EP. 6 Global Perspectives March 2020 with Alex Stanczyk and Special Guest Duncan Cameron
*Covid-19 Coronavirus and Global Financial Crisis II Update
*How do discern where to find truth
*Why when living history is lost, it is on the current generation to make the same mistakes
*Physical gold and silver metals complex globally is sold out
*Making sense of what assets still make sense
*The current economic meltdown is not because of coronavirus – the system was already in a state ready for an event to cause the meltdown
*Younger people may not have seen real capitalism for the duration of their entire lives
*Roughly 50 year crash cycle and debt forgiveness ‘jubilee’- no sowing and reaping and people return to their families
*Socialist policies being put forward during crisis
*World is going into compulsory lockdown
*Why purchasing power of fiat currency goes down over time
*What is hyperinflation
*US Treasury yield curve has dropped below 1pct for first time in history
*Global coordinated central bank easing
*VIX (Fear index) spiking
*Oil price wars, Russia vs OPEC
*Disconnect between gold price and price of gold
*US Treasury Secretary announces checks cut directly to US citizens
*Trillions of USD stimulus announced by the US Federal Reserve
*Defense Protection Act – US Factories On Wartime Production
*Why US Oil Shale producers will be going bankrupt
*Covid-19 in 148 countries
*Implications of Swiss refineries shutting down for two weeks
*Gold anchoring a portfolio
*Fabrication bottlenecks are not metal shortages
*Swiss refinery shutdown impacting gold availability globally
*Why people will seek gold and silver to preserve purchasing power as the USD crashes in value
*The velocity at which people realize USD losing value will start out slowly and then increase rapidly
*How the residual anger over covid19 and the GFCII can lead to war
*How the financial system was already in a critical state waiting for a catalyst to set off the chain reaction
*Why capital is rushing into USD and US Treasuries, and will eventually flow into gold
*What is Exter’s Pyramid
*MMT and infinite money creation
*How the entire global financial system is constructed on a base layer of gold
*What could lead to permanent breakdowns in the supply chain of all nations
*Practical steps people can take
Listen to the original audio of the podcast here
Physical Gold Fund presents Global Perspectives with Alex Stanczyk and invited guests exploring international markets and the complex forces that drive them including geopolitics, economics, and the global monetary system.
Alex: Hello, I’m Alex Stanczyk, and welcome to Episode 6 of Global Perspectives. Today is March 24, 2020. I have with me my colleague and friend, Duncan Cameron. Duncan is a member of our research team and is a precious metals industry veteran of many years. Duncan, how long have you been in the industry? How long have you been aware of precious metals?
Duncan: I started to acquire it in 2005 back when the price of gold was $450 US and around $650 NZD where I live. I was accumulating through ’05 and got to meet Simon Heapes. He really introduced me to it in a big way, and then I just started to ramp up. In fact, by 2007, I could see we were heading for a big-time crash, so I exited all leverage. I exited my property, I sold things off, I went into gold and silver, and I started to preach the gospel of a crash coming about a year out. People laughed and ridiculed me like they do. I was well prepared for 2008, to be honest, but of course, that has curveballs.
Alex: I had the same experience.
Let me finish introducing you so people know who you are, because this is the first podcast we’ve ever done with you. You’ve been part of our research team, part of our core group, for many years. We’re good friends and have known each other for a long time. I personally very much value your opinions and the research you do.
In addition to working with Physical Gold Fund, Duncan is also a successful entrepreneur. From my understanding, he has launched a handful of companies and currently owns three substantial companies in his home country of New Zealand. So, Duncan, welcome to the podcast.
Duncan: Thanks, mate, I’m looking forward to it. We’re ranting and talking so much, there’s only one way to really do this, and it’s actually to enshrine it in a bit of recorded history. The great thing about being our age – I’m 56 now – is that we’re actually living through history. We’re not just reading it anymore. You’re not reading it or looking at it, but you can remember back in 1981 when Margaret Thatcher took the fleet down to the Falkland Islands. Also, we remember the Berlin Wall coming down and Chernobyl like it was fresh, and we can certainly remember the ’87 crash. I got dealt to; I was a young guy, but I got dealt to. And then of course, we had 2000 and 2008.
It’s interesting as you get older in life, you start reading it and become part of living history. We don’t listen to our older people too much, so I try and tack on to elderly people. I gravitate a lot more to them, because when living history is lost, it’s left over to everyone else to screw it up and do it all over again, isn’t it?
Alex: Yes, it is. Your video is just a bit choppy, and I think that has something to do with the Internet right now because everybody is basically at home because of the coronavirus. The other day I saw a plea bfrom ISPs in the United States to Netflix asking them to start streaming lower quality videos, because everybody is at home watching Netflix and the available bandwidth is just crushed.
Duncan: In our country, when the prime minister announced two days ago that we’re going into level four lockdown, the phone network just crashed, because people were calling each other. You’d have to try ten times to get a phone call out, so people were getting on landlines calling mobiles.
Two of my companies were deemed essential. We own a courier business and an ISP. We do rural broadband Internet, and I’m telling you, everybody is having trouble. The whole world is having trouble.
Alex: For those of you who are watching, now you understand why the video is kind of freezing up a little bit now and then. So, don’t be too critical. If you don’t like it, stop watching Netflix, and we’ll have freer Internet for bandwidth.
A couple of quick things before we dive in. Something I’ve noticed is that right now there’s a lot of misinformation going on around the world both in regard to coronavirus as well as financial matters and what’s going on in the economy. There is all kinds of really strange advice out there.
There’s a saying that in today’s day and age with so much information, people are drowning in information and starving for wisdom. All I’m going to say about that before going any further is that discernment is really important right now. When I was a young man, I heard a saying, and it was that if the person you’re listening to doesn’t have anything you want in their life – they don’t have the finances you want, the spiritual life you want, the relationships you want – don’t listen to them. I mean, listen to them, but you need to take it with a grain of salt and understand that maybe the advice they’re sharing with you isn’t necessarily going to get you where you want in life.
Duncan: This is right. We talked the other day about people stocking up on toilet paper to last them sometime into the next century. Their great-grandchildren will have a special ceremony when they use the last toilet paper roll that their great-grandparents bought. But they’re not buying gold or silver. Well, the doors are closing all over the world.
I have a colleague and associate who is a client of ours, and he has a small amount of gold. He sold his house last year, and while everyone else is buying toilet paper and stocking up on flour, he’s been trying to buy gold. We have two very big dealers in New Zealand, and both of them access Perth Mint, so he managed to get in yesterday and buy the last of the gold.
He wanted about 40 ounces of physical gold as well as the gold he has with us. He couldn’t get what he wanted, but he managed to get about 10 ounces of gold. The rest is on order from Perth Mint, but that is the last order they will be getting from Perth Mint. These are the two biggest dealers in New Zealand, and there’s a queue behind him trying to buy gold.
Maybe you can talk about what’s happening at the Swiss refinery level, but around the world from the farthest of the North Pole down to the penguins in the South Pole and every country in-between, just as we saw in 2008, people are trying to stock up on the wrong thing. They don’t understand that this modern monetary tier that’s creating so much money is a genie that’s out of the bottle and can’t go back. The effects of that, once we’re all through COVID, can’t be unwound.
This is obviously related to a lot of various subjects, but let’s talk about the physical gold stuff for a moment. As I said, people cannot buy it now, because we are running out.
You and I have been to Perth Mint and watched the bars being poured. They can’t get it, so Australians can’t buy it. They’re all going to turn up late, and that is the problem with wisdom and discernment. People tend to stock up on the wrong thing, because they’re more worried about having their grog supply when the country locks down so they can stay happy for the next 12 weeks.
They’re more worried about if they’ve got enough toilet paper to wipe their bottoms than what happens when we’re through COVID and they have to resurrect their businesses or buy assets.
Alex: Something else that’s super important is that the economic consequences unfolding right now are not going to stop. Once we get through the coronavirus issue – even if it were to stop right now and completely disappear from the face of the earth – the economic damage has already been done.
We’re feeling the effects of that now. The point I want to make is that these economic consequences are not because of coronavirus; the system was set up to do this a long time ago. This situation was already baked into the cake in the 2008 global financial crisis when central banks came in and basically subsidized everything.
The funny thing is, there are so many people out there right now in the millennial generation and younger who just don’t believe capitalism works anymore. What they’ve seen in their entire lifetime is not capitalism, so I don’t think they even know what capitalism looks like. True capitalism would be to let those systems and companies fail. Don’t bail them out, and then the market will readjust to that. That’s what capitalism really is. Instead, what they’ve done is bail out those big companies.
Duncan: When I was first trying to gain wisdom in this area, I could feel within my bones from a biblical perspective the concept of Jubilee. I was trying to work out if we can just override big cycles in history. Is there any such thing as boom and bust? Is everything just managed, and we work everything out? How do young people ever get on to a property letter? How do young people get out of debt? Do we just find different ways to leverage them all up?
Simon showed me the Kondratieff wave. Anyone can look it up from the Longwave Group, blow it up into a large PDF or download the PDF. It says essentially that every 15 years, we go through this major crash. The irony is that in the Jubilee cycle of ancient Israel going back thousands of years, debts were cancelled and slaves were set free. Look at students around the world with massive student loans, and they’re supposed to support us as we get old. In ancient Israel, property ownership not paid off during the non-Jubilee years was returned to the original owner. We saw that with jingle mail in 2008.
During Jubilee, there’s no sowing or reaping. Everyone rests, and people return back to their own families. As we speak, airports are shutting down all over the world. The last people are coming back right now to our country, otherwise you’re not coming back and you’ll be stuck wherever you are. In a Jubilee cycle, people went back to their own land and lived off what they had and what they’d saved. Who saves now? This new generation doesn’t save anything, because they figure someone’s just going to give it to them.
The idea is of saving during the years of labor so that you have something left over or something to eat in the year of Jubilee or a period of time when you would rest and reestablish your value system. Well, right now the world is going into compulsory lockdown, and many people are finding out they’ve lived in this perception that there are no cycles in history; there’s no more big booms and busts; that the people who run the Fed, the Bank of England, the European Central Bank, and all the central banks can just come to the rescue of us all.
Guess what? We’re finding out that they can’t. You could almost argue that the Kondratieff cycle downturn in 2000 with .com morphed into an even bigger crisis in 2008 and culminated where we are today. As you pointed out, it’s baked in anyway. That is all the hallmarks of the current wealth season which bottoms out.
Historically, springtime is when countries go to war. Looking back to 1812, the American Civil War, you can go right back through history and see that when people come out of a depression or a recession with nothing, they’re angry, so they turn to socialism. You see very extreme divergent views, countries get angry, and they go to war.
Alex: That’s happening right now. In the United States, there’s a huge push towards socialist policies. It’s part of this trend with the younger generations who are looking at it and saying, “Well, the government’s just going to give us all money.” Secretary Mnuchin, the chairman of the Federal Reserve, announced that they’re going to be cutting checks directly to Americans.
We’ll get into that in a little bit, but the view is that the government will simply give everybody money. People don’t understand the basic economics behind that, so we should probably explain that. For those who have never watched any of our podcasts or studied the kinds of things we’re talking about, I’m going to give you a very basic analogy. There are going to be PhD economists who look at this and say, “It’s a lot more complicated than that,” and that’s true. This is a simple analogy for people to basically understand what inflation is and what it does to money.
The example I was taught that made the most sense to me was if you pretend you’re on a little island and the island is the whole world. It’s got all the world’s people, economy, money, goods, and all the world’s production on this teeny little island. On this island, let’s say there are three dollars, and that’s the whole money supply in our little world, and the whole productive capacity is three loaves of bread.
So, there’s $3 and three loaves of bread. How much does a loaf of bread cost? It costs $1. If there was $1 and one loaf of bread, it would cost $1. If there were $2 and two loaves of bread, each would cost $1. If there were $3 and three loaves of bread, each would cost $1.
Let’s add money to that equation and double it so there is $6 and three loaves of bread. How much is a loaf of bread? Now it’s $2. If you double it again, there’s $12 and three loaves of bread, and each loaf costs $4.
Looking back over the arc of the United States, for example, you might not remember that movie tickets were $1.50 when I was a kid. How much are they now? Quite a bit more than that in the range of $15 – $20. The same thing goes for everything across the spectrum whether it’s homes, cars, clothes, etc. That is the effect of inflation.
There are other factors such as velocity and all kinds of other things, but the point is that right now, we are having the most massive expansion of the money supply possibly in the history of mankind. The end result is that the value or purchasing power of each diminutive currency plummets, and you end up with situations like very rapid inflation. The technical term for it is hyperinflation when you start to see increases in the cost of goods and basic things happening very rapidly. We’ve always known this could occur, because it’s happened many times throughout history. This is not conjecture or theory; we’re not pontificating.
Duncan: No, it’s just what happens. The Sumerians were doing it since the birth of money even with clay tablets. It was easier to bake clay tablets, inscribe the local ruler’s name, and swap them with somebody who was making the real bread. They could just print as many tablets as they needed until eventually nobody wanted them.
Central banks’ increasing of the money supply is best seen as you age and get older. As a child, we had one-cent coins, and I can vaguely remember buying four Jaffas – little chocolate balls – with my one-cent coin. Then it became two Jaffas, then it became one Jaffa, then two cents for one Jaffa, and then four cents for one Jaffa.
Alex: You could actually buy something for a couple of cents.
Duncan: Yes, but then they got rid of the one-cent and then the five-cent in New Zealand. We have a ten-cent, but it won’t even buy you one Jaffa, because the pack of chocolate Jaffas that have been around since I was a small child is no longer a unit that is easily seen. It’s now just a number.
That’s the creation of money at a central bank level. It’s what the world is doing right now; they’re creating trillions. Europeans are dumping €1 trillion, and The Bank of England is doing the same. The Fed, obviously $1.5 trillion went in, but they were pumping hundreds of billions every year into the repo market before Christmas. It started mid-September and escalated.
Fed governor Jerome Powell pumped a pile of money in just before the end of the year, because he didn’t want a crisis during Christmas. It doesn’t matter what pricks the bubble; it matters how big the bubble is. COVID has pricked the bubble, but like Lehman Brothers or Bear Stearns before that – the mortgage-backed securities, the odorous excrement of death – was building up long before we ended up having a crisis.
Something will always prick the bubble, but that is not the cause. The problem is the passing from honest money. The world’s gold supply goes up about 3.5% every year in terms of inflation, and that’s healthy. Back in Roman times, interest rates were 4.5%. That rewarded the borrower and the lender. There was an equilibrium of sorts.
But we live in zero interest rate policy (ZIRP) and negative interest rate policy (NIRP). A third of the world’s bonds are all negatively returned, and all over the world, we’re seeing big problems such as corporate bonds being dumped and the Fed having to buy municipal bonds. The rates for those bonds are climbing up in price.
Alex: Let me run through some of these really interesting events. Ever since around the 9th of March, I began taking notes on things that were happening, because I’ve never seen this stuff in my lifetime. I’m going to read through some of these, and then we can continue our conversation.
The first was that on March 9th, the U.S. yield curve on U.S. treasuries dropped below 1% for the first time in history. Since then, some of the really short-term ones have actually gone negative.
On the 9th of March, the S&P futures limit down started hitting circuit breakers. That’s when PPL started really catching on to what was happening, and we were seeing global coordinated central bank easing. That never happens. What usually happens is that one central bank will ease, then another will do it over here after a bit, and another one over here will do it after a bit. This is coordinated easing; they’re talking to each other and saying, “We need to do this all at the same time.”
On the 12th of March, we started seeing spikes in the VIX. For those who aren’t familiar, the VIX is a measure of volatility also known as the sort of fear index. It’s gone through the roof. Intraday trading was as high as 75 and maybe even higher on some days.
Duncan: Yes, it was definitely up in the 70s.
Alex: On the 13th of March, a number of different things were announced. The Fed announced that it was going to inject $1.5 trillion into the system, and there was a series of coordinated central bank ‘money bombing’ going on. The USA, $1.5 trillion; Sweden, $15 billion; Japan, ¥2 trillion (basically $20 billion); Australia, $5.5 billion; China, $79 billion. That was on the 13th, and since then, it’s completely off the hook.
Duncan: Australia has just literally talked of $300 billion. These numbers are exploding, because they can’t get enough money into the system.
Alex: I’ll get to that here. On the 16th, nations began closing borders because of the coronavirus, COVID-19. I have these trackers that track planes and flights – it’s just a curiosity of mine – and I started noticing that planes in the air began diverting from their filed flight plans. They were literally in the air, changing direction and landing, because nations started closing borders.
In the United States, we began seeing schools, restaurants, and nonessential businesses starting to close. At the same time, European markets were crashing. There’s way more than this. I have three pages, but I’m only going to cover some of the unique highlights here.
Duncan: When I look at the news, I follow a particular website in our country that produces basic facts every day of what’s happening in the market. I had to reread this article twice, because it’s just the world in total panic. Every single line is, “U.S. fires up unlimited monetary action as Congress fiscal action stalls; U.S. still not on lockdown; Germany readies huge fiscal package; long recession feared; Aussie job losses projected to go to 300,000; U.S. ten-year drop point at 7; oil sinks; gold jumps.” And they’re talking about the unemployment lines as people file for unemployment in every country in wave after wave.
In 1929, oil was parked up on the side of the pier. Nobody needed it. Look at the price of oil these days.
Alex: Yes, and there’s a massive glut of gasoline and oil.
Duncan: The oil/gold ratio is at 70. It’s a vertical line, so either oil is underpriced, gold is overpriced or something is overpriced.
Alex: Let me get through the rest of these, and then we’ll continue our discussion. On March 16th, we started to see a disconnect between the gold price and the price of gold. What that means is that the gold price is basically a futures price, and the price of gold is what you have to pay to actually buy physical gold. Those are two different things.
We have talked for years about starting to see disconnects, and lots of people were saying, “That’s just goldbug nonsense; that’s not real.” Well, it’s happening. On the 16th, the disconnect was looking like the futures spot was $1478, but you couldn’t buy an ounce of gold at the retail level for less than $1800, and it’s only progressed since then. We’ll get into more of that in just a minute.
On the 16th, nations were closing borders to noncitizens. On the 17th, Secretary Mnuchin announced checks are going to be cut directly to U.S. citizens. On the 17th, the Fed announced that it was going to do $1 trillion of overnight repo funding every night for that entire week.
Duncan: Behind the scenes, it got to $13.45 within no time at all. No one counts that money or regards that money. They say, “Well, I just care about the Fed balance sheet. It was 4.5, we mail every American $1000, that’ll take it to $5 trillion. We’ll worry about it the following week.”
But behind the scenes, what needs to happen to keep that working is in exponential numbers, and it’s been repeated by every central bank. Your example of bread is bang on about the gold disconnect. If everybody has $1 to buy one loaf of bread and there are three loaves of bread, you can print as much money as you want as long as nobody all wants their bread at the same time.
When everybody wants their bread at the same time, that increased money supply all competes for that bread. That is your gold disconnect right now in the early days. At Physical Gold Fund, we have access at a very high level, but around the world, people are finding out that their money that has been sent to them in the mail to go and buy gold instead of whatever it is that the government would like them to buy (food or something else to stimulate the economy and increase the velocity of money), they’re going to find that whilst the world has created lots of money, we have not managed to somehow magically conjure up 8% or 10% gold production for the year because we’d had a crisis. It doesn’t work like that. More money chases less gold, and that’s your point.
Alex: That is the point, and interestingly enough, in hyperinflation scenarios. We can look back at history, but we can look at current ones. It’s going on in Venezuela right now. What ends up happening is that the value of each unit of currency – in my case the U.S. dollar – drops so quickly that people just try to get rid of it as fast as they can. Like right now, there’s capital destruction on a global level that’s absolutely unprecedented, and people are rushing into U.S. dollars, into U.S. treasuries, etc.
Duncan: Every currency has gone down. We’ve had a currency that sat at 65 NZ and is now down to 55. Australia is the same, they’re down. Every single currency has been depreciating against the USD, so they’re all trying to buy U.S. dollars as if that’s going to save them. You guys are going to print trillions of dollars, but then what happens?
Alex: That’s what I was just getting to. With all of the current stimulus being injected, especially when they start sending money directly to American citizens, this has the potential to accelerate inflation in a way that we have not seen in the United States maybe ever.
Duncan: Right. What happens when people decide they want to take some of that money and buy gold and silver – tangible assets that are in short supply where the futures market is disconnected because nobody has ever stood for delivery? What happens when people say, “You know what? I don’t want to buy food. I think I need to buy some silver coins. I need to buy some gold.” They’re going to find out very quickly what is a store of value.
In Venezuela, it’s 120 million to an ounce of gold. It’s so far removed that you have to do a math equation and start removing all the zeroes off each side of the equation to try and work out the ratio. That is hyperinflation.
Alex: The other thing that happens in a hyperinflationary scenario is not just regarding metal prices. What metal is really doing when you see the price skyrocket is that it’s telling you that the value of currency is plummeting in terms of purchasing power, because gold doesn’t do anything. People get confused about that. They’re looking at gold thinking, “Is that something to invest in?” You invest in things that are going to give you a return. Gold is money and doesn’t do anything; it just sits there.
If you took an ounce of gold and stuck it on your desk, it’s not going to do anything. It’s just going to sit there as an ounce of gold. It’s a stable measurement, and that’s the point we’ve been getting at the whole time. The only thing that happens in hyperinflation is that in the nominal currency terms of the currency, everything starts to go up.
Now, that’s everything – clothes, food, etc. The price of everything skyrockets in that currency, but interestingly enough, against one ounce of gold, what you can buy shifts in the opposite direction. The purchasing power of gold skyrockets. That’s what’s happened in history, and that’s probably what will happen in another hyperinflation if we see it in the U.S. dollar.
The best way to see that is to look at the DOW gold ratio. We have seen and talked about how the ratio goes down to where you can buy the entire DOW, and the measure of the index of the top stocks of the U.S. eventually gives a ratio where the price of the entire DOW will equal one ounce of gold.
People have laughed at that for the last 20 years and said, “We can never get back there. This time, it’s different.” Well, I’ve been tracking the DOW gold ratio as we head back down again. The other day, it was 25,000 then 24,000, and it’s going down 1000 points a day. I know it’s up today at 20,700, but it always has a bounce and then lurches back to the neck.
So we have a day in-between each 1000-point drop. It was 19,173, and gold was $1498 a few days ago. That made the ratio 12.79, and it’s been steadily coming down. Opening up on Monday, the DOW was 18,576 and gold was $1552. That’s 11.96. As it heads down, you get to a point where how do you decide where the DOW will be and how do you decide where gold will be? I can tell you that if gold is $5000 and the DOW is 8000, your ratio is 1.6.
Who can tell me right now that gold couldn’t be $5000? Who can tell me now with absolute certainty like their life bet was upon it that the DOW couldn’t end up at 8000? That would make the ratio 1.6. If I talked to a money manager or anyone on CNBC when we were sitting up there not long ago at a ratio of 20 or 20 plus and tried to say that we could have 1 literally within a few months, I would have been laughed out of the studio.
Some people say, “Coronavirus is a one-in-a-hundred years or one-in-a-thousand years event.” Well, no. Spanish flu was 100 years ago, and it killed between 50 and 100 million people. World War I killed 20 million when the population was 1.5 billion, so that’s roughly 8% of the world’s population.
Tell me, what would happen in the modern world if a virus mutates and kills one in eight? Where will the DOW be, and where will the arrogance and total hubris or disdain for cycles in history be? Five hundred million people got the virus 100 years ago- one-third got the virus 100 years ago.
We’ve had plagues and things all through mankind’s living history where great pestilences wipe out. We haven’t had anything like this for 100 years, and now the world at 7.7 billion is absolutely frightened. They are scared, because they’re watching all their leverage, all their funny money, all their 401k, investing, managed funds, managed indexes, passive indexes, they assume it’ll just go up. There’s no one even making physical trades. This is a dumb idea; we need to get out. It’s a Quantbox doing it.
When we get something like this nonlinear event that comes from nowhere and really changes the landscape, I look at the DOW. If we really start seeing lots of deaths all over the world or we see the virus mutate, we’ll see gold at $5000 or higher or the DOW at 8000. We could see gold at $10,000 just based on monetary creation, because this genie is out of the bottle now and can’t be put back.
If we come right, the monetary inflation that central banks have done will then start to chase assets, so the poor can’t buy food because the assets cost more, and the wealthy that were wise and unleveraged get to reinvest back into inflating assets. That gives rise to socialist-type anger amongst all the poor. Read Andrew Dixon White’s Fiat Money Inflation in France. You can download it on the Internet for free. It’s the history of what happened in the French revolution and the times around that.
As Gerald Celente has often said, when people lose everything, they lose it. Sorry, mate, I’m getting into a rant mode.
Alex: That’s all right. That’s what I want you to do, because that way, people are going to hear things they wouldn’t have heard otherwise.
Okay, on to the next couple of items, and then I’ll be through this list. On March 18th, the president of the United States invoked the Defense Production Act that allows the president to order factories in the United States to produce what the government thinks is important to produce. It’s basically wartime production, so the U.S. is currently under what’s called wartime production.
On the 18th, FEMA (The United States Federal Emergency Management Agency usually called on for natural disasters) was activated nationally at Condition One, which is the highest threat level.
On March 18th, crude oil closed at $20.83. For those familiar with U.S. oil production complex, it’s a great deal of U.S. oil. The thing that got U.S. oil dependent was the shale industry. Shale doesn’t work below – even $35 is breaking the back of the shale industry – so at $30, it’s completely underwater. We’re probably going to see those companies filing for bankruptcy over the next year. Not all of them maybe, but quite a few of them.
As of the 20th of March, COVID-19 was in 148 countries. As of the 21st of March, factories in the U.S. started to convert production lines to making sanitizer, N95 masks, ventilators, and what they call PPE, which is what hospital doctors and healthcare staff wear when they’re dealing with people who have something like the coronavirus.
Here’s the big one, and this is the last thing I’m going to read. Like I said, there are tons more, but we don’t have time to cover them all. On March 23rd, there was an announcement by the big refineries in Switzerland that they’re shutting down operations for two weeks. I’d like to point out that this is completely unprecedented and has not happened even during wars or the London Gold Pool of 1961. There’s never been a time that I’m aware of that the factories in Switzerland shut down.
The timing of it is actually kind of amazing. Goldbugs have been saying, “What if this happens and what if that happens?” There are always really out-there scenarios, but you couldn’t make this up. All at the same time, we have a global virus that’s a lot worse than people thought it was going to be and we have a price war in oil occurring between Russia and OPEC. This is basically the Global Financial Crisis II. We might as well call it what it is; this is GFC 2020.
Duncan: They’re trying to call it a recession like they called 2008 a recession – the COVID recession – but historians will not call this a recession.
COVID-19 is nice and PC, but I’ve seen humorous e-mails go out warning about shutdown procedures and they want to call it as it is; they want to say the Chinese Wuhan bat virus. That’s how they want to refer to it. It may be humorous, but people are going to get angry when the dust settles, and we’re going to see very fervent nationalism. People are not yet thinking through the consequences of how people react when their family members have died. A propaganda war is going on now as China blames the rest of the world for what they are getting back as they quarantine people and try to keep it from coming back. They’ve already accused the U.S. by saying, “It’s a biological weapon.”
The rise of nationalism and nationalist socialism in Nazi Germany happened in a hotbed of the reparations of World War I that left many German people unable to feed themselves. Once again, you saw the hyperinflation of Germany and those who had gold. This is why we’ve been saying for all these years that you should own a store of gold. You should own something, because seasons and times come in a way that you can’t predict. You should just have it. Sit it there. It’s insurance. Just keep it there for when things go really bad. One day, you’ll be able to use that to buy something that will literally be lifechanging for you. It will propel you forward while others are going backwards.
As you said about the Swiss refineries right now, the time to buy that is even becoming in question.
Alex: That’s the whole point, it’s not possible to do it right now. The entire retail complex in precious metals globally has been completely cleaned out. This was happening as much as a week and a half ago. That’s when the whole blowup in the price happened where you have the futures price and then you have the real price. That was happening, and the whole complex got cleaned out. Then I started seeing a backlog of multiple months before any new inventory was going to come in.
This is all old news to us as we’ve seen this happen before. We saw it happen in 2008, and goldbugs were jumping up and down saying, “There’s a metal shortage. You can’t get metal anywhere.” That wasn’t really true at the time. It was a fabrication bottleneck meaning if there’s gold supply sitting there in, let’s call it 400-ounce bars or large form factor or whatever you want to call it or maybe it’s scrap but it hasn’t been converted into small bars or small coin, that’s where the shortage is. It’s a manufacturing process bottleneck that has nothing to do with actual availability of raw metal.
Now it’s different. We’ve never seen this.
Duncan: It’s different. With the price of gold, as the market starts to sniff out value, where can they redeploy money when you sell your U.S. treasury or your share to try and buy something? We’ve got people lining up getting cash out of the banks all over the world. It’s happening here in our country in big, long queues. Trust me, there’s plenty of cash. I’m trying to explain to people to not worry about the cash. You’ve got your eyes on the wrong target, mate. You’re looking at the wrong object.
There’s plenty of cash, because banks are very liquid at every level. But people will start to wake up that there is a physical disconnect, and this is where you look at the gold/silver ratio. The gold/silver ratio hit 128 the other day. I thought we would get to 100, and I’ve written about it through newsletters for years. I’ve covered it off, I said I’d be surprised, and now we’re here, it’s blasted through it.
Silver is a very good look into people’s psyche that they’re not yet moving into this in a manner that we will see when people want to protect their purchasing power and actually want to have a store of value. When they realize their money can’t buy the same bag of Wheaties or bread, they’re going to eventually want to have something that protects that purchasing power.
At the moment, gold is first starting now to sniff it out. In the future market, it’s starting to go as people realize, “Wow, we’re seeing rising prices here.” When that really starts to take off and climb, then silver starts to rise, because people realize silver is too cheap, and then silver starts to rise. Silver will be telling you that inflation is starting to really hit the marketplace. It hasn’t hit the marketplace yet, so people are still living in that bubble of, “Well, look, we’ll get through this. We’ll all get back to normal.”
Alex: Some are, and some are not. My observation is that awareness happens on a curve. If you watch the awareness level of coronavirus, there were people studying this thing back in early January. I started catching on to it towards the end of January and noticed more and more people catching on to it over time.
The thing that bothered me and got me turned on to it was that I couldn’t reconcile in my mind why this country, one of the largest economies in the world by some arguments and the largest depending on how you measure it economically, is willing to lock down close to a billion people and sacrifice their entire economic output. It kept bothering me. Why is that happening?
For the longest time, people were saying, “It’s just another flu. It’s no big deal. It’s just in China.” It started changing in February when more people were catching on to it. I think at some point in February, I had gone out and started making preparations, because I thought this might be a real thing. We went out and stocked up on food, got our respirators, our filters, and all that other kind of stuff.
Even then, people who were ahead of the curve were catching on. We got these half-mask N95 respirators made by 3M, and I called every major 3M distributor in the Northwest United States to get filters. They were all either sold out or were told they weren’t allowed to sell them anymore. That was really interesting to me. That’s when I started catching on, like, “Man, this is really a thing.”
Rolling into March, we saw more and more people catching on. I would say that even as far as a week and a half ago, probably half the population in the United States thought it was a hoax or just a flu. They weren’t really taking it seriously. As the hospital reports catch on that they’re being flooded with new cases and are starting to become overwhelmed, that’s when everybody’s going to realize this is really happening.
I think the exact same pattern is going to play out in terms of currency and people realizing what’s going on with the U.S. dollar. In terms of realizing what the dollar’s going to buy, that is when you’re going to see velocity of money go vertical. I think it’s going to happen very quickly. Velocity of money is going to go vertical, and you’re going to see people spending dollars to buy hard assets, anything that they can get their hands on, real things, whether that be gold, silver, whatever it may be.
Duncan: There are all sorts of permutations, Alex. When I look at what’s been going on in the Spratly Islands, the South China Sea at the moment and for the last year or so, warships kind of bump against each other and sail around each other. But wars have started when people are angry. When people become angry and highly nationalistic, they want to take it out on somebody.
I don’t think many people are starting to factor that we’ll eventually get over COVID, but the residuals will still be left. There are a lot of scenarios to play out in the coming months and years ahead, because this will redefine how people think about borders and control and rights.
Alex: That’s already happening. You’re seeing the whole conversation playing out over social media right now. There’s always been arguing in what we call FinTwit on Twitter. Some of the smartest financial guys in the world are on there talking to each other on a pretty regular basis, and you’re starting to see it play out as we speak. You’re beginning to see all these socialist policies being put forward, and it’s changing everything. It’s almost like a BC kind of date format. There’s going to be before GFC II and after GFC II. BC – before COVID, after COVID. COVID was just the catalyst.
Duncan: The system was already broken. We’ve not fixed a thing.
Alex: It was already in a highly energetic state looking for something to set it off to go into a phase transition. It’s kind of like the snowpack on the mountain is already set as you’ve heard us talk about with Jim Rickards.
Duncan: Jim’s talked about it a lot, and you guys have written articles.
Alex: When I was trying to wrap my brain around complexity theory talking to Jim years ago, I would always be asking him the question, “Do you think this is going to set it off? Do you think that’s going to set it off?” His response was the same at different times until I finally caught on. He said, “It doesn’t matter what snowflake sets it off. What you have to focus on is the state of the system and that it’s in a highly energetic state and on the verge of a phase transition.” That’s a physics thing where like if you have water, it can go from standing water to a boil or it can go to freezing. Those are phase transitions into a different energetic state.
Duncan: Here’s a left field thought for you. I took my family up to stay with our good friends who have a batch up at Big White out of Kelowna. We went skiing, and the kids loved it. They learned how to ski over the week. We got back two weeks before they announced the lockdown, so we were technically inside, because it was at the end of the third week that you had to go into quarantine.
The snowflake thought is that when I’m on the mountain with my family, it’s a controlled environment. They snow groom the slopes and set off managed charges at night to blow up the perceived places where avalanches can form. They basically figure out how to keep everybody safe on the mountain and having a good time. That could be described as the financial system.
Fast forward a month when everyone has left and the ski fields are closed all over Europe and the world. The season’s been canceled. Avalanches are going off randomly now because no one’s there to manage it. They can’t be managed, and no one’s even around to ski the slopes of what’s around should the natural avalanches occur.
You could say that the system is now going back into its natural environment, its natural state. When we figure we’ve got things sorted, we’ll go back up onto the mountain and try to manage it all over again. We’ll try to use it and fashion it to be what we want it to be.
In your snowflake theory, right now you’re looking at everyone having deserted the mountain, because you can’t be there or even be around it. Every week this goes on, every week that countries go into lockdown, you could argue that the cure is greater than the disease.
At some point, countries will have to go, “You know what? If you’re elderly and infirm …” I have elderly parents and they’re all quarantined, but eventually, society has to get on with things. They’ll get on with it, but what will the financial landscape look like after this when we all get back up to the mountain with our snow groomers and try to manage it all again?
For example, I thought I might like to try and buy a little condo up at Big White. That’d be really nice. It’s a very nice place with prices through the roof. I’m guessing I should be able to buy us one of those small condos at a pretty good price, because in 2009 and 2010 when my mate bought his, it was a fraction of that after the GFC.
Reorder happens at every level, everywhere, all through society, all over the place. The new financial landscape is going to look very different. People are leveraged up. They have rental properties, they have this, they have that. They think they’re absolutely in control of everything, but what if one tenant can’t pay the rent? The banks are now saying we can have a six-month mortgage holiday, and they’re announcing all these measures to try and control how everyone can stay at home. We can all just stay still.
Well, even if you do that successfully, at some point, you have to start up again. When that happens, the financial landscape will be completely different under MMT. They said under Modern Monetary Theory that we can print as much money as we want, but now they’re going to find out what happens when you print as much money as you want.
Alex: Exactly. Take a look at Exter’s Pyramid. John Exter was a gentleman who worked with the Federal Reserve and had this pretty famous chart. I know you’re familiar with it, Duncan. It shows that during times of crisis like this, liquidity and capital goes from the top of the pyramid where you’ve got all kinds of derivatives and plows down through those levels of financial instruments eventually reaching treasuries and sovereign bonds, and then ultimately down into cash. Gold is at the very base of the pyramid, because that’s how the whole system is constructed. It’s all constructed on top of a base of gold.
A lot of people have forgotten this. Most people in modern finance today have never heard this stuff, because gold isn’t taught anymore as the base of the pyramid. Everything was constructed on top of it. They have forgotten this, so what’s happening is that globally, as capital destruction occurs and forces its way down through the layers of the pyramid towards gold, it reaches the bottom into cash, U.S. dollars and treasuries for example. People will start to realize that the massive devaluation of the U.S. dollar is going to force down even farther into gold.
Duncan: Yes, that’s correct.
Alex: And that’s just starting. Very few people have caught onto it. The amazing thing is that the gold price is up almost $70 a day with only a small fraction of the population understanding this stuff. As that awareness starts to grow, just imagine global currencies alone. The last time I checked maybe a year ago, so it’s probably larger now, we’re talking $210 trillion U.S. dollars’ worth not including all of the other financial layers of paper instruments that we’ve created and allowed Wall Street to magically produce.
Duncan: They talk in quadrillions now for the total. I did a newsletter years ago where I likened the Twin Towers to the Exter Pyramid, because we know there was a lot of gold in the vault at the base of the Twin Towers. I liked the derivative, the pyramid of unfunded government liabilities at the top floor, and as you worked your way down through nonmonetary commodities, corporate muni bonds, securitized debt, government bonds, treasury bills, finally, you’ve got paper money, and lastly, gold.
When the tower came down, everybody and everything in it was gone but the gold. They went and pulled every single bit of gold out of the basement once they’d taken away all of the rubble above. I likened that pyramid and did the math calculation with my dad’s help, because he’s a very good mathematician. I needed my father to help me in trying to do the derivatives, and I worked out that the pile in the modern world would be somewhere around about the moon if you had to build the Twin Towers again using the derivative example and the gold at the bottom in terms of its percentage to the actual amount of nothing money.
In other words, it’s so tall and so big that it’s not really comprehensible. Even if you’re trying to picture a skyscraper into the sky, what sort of skyscraper goes to the moon?
Alex: The last thing before we start wrapping this up is that you’re a business owner. You’ve got three companies that I’m aware of, and I know you’re wrapping one up now because of everything that’s happening.
Duncan: That’s right. You’ve talked a lot with Jim over the years about complexity theory, chaos, and all the rest of that. So, here’s chaos and complexity theory in action.
One of my businesses is a courier business. Believe it or not, our business is being deemed an essential service by the government as we lock down, because we deliver all sorts of things.
Our customer base is primarily the automotive industry. We look after some very big companies, good companies, public companies. They pay their bills, but many of these automotive companies we look after are not deemed essential even though they supply everything from gaskets to you name it. They are going to be shutting down.
My ISP is also deemed an essential company. Yesterday they needed to buy screws, but they need to buy them from a company that is not deemed essential. So how do we get the screws to keep the tower operating that keeps the Internet going that you and I are streaming over right now?
Everybody is connected to everyone. There is no island, so it’s just a question of how far down the chain. When people say, “We’re going to keep essential services running, like food,” well, food comes from farmers. From the farmer to the table, everybody is involved in the supply chain solution. I’m watching our entire courier company get laid off. Many of those people live hand to mouth week to week. Now they’re going to the government to bail them out, and the government will give them a subsidy.
Other people own cafés and businesses. They’re not going to be able to start up again, because they were reasonably leveraged when they had a café. They’re about to find out that unless someone gives them a whole pile of money, they’re not going to be able to reopen.
I’m talking to you while we’re sitting at home via a Zoom connection on our IT business. There are guys in Australia and New Zealand working virtually for big public companies that use us. When talking with my peers about continuing to look after them, the expression on their CEO’s face was a palpable facial relaxation, because they’re terrorized about what happens if their IT company can’t be supported. But if my IT worker, even in lockdown, for whatever reason, becomes sick …
Everybody is part of a supply chain solution. There’s the stuff at the beginning, the stuff in the middle, and the stuff at the end. You’re just somewhere along the line.
Alex: The interesting thing about that is that the companies in the middle go bankrupt. They have to shut down because they don’t have cash and they don’t have any runway. These are permanent closures, right?
Duncan: Yes, they are.
Alex: That will affect the entire supply chain from start to finish.
Alex: It’s not going to be the same. Everything’s changed. That being said, let’s wrap this up with a couple of thoughts I’ll break into two parts.
What would you say to the average person right now in terms of what they might be able to do to prepare? Actions they can take, like actionable items. After that, let’s talk about somebody who’s got some savings, some dry powder. Maybe they’ve sold some of their assets and now they’re in cash. What are the kinds of things those people can be doing? Talk about the full spectrum as far as preparedness for what’s happening. What are your thoughts on that? Start with the average person first.
Duncan: Right now, the average person in the middle has already been locked down. They’re obviously allowed to go buy food and essential supplies, but they need to be thinking about what the landscape is going to look like after all of this. They now need to be thinking about what assets they have, how are they exposed, and how are they leveraged.
Alex: Most people don’t have assets. This is what I’m talking about.
Duncan: No, they don’t.
Alex: This is that chunk of the population living paycheck to paycheck. When the government says everybody stay at home, the first thing that comes to their mind is, “Okay, how am I going to buy food and pay rent?” Talk to that population first, and then we’ll get into if somebody can actually invest in something. Let’s cover both.
Duncan: All right. If you’re at that extreme end of the spectrum, I’ve got to be very blunt and say you’re going to need to rely on friends and family. You’re going to have to restore relationships with people that maybe for whatever little gripe, you don’t talk with very much. Family and friends are going to be needed to help each other at an intimate level.
If you’re at the far end of the extreme spectrum, you’re going to need help and relationships. Think about if you’ve got poor relationships, broken relationships with people for whatever reason. I phoned someone the other day that I haven’t spoken to for a long time to see how they’re going. I had a little bit of a tiff with them. I imagine they’re actually about to go through a tough time, so I thought, look, I need to be a bigger person and call them, because they could be in trouble.
At a basic level, people are going to have to help each other. If you’re at that far end of the spectrum living paycheck to paycheck, you need to give up your flat and go live with your parents. This happened back in ’08 when we had housing shortages here, because everyone wants a house. I can sell a house to anybody on a demand basis. Go ask all the teenagers at school, “Would you like a house?”
There’s not a supply shortage, because people have lived in close quarters through centuries before. People lived in tight family units, and they’re going to have to be doing that sort of thing. Obviously, when you live tight together, all sorts of families that didn’t have much can’t make it on their own, and they’ll suddenly find they can make it around people that care about them or they care over.
That’s what they’re going to have to do at the far end of the spectrum, because they’re too late to the party now. If they’re living paycheck to paycheck, they’re going to have to think more about their relationships and the people they can help and that can help them.
Now to the middle of the spectrum. It’s amazing how many middle class have rental properties and things and think they’re okay. The government will give them a mortgage holiday, so they’ll be able to keep their rental property. There are articles coming out right now still trying to talk up the property market, and I’m very concerned that people already have too much leverage, because they’ve been used to borrowing at zero interest rates.
Rates are not going to stay zero forever. Regarding the cost of money, you can go back to the Roman empire and see how from the crisis center of Diocletian, you can have peace during Julius Caesar and then have total destruction. They’re going to have to think about realigning their assets and cut down all these things they thought they could make lots of money on by borrowing at zero rates forever.
They probably still have time, because a lot of people think the world’s going to get better quickly. You and I know, however, that there’s a lot more carnage. Once the monetary supply’s being changed, things are going to change.
I’d say to the middle class, if you’re leveraged and own properties, residentials, and things like this, you need to pull your horns in big time. And you need to do it while you still can.
Alex: And people who are in a position where they can invest? What do you think?
Duncan: I shifted money out of a revolving facility I have and put it in a securities account two days ago. I’ve started buying shares. I’ve got six screens and every one is open around the world. It looks like NASA at my office at work. People just walk in and go, “Oh my god.”
Exxon Mobile is paying a dividend. They’ve paid a dividend through all sorts of times, so this is just an example. We’re not stock pickers or anything like that, but do you think the price of oil is going to stay at $20 forever under monetary inflation when all these other shale producers start to die on the vine and they don’t have the money to start up?
What does President Trump do? Nationalize all sorts of industry? They’re talking about nationalizing, so you need to be buying assets that will appreciate. Obviously, people like you and me own precious metals, but there’s also an opportunity. I can see a world in which assets inflate. There are all sorts of equities that are attractive, but they’re going to become even more attractive.
Precious metals have to be the cornerstone. If you can still purchase some through any means possible, you need to take a position in it. You need a core position of gold, and in the future, there’ll be a place for silver as well. Obviously not yet, because we’re still in the fear of deflation, but gold has to be the cornerstone. It is the bottom of the Exter Pyramid. It’s the part that came out of the Twin Towers when all the rubble went off to some landfill. All the gold went out. Every single ounce. They got it all.
People need to be thinking that if they can still buy when the refineries open and COVID passes, they need to be calling people like you and putting in orders. That’s at every level, because they’re going to need to have a cornerstone, and it won’t be the U.S. Treasury. It won’t be some debt instrument from the Bank of Japan or the BoE or the European Central Bank. They’re going to need gold. It’s going to be better than treasuries, because the treasuries are going to be compromised.
People accuse China of being partly behind this at a conspiratorial level. Well, whether you take that view or not, one thing is for sure: the whole world’s financial system including the U.S. dollar hegemony, total power, control, is going to be realigned in the times ahead. Countries are going to have a different form of value.
Alex: Yes, I reckon that’s about true. If you watch the behavior of central banks around the world, they’ve been stockpiling gold for a number of years now. Very few people talk about that or are even aware of it. You’ve got to ask the question, why? It’s because they’re not dumb. They saw how the system was set up, they saw how the debt levels were set up, they saw all the leverage we had in the system. If an event like what is currently unfolding right now happened, it would fundamentally change the way the global monetary system works, and we’re on the doorstep of that right now. We’re on the dawn of that.
Duncan: That’s right. It sounds all very apocalyptic, but society has survived through famines. I still keep coming back to the Kondratieff wave that Simon pointed out to me at all those years ago. Summer, autumn, winter, spring. Cycles go through history. People lived generationally through history, and things will recover again. Things will go forward. Although there are all sorts of subjects we could delve off to in that, the reality is that the world will look different in two years’ time. It will look very different in one year’s time.
People need to be thinking that with what they’ve got now, how can they position themselves to be at the front end of the effects of this monetary inflation? They may have missed the previous wave. I’ve spent many an hour out there in the water, but there are other waves coming through. We have another wave coming through, and you can get on that wave and ride it.
The key thing is, precious metals have to be the cornerstone. You need an amount of precious metals. You need gold. Gold is the money of kings, and the kings have stored it all up lately, big time. The kings have their gold. The question is, do you who are out there in ordinary Internet land? Do you have any gold?
Alex: Duncan, I think that about does it. I appreciate you taking the time today. You take care and be safe down there in New Zealand.
Duncan: All right. It’s nice chatting, and we’ll talk more. As I said, I’ll be in touch with you in the evolving situation.
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