're making here is that uh the system is again very hyper-connected and [Music] you can have a failure in one node that then triggers all sorts of other repercussions a bunch of bunch of different nodes and all of a sudden people are are having to react to that and oftentimes making decisions or choices that in a stable world they wouldn't be making but they kind of have to make that a necessity here and then the danger obviously is that that could maybe cascade out of control at some point so you used a term that i just want to dig into a little bit more with you um in your latest paper your conclusion was that uh the world is on the verge of a contraction i'd love to have you just sort of explain what you mean by that writ large and then you say especially if an oil price shock exacerbates inflation and um are you worried about an oil price shock because of russia potentially you know their supply going offline or are there larger issues around oil that make you zero in on the price shock there well we really don't know what's going to happen with the supply itself when you get into combat and war situations and they escalate but excuse me i i actually do i think oil's trading 115 here as of this morning um you know it wasn't that long ago it was ten dollars and forty dollars and the explosion we've had in the last couple years um but i do see the the energy complex um with some serious issues going forward but it it was here before ukraine um our energy by for example in the united states we've moved from being an internet energy exporter a year and a half ago to now importing between 300 200 and 500 million barrels a day of oil from russia so the dependencies have changed and of course the flows and so the disruption is is is there um and is is a major concern that we have but the question you're asking is a slowdown before this happened we are seeing globally um we've had a tremendous rebound out of covet no question about it but we pumped literally trillions and trillions about 30 trillion worldwide into the economy and when you throw this much money in an economy you've got two too many dollars chasing too few goods and a disruptive supply chain we know the whole story there but that's peaked and it's coming off and we're slow we're slowing down and you can see it in the global pmis they're they're falling at a pretty rapid rate earnings is still very good here in america um currently and i expect they won't be too bad for the next quarter or so but markets price out six to eight months adam as you well know and and what's happening is our pes our price to earnings ratios are so high though you know there's ten ten companies uh the the we used to call the fangs uh well-known that are the dominant part of all of these indexes um and are all held with by paths of invent uh investment through etfs and though those those pes are well north of 30 35 and typically when you start to get slowing you move your pe start to fall down into the 15 range well right now if you look at the pes and there and you take out those big 10 the ps are running around 18 or 19. so if the ps on and and that's with the last majority of them trading below their 200-day moving average and so if the pes need to come down to 15 if you get into a recession they often drop to 8 or 10 but they need to come down that means some of these big players with peas well north of 30 may be taking down to 25 not just on slowing but also because rates are being brought up by the federal reserve we're anticipating some fairly significant increases potentially over the next uh the next six months so that's putting pressure on those pe start to come down even though the earnings are there the market can contracts and that's what i'm referring to on a contraction that we see coming didn't mean to be too technical there long winded but that that's the slowing and this shock we're putting in here compounds the costs associated with that credit that goes into these high-tech companies they they track very very closely to interest rates and and a federal reserve balance sheet or reserve uh central bank balance sheets okay so we've got the cost of credit looking like it's going to continue uh becoming more expensive both from just the tightening program that the fed already had planned right but now we're having all the issues in the uh overnight lending markets that you were talking about that that's in the the rising and the credit default swap rates and stuff like that so um we're seeing credit get more and more expensive which is going to be a drag uh both on asset prices and on economic growth um we've talked in this program past bunch of weeks about how economic growth does seem to be uh continuing to slow uh both in the u.s and elsewhere in the world um if i could put words in your mouth gordon i would say you probably envisioned sort of a stagflationary scenario this year correct me if i'm wrong but slowing economic growth but inflation's still remaining protracted um so uh you know i guess my question where i'm going with all this gordon is looking out into the future now so we've talked about um the the general instability of the the credit system you've just talked about why equity prices probably need to come down um we've talked about how what's going on in ukraine is kind of shaking up the box of risk here just making things all a little bit more risky so as you look out across 2022 and maybe a little bit beyond um what what are the assets that you think make sense for the average investor to consider here which ones do you think you know may fare well given this type of outlook and are there any that you just wouldn't touch at all given what you see a good question uh adam i think we've seen gold absolutely explode or it's pulled back slightly so the whole area of hard assets are certainly um need to be seriously considered and a lot of people have been in and some of them are well priced and so i i minister or suggest caution there but you will see uh commodity prices uh with pullbacks but but continue with this inflationary pressures um are continuing to build we could be at the beginnings of a commodity super cycle uh uh specifically but to answer the question directly maybe we we we miss talking um adam about what's going on in corporate debt and we our our concept here our discussion has been in in in sovereign debt and the global debt structures around the world that underpin it but an actual fact i'm more concerned right now with corporate debt and that gets into treasury bonds um indirectly but the spreads um in corporate debt investment junk bonds high yields and and and where i'm going on that is is that the the the drop that we're seeing in junk bonds high yield that is has been quite alarming and sorry when you say drop you you mean drop in prices correct it dropped in price yields going up spreads getting wider against risk-free for example the u.s treasury bond yes exactly so the the that the high yield is dropping and we have um according to bank of international settlements 20 of all of the s p our companies now are what they refer to as zombies and that that report was well a year and a year and a half ago and so by a zombie what they're referring to is that the companies are not making enough clear profit and discount of free cash flow to actually cover their interest payments so they're having to borrow to keep the company funded and that funding is based on the discussions we've had but associated specifically to corporate bond um costs for them to do that and if they can't get the money because the cost of it in the corporate there's a big big problem now that's just the the high yield and in the investment grade the vast majority of them are now triple c which is one level right on the urgent version being junk and in in fact they have to be to be investment great a lot of covenants are structured in such a way that they can only buy investment grades so they're questionable and moody's and everybody is warning very strongly that they could slip down into junk which would cause some problems and the last time we had this as i mentioned earlier with with covet shock that the fed stepped in and started buying all those corporate bonds to make sure they had enough liquidity and they did that and drove the prices up dramatically on those bonds took down the yields to allow them to fund themselves and they started that in june right after covet in something called the second smccf it was a facility that put out they started it in june they stopped it in january of last year 2021 but they sold all of those bonds um and ended that here in just the past september and ever since then they've been falling fairly significantly but there's a big drop from there to what we saw just with the impact of a cobit minor covet shock and that that is itself is probably more of a consequence than some of the discussions i've been labeling here in the sovereign debt is in this corporate and that gets back to your question the if we have problems there and if the fed doesn't step in once again to do something like that then then it starts to almost guarantee a recession and remember that we're at the end of a 10-year business cycle one of the longest business cycles we've had because of quantitative easing of bringing demand forward and you keep bringing it forward but you create a hole on the other side and so it's a natural consequence of the demands of a business cycle that comes to an end and that's what we're kind of fighting and we put all this money in the into the system have extended it but it's a natural phenomena for it to fall off and so if we have this other shock as i just described in corporates it'll accelerate that and if we have a recession especially with the fed raising rates now if you can believe it it's a a potential tremendous policy mistake potentially that's what's worrying for going forward and so it begs questions of whether there's investments in the bond market it does it begs questions of what's happening with the dollar of with with the twin deficits and what the dollar might do there could be some significant weakness in the dollar so what you buy if it's dollar denominated in itself is is problematic um the shift even as simple adam as moving from growth to value are our consequences there's there's we have nine different areas that we believe are consequences of this sort of thing that we we publish um as potential i hate to be negative on this but you know we're talking about a situation here that is just exploding here in the last 10 days that that's okay and and and you're not that dissimilar from a lot of guests we've had on this program here so don't i'm glad to hear that i hate to hate to be crack being too negative well really we're not looking for but adam i need to stress too that these create opportunities you know the chinese symbol of crisis is is you know danger but at the same time opportunities so if you're really studying this and you're paying attention um not only can you protect your wealth and i strongly uh suggest that people just don't leave it to others get involved but there's a chance if if you can do it well in common sense to do really well in this period but to just ignore it and not pay attention i caution you to i caution you all right well look there's there's a zillion questions that even just your last answer triggered in me we don't have time to go through all of them but but i'll try to kind of land the plane here on the original topic i asked you which was you know what are the what are the assets that you are more favorable on now um it sounds like you've said golden heart assets seem to make sense i'll interpret what you just said there about corporate and high yield debt which is uh you think there's a lot of risk in that space right now so you probably wouldn't be touching those um it sounds like if if things continue to degrade there and we tip into recession well there's a lot of equities that are probably not going to do very well right my assumption is we'd have some market correction along with that that recession and one could say hey just sort of stay away from stocks in general but maybe there are sectors that you think look good i don't know so when you talk about opportunity let me ask you maybe differently what are the opportunities that that you're keeping your eye out for here that if you see develop would make you want to deploy capital energy the entire energy con structure and this isn't just about the ukraine and russia it has to do with the imbalances that we now have i mentioned earlier with the united states becoming an importer but this tremendous world movement of going from based on climate change of going to green energy and the right into esg and the other kinds of supporting uh movements that are going on and uh put it into perspective mark carney at the cop a conference in glasgow this was the major climate uh identified 130 trillion let me repeat that 130 trillion of committed money around the world he doc documents exactly what all these players have have committed to to help fund movements and shifts to green energy there's tremendous problems because of a lack of funding in fossils and carbon-based as we get away from carbon-based on the other hand there's exploding money going into new areas um that are going to be i believe huge absolutely huge i mean it isn't just electric bolt and it isn't just solar and wind i mean a lot of those are fully priced i'm talking about new fuel fuel cells such as hydrogen the magnitude of using hydrogen how we can generate electricity and and new tools of doing that of elements of nuclear that people are totally unfamiliar with it just goes on and that's a huge amount of money looking for a lot of investments um so where there's problems there's also tremendous opportunities and then the commodities infrastructure that supports a lot of those new kinds of uh investments cobalt lithium the list just goes on it's a very exciting time for us uh adam absolutely yeah and it sounds like what you're saying there you know even if the economy kind of goes into recession in the near term um there's so much committed capital for that sector that that sector may still just have a big tailwind you know almost irrespective of what the general economy is doing all right gordon and then so as we as we begin to wrap up here i it's not lost on me that i didn't have a chance to ask you in this time about financial repression which is a topic that you are a very leading authority on um and that provides kind of even greater context to what's happening you know on the macro level here and i hate to tease people but i think we're going to have to leave that for the next time we have you on the channel here but i'll let you say anything briefly about that if you like just to sort of wet people's appetite uh and if you can in your answer too just if there's anything else we haven't talked about that you think should be on the mind of just the average investor who's watching this video who is trying to be a prudent steward of their wealth through a lot of the the tumult that you've just predicted is ahead please feel free to share that counsel as well thank you very much adam yeah i've done a lot of work on financial repression over the years and i uh what i would suggest to people is it's always been about low uh real negative real interest rates allowing you to really for the government to get out from under their debt it's a proven macro prudential strategy and it worked at the end of the second world war it's worked a number of times and it's being implemented now um with especially with inflation that high and that's why it's being pushed but i would challenge people to understand this whole movement to green and green energy is actually another form of financial repression using regulatories and we get into things like carbon taxes carbon credits and carbon offsets that are now trading at phenomenal kinds of dollars so there's there's new markets people haven't even heard of that are that are now up here are now appearing on the scene i would advise everybody that's out there to really take advantage of these opportunities they don't come along once in a lifetime they're dangerous clearly some of my comments have suggested uh dangers there but on the other hand i've been in this business a long time i've never seen better opportunities around the world than i'm currently seeing right now and it's a but it's a matter of applying this capital very carefully and getting people who truly understand what's not what's going on too many people guess the last point i make adam have just bought etfs and there's nothing wrong with those if you're in a growth environment in in a growth area and it was and because we've been putting so much money out they've been almost a no-brainer and all etfs went up but if they have a problem and i mentioned the top 10 kinds of companies then etfs and passives are not the way to go you need uh so i'll call it stock pickers that's what we're moving into we're moving into an era in my mind of stock picking which has kind of went by the way bought an etf you made money for the last five or six years i think that's changing all right gordon um the financial advisors that wealthy on endorses and refers people to are going to have to send you their commission check in the mail because you've just done a phenomenal commercial for them uh and you're not the first expert on this channel recently to talk about the fact that we are switching from an error of passive investing to where you're now going to have to become very actively engaged and do all the old due diligence that you know traditionally investors had to do to pick out the the gems from from all the stinkers out there so anyways uh thank you so much folks if you would like to hear gordon come back on this program and and really dive deeply into the mechanics of how financial repression works just let me know in the comments section below but otherwise gordon for people that have enjoyed this conversation maybe enjoyed meeting you for the first time on this video where can they go to learn more about you and your work oh thank you very much adam yes we have a website called uh mata s-i-i-m-a-t-a-s-i-i dot com uh we have free videos free newsletters um and we track all the things we've been talking about um for on a subscription basis but as i said a lot of free services too and we welcome anybody to join us at any time fantastic and when we edit this gordon we'll put up the url there on the screen uh well gordon thank you so much for watching folks if you'd like to see more great minds on this program like gordon long please support this channel by hitting the like button and then clicking on the red subscribe button below as well as that little bell icon right next to it gordon thank you so much for joining us today especially with everything swirling in the world the way that it is right now thanks for taking the time to join us everybody else thanks for watching thank you adam

Channel: Wealthion

Views: 48,129

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Id: 3Gyc6nyFn6I

Length: 46min 28sec (2788 seconds)

Published: Tue Mar 01 2022