- Fed backstop creates unreal disconnect
- Statues Fall: Woodrow Wilson, Teddy Roosevelt, & Ulysses Grant?
- If you saw a Marxist revolution happening would you know?
The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick
Wall Street Fiddles As Rome Burns
June 24, 2020
David: If you’ve never studied the horrors brought about by Marxism, you should look at the 20th century, with more blood and gore than any in history, and realize that replacing the stars and stripes off of a narrative of social injustice, if you want to replace that with a hammer and sickle, it’s a deadly move. It’s one that truly reflects Santayana’s is warning: if you don’t learn from history, you will repeat it.
Kevin: I read an interesting book called Brainwash by Dominic Streatfeild, and he talked about various things like sensory deprivation, MKUltra mind control, hypnosis. A very, very good book, actually. But there were five techniques for interrogators when they’re trying to interrogate a prisoner that they would use. They were actually called the Five Techniques. It was all designed to eliminate the identity of the person, whether it’s putting a hood on or making them stand for hours against a wall, sleep deprivation, bread and water diet…but the idea was to eliminate any identity before you actually started the interrogation. Dave, I see that happening in the nation right now. Our identities just being stripped.
David: You know, what’s interesting is we’re not coming from a perfect place. If you think about your own family or my family, I could tell you all the foibles and mistakes of an earlier generation that feed into who I am today, the way I think and operate today, and it is what it is. I’m not making an apology for the past or justifying the past. It is what it is. We take it in stride, try not to let it hamstring us, but also appreciate the contribution that it makes to what we will be in the future. So identity is something that we have as an individual, we have in the context of family. We have in the context of a community and even of a nation, and you’re right. The loss of identity, the confusion of identity is something that is very critical if you in fact want to create a brand new identity. But can we actually do that as individuals?
Kevin: You turned me on to a quote by Thomas Sowell. He said, “We have reached the ultimate stage of absurdity, where some people are held responsible for things that happened before they were born. While other people are not held responsible for what they themselves are doing today.” Boy, that’s the news.
David: (laughs) Well, try to imagine that I don’t have an axe to grind and as a market observer I’m looking for cause and effect. I want to understand what’s transpiring to change the face of opportunity for everyone in America. And we have to try this anyways, even if we do it imperfectly and not perfectly or, in that since, impartially.
Kevin: Well, like you said, it’s a market commentary, but it’s also a political commentary because the markets are affected by politics. Our lives are infected by politics. I look at what’s going on right now, though, Dave, whatever side. I mean, there’s so many sides right now, but it reminds me of cult reprogramming. You know where again the loss of identity or when you see a communist takeover that you purge the nation of its history first so that people don’t remember. You and I have talked about Shostakovich. When he wrote his Fifth Symphony he was in fear for his life in communist Russia because it didn’t quite fit the narrative that they felt Communist music should sound like. It’s a magnificent symphony, but he almost lost his life for it.
David: Well, it’s now critical to distinguish the issues of police reform and the historical cultural hara-kiri being orchestrated by…and this is, as two of the three founders of Black Lives Matter have described themselves “trained organizers and trained Marxists,” and I read that in a direct quote from an interview with Patrisse Cullors, one of the Black Lives Matter co-founders back in 2015. It was founded a couple years before that, but that’s when this interview occurred. And The Telegraph newspaper out of London says, “Make no mistake, BLM is a radical neo-Marxist political movement. BLM happily self-identifies as a neo-Marxist movement with various far left objectives, including de-funding the police, dismantling capitalism and the patriarchal system, disrupting the Western prescribed nuclear family structure and seeking reparations for slavery to redistribute wealth.”
Kevin: Right, and so it really has nothing to do with slavery, which was a terrible wrong on humanity, but what we’re seeing at this point, it’s being used as an excuse.
David: Yes, so why bother with these current events when our focus is generally on the markets? There is nothing like the negative consequences of public policy shifts. There is nothing like the consequences of war to destroy wealth, and even more importantly, to end lives. And I think today markets are playing a very unique game. Due to $5 trillion in collective interventions from the global central banks, there is the operative belief that only liquidity matters…
Kevin: Just print money, that will solve it.
David: That’s true, but only to a point. Change the structure of our markets, damage entrepreneurial risk taking while turning everyone into high stakes gamblers. Watch as an era of wealth redistribution unfolds, and you will wish you paid more attention to the social fabric as it was unraveling, and we’re witness to nothing short today of a cultural revolution.
Kevin: Isn’t it strange, though, that the markets are completely ignoring it? It’s like Nero fiddling while Rome burned.
David: Yeah, the fact the markets are ignoring it is due to the belief that the Fed-almighty supersedes all else, which is a practical reality. It’s a practical reality more than it is a truth. But is only a reality until the moment where it isn’t. The mind of the market is a very fickle thing. And today that is reality. Tomorrow it may not be.
Kevin: One of my favorite guests that we’ve had is Richard Bookstaber and he wrote a book called The End of Theory. For those who did not hear that interview, they could go back and listen to it. But he talked about Soros, and Soros has this economic idea called reflexivity, which really is, as the perception of things change, the effect of things change. And what we’re seeing, I know a lot of people don’t like Soros, but I can tell you whatever it is that he’s observing. He wrote this 30 years ago. He may even be experimenting with it at this point, but whatever the case is, we’re seeing a change of culture where cause and effect…the cause and effect that we had when we were kids, Dave, cannot be applied to the current situation.
David: Not only is he a successful investor, but he’s also a decent philosopher. When I say decent philosopher, that doesn’t necessarily mean you agree with him.
Kevin: Not a decent man, but a decent philosopher.
David: Maybe he is. You know, we have a concept there in Bookstaber, which is borrowing from both information theory and source idea of reflectivity. And you’re right. So we create a new reality by our perceptions and our reactions. So it’s perceptions affecting fundamentals, which in turn affects perceptions. It’s a feedback loop where, again BookStaber is not only describing this feedback loop, but he’s also proposing to control it, not merely observe that it exists.
Kevin: Well and Goodhart’s law. You know, we talked about Goodhart’s law. When you start focusing on a particular variable, it changes the outcome.
David: I think the Fed is doing that now to create a new set of fundamentals to replace what they don’t like. You get $2.5 trillion in Fed QE, last week’s first foray into the corporate bonds. That creates a market perception, which is a feedback loop generating a new layer of fundamentals.
Kevin: Well and we talked about motivations, okay, the motivation of the press, the motivation of the politicians, the motivation of some of these trained groups that are actually using this chaos for outcomes that they’ve planned for decades.
David: Yeah, Powell last week, as they started buying corporate bonds, he tried to make it clear that he did not want to be an elephant in the market trampling signals, right? He knows what the consequences are of getting in and doing what he’s doing. But that’s exactly what they’re doing. By design! So the end of theory, and this may be the case, the end of theory may also mean the end of honesty.
Kevin: Well, does that apply not just to markets though? Okay, so Bookstaber was writing toward the markets when he said the end of theory. But what about social narrative? Can that be managed the same way?
David: Yeah, I think narrative management is no different. Cultural perceptions via the radical protests, in contrast with the peaceful ones, but the radical protest, they’re reshaping what we see, what we experience as we speak. And that’s thanks in part to the unofficial partnership between the mainstream media and the mob, both thriving off of drama and chaos, then the attention they receive from it. So if you create a new fundamental social back drop out of the current Antifa-defined perceptions, the feedback loop becomes highly consequential for education, for social cohesion and, yes, most definitely for the market.
Kevin: Well, we talk about that loss of identity. Okay, the loss of identity doesn’t just apply to the social aspect, but the markets themselves lose identity when, like what Powell was talking about becoming an elephant, that’s exactly right. You just paper over everything as you print.
David: There’s something that’s okay with uncertainty. There is something that’s okay with an undefined future, but I think we should always remember that uncertainty, driven by any initial cause, it can be detrimental to market prices. And I don’t mind prices going up and down. My MO is not to have a perfect world where prices only go one direction. Prices going down, that in itself is not bad. If you have stress on a muscle, it helps build it up. Eventually, stress on a system helps refine and make it better. Stress in market prices introduces a certain discipline to be maintained within a speculative community, right? However, we have this weird combination of uncertainty, whether you’re talking about the global economy, talking about shrinkage of global trade and cooperation, US political chaos in an election year, COVID-19.
Kevin: Okay, but you’ve also brought up that we have virtual certainty that’s provided by liquidity. You have a smoothing out. You have all these uncertainties, but they’re smoothed out by someone printing trillions of dollars.
David: And that’s the weird combination. We have uncertainty, but virtual certainty in the marketplace. Now this is the key distinction. In the marketplace, that’s where we have certainty, given the beliefs created by Fed actions.
Kevin: We can plan, we can control, do not touch your television set. For the next 60 minutes, we control the vertical.
David: It’s the end of economic theory and the beginning of a planned and controlled outcome, if that is possible. Now, if you are in tune with history, you know that every experiment of top down control ultimately fails. But we ignore the political. We ignore the social causes of uncertainty today because we believe in the almighty power of monetary policy. Failure, I think failure to engage the cultural revolution afoot is going to leave our country a shadow of its former self, and that may in fact be the objective.
Kevin: Where you talked about a shadow of its former self, it won’t even remember, you know, talking about hooding and interrogation and destroying the identity of the country. Look at the statues that are coming down and the lack of reason as to why.
David: I had an interesting encounter with a family member this last week. We had an honest conversation about things that I had done when I was 10 to 15 years old. This five-year period of intense myopia and selfishness, and I hurt this family member badly. And we had to go through a process of him talking to me, telling me, you know, you disappointed me in this respect. This is how I experienced it, and it was important for us in terms of there being restoration, in terms of there being reconciliation, for me to hear him out. For me to understand his experience and for me to ask forgiveness. But I think one of the things that is clear is that I am no longer 10 years old. I’m no longer 15 years old. There are a lot of things that have changed. And I’m glad for that. Because as I can define parts of myself by my past, I’m not defined completely by my past. And this is a notion that we can experience redemption in a life process and who we are in any particular phase of our life may be very different in the final analysis.
Kevin: Well, and forgiveness is a painful journey, but you also have to be able to remember what you’re forgiving and that’s being erased right now. It is just blind rage.
David: Yeah, if you consider that, that’s what is driving, kind of a rage driving what is on display over the last 10 days, you’ve got the removal of Woodrow Wilson’s name from college campuses. Because I’m sure for all the things that he did not do right, he must never have done anything positive as Princeton University president as governor of New Jersey or the 28th president of United States, right? We also have the announced removal of Teddy Roosevelt, the statue from the Museum of Natural History in Manhattan.
Kevin: They’ll have to change the Disney movie Night at the Museum, too.
David: That’s right.
Kevin: If I remember right, that statue came to life.
David: Well, of course, that was Robin Williams in the role. So if Robin Williams could see it, he might protest. But let’s set aside the creation of the national park system and a dozen other monumental contributions. Because, of course, we can find his imperfections and fatal flaws. What should we start with? That he was eugenicist? You know that he liked the idea of population control, and he defined “better people.” He had a gradation. But listen, so did Margaret Sanger, right? So if that’s our point of criticism of Teddy Roosevelt and why we should be removing him from the Natural History Museum, should we be closing down all Planned Parenthood franchises because Sanger was a eugenicist too? In essence, her form of racism was to eliminate large swaths of the human population because that was better for everybody.
Kevin: Well, I’ve got a question. Okay, you’ve got certain statues that are almost impossible to pull down. Are they going to cannon blast Mount Rushmore next? Because Teddy’s on there you know.
David: Right, and, you know, given enough time, we might find the Lincoln Memorial trashed, Rushmore, as you suggest, at risk as well. I mean, look, you’ve got the serious discussion happening with the New York City Council about removing the Thomas Jefferson statue from City Hall. Again, are we talking about a perfect human being? Not at all. I know that I’m not perfect. And so I look at my continuum of life and see these episodes where I’m embarrassed to say that was me. But I also know that there is room for change and there is hope for a process of redemption and that we cannot, any one of us, be defined by a singular viewpoint or a singular action taken.
Kevin: Well, we are multifaceted because didn’t Thomas Jefferson write the first federal ban on slavery as a president?
David: Yeah, in the Northwest Territory. He was the president that signed the law that ended the slave trade.
Kevin: Yet he still had slaves.
David: That’s right. So we’re not talking about a perfect leader. But we are talking about someone who, in the original draft of the Declaration of Independence, wrote a condemnation of slavery and then considered how viable it would be to get buy-in from every state and considered that unanimity to be more important and took it out. Was that a weakness in character or was that an issue of pragmatism as they were separating themselves out from the British?
Kevin: But you couldn’t ask that question if all history had been removed. In other words, your point is, our judgments are helpful, okay, because we understand the fallibilities or the foibles of the past as well as the good things.
David: That’s right. And we’re talking about imperfect people. We’re talking about imperfect people, we’re talking about imperfectly leaders, and this is really for me, the issue. None were perfect, nor will we ever have a perfect leader. Modern judgments, I mean, if you think about it, it’s very helpful. Sit in on a civics class, whether it’s elementary school all the way through college, and this is where judgments are helpful as you extract as many lessons from the past as possible. But if erasure is the project, erasure of the past is a different project, and that is one that dooms us to a future of ignorance and violent repetition. Repetition of the lessons we could have learned had public dialogue been allowed.
Kevin: Well, and just think for a moment. Okay, let’s put this back on money for a moment. Let’s say that all history books had been destroyed from the 1920s inflation in Germany. Let’s say that we had never seen inflation before because the history books, it was so despicable what happened to the people that we just wiped the history out. I guess we’d have to do modern monetary theory and call it something new.
David: But don’t you realize most of the people on Wall Street have very little to no exposure to financial and monetary history? Like they’re practitioners who know how to read The Wall Street Journal, know how to look at a balance sheet but have zero context?
Kevin: Yeah, I was mentioning to my wife that Ray Bradbury’s Fahrenheit 451 has come true and we still have books on the shelf.
David: That’s right. This week we have the Fed President Kaplan saying that we are already embracing a form of Modern Monetary Theory. That’s in practice today, which as we’ve discussed previously on the program, it’s not modern, it’s not modern except as an iteration of a past monetary mistake. But if we don’t know history, we don’t know the history of money and finance, if we don’t talk about it, yes, we will repeat it.
Kevin: You know, one that I absolutely don’t understand is the pulling down of Ulysses S. Grant. I mean, how does that factor into Black Lives Matter?
David: Well, this is exactly what I’m talking about. Blind rage. He prosecuted the KKK. He appointed African Americans to prominent roles in government and passed the enforcement acts of 1870 and 1871 to protect African Americans’ right to vote, their right to hold public office, and to receive equal protection under the law. Apparently, that’s not good enough, because in San Francisco the statue of Ulysses Grant has to come down. It’s not like he had any positive role. Let’s see, what was that war again? Was that the Civil War?
Kevin: Well how about the Star Spangled Banner?
David: Right, and I mean, I just really can’t get over Grant, because if you have no respect for his historical contribution, it’s because you don’t care about the history. You care about appropriating the future for some different agenda. Now, Francis Scott Key, I’ve got to say I don’t think he was a great songwriter, so maybe I can’t comment…
Kevin: (laughs) He does get a little high at the one part of the tune. Yeah, I got it.
David: But also in California, you’ve got St. Junípero Serra. In the case of Serra, you have a man who was canonized by Pope Francis in 2015. His statue is down. You know, colonialist, part of the church, part of the Catholic Church. Listen, when Pope Francis canonizes you, this is a guy who is as close to a progressive as you’ll find in the Catholic Church, Pope Francis! And at the ceremony at the California Capitol, they’re placing a second statue. They’ve got one in San Fran. They placed the second statue in the Statuary Hall. Who is surrounding the pope? You’ve got Biden, Boehner and Pelosi. Okay, so when the statue came down, did you get any cries of protest? Any comments on how important to the cultural history of California, the cultural history of America…did you get any of that from Biden, from Pelosi? No. And what about from the GOP? No, because they realize that there are tar and feathers out, and right now, operative. You have political cowardice. They don’t want to risk being on the wrong side of a rewritten history and where they would all of a sudden stand in the unemployment lines themselves.
Kevin: So Dave, we’re being told that all of this is occurring for police reform. Is that what this is about?
David: I wish it was. And clearly there needs to be something done with police reform. And the first olive is out of the jar. There’s more work to be done. We’ve got an executive order that’s already been signed prohibiting police chokeholds and a number of other things straight from the Oval Office. But I think we are talking about something more afoot than police reform. This is an organized effort to destroy history, and I think that’s a very dangerous undertaking.
Kevin: Do you remember when we read Orwell? You had the whole office read Orwell, and you know, one of his quotes is: “Who controls the past controls the future. Who controls the present controls the past.”
David: So again, think about Grant. He helped win the Civil War and shape the future of the nation after that conflict. That is not a George Floyd protest, that is an Antifa/BLM hijacking of grief and rage. Grant, seriously. There’s something that bothers me about this, and it’s the hypocritical, one-sided judgment of every past leader, that to maintain legitimacy they have to stand trial in the court of popular opinion. In this case, it’s the mob opinion with an unblemished record, as if any human being could stand up to the same scrutiny, as if they themselves could stand up to the same scrutiny. Are we all good? Are we all bad? Right? It’s as if we see things with crystal clarity today on all the issues of the past, of all the issues of the present, and can anticipate being on the right side of history for all the issues into the future. Listen, all we have is a point of view. All we have is a point of view, and perhaps today we have a better perspective. But I guarantee you it’s still going to be insufficient. Translate yourself into the future 10 years from now, 20 years from now. Time will tell, and our progeny will judge us ferociously because that’s what we’re creating today is cultural attack dogs. If we look back in time and have no grace to extend back in time, expect none applied to you as you assumed that you had an understanding of what was actually going on. You have to ask when this madness stops. When does this madness stop?
Kevin: You have to start renaming cities. Big ones.
David: Like New York, New York. New York City is named after the Duke of York, head of the Royal African Company, responsible for delivering 90 to 100,000 slaves to British colonies.
Kevin: Well, okay, so speaking of the British, you almost have to eliminate the afternoon tea.
David: Of course you should. Ban British tea because it is an essential part of the British practice. The British were what drove demand for slaves for hundreds of years. So let’s get rid of that. How about eradicating Yale University or at least changing its name? Elihu Yale not only owned slaves, he was a slave trader. So how about we get rid of the Democratic Party? Try this on for size? Let’s get rid of the Democratic Party. The modern iteration of the Democratic Party, you can say, was founded by Andrew Jackson.
Kevin: He was a slave trader.
David: Oops, oops. Now, was he good for something? Well, yeah. According to one version of history, good for nothing? Well, yeah. What that means is that he was an imperfect person within perfect perspectives. And he got some things very right. And he got other things very wrong. And that’s worthy of a discussion, that’s worthy of dialogue. You can’t paint someone all one color or another.
Kevin: Well, you know, I remember my wife and family, we were at the movie “Lincoln” a few years ago, and the people sitting in front of us were clearly liberal. They weren’t clearly liberal until they turned around, but I was just talking to my family and saying, yeah, Abraham Lincoln was a Republican and he opposed slavery. Well, the people in front of us were just…they turned around aghast, as if I had said something wrong. Lincoln, a Republican against slavery? See, they had reprogrammed their mind that their version of the narrative didn’t match history. But my version of the narrative did, and it didn’t match what they wanted to hear.
David: Right, no. If you look at the history of the Ku Klux Klan, you find a great number of Democrats, including Robert Byrd. Oh, by the way, you might have seen many of the attributions that Mr. Biden has made to the mentorship, the great insight that he gained and his professional leadership in the Senate from Robert Byrd.
Kevin: And Byrd was high level Ku Klux Klan…
David: Basically as high as you can get. Okay, so I mean, again, what am I saying? Let’s be fair. Let’s be fair and say Robert probably has some good things going. Biden has some good things going. These are not perfect people. They have both good and bad. I’m not trying to justify bad policies, blind beliefs or the mistakes of the past. But being cognizant of the past is critical. Not for erasure, but so that the lessons of the past live on with us and we don’t repeat them. That is not public shaming. It’s awareness and education. So, ironically, here we are. We’re watching statues being town down here in the United States. This week, we have a statue in a small town in Germany erected to Lenin!
Kevin: And we shouldn’t tear that down. I mean, a statue of Lenin, you showed pictures of your family when you were in Germany.
David: Different town, Berlin. Berlin and they’ve got these huge statues of Marx and Engels.
Kevin: Yeah, and it led to a history lesson with your kids. It didn’t mean you had to agree with them.
David: No, and my oldest son he’s very…he can be judgmental. He’s like, why is this here? I can’t believe this. Do you know how many deaths he’s response for? And this doesn’t make any sense. And I’m like, well, it’s here. To me, it’s here as a reminder that you and I have to have this conversation and your brothers and sisters have never had this conversation.
Kevin: You took a lot of pictures. There’s one in particular, I remember, though.
David: Oh, well, yeah. He’s flipping it the bird and, yeah, but the rest of us are sitting peacefully on Marx’s lap because the statue is that big, should we tear that one down? No, no.
Kevin: Of course not.
David: Not that a Marxist would want to, there are other statues they must tear down, but we should discuss all the issues that Engels and Marx were addressing. We should take their critique. We should learn what we can from it, and recognize that the Marxist equalizing machine has eliminated more than 100 million lives in the last century. As it pursued ideology, it pursued ideology over life. And to a Marxist, it’s not any lives that matter. It’s ideology that matters far more than any lives of any ethnicity. Think about this, from 1525 to 1866 here in the United States, a total estimate of 388,000 slaves were sent directly to North America. So if you’re talking about the Americas, which is the Caribbean, South America, you’re talking about 10 million.
Kevin: And that was an evil thing.
David: Slavery was evil. It was exploitive. We killed each other over it. But this is my point. Directly sent to North America, 388,000 slaves. 750,000 casualties. That’s the latest estimates from the Civil War. We killed each other over this issue. This is not something that we haven’t addressed in part. And I agree we probably have not addressed it in whole. But now we have a Marxist movement that would love to pretend race relations are as they were in the early 1800s, because what they want is a divided nation.
Kevin: Right. If you look at communists, communists always try to destroy capitalism, but they’ll use whatever method necessary. Whatever is turning your crank at the time, they’re on your side if you want to destroy capitalism.
David: Absolutely. What they want is an angry mob to destroy capitalism. They want a mob that will gladly redefine social structures around a different kind of justice. If you’ve never studied the horrors brought about by Marxism, you should look at the 20th century, with more blood and gore than any in history, and realize that replacing the Stars and Stripes off of a narrative of social injustice, if you want to replace that with a hammer and sickle, it’s a deadly move. It’s one that truly reflects Santayana’s warning: if you don’t learn from history, you will repeat it.
And here’s the reality. Here is the reality: we’ve got the ex senior director of National Security Council Brigadier General Robert Spalding, he says, “If you haven’t figured out (and this is from a tweet that he made last week), if you haven’t figured out that we’re fighting Marxism and communism again, you’re not paying attention.” I mean, is this war with communists and Marxists? I don’t know. A civil war? I’m not sure how we resolve a fourth turning tension, but these are increasingly dangerous times. Now, having said that, isn’t it interesting? Isn’t it interesting that the markets could care less?
Kevin: Well, how about the politicians? Okay, I mean to see pictures of Pelosi wearing something that she doesn’t even really know what it means.
David: (laughs) It’s hilarious. You know, and again, talk about exploiting circumstances for political gain. It bothers me that politicians have been unwilling to risk the ire of the mob, and in part, they’re playing into it. USA Today did an interesting…this was like a fact check from USA Today on the kente cloths that the Democratic leadership was wearing. They bent the knee in silence for nine minutes the other day. This kente cloth came from the Ashanti tribe. This was again USA Today fact check, and the Ashanti tribe was well known in West Africa for kidnapping other Africans and selling them into slavery.
And I’m thinking to myself, I am quite positive that Pelosi was not looking that far back in the rear view mirror, that no offense was intended. It was pure political drama, but it was unintentional satire at its best. Well, let’s not forget the end of slavery. Let’s not forget. If you don’t—this is one of the things I tried to address in my book on legacy—if you don’t look back in time with a degree of grace at those that came before you, they were living and operating under a different ethical standard than we apply today. How can anyone in the present expect to be a recipient of grace from future generations that might in fact judge our ethical standards as insufficient? And so none of us should claim to have this perfect perspective. But if we can extend grace back in time, we are inviting that same extension to us in the future.
Listen, I am all for spirited debate. I’m all for the necessary work of reconciliation in our culture. I had a taste of that in our home with my brother last week, but today there is a drive to destruction, not reconciliation, and the current environment is one that’s growing more toxic, with zero conversation, with zero dialogue, just public shaming, just cross-family retribution. Now you know what it makes me think of is, again going back to George Orwell in 1984, every record has been destroyed, he wrote in 1984, “Every record has been destroyed or falsified. Every book rewritten. Every picture has been repainted. Every statue and street building has been renamed. Every date has been altered, and the process is continuing day by day and minute by minute. History has stopped. Nothing exists except an endless present in which the party is always right.”
Kevin: Dave, these are powerful thoughts, and these are thoughts that affect our very lives. You know, taking it to the markets because I talked about the markets just not paying any attention to this. In a way that’s an embarrassment to me as an American, just looking at the stock market just skyrocketing and just assuming that money is going to be always flowing from a free coffer. Gold, however, gold’s looking like it is anticipating the debasement that you were talking about. You were talking about a devaluation, possibly even an official devaluation of gold.
David: I mean, debasement comes in two forms in the times ahead. One, if we’re talking about Biden coming out of debasement, then, if he should win in November, I think you’re talking about gold moving to 4 or 5 digits in a hurry. But there was a fascinating article talking about Goldman Sachs. This is just in the last few days, anticipating the other debasement. The monetary debasement.
Kevin: I was surprised Goldman Sachs was speaking openly about that.
David: Yeah, so it’s either Biden moving from subterranean into the light of day or our currency moving from the light of day into something subterranean. But gold is telling us a different story from most of your other markets, but most of the other markets are being influenced in very bizarre ways. I mean, think about this. Out of the 500 companies in the S&P 500, 495 of them are down 8% year to date. Okay, the index itself is down 3% and the top five companies: Amazon, Facebook, Microsoft, Apple, and Alphabet, which you know is Google…
Kevin: The fangs, the fangs.
David: Those are up 23%. Right? So the index is capitalization weighted and is skewed to shower more money to the firms that have the largest market share, the market value, rather. So in the age of index investing, the big get bigger by default, and the fundamentals don’t have to matter. Look, 495 companies down 8% year to date is different than the index only being down, I think, as if today, three points.
Kevin: Out of 500 stocks, five are up. Out of 500…
David: That’s amazing!
Kevin: And it really dramatically affects it. I want to ask you, though, about the economy. COVID, are we restarting COVID this fall? I mean, there are a lot of people who are questioning whether they’re going to even have a job this fall. I talked to a man who owns a marketing company for travel, and he said, Kevin, it’s really, really dire right now.
David: This is again why that interview we did with Bookstaber is so critical in terms of The End of Theory, because we’re talking about perceptions leading to reactions, and those reactions creating a new set of fundamentals, right? So we have the Fed trying to influence perceptions and create a new set of fundamentals. But we’ve got the COVID cases which are rising globally, although shutdowns and stay and place orders are not as likely to come into full effect this fall, we still have a new back-of-mind uncertainty, and it is amongst a large enough swath of consumers that we cannot say that we are even close to out of the woods from an economic perspective. Nevertheless, the markets can ignore that because the markets don’t care about the economy anymore. The markets care about the Fed backstop of market prices, of financial prices. So people, aware of their mortality, are a different part of the equation than leveraged speculators, unaware of their exposure to market chaos. And what are they doing? They are faithfully acting, as the Fed has encouraged them to do with ample liquidity in the system.
Kevin: Well, if you we’re Powell, wouldn’t you feel trapped at this point? I mean, I’m not, again, this is judging history. Someday we’re going to judge Powell’s actions. And what else can he do but QE?
David: Yeah, so the real narrative is the Fed is trapped and must do QE to some high number or even to infinity, with their only relief from heavy lifting, their only relief coming from fiscal stimulus, and so that still can be there. This is intervention after intervention and it is defining the narrative. They want to, they must redefine the narrative and get the consumer comfortable again. Part of the way they do that is buy the rates down. Mortgage rates in the U.S. hit all time lows this week: 3.13%. So with mortgage rates, we see the same thing that we see with treasuries and GSEs and bond ETFs, prices are managed. So this is, as Soros described, this is the theory reflexivity. You should read him. If you don’t like him, you don’t know him and that doesn’t mean if you know him, you will like him. But you should know his thoughts. He’s influenced some really critical thinking, and I think this is one that you should hang out on. So in order to reorder fundamentals, that’s what the Fed is doing. They’re reordering fundamentals.
Kevin: Yeah, but big money is moving to gold right now. It’s not just the little guy.
David: Reuters on the 18th of June noted that wealthy investors all over the world are adding to gold. It used to be a small percentage or 0% but investment managers and advisors all over the world are now suggesting to their high net worth clients that they add as much as 10% of their total net worth to gold because the lowering of rates is creating a disincentive to be in bonds.
Look, I mean, I understand there is still in appetite for bonds. If you’re speculating on price, then bonds are attractive because of the central bank QE promises and the increase in price and the decrease in yields even from here. But if yield is your consideration, central banks are killing the fixed income universe, they’re changing the behaviors of investors. This may not be the outcome they intended, as you see traffic moving towards gold. But while yields are being pushed lower, what do you expect from investors?
Meanwhile, U.S. corporations, they’ve been active. How active? Issuing a trillion dollars in new debt year to date. I’d say that’s very active. So timeframes to watch, very critical if you’re talking about the economy and a resurgence of pressure within the financial markets, your forbearance periods for loans that have basically been allowed to stall, you begin to see those forbearance periods end at the end of July to August, and it coincides also with the federal government $600 payments ending late July. So it wouldn’t surprise us if late summer or early fall was game time for the banking and financial system. Maybe an opportunity for the Fed to double down on QE or for there to be an announcement, a fiscal stimulus announcement, again to sort of keep the money rolling, keep the votes coming, keep the people happy, make sure that they’re not back on the streets protesting yet again.
Kevin: As we’ve been talking today, Dave, I’ve been thinking about forgiveness because what we’re seeing is a lack of forgiveness, and it’s growing, and it’s like a snowball rolling downhill. Forgiveness does take identity. You have to go back and actually identify the identity of who you are and who offended you. I’m just thinking about how your family works through things. I love how transparent you are, both in your book, The Intentional Legacy, and just on this show to bring these things up. Your family is a deliberate family. It’s a flawed family, like all families, but I think a lot of us gain as we focus on what you were focusing on last week, which is forgiveness.
David: One of the hardest things I have experienced in recent years was things that I had no recollection of, things that I had no memory of whatsoever. But they were fresh to my brother. And so you’re right to go back and look at identity, to take personal responsibility, to look at ownership of those things to see that, in the context of reconciliation, forgiveness has to occur, and that, actually, retribution has no part, no part in real reconciliation.