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  • Gold breaks $1500 as safe haven
  • “Free Stuff” beats free markets: Will Kirchner return to Argentina Leadership?
  • Russell Napier suggest we may be entering a 30 year bull market for gold


The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick

Once A “Sure Bet,” Argentina’s 100 Year Bond Drops To 54¢ on the Dollar
August 13, 2019

“I think the relevance of legacy for any age group is that you define your trajectory every day, and over the span of your life you aggregate those small pieces together, and it is the little timeframes that are so important in terms of the decisions you make. So whether you are older in years and more mature and don’t have a lot of time left in front of you, or you are a young man or young woman and you have a lot of time, the point is that your decisions matter.”

David McAlvany

Kevin:It’s really fun to read the intelligent comments that come in on the YouTube channel, Dave, and some of the sarcasm. Gary asked this week, “Would you explain ‘yield’ with regard to bonds?” (laughs) We’ve been talking about negative yields.

David:I had a similar encounter with my son this week as he opened his bank statement, and, granted, at 13 he doesn’t have a very large bank account. But he looked, and he said, “67 cents? Really?” And he just couldn’t believe that having any money at all in the bank – 67 cents was an insult. And I reminded him that he could live in many Scandinavian countries and the 67 cents could have gone the other way. For the privilege of having money there at the bank it could have cost him 67 cents.

Kevin:It’s hard to get your head around negative interest rates. We’ve been trying. But I was thinking about it, double negatives – when you say, “I never, never do that,” you’ve all of a sudden shifted it. But negative interest rates, you really can’t figure out how that makes sense. It’s never, never, never – you’re basically paying somebody to go out and risk and use your money. It’s insane.

David:The consequence of negative rates is that you have many things that used to be commercial which are no longer really viable from a commercial standpoint. Look at the average Japanese bank today and the cost to manage and run those banks is 100 basis points, and yet they are receiving less than 64 basis points in income. They are not viable commercial entities.

Kevin:It’s a slow bleed.

David:We were reading an anecdote from Jim Grant’s most recent letter and he mentions a gentleman who is receiving a $38 check for having borrowed money from the bank in Denmark. And the issue is, how does a bank do that – make money on a loan? The whole notion of borrowing short and lending long, when in fact, the model has been shifted – to what, exactly, I don’t know – but I don’t think that these are commercially viable offerings.

Kevin:There is a tension, though, Dave, because we know that the markets are very similar to gravity. You may look like you’re defying gravity for a while, but you’re not going to defy it forever. I think of our trip to Argentina a few years ago when Kirchner was in power, and the inflation rate at the time was about 40%. Now, of course, it has increased since then. But what we are seeing right now in Argentina is a reversal, and rates are skyrocketing because the risk is skyrocketing.

David:Last week the peso ended down 1.8% and that was pretty much in line with other emerging market currencies, and all those currencies were suffering from a bit of risk-off in the marketplace. They were moving in line with junk bonds, notably weak last week, and safe havens were very popular last week. Gold was bought aggressively. We started last week in the low 1400s. Monday got started with an almost $30 move and they put in a peak this week of $1535 – that’s $1535 per ounce – for those who haven’t been watching the price of gold recently, it has actually been on the move. The Swiss bond market hit negative 100 basis points. So along with the yen, the suisses, the treasuries, the bunds of Germany – they were all attracting safe haven buying.

Kevin:You have a flight to safety going on right now.

David:Yes, and back to Argentina, Mauricio Macri over the last four years has implemented reforms which move Argentina back toward a realistic, and frankly, sustainable economic model.

Kevin:Sort of the only hope for Argentina, actually.

David:I think so, because after years of the Kirchner’s dynastic corruption and handouts for all, Macri brought a more business-minded approach, certainly more business-minded than his predecessor.

Kevin:And he is introducing something we all hate in our own lives, but we sometimes have to utilize, and that is what they call austerity. If you’re spending more money than you are bringing in, you have to introduce austerity to the family.

David:You mean living on a budget requires discipline? Yes. You might question his skills if you are feeling the impact of the current 50% inflation rate, or if you have had some of the subsidies which he has cut negatively impact you. Those are subsidy cuts which may look and feel like targeted austerity. But truly, I think it is his free market orientation which is the only thing standing between Argentina and a fiscal abyss.

Kevin:The sad thing, though, is the voters would really like to return to the days when things were free.

David:That’s right. So over the weekend you had the Argentines vote in a primary election which puts Alberto Fernandez in the running to replace Mauricio Macri and guess who his vice president will be?

Kevin:Isn’t it amazing? She shows up again like a bad penny.

David:Christina Kirchner, there again – 47.7% for the leftist challenger, 32% for the incumbent Mauricio Macri and that is taken as a signal that they know where the October elections will go. So yes, we know exactly what the populist crowd in Buenos Aires thinks and what they want in October because they turned out in a landslide to vote for Kirchner.

Kevin:The markets are speaking. We can look back and say, “Oh yeah, free stuff really makes a lot of sense,” but the free markets – it scared them.

David:Isn’t that an interesting contrast between free stuff and the free markets, because that is the Kirchner model – free stuff, hand out subsidies, and frankly, either comparable or worse inflation trajectory – because remember, it was her husband – they have overseen two of the great collapses of the Argentine economy, and this is within the last 20 years. But yes, what do the markets think? The MERVAL, which is the equity index in Argentina, closed Friday at 44,355. It opens Monday at 29,138.

That’s a 34% drop on Monday, and in U.S. dollar terms, factoring in the drop in the currency, as well, you’re down 48% – that’s using the official exchange rate. That 48% down day exceeds the one-day decline of 45% in the year 2000, also in Argentina. And this week’s volatility in the Argentine stock market ranks as the second worse single day decline in financial market history. It is only outdone by Sri Lanka in 1989, 61.7% in a single day.

Kevin:Doesn’t that go to show you how quickly things can change? Just a couple of months ago we had Steve Hanke on, and he was liking Argentina if they were going to continue doing the things that they were doing. But we were talking about negative interest rates. Negative interest rates only work as long as the system is holding together. At this point, the Argentinians are having to pay substantially higher rates for people to give them money.

David:I hope Steve is nimble because this was a tough 24/48/72-hour period (laughs).

Kevin:Hopefully he didn’t get gored, yes.

David:Oh, the difference a day makes. The Argentine five-year credit default swaps – this is an indication of potential default on debt, it is what it costs to insure debt – went from 1132 basis points to 2136 overnight.

Kevin:Almost double.

David:Yes. Up over 1000. That signals a 75% probability of default over a five-year period. Again, what is the difference between Friday and Monday? Be careful how you spend your weekends, particularly in the summer, because some things happen while you’re disengaged and on vacation which could be very, very important.

Kevin:Well, let’s say that you liked Argentina and you had purchased a 30-year bond on Friday, and you knew that you were locking in for 30 years, 9.52%.


Kevin:Now that’s a good percentage, but look at the difference between Friday and Monday.

David:Yes, for those who are interested in income, what a great place to go, except you wake up Monday and it’s yielding 12.2%, an increase of 2.68%. That’s a big deal. So when you’re talking about the price of the bond, not just the yield moving higher.

Kevin:The principle value of the bond just collapsed.

David:A 22% drop. Again, that’s not factoring in translation into the currency. The Argentine peso was down 18.68% in a day, down 30% at its worst point during the day in terms of volatile trading – 30% in a day – can you kind of feel it?

Kevin:This is bond. This isn’t stocks, this is not high-risk penny stocks. What we’re talking about are, supposedly, the most stable investments in the world.

David:You said, “This is Bond.” I thought you were going to say James Bond.

Kevin:James. Well…

David:It’s Argentine Bond.

Kevin:This is Bond. How about we talk about 100-year Bond, shaken, not stirred.

David:Yes, well, I don’t know.

Kevin:You remember the 100-year Bond?

David:If it’s not shaken, and it’s not stirred, it just got wrecked. 2017 issued – if you recall, we talked about this on our commentary – it was over-subscribed – I don’t remember if it was two or three times over-subscribed.

Kevin:Everybody wanted the 100-year bond from Argentina.

David:Last week it traded as low as 74 cents on the dollar, and this week at 54 cents on the dollar.

Kevin:(laughs) Yes, it’s going to keep dropping.

David:Lesson, anyone? This is, I think, what you can conclude. Can you predict, let alone imagine, what takes place over the next 100 years? And in this case, the government bonds of 2117 may not survive even two years, let alone the 100 that they are supposed to go the distance. So reflect on the oversubscription. Just pause and think about that. Reflect on the oversubscription.

Kevin:There was a line to buy them.

David:Go back to the archive. We were utterly confused, as you and I discussed it, as to how the all-knowing and all-wise Mr. Market could pile into 100-year paper in Argentina and treat it as a normal and routine bet. Pension funds, insurance companies say, “We’ll just lock in the long-term cash flow.” Political stability in the Pampas is as reliable as the weather.

Kevin:We’ve talked about Europe, as well, though. You have people who are buying Spanish and Italian – you name it – that are horrible bonds, that actually are yielding less than U.S. treasuries. That’s amazing.

David:I know, but this is the same absurdity. When you think a year ago Italian debt was yielding 3.6%. Today, the ten-year treasury in Italy is 1.4. The Italian debt is yielding less than the U.S. treasury. This is a world of insanity. And to assume that Mr. Market is going to get it right, again, to quote from a book that Grant wrote years ago, “Mr. Market miscalculates.”

Kevin:Well, and I hate to say this, because the volatility really hurts the person who trusted the lack of volatility, but it is always refreshing to me to feel the market repricing things correctly.

David:As recently as July we spoke to Steve Hanke on the taming of hyperinflations using a currency board. That is a unique concept. It is one that he has popularized. He has used it in Bulgaria. He has used it in many Eastern European countries. He was very bullish on Argentine debt. Oops! Ahem. Oops! The board has not been adopted in Argentina, which is essentially using a stronger currency as your own, adopting it as your own, and adopting the interest rate regimen from that more stable currency. So that is something that is an option, certainly, and I don’t think it is likely under the new elected officials, if that is what happened…

Kevin:But if MacRi could have done it, it would have been a great play.

David:Or if by some miracle he does, then maybe Argentine debt is the best bet on the planet today, as he puts a floor under the currency and a cap on interest rates. But think of it, if Macri introduced a board he could stabilize the currency. We had nearly 20% devaluation this week, on top of the already registered 50% annual inflation, and this is where I don’t think Macri has a chance in October, at least with the information that we have today, because the 20% devaluation on top of the 50% – this is going to work its way into the consumer’s life between now and the election.

And the more inflation pain is experienced, that equals more political gain for Fernandez and Kirchner. You have the leftist populism on the return, and it doesn’t matter that history can teach us something, it doesn’t matter that it’s a failed system which brought us the multiple currency crises earlier in this millennia, in this century, with Argentina.

Kevin:And forget that it was actually Kirchner who brought this in. What is actually occurring right now is still a carryover from what they did during the Kirchner regime. It reminds me of what we talked about last week. We talked about term limits being a good thing, but terms probably needing to be a little bit longer because even in this country, something happens during the first four years, a lot of times because of what was built up before, and the person doesn’t have long enough to distance himself, or change. Macri has not had enough time to change, or add the currency boards, or what it would take to keep Kirchner from coming back.

David:You have such deep structural impairments within that economic and political system that fixing it does take some time. And frankly, do you know where it is most difficult to fix things? This is going to sound – I’ll say seven Hail Mary’s and maybe walk on broken glass for saying this, but this is the weakness of democracy. You can’t get things done in a quick fashion because there is order and process which has to be respected. Let me just say on top of that, I would take the disorderly and slow, inefficient democracy any day.

Kevin:That’s what Churchill said. But the tyranny of the urgent requires a tyrant for the urgent. An urgent tyrant can solve things. Look at China. Look at what is going on right now in Hong Kong

David:That’s exactly right. You see Xi Jinping and he makes himself lifelong leader, and there are no more elections. It means that he can get stuff done.

Kevin:Did you see the trucks rolling in? Did you see that happening?

David:Tough weekend. You have the airport, which is overrun, and so the Hong Kong airport is shut down. We talked about this last week and the weeks previous, but as the PLA was mounting their forces in Shenzhen, I’ve been through Shenzhen, I’ve been on that highway that connects Shenzhen to Hong Kong, and listen – this is a big deal. We said there wasn’t going to be a tank man in Hong Kong. We may be corrected within less than a week’s time.

Kevin:And you have Chinese PLA people who are dressing up as demonstrators coming in and actually causing some of the violence. This is a replay of what we have seen, at least since 1918, with Russia.

David:Sometimes revolutions, as they occur, are helped along. They’re not as spontaneous as they would seem.

Kevin:We’ve talked about the rise of populist rumblings. Whatever form it takes, populism is really making an impact, and as we see what is going on in Argentina, we are starting to get a little bit of a vision of other emerging markets and the populism that is taking over there.

David:It was 2016 that I spoke at an economics conference in South Africa, and the topic that I chose was populism and the impact of populism. We talked about the five-star movement, we talked about a number of emergent trends in Europe. And there is a difference between left populism and right populism. But in the emerging markets, this is where there is clearly greater sensitivity to populist rumblings, not because the effects are of a different character, according to geography. You can’t say populism is different because it’s here versus there.

But you have the populist promises like those of the Fernando/Kirchner duo. I just don’t see they are hardly any different from the U.S. appeal to modern monetary theory. There is no difference. It is just that in the emerging markets there is less liquidity, so when the financial participants begin to look at the consequences of your free lunch, and who actually pays for it, there is far greater volatility. Volatility is exaggerated in geographies where there is less liquidity. Does that make sense?

Kevin:Sure. You’ve always said lack of liquidity shows up in every financial crisis.

David:If we had the equivalent of a Kirchner/Fernandez duo winning a primary here in the United States, I think you could see a 10-20% downside – not necessarily in a day. There would be a negative impact to the U.S. equities markets and the U.S. dollar and the U.S. bond markets. But again, it’s a deeper pool of capital, it’s far more liquid, and the impact, I think, would be less exaggerated because of that increased liquidity here in the U.S.

But I think what I am trying to say is that markets are telling you that there is a cost and there is a consequence, and you may call it free, and you may assign it as a gift to some beneficiary in society, but it actually does come at a cost, and the financial markets do that math pretty quick.

Kevin:It just goes to show, a long-term lack of volatility can turn immediately into instant volatility.

David:(laughs) As I look at our stateside Democratic primaries, this is not so much a comment on Argentina, but just a reminder that we have a wide selection in the Democratic primaries that offer as much hope for the capital markets as do Fernandez and Kirchner, a hope of a different sort, I suppose, but politics, as it turns out, does matter for the average investor, certainly for the average investor as they open a portfolio statement. And this month is going to be pretty interesting for those in Argentina. And no, economists don’t have models that predict or explain political volatility with the economic and financial collapse we have in Argentina.

Kevin:And if this collapse continues, am I remembering this right? Didn’t the IMF give Argentina the largest bailout in history? Wasn’t it like 50 billion dollars?

David:Macri organized this according to a certain set of disciplines and rules that would be implemented for the Argentines. And so, it raises some good questions. What will the IMF do with a new administration? And the likelihood of that new administration being willing to follow through on Macri’s commitments is slim to none, so do you really have, I think it was 55 billion dollars lined up, or does that disappear? And how does that impact the financial markets further? Another thing is, what does the long-term investor in Argentine debt think today? Again (laughs), just two years ago 100-year paper seemed reasonable, and I’m guessing the last two days have probably felt like 100 years.

Kevin:It just goes to show you that people will run to safe havens and sometimes they look at bonds in various countries as a safe haven, a little bit like gold. But in the end, it’s gold. How many times have people gone into Argentine paper and then later said, “Gosh, I wish I would have just bought gold.”

David:We watched $1400 with an eagle eye to see that it not only got above that level, technically $1385, but psychologically $1400, and getting above that level, staying above that level, very constructive in terms of the long-term trajectory for the gold market. But I think here we have had some short-term activity which has driven safe haven demand well above $1500 in about a week. So yes, gold acting as a safe haven, you have the equity markets, experience of a return to volatility, the bonds markets continue to herald sad tidings, at least for those who need an income (laughs), it’s simply not on offer. And in that case, gold becomes more popular, because as the opportunity cost to owning gold keeps on going down and down and down, what would you say if the central bank community was making a long-term commitment to lower rates? We’re talking about much lower rates.

In Europe you have the memory of bail-ins, which, if you are an investor in Europe and you’re saying, “I want to have cash, I want to have liquidity,” you are really discouraged from having significant bank deposits because you know there is the real potential of a bail-in. It has already been communicated, it’s already…

Kevin:The IMF paper talks about it.

David:And then you push those risk-averse investors into the arms of the governments who are issuing debt and paying nothing on it because they don’t want to be in the banking system. But a part of the weakness within Europe today is an inability to attract money into the banking system. Think about, as we talked about last week, the circulation of money through an economy. One dollar deposited is lent out, re-deposited, lent out, and one dollar may have a ten-dollar footprint, or one euro a ten-euro footprint. But if you’re not willing to put money into the bank to be lent out because you’re concerned about bail-ins, you do find yourself clustered into safe haven buying and into bonds. So no, there is an intractable disinflationary trend in Europe, in part, because low rates and the history of 2008/2009 – I forget what year it was, 2010 or 2011 where they actually had the bail-in – and that memory leaves a residue which has not been forgotten.

Kevin:And we talked about at that time, that bail-in may be a model that would be used on a wider scale, and I know we keeping bringing up the IMF working paper on how to handle the next crisis up – that 83-page white paper that, really, you only need to read the first page, and I would recommend page 40 – it basically tells you they are going to have to capture people in the system and then start charging them deeply negative rates to get through this next one.

David:It’s what academics call financial repression, and it has a fancy name, but a not so fancy impact to your pocket-book.

But back to the safe haven aspects of gold, you also look at the emerging markets and there is this concentrated curse of exposure to China. It works really well for you on the upside.

Kevin:But if you’re a little country below China, or below America, it is very impactful.

David:Yes, because of your trade relationship with China, most of your emerging markets have a strong, dynamic relationship with China. As goes China, so goes the growth trajectory of most of what they used to call the LDCs, the Lesser Developed Countries. Then you have the equity markets here in the U.S. So this is all pointing to why gold has gotten to $1500, why it is likely to correct, frankly, from here, and give you a decent entry point, I would guess, in the next 30 days.

Kevin:Well, look at the price on stocks. Just take the equities market, Dave. Back in the year 2000, back in 1987, the year 2000, 2008, we had PEs that were well above 20. Right now we have PEs well above 30.

David:It is, in fact, the long-term reason why I think gold would make sense. The U.S. equity markets are ripe for reversal to the downside if you look at the Crestmont PE. If you look at the cyclically adjusted PE popularized by Robert Shiller, sometimes called the PE-10 because it takes a ten-year moving average for the PE, if you look at the Q ratio, replacement value of the real assets of the company, they are all edging toward the 2000 peak level.

Kevin:That was the tech stock bubble.

David:This is the highest level that we have seen in all of financial market history. So today we have overvaluation in equities and it is the second-highest in financial market history. And that is very relevant to the gold market because investor demand for metals is inversely proportional to interest in stocks. So to the degree that people are buying stocks, they are not buying gold. To the degree that they are selling stocks, they are buying gold.

Kevin:Even though the central bankers have been buying gold worldwide, you can’t give gold away to an American investor right now.

David:No, investors operate on a different bandwidth and wavelength. Should we go through an extended corrective phase in equities, we’re going to go through an extended growth phase for the metals. We have had some nice short-term moves in here, and maybe some of that is consolidated, but I think that the longer-term story is, again, daily, if you are looking at the charts, it is over-bought. But if you look at the weekly and monthly charts, they are turning positive, and they are confirming the view that regardless of the ten days, or 20 days, or a shorter timeframe where you could have some downside volatility, the metals have several good quarters.

Kevin:Okay, but you have a guest that we love. You have to listen really carefully because he has a very, very strong Scottish brogue, but Napier thinks it is going to be much longer than several years.

David:He is saying that we could be entering a 30-year bull phase for gold. What that really means, if you’re looking at it, not in terms of the price action for gold, but the implications in the other currency and capital markets, is that capital and currency – again, rough times ahead. It reminds me of the recent weeks where on the Wealth Management Team we have an outside technical analyst come in and on Wednesdays we look at a variety of charts. And this is one of the conclusions. We have been waiting, we have been waiting, we have been waiting for confirmation of a longer-term bull market trend that confirmation in the gold market is here, it is now. And I think we’re looking at years of growth ahead of us.

Kevin:So I’ve got 32 years in the game here with the McAlvany family, and gold has gone up and down. It’s gone from $300 to about $1500 in my career here. The last six to seven years, I have to admit, have been pretty doggone boring in the gold market. It looked like they had this thing settled and manipulated. If you’re talking a 30-year bull market in gold, Dave, I’m 56 years old. That would mean that I get to actively continue to watch gold rise until I’m about 86 years old. Now, can we continue to meet back at our table, table #30 at Ken and Sue’s Restaurant on Main Street in downtown Durango for the next 30 years? Can we do that?

David:I certainly hope so. We need to put in a plea with Ken and Sue to keep the place open another 30 years when I’m going to retire.

Kevin:That’s one of my favorite things. We meet at table #30 at the back of the restaurant at 4:30 in the afternoon before the restaurant opens, and we talk about the things that ultimately show up on this program.

David:One of the things that I think is worth recalling is that less than a year ago we were getting calls and reports, and even some of our best friends were saying, “The fix is in. Stocks will only ever go up, and gold will only ever go down, because the central banks have figured out how to control it.” Will you just stop and remember this 90-day window where we have gone from $1200 in change to $1500 in change, and put in your brain that, no, the markets are not controlled. They can be influenced for a time, but ultimately, not controlled. And when the free markets speak, it is with power and dynamism that no central banker has the imagination or the power to control. And so that’s the reality.

But you’re right – table #30 (laughs). Table #30 is what happens when you decide to sit and talk about a variety of topics every week for 11 years. And when you try to count the hours, Kevin, how many hours have we sat there and discussed?

Kevin:And not just talk, but it’s usually after many, many more hours of reading privately.

David:I thought you were going to say many, many more Taliskers (laughs), but you’re right – no, no, no…

Kevin:You’re giving the secret away.

David:Thank you, there is a secret sauce, and it is a sauce. How many hours of reading and preparation? My guess is that it is an average of 15-20 a week, and so here we are in our second decade of commentaries. We didn’t call them podcasts 11 years ago, I don’t think. We’re still a few years away from episode 1000. Granted, that will come at the end of our second decade. But when we reach the end of our second decade, you know what is funny is I think we are going to be in very, very good company. I have so much respect for my colleague, Doug Noland.

I’m an amateur athlete. I have a lot of internally motivated drive. And I look at the weekly regimen required to be ready for game time. And I know that the hard work occurs when no one is looking, and there are a lot of quiet hours. The quiet hours are preparatory for the raucous ones, the crazy ones. You have thousands of hours of hard work and preparation. That translates into success in a span of time that is, on a relative basis, small. And that is when performance matters most.

Kevin:I was thinking about that, because when you challenged us to do that half Ironman in Hawaii, honestly, the very thought of it scared me, but when I look back, the race was fine, but actually, it was the hundreds of hours of training that I enjoyed the most. I can look back and I can say, probably it’s a 100-to-1 ratio, because I figure if you’re going to train for a half Ironman you’re going to put about 500 hours of training in for a five-hour race. It might be more than that, but I’m thinking it might be about 100-to-1 ratio of preparation versus performance.

David:Well, the markets are similar. You’re ready and you’re engaged in a thoughtful process or you’re not – you’re caught flat-footed and underprepared. And as we, at present, put in one of the biggest tops in financial market history, as we move through a period of incredible monetary and fiscal ingenuity, and it really is.

Kevin:That’s a euphemism, Dave – ingenuity. There you go.

David:(laughs) There are few people in the financial markets that are as aware, or as prepared to navigate those waters as my colleague, Doug Noland. He manages the Tactical Short program on our Wealth Management Platform. He also contributes daily as a market strategist for our other model portfolio.

Kevin:That just blows my mind that he is actually part of the team. This is a guy that was influencing the team before as we read Credit Bubble Bulletin for years.

David:Again, this goes back to the things that you do often and repeat on a systematic or routine basis. I love when we do meet at our table #30 every week for the last 11 years, Doug has passed the 1000 mark. He has written the Credit Bubble Bulletin for over 20 years, and chronicling a period of historically unprecedented credit expansion. His weekly commentary is on history’s greatest credit bubble. It is an amazing resource. I still pinch myself. I wake up in the morning and I look at the collection of news articles which he has already put on the page and I think, “He has just saved me an hour.”

I could find them, reading through the Financial Times, the Economist, the New York Times, the Wall Street Journal, and Barron’s,and they are already collated. They’re already in one place. That is with hours – how many hours involved? It’s reaching into the tens of thousands for him, and I can reasonably say without exaggeration that I know of no equal in terms of the process of analysis and articulation in the credit and financial markets. This is what fascinates me. I think of what is a key take-away for any of us – weekly disciplines, in aggregate, make a profound contribution.

Kevin:I just want to insert something here, too. The Credit Bubble Bulletin would be something that people would pay hundreds, maybe even several thousand dollars a year for. It’s free, if our listeners just go to You can just read it every week for free.

David:Yes, he has done this for years. I think this is one of the reasons why, philosophically, we’re very compatible. My dad used to say, and still does, “Give it away and it comes back to you.” And he has been educating, with a passion, to inform, teach, elucidate and remove the obfuscations of bad ideas within the financial markets and he has been doing it because he had to. He has been on a rescue mission.

Kevin:And we all need to be on a rescue mission. I think of the book that you wrote, Dave, Legacy. You go back and you are pulling distinct lessons out from your life, and your family’s life, and trying to create an idea of legacy. But that’s a harder thing to communicate. It’s like integrity. You can lose it in an instant, but it takes a lifetime sometimes to build.

David:I woke up earlier this week to the sound of my phone ringing at 6:30 a.m. (laughs) and there was a live radio interview for a discussion on The Intentional Legacy.

Kevin:So that’s your new alarm sound, which is, “Hey, we’re live.”

David:“We’re live, are you ready?” And I told my wife – somehow I think I exaggerate my tone or something – “Yep, I’m ready to go!” And internally, I’m thinking, “Oh, my goodness, I haven’t even had a cup of coffee.” Well, I think I was better at bouncing out of bed without that cup of coffee a decade ago. I’ve had that happen before with news outlets reaching out to discuss the gold markets, or the oil markets, or other financial topics. This one hurt, in part, because it is accessing not just facts and figures or ideas that are about the world out there.

Kevin:This is deeply personal.

David:It is, it is the world in here, and to discover that at 6:30 in the morning without a cup of coffee, in a meaningful way to communicate that, in an intelligible way, can be challenging. But the questions on the show, of course, they are different than a Bloomberg or a CNBC because legacy is the heart of the questions and the point of the conversation. And I would say, this is where I take it a different direction. Legacy is the aggregate of the choices, it is the sum of our values and priorities expressed in all that we say yes to, or what we say no to, in our daily lives.

Again, it is just basically the aggregate of your choices. It’s not merely a balance sheet, not merely a worth statement in dollars net of liabilities. That may be a small result of benefit from the choices made by yourself or by others, but the conversation on legacy, as I frame it, is one of curatorial work. We orchestrate and we set in motion a variety of personal and cultural markers. These are your reference points of things that have most value to you. These cultural markers can be among friends and colleagues, or with family. And what they are is the routines and the rhythms and the habits which define your life.

And we contribute to the ethos with not only what we do, but how we do it. And we end up defining what I describe in the book as the delights and the deeds and the disciplines of our life. These are the things that we choose as an individual or as a family to put in motion. And that ends up spilling over into the lives of the people that we share life with.

Kevin:We talked about that 100-to-1 ratio for training. Let’s say you do train 500-1000 hours for 5-10 hours of racing, deliberate action for preparation for those times. That deliberate action, a lot of times, is in the quiet times when no one is looking.

David:That’s right. I looked at volatility this week and was reminded of when we started the commentary in 2008 and it was like drinking out of a fire hose. There were so many things happening on a daily basis there was no way on a weekly program to keep up with all of the important facts and figures as we are launching directly into what is now known as the global financial crisis.

I think we are heading back into that phase, but I think this is also where you get to see the best results of the deliberate actions which have been taking place in those quiet hours, when we start counting the quiet hours – the hours of practice, the hours of conversation which you and I share in the commentary, the hours of listening, the hours of action and reaction, what you see as a narrative. I guess you have to take the third person to see it that way, but if you take the third person you have that perspective. There is a narrative and we have to ask, “Is it what we hoped it would be?”

I think the relevance of legacy for any age group is that you define your trajectory every day. You define your trajectory every week, every month, every year. The decades are made out of these smaller time slices. And over the span of your life you aggregate those small pieces together, and it is the little timeframes that are so important in terms of the decisions you make.

So whether you’re older in years and more mature, and don’t have a lot of time left in front of you, or you are a young man or a young woman and you have a lot of time, the point is, your decisions matter.

Kevin:Something Jim Grant said when you were interviewing him about the Bagehot book – Bagehot in the 1850s said, “I just wish people would do less.” Now, he was a very deliberate thinker, but I think about as I grow older, Dave, I find that my quiet hours of preparation, I really prefer to become longer and longer, and more deliberate, and my actions become shorter and more deliberate, maybe not taking action all the time. That sometimes can foul a person up. The wisest people often look like they’re doing nothing for a period of time, and then all of a sudden it’s like, “Wow, where did that come from?”

David:Right. You actually can see that quiet period in the life of Churchill, where he does nothing for a long period of time. And then there is a moment where there is no one who is better prepared for battle.

Kevin:It was his greatest hour when Hitler finally threatened England.

David:And he really wasn’t a man made for peace, he was a man made for war. Maybe that is even more true of the general who is always longing for peace, but is the only person really prepared for war.

If you haven’t, sit and reflect on where you are and where you are going. That is what Churchill’s notion was when he said, “The farther back you look, the farther forward you can see.” And I believe that it is true of individuals as well as nations. We need to remember, we need to reflect, and we need to reset our trajectory if necessary.

There is a good friend of mine, and a good friend of my father’s, too – I got to spend some time with this person last week. This relationship goes back over 40 years. He said to me out of frustration that he had no legacy to leave. Tax laws shifted in the 1980s, John McCain lied to him, to his face, about how he would vote on a particular issue. It cost this gentleman tens of millions of dollars.

Kevin:Yes, but that doesn’t take the legacy away.

David:And that was my point. It’s not true that he doesn’t have a legacy. He is one of the most loyal friends I have ever known. I watch him as he relates to others, and he is a champion of their causes. He is a selfless promoter of their successes. He is a coach, he is a mentor, he is a friend that has chosen loyalty and commitment. In a thousand ways he leaves a legacy richer than King Midas. I think about where we are historically and I think to myself, there are people who will lose great fortunes in the years ahead, and make great fortunes in the years ahead. As a perspective piece, I think it is important to remember that that doesn’t really matter.

Kevin:I think about your friend, talking about that, and hopefully he doesn’t think this all the time, and I’ll bet you he doesn’t, that the loss of money is the loss of legacy, but I can hear humility in his voice, as well. This is a man who had many millions of dollars, had built many things. He made millions and he lost millions. It’s like what Jim Deeds talk about. He says the first guy that was going to hire him said, “How many times have you been bankrupt? I never hire anybody who hasn’t been bankrupt at least twice.”

But I think of humility with Doug Noland. You were talking about Doug Noland. He would be embarrassed to hear us talking about his Credit Bubble Bulletin the way we do, but he has garnered respect without demanding respect.

David:I agree, it would embarrass him. And he would not bring attention to himself, but I want to honor him for all the hard work and effort put into becoming the man that he is. You remember Malcolm Gladwell who points to the proficiency and professionalism born out of 10,000 hours of work on anything, whether it is the piano, or painting, or anything in between. What is it when you have doubled that number, and it’s not 10,000 but it’s 20,000, or 30,000, or 40,000 hours? You and I know pilots that have put in that kind of time in the seat, and Doug is similar.

I marvel at the perfect team, which I think we come pretty close to today, and it’s rarely planned. In my experience it is not because of a genius in terms of hiring practice, but we have had events converge, we have had people converge, we have had ideas converge. We have had, through that, opportunities emerge, and then we have our responseswhich have defined a course, praxis, action, in Latin. We still have to choose, and no, we don’t want to over-choose. As you say, too much action (laughs) can be detrimental.

Kevin:You mentioned a perfect team, but I think a perfect team is one that realizes their imperfections.

David:Right, so perfect maybe is the wrong word, but we have a phenomenal team in our precious metals brokerage business, now passing its 47thyear, a phenomenal team in our Wealth Management business, in its 11thyear, and our newest offering, Vaulted, the digital and savings and banking alternative we launched a year ago. It is a rich existence to be surrounded by great people with great skills and a relentless drive to make the most of the time we have together doing the tasks that we have in front of us, knowing that every choice matters, and is a part of a legacy created and we ultimately give to others. That, to me, is almost, in a sense, overwhelming.

And I wish for all our listeners that if that is not your experience that you consider how your choices align with making that your experience.

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