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The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick

Are you a “Good” Billionaire or a “Bad” Billionaire?
May 18, 2021

“You’ve got major central banks attempting to control prices in the bond market. They’ve spent billions and billions monthly to do this, and yet, prices reversed lower, yields higher, gradually slipping from the grasp of central banks and their best efforts to accomplish the opposite. Something is shifting, even though it’s subtle, even though it’s quiet, even though there’s no drama, we’ve already put in the lows in terms of yields, we’ve already put in the all-time highs in government debt. Where we go next is going to be a grand adventure.”
— David McAlvany

Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany. 

We saw for the last few years an amazing trend, where the news that was coming out was filtered by those who— they basically picked what was good and what was bad. Sometimes I wonder, Dave, if Attila the Hun would have had a Twitter account and if Gandhi, if maybe he would have had his Twitter account taken away.

David: I think the reality of complex situations like we have in the Middle East today, where some people have a voice and some people don’t, is that you need to get as close to the real narrative as possible. That is, spending time with people. This weekend, I was with PhD in international relations and conflict resolution, a gentleman I met 30 years ago, and had great conversations with just an amazing human being, both he and his wife. And what’s happening in the Middle East is very troubling for someone who’s interested in conflict resolution. This is escalation, not resolution.

Kevin: Well, here again, Twitter.

David: And of course, so who has a voice and who doesn’t? This is somewhat ironic. I mean, a lot happening in the Middle East, the leader of Hamas, while politically there’s less voice in Israel for Hamas, the leader of Hamas has an active Twitter account, which I think is interesting.

Kevin: Donald Trump doesn’t.

David: He’s too dangerous to have one. The leader of Hamas, his most recent post was for jihadis to take up arms against Israel in the streets with an explicit call for violence, but that’s okay because it falls on the correct side of the social justice debate. 

Kevin: We’re going to judge that good, I guess. 

David: And at least Trump is offline and the world is a safer place for it.

Kevin: So judged bad, of course.

David: That’s right. So this week’s Twitter irony is that they’ve set up a cultural iron dome, Twitter has, to prevent the inbounds from Trump destroying domestic tranquility.

Kevin: Hamas can Twitter violence.

David: And they can also send more than missiles in the direction of Jerusalem.

Kevin: How about some money? How about sending them some money as well?

David: They can send a thank you note to Biden, who authorized funding for $235 million about 30 days before the Hamas rockets started flying.

Kevin: Are they going to tear the wall down? Yeah, speaking of the Trump policies, you remember, tear this wall down was what Reagan said to Gorbachev?

David: Well, and tear this wall down is what Biden said he would do. If not, I will never add another foot to this wall. And yet, it’s beginning again, the Rio Grande Valley, they’re resuming wall construction at the border. So that’s maybe the second Biden irony of the week, because this time, this particular segment of the wall is not structurally racist. This particular segment of the wall is not xenophobic. And maybe it’s just down to intent. I don’t think it’s a difference in construction materials. I’m actually a little confused as to what makes a wall xenophobic or not, structurally racist or not, but I will tell you that the one that Kamala Harris and Joe Biden are putting together now as a part of the solution for our border crisis. This one’s not xenophobia.

Kevin: So I guess that’s been judged good. Now it’s interesting too, vaccines have been judged good by Big Pharma. At this point, they’re going to be recommending not just for teens, but we’re talking down to tiny little two-year-olds.

David: Kevin, I think this should make us all feel very comfortable. I have to say, one of the things that makes me feel really safe in this world is the pharmaceutical giants. And I really like it when they have legal immunity. And I love it when they provide non-FDA approved mRNA shots and make the scientific case that not only our teens to take the jab, but as the executives at Pfizer said, they’ll be recommending down to two years old should receive them as well. And that just makes me feel so much better about the world we live in. The evidence is in. And there’s a lot of science behind just how these pharmaceutical giants have operated, continue to operate, and all the good that they do in the world. 

It is curious how a wall can have two different meanings and a tweet that would imply explicit calls to violence can have two different meanings. It’s either acceptable or not acceptable. And it’s like math can have two different meanings, too. The math wouldn’t seem to justify the move of giving shots to two year-olds, but then again, maybe that’s the only thing that justifies it. From the Big Pharma perspective, it is the math. It’s billions in quarterly profits added to an already healthy bottom line. And like I was saying, tongue in cheek, no legal risk, limited R&D costs going forward, the potential for a timeless franchise. I mean, timeless franchise in the form of boosters. 

So what I meant was the mortality math, the mortality math doesn’t justify children and infants getting the jab. Whatever the science may say, the scientists doing the science have a money motive that I think needs to be properly addressed. And one of the things that would be fascinating, this is the way a market would approach it, do your best work, do your very best work and let the chips fall where they may. If you make a mistake and it’s consequential in terms of human life, then you pay the price. And so I would suggest, great, let’s do this, let’s roll it out, but bring on unlimited personal liability for all pharmaceutical executives and researchers. Consequential outcomes make for careful studies and qualified recommendations. And I love that science. I love that science.

Kevin: Okay. So you brought up the markets, and it is interesting to me. One of the things that’s fascinated me all these years, Dave, not just working in gold, but honestly, I did not have an interest in economics when I first started going to college. And then I took a course from a guy who showed me that the markets actually, ultimately tell the truth. And they can be manipulated for a period of time, but ultimately, a market tells the truth. And one of the great truth tellers, actually, I’m going to name two, is gold and the price of debt. Interest rates and gold seem to always return to the intrinsic value of what the true market is. And what we’re seeing right now, Dave, is we’re seeing an artificial economy being created by the central bankers. And they’re saying that the CPI and inflation is transitory, but we’re seeing gold strength. We’re not just seeing the commodities, but we’re seeing the markets actually telling the truth and future perceptions of what the truth will be going forward.

David: It seems like a hard shift. Back in 1997, when, after studying philosophy and theology, I made a right angle turn into economics and business. But the really interesting thing about economics is that it’s about people. And that was really what I was most interested in. Economics is about people. And the reason we care about things like inflation or the price of gold is because ultimately, we do care about people. 

It’s when you get past the statistics into the stories, and understand what the implications are, not just have an idea, but the lived-out consequence of inflation that you begin to say, oh, this really does matter. And it’s not something that many understand, but it’s something that everyone does experience when it’s present in the marketplace. And what gold and silver do is they act as a barometer for stability, they act as a barometer for inflation. They act as a measure of confidence in the system, whether that’s the economic system or, frankly, the political system, where, again, you can begin to see a shift in how people feel about their policymakers.

Kevin: Well, and gold is not a paper promise to pay. In other words, you’re not reliant on someone actually having to tell you the truth for it to have value. In fact, it flushes out a lot of those lies when the promise to pay is actually lie.

David: Well, what’s fascinating is you have on the one hand this natural barometer for health in the system, and then you have these contrived parameters. Yeah, we have CPI and PPI, which were surprises last week. And they’re contrived barometers because they’re supposed to measure this thing that we’re paying attention to as consumers. Are the costs of goods and services going up? What does that mean for our savings? What does that mean for our income? Are we going to have enough to get us through the month? And yet these are contrived measures. And we would rather have—society says, but it’s more scientific—we would rather have the method and the model given to us by PhDs than something that emanates from the earth and stands as this natural barometer for health in the system.

Kevin: Okay. But the last time that we had the CPI that we showed last week, what was the interest rate level at that time?

David: Yeah. So the Fed remains committed to an easy money policy, right? And we had CPI and PPI, which both surprised last week. And if you looked back, core CPI, last time it was at the current levels for core CPI, Fed funds rate was 20%, right? So Fed funds rate is nowhere near 20%, obviously, but there’s interesting confluences here. Fed Vice Chairman, Richard Clarida said after the report last week for CPI that it would be some time before the US economy is healed enough for the Fed to consider pulling back its crisis levels of support. And of course, he’s downplaying the increases in consumer prices is very short term, don’t worry about it, move along. I don’t know that he used the word transitory, but that is the buzzword of course. And what we had all week long was this barrage of things, not only CPI and PPI, but used car prices hit an all time high. The average price, according to MarketWatch getting over $25,000 per vehicle.

Kevin: Yeah, Dave, last night, we were driving past one of the car dealerships in this area that sells used cars. And my wife said, “Wow, look how low the inventory is. There’s virtually no inventory.” It is amazing that this free flow of cash has turned into a lot of purchases of cars, boats, real estate, what have you.

David: Once in a blue moon, the tribe South of us gets a $50,000 payment. And when that happens, you also see a run on the car lots. This is one of the benefits of being a part of one the wealthiest tribes in the country, but Native Americans get this check periodically. And $50,000 hits the mailbox.

Kevin: A lot of times it turns into a pickup.

David: But does not go into the bank accounts because there is a certain distrust for the financial system and financial instruments, and so better the third Camaro or truck than a bank account or anything else. But the same thing has happened, where people with $2,300 or $8,400 or whatever the recent government stimulus check was, just let’s go buy something, right? This is—

Kevin: I love our clients. Some of these people got their check and they called and they said, “Hey, I’ve got $1,400. Is there anything I can buy in gold?” And there was. Yeah, there was.

David: But the Wall Street Journal ran an op-ed piece with Stanley Druckenmiller. He’s the former Soros trader and then moved on to run Duquesne Capital, now just family office. But you’ve got inflation expectations in the marketplace hitting ten-year highs. And the expectations in the marketplace are high. The Federal Reserve says don’t worry. And then you’ve got Druckenmiller who is squarely pointing blame for both inflation and inflated bubble dynamics in asset prices at the Fed, right? And again, the Fed’s view is very different. I would just note that operators will always see things different than academics. This is a man who bets, bets large, and wins, probably one of the best records for calling what is happening in the marketplace in the last 50 years.

Kevin: Yeah, but he hasn’t been talking to the Federal Reserve employees, because you talk to any of those guys and they’ll put their pen in their pocket protector and they’ll say, “Oh, don’t you understand? Inflation is something that we control. We have control over that.”

David: And every time they talk about inflation, that is the air that they have. It’s an element in the economy which you do have control over. There’s tools to manage it. The challenge is, you look back at the past decade when they wanted more of the inflation factor, and they seem to be powerless to move the number, even marginally higher. And I’m also reminded of past generations of central bankers who looked at the mandate of price stability and said, “We do not want inflation.” So again, just kind of a double meaning here, what is price stability? 

Double meaning to everything these days. Price stability means to William McChesney Martin in an earlier generation of central bankers, no inflation. Today, price stability means bring it on baby, bring it on. We don’t have enough of it. So we’re stuck between meanings. The past generations wanted less and they were not powerful enough to halt it. They were powerless to limit the increase of inflation until you had economic alter-move by Volcker, which quite literally the economy had to be sacrificed to the gods in the marketplace in order to tame the inflation of the 1970s. Central banks don’t control inflation. Inflation controls the actions of central banks. I mean, it’s almost on par with assuming that the weatherman controls the weather front moving in. But funny—

Kevin: But we have talked about this. This is a confidence game. And what are the things that would wake people up, Dave, that the Fed is controlled by inflation, that they don’t control inflation, and what would cause a loss of confidence? Because right now, the market acts as if the Fed is in control.

David: Yeah. The credibility of the Fed is at risk. And it’s at risk at least in three different ways. They’ve projected an image which overstates their actual capabilities. And that’s a big deal in terms of their credibility risk. The second is, is that they’ve taken emergency tools for emergency situations and adopted them as longer-term crutches. That in the end dissipates the efficacy of those tools for any future application. And the third thing is, they’re in the process of extending their mandates into areas they don’t have the capability, capacity, professional wherewithal— I mean, they’re going into areas that Paul Tucker specifically warned against. Paul Tucker joined us. He was a central banker from the Bank of England, wrote a big book called Unelected Power. It’s a must read if you’re kind of dorky and you want 500 pages of why central banks should stay in their own lane.

Kevin: But if a person just wants to go back and listen to the show, he was a great guest.

David: And stay in your lane was the gist of his advice. And they’re now strategizing to control outcomes in climate change, to control outcomes with social justice, to basically rebalance the scale of equity in the world well beyond the mandates of price stability and full employment. The heart surgeon leaves the brain alone. The nephrologist would never consider replacing a patient’s knee. You work on the kidneys. You have your specialty, you stay in your lane. And it’s amazing how expansive central banks are today in their scope of operation.

Kevin: Okay. But they’re being asked, okay, let’s go ahead and combat racism, let’s fill the social justice gap. Maybe NASA, a few years ago, remember NASA was asked to improve relations with the Islamic world. I don’t know. I thought NASA was supposed to go to the moon.

David: Well, exactly. I mean, I read the news headline that you’ve got the Turkish prime minister talking about Israel as the terrorist state, even while Hamas, I mean, if you know anything about the history of the Middle East, no one in the Middle East ever supported the PLO because they didn’t want an army, they didn’t want an actual army to compete with their state organization at some point in the future. So very little Arab cooperation within the Middle East, very little Middle Eastern cooperation cross borders. And yet somehow Hamas gets a free pass, they’re no longer a terrorist organization. And the terrorist State of Israel is creating pain. It’s, again, we’re back to double meanings, what are we even talking about? Do we know what terrorist means anymore? Do we know what money means? Do we know what anything means anymore? Because you can use it and abuse it linguistically. And as long as you say it with power and control the narrative, it’s done. It’s a new establishment of a new set of facts.

Kevin: And you’re talking about double meanings. And I had mentioned gold being a truth teller in the market. Another truth teller is interest rates. As interest rates rise, what you’re seeing is the risk of repayment is going up, or inflation. Inflation is another way that you’re having to actually go in and combat the devaluation of the dollar or whatever currency by seeing higher rates. What’s going on in the rates market right now? Is truth being told?

David: Yeah, I think truth is being told. There’s a subtle move, which, again, for those who enjoy the boring, the mundane, we do this twice weekly through our asset management team, looking at a number of indicators. And if they move a few basis points here and a few basis points there, it really is a little bit like watching paint dry. The last three, four weeks have been rather boring in terms of the indicators, but the market’s already moved US rates from absurdly low and deeply negative in real terms to higher, but still negative, yields in real terms. And in the same timeframe, if you look at the global bond market, particularly Europe, European rates have moved here in the last week to two-year highs. And it almost sounds like an oxymoron to say that European rates are at a two year high, because with those high levels, there’s still, I mean, some of them are still under nominal zero line.

Kevin: A bond was a guaranteed gainer. If you were buying European bonds, you had a guaranteed gain because even though the rates went negative, it didn’t matter, you knew that they were going to go more negative. Now that’s reversing.

David: That’s right. It was like the 2018 to 2020 layup play was the easiest trade in the world, front run the central bank purchase of assets. If you front run the central bank purchase of government bonds, you’re going to make money. They’re bringing in more money. It’s just endless balance sheet expansion, round after round of QE. And that meant the government debt only appreciated, bond yields only dropped, but that has not been the case over the last six to 12 months.

Kevin: Well, and I think it’s important to give the example because we operate in the markets all the time, but for the person who doesn’t really focus on that, just think of the interest rates and the bond value as two ends of a seesaw or a teeter-totter. And when those interest rates rise, the bond value drops and vice versa. And that was a guaranteed trade, like you said, for the last couple of years, because the European Central Bank would come in and buy everything and push those rates down. Now, with that reversing, even in Germany, Dave, even in Germany.

David: Yet nobody’s paying attention. I think the average investor, I think your professional investor does, but for the average investor, not a lot of thought’s given to German bonds moving from negative 65 basis points to negative 12 basis points.

Kevin: Yeah, but that’s the teeter-totter, that’s the teeter-totter, the bond value is going down.

David: That’s right. So rates have come up off of those low levels. And all the newly issued debt now trades at a different value. And we’re now back at levels that we saw, May of 2019. Look at US Treasuries. They’ve moved up a 100 basis points plus in a half year, even as the G5 central banks have attempted to control prices in the bond market. 

I think this is really one of the key takeaways. You’ve got your major central banks attempting to control prices in the bond market. They’ve spent billions and billions monthly to do this, and yet prices reversed lower, yields, higher, gradually slipping from the grasp of central banks and their best efforts to accomplish the opposite. Something is shifting, even though it’s subtle, even though it’s quiet, even though there’s no drama. We’ve already put in the lows in terms of yields. We’ve already put in the all-time highs in government debt. Where we go next is going to be a grand adventure.

Kevin: Well, we talked about inflation, how it can start minor like it did in Germany, 2% and then it moves to three, then four, then all of a sudden, 165, 800, millions of percent. Yesterday, you were not here, but your wife would probably tell you—because you were in the air, you were flying back home. I went to lunch and I thought, all right, well, I’ll just go into a restaurant, while the wind hit almost like a tornado, almost like a tornado. And we were sitting at the light and I thought, maybe I’m going to do drive through today because the wind was just, I was watching the vehicles, including mine, shaking. When you get that kind of wind, where they look like they might turn over. And I looked around, looked for a tornado, didn’t see a tornado, but I thought, Dave, if there was a tornado, that which we think we control, it’s interesting, you can sit in a several thousand-pound vehicle and feel fairly safe in a high wind. But when a tornado hits, those several thousand-pound vehicles are flying through the air along with the cows and the horses. So what happens when this thing turns into the tornado rather than being a high wind, rather than it— like you said, we’re seeing the reversal right now. The vehicles are shaking, but they’re not flying through the air.

David: Yeah. When you are, you got to say to yourself, Toto, we’re not in Kansas anymore. I think one of the key takeaways is that the market to some degree still believes the Fed’s rhetoric. We haven’t seen a major move in rates, but I think the bond market believes the Fed’s rhetoric that they’re going to do whatever it takes, and that they may take and run the balance sheet from seven, 8 trillion to 10, 15, 20 trillion. There’s no limit there—

Kevin: With no consequence. 

David: And the markets often operate off of an opacity of information. The opportunity is when you know something that someone else doesn’t know, and you play out a certain bluff. And the Fed’s rhetoric about having the tools to control inflation up and down to revive the economy, that’s their version of a market bluff. And market practitioners may say, look, I’m not exactly sure what they’re going to do, they haven’t specified. But I mean, I think they’ve got more ammo. I think they’ve got more wherewithal.

Kevin: What happens when the tornado hits, when the car is no longer is a safe place to sit?

David: Surprise element in the marketplace will be how little control actually exists when the market expresses itself. And at that point, short of shutting the markets down altogether, you can stop volatility if you eliminate price movement, if you take the mark-to-market information flows completely away and just shut the market down. And then you just hope peace and calm returns. 

But yeah, we expect volatility in the bond market at some point. You already expect it in equities. We’ve seen some of it in the last week or so. You see it daily in the cryptocurrencies. But in the price-controlled arena of government bonds, there’s still surprise awaiting. And a rise in rates is obviously very meaningful for a bond portfolio—devastatingly so to the cash value, current value.

Kevin: Okay. Interest rates rising, how do you explain mortgage rates continuing to fall?

David: I think the best way of looking at that is referencing Charles Calomiris’s book Fragile by Design, and some of the conversations we had with Napier last week, it’s an example of directed credit and subsidized credit. That’s not a natural market by any stretch. The 10-Year Treasury has nearly tripled in yield from a year ago. Okay. So just compare these things. The 10-Year Treasury has nearly tripled in yield from a year ago, the 30-year mortgage, meanwhile, has fallen by 10% from 3.3% to 2.98%. And over the last two years, the 30-year mortgage has fallen by close to 27%. So housing prices are going through the roof, both from a decline in rates, migration to single-family housing from the more COVID claustrophobic multi-family setting, from— Supply is falling below demand, but really, cost of capital is a huge part of that.

Kevin: So this is an example of fire hosing the money where you want it. The government’s basically subsidizing housing through subsidizing low interest rates and mortgages.

David: It illustrates the political channeling of credit, one of Napier’s key points, housing is designed to be a venue for subsidized credit. Lower rates drive activity, both purchases and refis. And no place in the world—one of the benefits of traveling overseas, operating a business or two overseas—no place in the world can you finance real estate purchases at a fixed rate for 30 years. We get to do that because we have these organizations Fannie Mae and Freddie Mac. It wouldn’t happen here either if we hadn’t set up—and this goes back to Calomiris—if we hadn’t set up these institutions to be the end buyer for those credit instruments.

Kevin: Isn’t this similar to what Greenspan did in the early 2000s? He moved the tech stock bubble— remember when the dotcom bubble popped? It popped, but it actually moved like those plastic bubbles. It moved from one thing to the next. And he knew what he was doing. He moved it to real estate. That was really pretty devastating by 2006.

David: Yes, but only because the bubble burst. Central banks don’t think about the bursting of the bubble. They think about creating economic activity and driving growth, which— the dark side of creating economic activity and promoting growth is often, you’re creating a bubble at the same time. So it’s often forgotten, you lower the cost of capital. This is one of the key links in the causal chain of misallocation of capital and of pricing excess—and ultimately, bubble creation. It’s bursting bubbles that create asset deflation. And it’s the politicized credit allocation process which, on the front end, prior to getting to the bubble creation and deflation, it’s the politicized credit allocation process that creates the bubble in the first place. 

This all sounds familiar, again, if you’re paying attention to the interview with Calomiris and the book Fragile by Design. Druckenmiller said the same thing in the Wall Street Journal article piece, he says that the central bank should balance rather than fuel asset prices. And he says that pernicious, deflationary episodes of the past century started not because of inflation being too close to zero, but because of the popping of asset bubbles. But how do we create the bubble in the first place? Its monetary policy and the direction of capital through politicized credit that creates the bubble.

Kevin: And the tell, as far as— you could call it manipulation, whatever you want to do—but the tell is that you would normally have a positive correlation with mortgage rates in the 10-year Treasury. That’s what you’re saying, right? The 10-year Treasury and mortgage rates should keep in— and the 10-year Treasury is tripled, you said, over the last year.

David: Correct.

Kevin: And mortgage rates have fallen.

David: Dropped by 10%.

Kevin: So that’s the cat across the screen in matrix when they saw the blip. And remember the cat?

David: One of these things does not look like the other, they’re supposed to be moving in lockstep. The mortgage rate has always referenced the 10-year Treasury. Now the 10-year Treasury is tripled out in a year and the mortgage rates dropped by 10%, 27% over two years. It’s not happening today. You’ve got safe haven Treasury bids. Those have dissipated from a year ago. Yields have been coming up since that point. And now we have the $10 trillion question: Will the bond market go along with the Fed rhetoric about inflation being manageable—they’ve got the power, so they say; transitory, so it seems to them, at least in their definition of transitory, whatever that definition may be—or will we see the bond market join the revolution?

Kevin: Well, speaking of revolution, one of the things that economic history teaches us is there’s no quicker way to create inequality between the rich and the poor and the creation of inflation.

David: Well, and this was a comment Jeffrey Gundlach made just a week or so ago that we’re moving towards civil war. You look at the divide between rich and poor, and now inflation coming in to even exaggerate that more, where maybe the rich are able to maintain their wealth to some degree, but the poor suffer greatly. And now all of a sudden, you’re talking about the kind of social agitation that brings about, oh, I don’t know, 1793 to ’98, does that ring a bell if you’re in Paris? Madame Guillotine?

Kevin: So during that period of time, the poor got very, very poor. I’m going to say during this period of time of COVID, the billionaires didn’t.

David: No, no, no. Over the last 12 months, billionaire wealth has gone globally from $5 trillion to $13 trillion.

Kevin: Repeat that, from 5 trillion to 13 trillion.

David: That’s in 12 months.

Kevin: In 12 months, these are the billionaires.

David: 12 months. And that’s in the middle of the pandemic. Largely from stocks exploding higher as a result of central bank money spigots being opened completely. So, again, the concern about bubble dynamics and what happens socially and culturally as people experience pain on the other side of a bursting bubble, all these things are in play. 

And if you need exhibit A for bubble dynamics, the wealthy have never been wealthier. In one year, where we thought the world was going to go to Barney Rubble trouble. We didn’t, it’s 5 trillion to 13 trillion. The happy have never been happier, the rich have never been richer. The influx into global equities—this is another one of those telltales—the influx of money into global equities in the last five months has exceeded the combined inflows into equities from the previous 12 years, according to Bank of America. 

Okay, then, year to date, just January to present, add the $300 billion in stock buybacks. You’ve got tailwinds. Do you remember the last week we talked about tailwinds in the marketplace? The market doesn’t really know how to deal with headwinds. It’s a different head space, there’s a different psychology. You might have to think about resilience and mental toughness a little bit more. Well, look, 300 billion in tailwinds from stock buybacks, five months of inflows into equities that exceed the combined 12-year total? I mean, it’s never been this good. 

Kevin: But this in equities, and you like to point out irony, Dave, isn’t it interesting that equity—the equity of the distribution of money worldwide—has probably never been more disparaged than it is right now? And it’s been by equities that the billionaires have made it. So they’re going to have to rename it because equities are not necessarily equitable. 

David: That’s right. So the US added 110 names to the Forbes list for 2020. China added 232 names. Globally, the list grew from 2,000 to 2,700. That’s a pretty small number. I mean, if you’re thinking about the total global population, 2,700 people is not that many people. In 2010, the accumulated wealth of American billionaires was equal to 10% of GDP. By the end of last year, it reached a high of 20%.

Kevin: That’s just Americans. That’s just Americans, American billionaires.

David: Their wealth represents 20% of GDP, the highest it’s ever been. Still behind Sweden and Russia, who are between 30-35%. So, huge concentrations of wealth. We’re now sort of neck and neck with India, as a percentage of GDP, neck and neck with India. And I think politicians see this as a minority issue. Again, we come back to double meaning and double definition. This is the actual number, 27, not a racial reference in terms of minority, but politicians see the minority vote. Match that up with the concentration of wealth, 2,700 people with $13 trillion, this is opportunity knocking. 

On the one hand, you’ve got taxes for the rich. On the other hand, you’ve got inflation and unannounced tax for the rest. Taxing the rich is perfect for redirecting attention and providing great fodder for the lower- and middle-class angst over rising costs. You play the blame game. Misattribution. Look at the— play this out in the news media: an unfair financial system. Look at the excesses of the super wealthy, the ultra rich. We can’t feed our families, but they’re on super yachts in Saint-Tropez. Policymakers are trying to rectify via the tax code. And I think this is so much smoke and mirrors.

Kevin: Yes. But wait until we have a Marie Antoinette, who steps up and says, ah, the poor, let them eat cake. Now it’s not even known that she actually said that, but it didn’t matter. It played to the political movement at the time, back in France, in the 1700s. And she did, she and her husband lost their heads. 

David: So it’s a storyline. And with a great storyline, you see Sanders, you see AOC, I don’t know. From behind the scenes, you see Susan Rice and the third term of the Obama administration playing for social justice and equality. And social justice and equality, those things advertise well as the ends justifying the means. What are we after? We’re for a better world.

Kevin: Even my wife, she says, where is Harris? She’s just been keeping her head down.

David: Harris is quiet these days. Biden, when he’s not quiet, it’s just frankly embarrassing. I think there’s got to be more to the White House team than meets the eye.

Kevin: Oh, you think? You think?

David: Because the duo is not doing their best. I was glad to see the press corps throw a small hissy fit over the mandate. This is coming from the briefing room. There’s a briefing room mandate that all questions needed to be pre-screened, and quotes needed to be viewed for editing and approval before they went to print.

Kevin: So they can do that. Now, Trump, if he would’ve done that, what would that have looked like?

David: Imagine the outrage if Trump had suggested that. But one of the things we do get— I mean, again, I like the fact that the press corps threw a little hissy fit, like, wait a minute, we can’t say what we want to say and we can’t ask what we want to ask? And the answer is no, squarely no. It does clarify what the Press Secretary said January 20th, speaking of bringing truth, her words, and transparency, her words, back to the briefing room, but we know exactly what that means now.

Kevin: And if we’re seeing this revolution come in, where— tax the rich, that’s the idea behind it. Obviously, there’s always people who are well connected who stay rich during the period of time where they’re criticizing the rich. And I just wonder, at this point, if they’re going to start labeling how you earned your wealth, if that’s going to actually show up as to whether you get to keep it.

David: 13 pages, you want to read about it, 13 pages in the Financial Times this week, particularly important. It illustrates the socio-cultural critique of wealth, going back to the Forbes list of billionaires. This was the Financial Times article. Billionaires in this article were divided into two categories of good billionaires and bad billionaires.

Kevin: Well, that’s pretty sophisticated, isn’t it? There’s good billionaires and there’s bad billionaires.

David: That in itself was a fascinating distinction. And while it’s not surprising, it tells you where the battle lines are drawn. You’re good if you are self-made and in technology, or perhaps some clean manufacturing application. You’re bad if your wealth was inherited or your wealth comes from dirtier sources. Real estate, don’t know how real estate caught the broad category of bad, but obviously, resources, oil, these are considered bad. 

If you’re a billionaire and you’ve made, again— Jack Ma, Elon Musk, Jeff Bezos, all good. You’ll find the bad stretches across the map. You can go from Moscow to Mexico City, and you can find the bad billionaires all over the place. So that’s how the article wrote about it. And then, of course, Germany, France, Italy, Sweden, they are frowned upon because so much of their wealth is inherited. And it’s bad, but it’s less dirty. It’s less dirty. So, totally fascinating article for its tone, for its framing, for its bias, for everything.

Kevin: Well, and what makes it neutral for most people, Dave, is we’re not billionaires. And so it’s easy for us to go, oh, well, he’s a bad billionaire, he’s a good billionaire, but isn’t it interesting how, once you start making those distinctions, it probably will move right down from the top down into the middle-class?

David: Again, tone and framing is everything because it affects the way you view things going forward, and what is considered an appropriate action, what is a reprehensible action. I mean, you understand, this is the way propaganda works, propaganda redefines terms, and then redefines the appropriateness of action. And had you not first redefined terms, you would never have seen the subsequent actions as appropriate. You might have seen them as reprehensible. Now with redefined terms, we have appropriate actions in light of the world as we know it. 

The whole conversation and framework, it suggests this social shift towards targeting ultra high net worth individuals— I mean, for criticism, but ultimately, for resource redistribution. And so the first thing you have go is the feelings of esteem, the admiration, that fades. And in that place, you’ve got the us versus them, the haves and have-nots. It’s the old sort of Marxist distinction. Then you’ve got, for whatever reason, vilification, that enters the frame, right? What have they done that was bad? Can I demonstrate the dirtiness of their business? Can I demonstrate how bad it is to inherit this amount of money? I mean, a little bit of money, no big deal. A lot of money, oh my gosh. So define them as bad according to some metric, perhaps it’s even a legitimate metric, but this is where we’re going.

Kevin: Dave, you and I have both visited Israel. You spent quite a bit of time there, actually, years ago. And I was really just crushed when I went through the Holocaust museum, Yad Vashem. And you and I talked about it, but it was brilliantly done because whatever a person understands about history as they walk through this museum— It starts out, I believe, in the 1920s, when this propaganda machine is starting to vilify the Jews in Germany, but everyone was still living a happy life. 

It was that big room in the 1920s, if you recall. Everything was fine. You started to realize there might be something wrong, but you didn’t understand what was coming in the future. Then you walked into the 1930s room, and you started seeing how things were changing, news events, things on the wall, but no one had really been killed in the early 1930s, or very few. And then you move into the 1940s. And at that point, you realize that this propaganda machine that had vilified the Jews in the 1920s, it had an outcome, the trajectory of which led to the death of at least six million Jews.

David: Again, it’s a fascinating thing to see what changes through time, definitions, meanings, feelings, cultural shifts first, and then ultimately actions follow. And as we said earlier, it’s so important to know narrative firsthand, and not get sucked into a simple Twitter tweets and one dimensional appraisals from the news media. This weekend, I was in Georgia and a friend of mine was getting married. And he asked me to do the service for him. Not something that I typically do, but I spent six weeks with this guy.

Kevin: What an honor, though. What an honor to be asked to do that.

David: We studied at Oxford together for a year. In between terms, we spent I think close to six weeks in Israel, and we were in Jerusalem, we were in Ramallah, we were in Tel Aviv, we were in Eilat, we were in Egypt along the Red Sea, we spent some time in Bethlehem and Hebron. So in the West Bank. And it’s just— you have to spend time in a place, you have to spend time in a place to understand it and to understand stories—both sides, because everyone has very clear memory of what has happened to them. 

And I said at the time—we did a commentary, this is goes back to 2009—we did a commentary from Jerusalem. There was the equivalent of onion layers of complexity as you go into, even the soil itself. I took a tour of the Western Wall. And underneath the Western Wall, you can see the old remains of Roman ruins, Roman aqueducts. And a lot of people have been here. A lot of people have claimed the land, and a lot of sensitivities exist. And it’s really important to appreciate people in the midst of conflict because their stories are important. And the only way to resolve conflict is to get closer to the narrative, move away from politics and get closer to the people.

Kevin: Yeah. And so we’re not really talking about race, we’re not talking about division of money, we’re actually talking about blood. When you look at any of these things that we talk about, Dave, when we talk about inflation, when we talk about inequality, when we talk about propaganda, the trajectory has to be righted to a correct trajectory or it leads to bloodshed. And that’s the importance of this, this isn’t just talking about billionaires being good or bad.

David: No, but I mean, back to that topic, and this is somewhat conjecture as we define the good billionaire and the bad billionaire, conjecture on my part. But I think that there is a version of that reappraisal which is happening now. Think about this. Leon Black leaves Apollo Global after the board struggles through a review of $158 million in estate planning fees.

Kevin: $158 million to plan their estate?

David: Right. I mean, these are fees that are larger than most estates, right? But he paid $158 million in estate planning fees to Jeffrey Epstein.

Kevin: So quote the estate planning fees. Was it flight on the airline?

David: Listen, Leon Black is a very wealthy gentleman. Apollo Global is a massive enterprise, but those are large fees for estate planning. Yes, they went to Jeffrey Epstein, the notorious sexual predator, who happened to be a hedge fund— what was he? Was he a hedge fund manager and asset manager, a lawyer focused on estate planning strategies? Was he a Mossad/CIA double agent? Well, maybe he was a marriage and family counselor. I’ve heard that recently, too. But I understand that a lot of world leaders joined Epstein on his customized 727, the Lolita Express, considered first in class for in-flight entertainment.

Kevin: Clinton Foundation was tied to that as well, weren’t they?

David: They acknowledged, they would only admit to four times that Clinton was on the Lolita Express. The flight records show 11 times. Kevin Spacey, Donald Trump. Yeah. I mean, Epstein had his fingers into everyone’s lives. 

Returning to Leon Black. You wonder if his wife and kids were involved in those estate planning conversations. Now you have Bill Gates, too, coming into the limelight. Routine visits to Epstein’s New York Bachelor Pad.

Kevin: It didn’t help the marriage. It seems like the marriage is breaking up, unfortunately, Bill and Melinda.

David: Right. Well, that was what is said, Epstein gave him plenty of good marriage counseling, how to deal with a difficult relationship. So, always take your advice on marriage while flying the Lolita Express or hanging out with a pedophile at his New York pad. 

I’m not sure what estate planning fees and marriage counseling actually mean when you throw Jeffrey Epstein in the middle as the provider. Again, we’re back to, what are we talking about? But reading through this week’s Financial Times article, again, by Ruchir Sharma. He’s the Chief Global Strategist at Morgan Stanley Investment Management. The conclusion is: anti-wealth back lashes, coming; taxation, coming; increase in anger over wealth inequality, coming—the wave of the future. He drives home very clearly, over 13 pages, which is a pretty lengthy article if you print it out.

Kevin: It’s just scary when you start saying, we’re going to deem this good, we’re going to deem that bad. Again, we’re not just talking about billionaires, but if you’re a billionaire at this point, you got to be wondering which side the powers-that-be will say you fall on.

David: What changes general sentiment of admiration for the rich to dislike to hatred? I mean, simply, you could say envy—perhaps. How about evidence of people playing by a different set of rules? Whatever it happens to be, some of the billionaires will only get through this period if they fall on the right side of that good versus bad category, as Sharma describes it. 

Again, I’m not agreeing with Sharma as much as I am saying this is a very interesting way to frame the whole conversation. And I think there’s something almost prophetic about it. We’ve defined the good, we’ve defined the bad, we’ve also defined the targets. And we know the targets in several different ways. Those who don’t know their targets, who will be targeted via inflation policy, those who will feel that they are very much at the end of a sniper rifle, if you will, the Treasury Department is coming for you. 

So that message will be clear to the very, very wealthy. And if you’re not a good or bad billionaire, and just a saver or investor, say with TIAA-CREF, guess what you got this last week? A letter saying that, in June, your cash balance will receive a negative interest rate. How does that feel? You’re not a good billionaire, you’re not a bad billionaire, but we’re coming for you anyway. You’re going to be charged for your cash balance. 

“Investor, die” is the implicit mantra. Stay in the market; go long. I mean, again, it’s: continue to maintain a balance at the CREF money market accounts, understanding that returns will go negative, interest rates will not rise appropriately. What does that mean? What does the word appropriately mean? Because we explored already the idea that we can have interest rates suppressed and inflation rates pushed higher.

Kevin: It’s command and control. Command and control in a little different way. We’re going to take your money away if you don’t keep investing in the market.

David: That’s right. So TIAA has joined the ranks of Credit Suisse in Europe to say, take a look at your investment options, rebalance if necessary, use our asset allocation tools if you’d like, learn about what it means to be in a low interest rate environment and how it’s impacting us and how we were given a free pass from the regulators until June 30th, 2021. But from that point forward, you can expect a negative rate on your money market fund. 

This is the wave of the future. We can reflect on big government, Big Pharma, big banks. I think in the end, the most important decisions we have to make are individual choices. And they need to be carefully considered, carefully weighed, carefully put in motion.

Kevin: You’ve been listening to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany. You can find us at, And you can call us at (800) 525-9556.

This has been the McAlvany Weekly Commentary. The views expressed should not be considered to be a solicitation or a recommendation for your investment portfolio. You should consult a professional financial advisor to assess your suitability for risk and investment. Join us again next week for a new edition of the McAlvany Weekly Commentary.

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