In Transcripts

The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick

Kevin: Today’s show will incorporate possible victories and challenges for Donald Trump, and our reaction to them. We end the show with how to create an intentional legacy for you and your family.

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“We do see monetary policy as being ineffective – ineffective – and you see it in Japan, you see it in Europe. Look at the radical extremes they’ve gone to. They’ve followed in our footsteps. And it didn’t help us, it didn’t help Japan, it hasn’t helped Europe as of yet. Maybe it will. Maybe the argument will be made it just needs to be doubled down, tripled down, quadrupled down, and then it will actually work.”

– David McAlvany

Kevin: The contrast, Dave, between the Obama administration and the Trump administration is really something else. I know that Obama, immediately, when he got in, took an international tour, almost apologizing for American exceptionalism.

David: It is different this time, because you’re right, eight years ago Barack Hussein Obama launched what was unprecedented at the time for any president of the United States to go on a global apology tour. Bill King reminded us of that this week. Trump is, quite frankly, far more apoplectic, apologetic.

Kevin: (laughs) Yes, apoplectic against apologizing for America, basically, because apoplexy is anger at something. Trump may not come across angry on TV but I’ll tell you what, Trump is angrily pursuing the things that he would like to make right, at least in his mind, from what was wrong.

David: No one is surprised by what he is doing because he said that he would do these things. But everyone is surprised by the speed at which he is doing them.

Kevin: Oh, it’s going very quick, and actually, if you would look at reality, you would hope, in some ways, that reality would be catching up. There are long time delays. In fact, I sometimes feel sympathy for what Trump is actually inheriting. The U.S. GDP growth – he is inheriting a recessionary economy at this point.

David: There were a number of very significant things out last Thursday and Friday that I think are playing into the markets this week, and U.S. GDP growth was certainly one of them. Even with extraordinary election year spending where we finished the full year at a positive 1.6% for GDP, that’s hardly a number to be proud of. 1.6% is the lowest full year growth figure since 2011. If you were seeing us kind of come out of the doldrums you would hope for a little bit more momentum than that.

We had the fourth quarter GDP which came in at 1.9%, which was surprisingly low given the estimates of growth from across Wall Street. We started very weak last year in the first quarter and the equity markets sold off very hard. We had the markets down 10%, 15%, almost 20% here in the United States, and 30-50% declines in the emerging markets. And all of that was sort of covered over with this idea that it is going to be a strong finish to the year. They sold off, the equity markets were definitely reassured that third and fourth quarter growth would impressively rebound, and that is not really what we got.

Kevin: Well, let me ask. We’re talking about a lot of fiscal largesse with Trump, and with him spending and doing some of the things that he said. Will that increase the economic activity in the short run?

David: I think you have a revival in economic activity, certainly, if his fiscal policies are put in play, and there is an increase in deficit spending. So 2017, you are likely to see a very positive turn in the economy, but the stock market is where the real hang-ups still lie. The stock market, I think, will vary and will be set with some challenges in 2017 in that particular category.

Kevin: I saw on the front of Barron’s magazine, they were talking that now that we have pressed past 20,000, by year 2025 go ahead and look for 30,000 on the Dow. I thought that was sort of a safe statement since we’re still seven or eight years away from that. But they mentioned something about corporate earnings, and I think it is important to get some clarity there because Barron’s was talking about how earnings may just support a higher stock market. I think we need to look at where the earnings have come from.

David: And it is also important to recognize that a positive earnings season is a bit biased and I’ll get to that in a minute. But as we have looked through earnings for the fourth quarter, there are actually very few improvements in terms of revenue growth. That’s the big thing. You’ve had a number of firms which show revenue growth but you look at the companies that they acquired this year and most of the revenue growth came from acquisitions, not from a growth in business.

So the other issue, earnings beating expectations – that has become all too normal. And for the cynic in me, all you have to really do is lower your bar and make every goal more achievable thereby. It’s not a real success story if you assume that going from ten cents a quarter to one cent a quarter, as long as you properly estimate and meet the estimates, that somehow things are all well.

Kevin: You’re not the only one seeing this. Your key man over at McAlvany Wealth Management, Dave Burgess – he’s looking through these earnings and he’s saying the same thing. He’s saying, “Look, don’t be fooled. These are acquisitions.”

David: Well, we own some quality Fortune 500 companies, and it is interesting, there are only a few that are actually growing. Most are flat, or negative, in terms of revenues. And where you see the growth, again, a lot of that has been from acquisitions.

Kevin: Okay, let’s go to the stock market for a second because for six or seven years, everything that the Federal Reserve – it was Ben Bernanke at the time, and then later it was Janet Yellen – every little word that came out of these Fed presidents’ mouths would make the stock market go up or down. Now, in a way, they are becoming irrelevant. It seems that everything that Trump does now, they try to explain with the stock market. This immigration thing – they were blaming the stock market drop the other day on Trump’s immigration policy.

David: Right. Well, it’s been interesting. Two weeks in a row, if you look at the softness in the marketplace, in the stock market on Mondays, they have these great, grand explanations in terms of the cause of the decline in stocks.

Kevin: Because of what Trump said on the weekend.

David: That’s right. So Friday set in motion this week’s decline in stocks. The news media would have you believe that it was the inconveniencing of somewhere between 100 and 1,000 travelers following the 90-day immigration policy shift, and that that is what is disrupting markets, and it is making investors uneasy. I say hogwash. What you have on display is an extension of election media bias into the present, and really, they are bringing no clarity to the picture. Here are the concerning issues which are driving market prices. You still have European interest rates which are beginning to rise, and the spread between the highest quality, which would be your German, and your lower quality – French, Italian, Spanish, Portuguese, Greek – those spreads, the difference between them, is widening again.

Kevin: Well, and Greece just shot up dramatically, didn’t it? In one day, didn’t we see, how many basis point rise? 120, was it?

David: What it is indicating is there is further stress in the EU. And in Greece, they’re not quite saved. We thought they were saved. They’ve been saved – what? A dozen times now? Italy and France – they are the political hot potatoes. We have elections coming up, and April is going to be funny season over in Europe for that reason. Those are the things that are bringing real uncertainty into the global financial landscape, because you have key votes pending. And these interest rate shifts are occurring even as the European Central Bank is artificially setting prices using their 80 billion dollars a month to buy bonds. In other words, they’re trying to control prices, and yet their control is slipping.

Kevin: 80 billion euros a month – that adds up to close to a trillion euros a year. That’s as strong as our quantitative easing program was a few years ago when we were in the depths of the financial crisis.

David: Add to that the across-the-pond critique of Trump’s immigration policies, and that is serving to further divide and deepen the views held by many Europeans, who on the whole have been witness to a massive decline in birth rates. At the same time immigration policies have been liberalized, and Germany is an illustration of that. Reuters records that population in Germany reached a record this last year of 82.8 million.

Kevin: But is it Germans, or are they immigrants that are creating that increase in population?

David: Deaths have exceeded births in Germany every year since 1972 according to Reuters, and yet we see growth in their total population, just 5 million fewer births in that time frame, and yet total growth. All the growth has come from immigration. Here’s the bottom line. Political surprise is like the soup of the day. Political surprise – we had it in Britain, we had it here in the United States. And when politicians don’t pay attention to basic things like – I don’t know – demographics and their voter base, and the changes in the demographic – you know what? This is what happens. My friend in Switzerland, Frank Seuss, used to say, “The soup is cooked hotter than it’s served.” I think in this instance it’s the opposite way around. This one is being served just as hot as it’s cooked.

Kevin: You know, Dave, people are starting to taste a little bit this possibility of throwing off the elite. Now, they may not even see what that is, but Germany has put up with this immigration and a lot of these Germans are probably looking at this and saying, “You know what? What happened in America, what happened in Britain, I don’t know that I want to see Angela Merkel in this next time around.” We could see, like what Napier was saying two weeks ago – all it takes is one, or two, or three countries, to not play in this 19-country European Union, and you could have a crumbling of that Union this year, next year, with all these elections coming.

David: It’s a very frail situation, and I think, we’re concerned about issues driving the market and market prices and outside of Europe, we mentioned a moment ago, U.S. GDP. It did not support the notion that U.S. domestic economic activity is finding its stride. It is not finding its stride. Quite the opposite, it returns us to the first quarter of 2016, wondering if current prices in the equity markets, in the stock market, are, in fact, justifiable. And we would argue, no, that they are not.

Kevin: Look at housing, Dave. We have disappointing numbers still coming in, and a person could say, “Well, you know, Trump has nothing to do with that.” And that’s true, but the problem is, it is the economy that he has inherited. And housing was much more disappointing than what was expected.

David: Right. Less than 1% decline in home sales was what was expected for December, and instead it was greater than 10% – that’s what emerged. So the Fed – we have the FOMC communiqué which is out this Wednesday, and that may, in fact, represent sort of the tipping point, if you will, for a reversal in positive equity market momentum. So the housing market is soft, softer than expected. GDP for the fourth quarter, softer than expected. Full year, thus far, is softer than expected. But that’s okay, we’ll be fine as long as we can spend money. Again, I think the mainstream media loves the idea that Trump’s policies are provoking uncertainly.

Last week, Monday, you had and early decline in prices in the stock market and that was met with outcries from the mainstream media of Trump representing destabilization. And then as the market streaked momentarily past 20,000, those cries were silenced. This week, Monday, the same. His immigration executive orders are tearing the country apart, according to the media.

I have to be honest, I really enjoyed tweeting over the weekend – I do that on occasion, by the way. But I enjoyed tweeting a Clinton video where he is talking tough on immigration. As he gets done with his speech on how he is going to triple or quintuple the border guards and send foreigners home, he gets a standing ovation from Congress.

Kevin: This was – what? In 1996, 1997, when Bill Clinton was in office?

David: It was when he looked younger that he does today, so it was a little while ago. And of course, Obama shut out Iraqi refugees for six months back in 2011. So we’re not talking about unprecedented actions on the part of Trump. We are talking about unprecedented press coverage and critique of his policies.

Kevin: So for the person who wants to follow you on Twitter, you can follow @DavidMcAlvany. They can start getting those few and far between twitters. How often do you Twitter, Dave?

David: I don’t know, sometimes it’s two or three times a day. Sometimes it’s once a week. It kind of just depends if I have something in my craw or not. So I’m putting up a few ideas here and there relating to family and legacy because we are in the midst of launching the book, The Intentional Legacy, and that’s now available on Amazon, but I’ll mention that in a moment. I think what I’m particularly keen on here, in terms of the mainstream media, is particularly the business news networks. Trying to shift blame and ignoring primary economic drivers, I think, is unconscionable for a business news network.

I understand MSNBC having a deeply flawed philosophy, and needing to report on news in a way that is entirely representative of a perspective and a worldview. But when it comes to reporting on economics and numbers, you would think that that is something that is less apt to be monkeyed with in terms of an interpretation. And yet, the mainstream media, in the business context, is also saying, “Oh, look, the stock market is going crazy because of Donald Trump.” Actually, there is some really good economic numbers that were coming out. And over the weekend – this was absolutely amazing – over the weekend it was rumored that the tax cuts which Trump has been proposing would have to wait until the spring of 2018. And as that hit the newswire, I was watching Dow futures sell off.

Kevin: And it was a rumor.

David: But it is in anticipation of the market open the following day. These are the realities behind the volatility. Mainstream media is using sort of their paint-by-numbers approach to reporting, and to be honest, it is why alternative media is growing. Traditional media is dying, and they have no idea how out of step they are.

Kevin: The media can move the market on a moment-to-moment basis, and central banks can do the same thing, but we do have this Trump mania going on, and the stock market punctured 20,000, it didn’t stay there long, and then it came back down below 20,000. How long can this animal spirits rise in the market last before reality starts hitting?

David: We may have found our limits. If it’s not central bank easy money policies driving prices to the moon, it may be the animal spirits from the new Treasury – unless it’s not. And that’s the real key thing here. We noted this in December. There is a gap between the market prices reflecting the positive effects from fiscal policy shifts, and there is a gap between that and the timeframe for when those measures can actually be implemented, which is five to seven months from now. So we’re priced for perfection today, and yet we have to wait for perfection until tomorrow. What happens in the interim? It’s relevant if someone is concerned about volatility or downside in the stock market.

Kevin: Anyone who listened to the Bill King interview last week – this is a man who analyzes and makes stock picks all the time, and he basically said, “No, I’m going to stick with cash and gold for now.” Because it is very vulnerable.

David: How do you levitate the markets when central bank policy is in retreat, and delivering on your promises is necessarily delayed due to the nature of passing initiatives through a legislative process? This leaves the stock market incredibly vulnerable over the next several months. It is interesting to see central bank policy lose the limelight as the market driver, and Trump take center stage. At least the mainstream media is putting the spotlight on it.

Kevin: Just like in a magic show, Dave, there are illusions going on, there is entertainment going on, there are things behind the scenes going on. It does seem to me like right now it’s a show. It’s either the mainstream media, or it’s the central bankers making comments, or it’s Trump. And right now Trump is trumping the other two completely.

David: Well, it seems like a show. It looks like a show. It is as entertaining as a show, and I think Trump is loving it. I think the new management team has everyone around the globe wondering what will happen next. And Trump loves not only the suspense and the drama of it, but the advantage gained in the process of negotiation, having everyone sort of on their left foot. What’s next? I don’t know. We’ll have to wait and see. And it’s not a fun suspense if you’re a foreign power. You don’t know what to do next, or how to position ahead of time. Which again, from Trump’s perspective, gives him a huge advantage when it comes to negotiating deals.

Kevin: Why don’t we look at the tax cuts? Let’s go ahead and contrast the old paradigm versus a new paradigm? Give us an idea of what that means.

David: (laughs) Well, the new paradigm is, let’s simplify the code, and I think that’s what we’ll see, if it’s now, or if we have to wait until the spring of 2018. But the old paradigm is still in effect in places like Illinois. Fascinating. We do anticipate tax cuts at some point. Again, that’s at the Federal level. But in places like Illinois, they are at this moment considering a new tax called the Business Opportunity Tax.

Kevin: Don’t you love the word opportunity right next to tax?

David: Opportunity for the privilege of working in the state. It’s a new state-level payroll tax. Up to 4.99% of individuals’ income will go into that, and then companies, just shy of 10% is the max rate. So you’re talking about as much as a 15% increase in taxes through payrolls to the state of Illinois for the privilege of walking the earth, breathing the air, etc. And I’m wondering if they’ve noticed the number of businesses leaving Illinois in recent years. They must think, in some sort of – well, I don’t even know how to describe the rationale.

Kevin: Some sort of California way?

David: (laughs) Some sort of California way, only without the weather, that they expect hundreds of businesses to move to Illinois, knowing what a privilege it is to work in the wonderful state of Illinois.

Kevin: Speaking of paradigms, we’ve lived with a paradigm, Dave, all of our lives – you and I – with the United Nations being just another power in the world, an overruling power. But not everybody has felt that way, your dad included, Howard Phillips included. Some of the men that you grew up with, Dave, really, were worried about the United Nations. Now, they were patriotic men for America, but they were certainly not patriotic for this organization that Trump is possibly going to, maybe not completely defund, but back way off of.

David: Jim Grant, in his recent comments, made the distinction – I think we made the same distinction last year some time in our Commentary – between globalism and globalization, where globalization is the increase in free trade, open borders for the advantage of capital flow and the movement of goods and services. Globalism is more of an agenda which is sort of a top-down management structure applied to who you are, what you do, how you do it.

Kevin: With favoritism and little gifts that go on. Well, you know, pay to play.

David: I’ve always said I’m all for globalization. That is the free market, in effect, taking advantage of where pockets of resources, whether that is human resources or actual physical resources, can be mobilized.

Kevin: But you’ve never been a fan of globalism.

David: No, I haven’t. So you’ve got CNBC that reports the Trump administration is preparing to dramatically reduce our role in the UN and other international organizations. And just an anecdote here, my father, who is incredibly patriotic, served in the Air Force as a medic. When I was growing up and I was expressing an interest in serving in the military, his response was to discourage that career choice, for one primary reason – the likelihood of wearing a blue helmet, and being assigned to some post, some part of the world, where the U.S. had no interest, being a peacekeeper for an international agenda that may or may not reflect justice or a legitimate concern for an American citizen.

And it was about the UN. That was the issue, not the U.S. military. The UN was anathema to him and certainly, I grew up with that idea. So I look at an announcement that Trump may limit or reduce our role at the UN or international organizations and I smile. There is a sense of satisfaction, not because I’m a troglodyte that wants to go back to an entirely closed-off world. I’m all for globalization, but globalism is a very different thing.

Kevin: Well, that takes me back to Reagan. This may cause the feathers to ruffle on some of our listeners who are just 100% for Reagan, but Bill King just pointed this out last week. He pointed out a truth that your dad always knew, as well. Ronald Reagan had many good things to do for the country, but he was a globalist. There were many things that he did that increased this globalization. This is where Trump and Reagan are different. This is one of the many areas. I think we should contrast economically, politically. Trump is not Ronald Reagan.

David: No, and we discussed a lot of that in our Q&A programs in December. There is a significant difference between the backdrop of the Reagan administration and the current Trump administration now settling in at the White House. Reagan inherited the worst inflation rates since the Civil War. He inherited short-term interest rates above 20%.

Kevin: Double-digit, yes.

David: He inherited stocks at very low prices and low valuations, having been in a bear market, arguably, since 1968, with some really bad flourishes in the 1970s, and finally bottoming between 1980 and 1982. Trump, on the other hand, inherits a zero inflation world with rates, in real terms, at or below zero, stocks priced rather rich – that’s what he’s inheriting. Reagan had only improvement ahead of him, coming in, as he did, at the bottom of a bond bear market and at the end of a stock bear market, and at the end of an inflationary era.

Kevin: Right. It was bound to turn.

David: Trump, for all the promises to spend us into the promised land, has inherited, not 1 trillion dollars in debt, but 20 trillion dollars. And of course, he has the unfunded liabilities in Medicare, Medicaid, and Social Security which are expected to reach the skies over the next four years, driven by something that is completely out of his control. Unless he implements something like soylent green, we’ve got a demographic issue. We have more people who are going to be taxing the system than have ever taxed the system before, taking out their benefits – Social Security, Medicare, and Medicaid.

Kevin: One of the things that we try to do, Dave – when I watch the press right now I see confusion. And when I’m talking to even money managers there is confusion. What I would like to hear from you is sort of a simplification of what we have been saying. For the person who is listening and saying, “Look, I listen to you guys because I would like something a little bit more distilled, please.”

David: Can I qualify that earlier statement? I’m not actually an advocate for soylent green (laughs) – just a comment in passing. But yes, I would conclude simply that economic activity is going to be up during the Trump administration, that government largesse is going to be down, which is of huge benefit to Americans. It’s a little bit like cutting off the tail. It’s not like cutting of the head of leviathan, which I would fully sponsor, but it’s like cutting off the tail of leviathan. And perhaps Trump ends up being better than Reagan in this respect, and we’ll have to see. But we might actually have a small government orientation inside the White House for the first time in generations. So from a sociopolitical perspective, or really, a philosophical perspective, that’s off the charts positive.

But the financial markets are a different story altogether. The financial markets are going to move toward equilibrium regardless of his policies, which, while finding a few good things to take note of, leaves me with real concerns as to the direction of the financial markets. The vulnerability is less in the economy and more in the financial markets, which is in stark contrast to the Obama administration where the economy couldn’t get off the ground but the financial markets sure could, on the sugar high coming from easy money and cheap credit delivered from the Fed.

Kevin: So Dave, this question is going to really need to be accompanied by the dark music of the villain in a melodrama. I think of the central bankers, I’ve never liked them. You, I don’t think, like them. Everyone who was in power in this establishment is amazingly threatened by the Trump administration. Now, they are still in power of the things they were in power of before. What are the chances that the establishment, the central banking community, the people who do not like Trump, can just pull the rug out from under him?

David: I’m still enjoying in my mind Phillip Glass in Dracula, so let me get back to that question (laughs). Is it the case that ineffective monetary policies are being retired? This is, in my mind, a very big question you are raising. Is it the case that ineffective monetary policies are being retired, or that central bankers are aware of their enemies at the gates? And who is their enemy? You’re talking about, really, populism, and a non-unified, what some have called the liberal agenda – liberal democracy.

Kevin: It reminds me – we played a little clip the other day from Monty Python and the Holy Grail when these people were saying, “You’re not my king.” They said, “I don’t know you, you’re not my king.” And people are starting to say this about the central banking community. “Wait a second, you’re not my king.”

David: Right. So do you feel an identity crisis brewing with the central bankers where they need to reinforce their relevance by creating a context of financial pain via a tightening of the monetary purse strings? They have a choice, which is to look at weak economic figures and remain accommodative, or begin to tighten. And there are some indications, depending on where you look, that the economy is strengthening. But what are the consequences of raising rates at this juncture? Can you maintain the Dow at just shy of 20,000 if you raise rates three times this year? I would argue that if they do follow through and raise rates three times this year you can probably take 1,000 points off for every interest rate increase they introduce. So could we be back at 17,000 in very short order? Absolutely! And that’s the uncertainty that their policies bring into play. In the midst of that, do they, on the one hand, sort of discredit Trump? Will they attempt to do that? Maybe. And do they try to reinforce their legitimacy by saying, “Okay, we’re going to then accommodate,” raise or lower rates, and again sort of re-legitimize their place in the public square? This is a very interesting period of time. We do see monetary policy as being ineffective – ineffective – and you see it in Japan, you see it in Europe. Look at the radical extremes they’ve gone to. They’ve followed in our footsteps. And it didn’t help us, it didn’t help Japan. It hasn’t helped Europe, as of yet. Maybe it will. Maybe the argument will be made it just needs to be doubled down, tripled down, quadrupled down, and then it will actually work.

Kevin: Dave, often you talk about hedging yourself, and I think obviously the safest way to hedge yourself, the unsophisticated way of going about it, the simplest way, is gold. Gold goes up when things get uncertain. Cash, if the dollar stays strong. But I know for the person who has a larger portfolio, hedging means something a little bit different. They can be in gold and cash. But let’s say we have a client who sees the stock market coming off two or three thousand. How does a person benefit from that, other than just owning cash and gold?

David: This is a totally self-interested comment, and we put together a product that was entirely self-interested. It filled a niche that we had to have filled because it is something that we needed in house, and see as a major niche in the marketplace – a tactical short fund. Doug Noland has partnered with us and our Wealth Management team, and the tactical short is unlike any other short fund out there in that we don’t have to be short at all. We can sit in treasuries and clip very small coupons, but still be in the equivalent of a cash position, or we can be 100% short.

Kevin: Which makes you very different than most short funds. Short funds, a lot of times, are just short all the time.

David: And anyone who has ever bought an ETF and been short, you’re short all the time, and you’re 100% short in that position all the time.

Kevin: And if the market goes the wrong direction, you just lose money.

David: That’s right, it’s painful. So this is a better way to approach that kind of an actively managed, daily rebalanced portfolio on the short side. To me, you know what it feels like? It feels like doing warfare a different way. It’s something very simple, but very radical, and very effective in the 1700s. Our guys addressed the lobster backs in a very simple way. I’m going to hide behind a tree, if I have the opportunity I’ll take a shot, and then I’m going to go hide behind the tree again.

Kevin: So they go short when they feel there is really enough tension in the market to be short.

David: To capitalize on it, then back away. And that may mean that there are three, five, ten different trades in a year, but we’re after that particular pressure point, and capitalizing on that particular market release in terms of pressure volatility.

Kevin: Right. And it’s not for everybody.

David: No.

Kevin: For the person who is just wanting to keep their portfolio simple – it’s not for them.

David: I’ll tell you who we designed it for. We actually designed it for institutions, and individuals can certainly look at it, but it’s designed for an institution. If you’re a pension fund, if you’re an insurance company, if you’re a family office and there is a requirement that you be long equities according to some version of the prudent man rule, or just how your mandate is laid out, is there a way that you can lower volatility and increase liquidity in the context of a market downturn while maintaining a primarily long exposure in your equities? And the answer is yes.

And that’s what we’re attempting to do is lower your total volatility, for someone who must have a traditional equity exposure, but also provide an increase in liquidity in the context of a market downturn, giving you the ability to take proceeds, take profits out of the short fund, and liquefy, move to assets that are thus undervalued at that point in time, and actually solidify an equity position, but giving you liquidity to do it – a tactical short. Our official launch is April, which is Q2, and I’ve already had dozens of people express interest in us doing that for them at the institutional and private level. So, very excited about that.

Yes, I agree, if you want out of the market the easiest way is just to get out, sit in cash. But for some people that is outside their mandate and they can’t. They can’t get completely out. So yes, we have long recommended a gold exposure as something to lower volatility in an equity portfolio.

Kevin: And that’s for everybody, without exception.

David: Studies going back to the 1970s and 1980s have shown that a gold allocation within an equity portfolio increases returns and lowers total volatility. What this does is, really, actively engage on the short side. So, we’re in the business now, but we’re kind of doing our formal open, if you will, in April. And we’ve been glad to not be short the last couple of months and not lose money. Here’s the beauty. We don’t have to, but we can. And that’s the beauty of a tactical short, that when the opportunity presents itself we take it. Otherwise, we’re patient.

Kevin: One of the things I’ve liked about you, Dave, all the years that I’ve know you – the last 30 years – is that you are forward thinking. Just talking about this short fund – you’re thinking ahead. How could we possibly profit on a stock market that is falling without having to be there wishing that it would fall all the time? I like that. And you know what it reminds me of? Your book is coming out on legacy. Dave, you’ve always thought longer term than I have. A lot of times I’ll look the next month, two months, three months, and I’ll say, “Okay, what am I going to do?” You, instead, are making plans for the next five years, ten years, 25 years. You told me about your anniversary trip this weekend with your wife, and I love the fact that through the years you’ve had a wish list of champagnes. They can be expensive, but you buy many years ahead of when you’re actually going to enjoy them on future anniversaries.

David: I think one of the favorite parts of the book that I just finished, The Intentional Legacy, is this idea of future memory, where we see and anticipate something in the future and try to bring it back into the present with certain actions.

Kevin: A reverse engineering approach.

David: When I look at 2017, I see the amount of change which is occurring by the Trump administration. It’s mind-boggling. There is a sense in which, “Boy, we don’t know what tomorrow holds for us.” And I would actually challenge that because I feel that. I don’t know what tomorrow holds from a business standpoint, I don’t know what legislation changes, I don’t know what changes in terms of an import tax at the border or immigration. My brother, who is in the process of becoming Indonesian – is he going to be able to come back into the United States? All of these things are very relevant to me, but I say, in a world that seems out of control, is there anything that we can control? I think that idea of reverse engineering, of saying, “What are our highest ideals and expectations of what we want in our individual lives, but also as married men, as family men, for our family life, what do we want to see happen?”

Kevin: And this is not a cold book that is just sort of isolated and objective, this is a very, very personal book. It took you a lot longer to finish this book than you thought because you’re telling your most intimate stories, Dave, of how you all learned as a family.

David: And it took me a lot longer to decide whether or not to even print it because it is personal. So if you’re interested, you can pre-order it on Amazon, it will ship February 7th. I will thank you for your purchase, and a positive review. Please! (laughs) But the importance of the book is this. There is a lot of life that you’re not in control of. What you are in control of is how you react to it, how you respond to it, and how you lead other people toward a particular end point. What is that end point? What do you want? Have you really, as a couple, or even as an individual, have you thought, “What is my goal here? Do I have financial goals? Do I have intellectual goals? Do I have emotional goals? Do I have spiritual goals?” Is it possible to actually lay out, and say, “This is the course that I’m on and I want to manage my resources well?”

And the biggest definitional shift in this book is saying that legacy is not just about tangible assets, it’s about the intangibles, too. And so while we may do well to look at a balance sheet with stocks and bonds and real estate and assets that we’re all familiar with, some of us don’t do as good a job managing the intangibles, and making sure that as we manage those kinds of resources that we are actually on track toward maturity and growth in those areas. I make the case in the book that if you neglect the intangibles the tangible passage of wealth becomes much more difficult.

Kevin: Dave, just for the listener who is wondering what this is about, I’d like to just read the subtitles to each of the chapters. There aren’t many chapters, it is a nine chapter book. Your introduction says, “It is an inescapable concept – we all face a legacy. It’s either good or bad.”

David: Well, we do. We all leave a legacy. The question is – is it the kind of legacy that we want to leave, and have we been intentional about that? Or at the end of our life will it be whatever it was, haphazardly, “I hope it’s okay, and I hope it didn’t offend very many people”?

Kevin: I read the book. I got to read the pre-reader copy. I loved it. Chapter one was, How Grace Can Save A Family Legacy. That’s where your personal stories really come in.

David: What I mean by that is the ability for individuals to work things out. Do you realize how often in families you come across have mini-crises, and those mini-crises create resentments, and those resentments lead to a breakage of relationship? And that breakage of relationship leads to a lack of identity. What do you have in the end where a family does not embrace of grace and forgiveness? You have a family which is disjointed and lacks love.

Kevin: A good way to measure that is at the holidays, to see who came, who didn’t come, who is talking to whom, right? Well, your second chapter is about Marriage, Divorce, and Staying On Track. You’ve put so much deliberate action into your marriage, Dave. I’m glad that you shared in this book, the steps, things that you deliberately do, to enhance that.

David: And one of the key points there is that redemption is a recurrent thing in relationship. A marriage that has worked has required redemption, has required forgiveness and healing all along the way. And by the way, a marriage that hasn’t worked does still offer the opportunity of redemption, on the other side of divorce. My father’s parents were divorced. My wife’s parents were divorced. These are common themes in our own family. I know them firsthand, and I know the pain of them.

Kevin: Dave, that is another thing that I love about the book. Isn’t every story in our life somewhat of a redemptive story? When we go to the movies we love to see the story where Act I starts out, things are somewhat normal, and then a crisis occurs toward the end of Act I. Act II, this princess who gets captured at the end of Act I – Act II is about coming back and taking that princess away from the dragon. You have some sort of redeeming force. And then of course, Act III we see things restored back, not just to normal, but there is a better restoration. Obviously, it’s the theme of your faith, Dave. It’s the theme of my faith. We have a redeemer. But built into the narrative of our hearts is redemption in every aspect of our lives.

David: Honesty, I look at this and I see such a parallel to the financial world because you look at liabilities and assets and you look at the things that propel a company toward growth, or represent something which is debilitating to its future success. And you look at change, which can occur. Sometimes it’s catastrophic change. You have exogenous events that occur which can negatively impact a company, or endogenous events which can from inside the company destroy it, or make it better. All of this, again, deals with resource management, an appraisal of what you have, where you’re going, and strategically thinking about what can be. What are the possibilities?

Kevin: Not only possibilities, but what are the possible disturbances? You talk about The Blessing of Disturbance, Chapter 3. Without the disturbance, we don’t’ move ahead.

David: It’s fact of life. As much as legacy is a fact of life, disturbance is a fact of life. We can’t avoid it. It can be as simple as the Starbucks in your neighborhood goes out of business. That’s a disturbance to some. Or it could be a significant financial setback. It could be someone being diagnosed with cancer in your family. That was one of the disturbances that I talk about in the book because Mary-Catherine and I had to go through that the fourth year we were married. How do you react? How do you respond? Again, how do you organize your resources, tangible and intangible, in the context of legacy? Because the stuff of life is what makes for legacy creation, for better or for worse.

Kevin: Right. And you’re not always responsible for all the legacy that comes into your family. Chapter 4, Legacy Baggage, which is an inquiry into the proper disposal of generational junk. Let’s face it. I’m a dad, I had a dad, I had a grandfather, I’ve got a son. I know that my son has some of that generational baggage, as much as I try. And we need to identify that and realize that that is part of this legacy journey.

David: And again, just like in a company accounting for liabilities and assets, the baggage that you receive from a past generation may represent that liability, that debt, that burden. But you also receive assets, and I think being grateful for both is an important component. The key point is to account for both and figure out what is helping you and what is hindering you. Because again, resource management. If you’re creating a legacy, and you are effectively stewarding the resources that you have been given, you have to account for everything, both the good and the bad.

Kevin: And to continue on the good, Chapter 5 talks about the times of your life, Creating A Family Identity. You tell me about what you do with your five-year-old daughter every morning. You’re building a memory. It’s so simple what you do, but it’s beautiful, because you’re building family identity. You’re building a relationship with a five-year-old girl who loves you and does not want to do it without you.

David: Every morning we wake up and have a spoonful of honey. And it’s just the two of us. I wake her up and she usually asks if I’ll carry her downstairs, so whether it is on my back or in my arms, I carry her downstairs and set her up on the countertop and we have a spoonful of honey and talk about her dreams, and talk about if she slept well. It’s five minutes while I’m making coffee for my wife. And for her, it’s everything.

Kevin: But what did she tell you, because you travel quite often, and she told you that she really wouldn’t do it, she wouldn’t have honey without you.

David: And I thought to myself, “How do you create solidarity inside a family? What are the building blocks of loyalty within a family?” These are big questions. And I don’t know, except that I think we’ve made progress toward that in a spoonful of honey and a five-minute conversation, just a little one-on-one time in the morning.

Kevin: A biblical concept that I love in Lamentations, which is not a book that most people read for encouragement, but you get to Lamentations 3 and it says, “It is good for a man to both hope and quietly wait for the salvation of the Lord.” I think of your Treasure Hunts chapter, Chapter 6 – treasure hunts in a family. Explain that just a little bit, because talk about putting hope in a family.

David: We do treasure a very different way. One, we obviously like gold and silver, and everybody has a treasure box. Actually, my five-year-old daughter last night was insisting that I come into the room, and of course, I was working on notes for the Commentary. And she said, “You have to come into the room.” And I knew she had cleaned her room so I already kind of knew what she was going to show me. But I didn’t. She wanted to show me 13 ounces of silver. And she was so proud of her 13 ounces of silver. And she is five years old, and every bit of allowance she gets she prefers that over buying dolls or other things, and this is what really is a part of her treasure.

But we’ve done treasure differently as a family in the sense that we also look at the books that we surround ourselves with, and the art that hangs on our walls. We see ideas framed on our walls. And we see ideas in the covers of the books that are on our shelves and that inform our lives. And we know that one of those ideas may, in fact, change our life. It may change our family, it may change our community, it may change the world. I don’t know which book, which chapter, will do that, but they’re there, latent in it.

Kevin: And you build relationship into that treasure. I’ve watched you do that as a family. You build the relationship into the treasure. It’s not the silver that she’s proud of. It’s that dad is proud of the silver that she’s proud of. And you’ve shown them so many times the value of something like that – or the books. You’ve talked John Adams’ stone library, and you’ve tried build that same – that front room, when I come into the house, where the kids are home-schooled, Dave – it’s a magical front room. There is exactly what you’re talking about – there are treasures all over the place.

David: There is a piece of the Berlin Wall that Mary-Catherine chipped off in the 1980s.

Kevin: On the shelf.

David: Just little things that tell stories, and bring people, not only into a living history, but into ideas, which again, are not intended to be sort of tantalizing teasers for the intellectual, but things that give life to an individual and their family.

Kevin: For practicality, because the people who are listening to the Weekly Commentary, these are all interesting things, but, Dave, you are in the financial industry. It is your area of interest. And so as we get into Chapter 7, The Financial Legacy, you take great pains to give a person a long-term, multiple lifetime outline, basically, as to what is a financial legacy in a family, and how to avoid the pitfalls. How many families have been destroyed with a great inheritance?

David: The reason why Chapter 6 comes before Chapter 7, not just numerically, but we talk about treasure hunts, is because it is important to figure out what is in your heart, and how you manage what is inside, not only your heart as an individual, but in the hearts of the people in your family.

Kevin: Yes, Dave, it still goes back to relationship. It’s not about the money.

David: And that’s what Chapter 7 really is addressing, is about the money. But before you get to addressing the money, you have to address issues of the heart. Because the hard structures that you can create employing a tax accountant, an attorney, to create trusts and wills and things of that nature, that doesn’t get to the more important sub-structures, the soft structures. Those are hard structures. The soft structures are the things that deal with family identity and what is in the heart and mind of an individual – your children and your grandchildren, etc. So Chapter 6 and to precede Chapter 7, because Chapter 7 doesn’t really work without issues of the heart and the treasure which you are focused on.

Kevin: That takes us to Chapter 8 where you literally sit down and chart for future generations, Charting the Future Generational Pattern.

David: To me, Chapters 7 and 8 are kind of where the rubber meets the road, where you start getting practical. Not only have you come up with an idea of what an intentional legacy is, and can be, and should be, but now how do you do this stuff? So the practical financial piece is followed by the family dynamics and things that you can do practically, every day. You don’t think it’s a big deal to spend dinner with your family? Well, I do, as a matter of fact, think it’s a big deal to spend dinner with your family.

What are the things that you talk about? What are the priorities and conversation? Are you dissecting public policy choices? Are you talking about economics and politics and finance and philosophy and faith? All of these things factor in. When do you have time to factor those things into your life and into your family life? Actually, mealtime is one of the only times that it happens on a practical basis, so Chapter 8 gets real, real, rubber meets the road-ish, if you will.

Kevin: Then you finalize things with Chapter 9, and I will tell you Dave, there are things in my life that I look back and I say, “Oh, I really missed an opportunity – big time.” You invited me a few years ago to a reconfirmation of yours and Mary-Catherine’s marriage, and I had other things going on. It was around the holidays and I probably didn’t take it as seriously as I should have, because when I read that last chapter, and when I talk to you, I realize – the Bible talks about remembering. It’s important to remember. That’s what you do in Chapter 9. You say, “Look, we’re not just going to do these things once. We’re going to go back and we’re going to re-member. We’re going to re-commit. We’re going to re-new.” And that’s another form or redemption followed by reconciliation.

David: Albert Grace said that any resolution which is made today must be made again tomorrow. We wanted to invite our kids into commitments that we had made long before they were around so that they understood what it was that we were about, what the importance was – this thing we have, relationship – and actually include some degree of accountability, by making a commitment, not only to each other, but with them present, a commitment to them. This is us, this is who we are as a family, and this is where we’re going. It was a trajectory-setting moment.

And I think if there is any way to summarize the book, it doesn’t matter where you are, it doesn’t matter where you begin, you can always set a new trajectory. And it is important to do that over and over again – to appraise where you are, where you are going, and set the proper trajectory. That’s what I wanted to include in The Intentional Legacy. What do you want for your family? Why do you want it? How do you get there? It ended up being much more of a personal exploration that I had anticipated.

And that is, again, why I had some hesitation in even publishing it because it is, from 50-odd years of wealth management experience, the combined exposure that my dad and I have had to the different stories of what worked and what didn’t work – success and failure, learning what we could from other people, with gratitude in our hearts for that, but also learning from the mistakes and blessings within our own family context, as well – dissecting it in a graceful way so that we can set a better trajectory. And that is, in fact, how I start the book. I ask, and I hope, that my kids write a better one.

Kevin: Dave, I’m going to sound like a book salesman here, but I don’t care. I read the book, but actually, my mom read the book first, and it made her cry, it gave her great ideas. She wrote you a long letter that I never got to see. But what I would recommend is, every person listening to this who enjoys the Commentary, enjoys what you bring to the Commentary, this is a very personal exposé, but it is also practical. So go to Amazon, you can pre-order the book, and actually, they will be shipping, February 7th, is it?

David: That is correct.

Kevin: Well, and life is about management of resources, and you talk every week about management of financial resources, economic resources. We talk about politics and geopolitics, based on these resources. But that’s not all there is.

David: It doesn’t matter if you’re an individual or the head of a household, a mother, a father, a grandfather, a grandmother. A, it is never too late to begin setting that trajectory, and B, these are resources that matter. As much as I care about, every week, putting my heart, mind and soul into understanding the way the economy is functioning on a global basis, and what the inputs are, I want to know the inputs that go into this family dynamic that we have, and my own personal growth and development.

If I do not – if I do not care for those resources, if I do not manage them well, if I don’t care about the inputs, then you know what? You can have the equivalent of a 1929 crash on an emotional basis. We see it all the time. We all have stories of people in our lives who have had some sort of a crash, and it may have been unnecessary. It could have been handled better. This is the importance of the broader conversation on legacy, and the resources that you are creating as you manage and intentionally design your own legacy.

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