Podcast

Answering Reader Q&A - Part 2

You asked. We answer.
Wednesday, June 5, 2013, 10:52 PM

As promised, here's the next installment of answers to recently submitted reader questions (Part I of this podcast can be heard here).

Chris and I cover a wide spectrum of topics, including:

  • climate change
  • hard landings
  • asset allocation
  • retirement funds
  • Europe
  • community/emotional resilience
  • precious metals
  • advice for the younger generation
  • and more...

Click the play button below to listen (52m:18s):

Transcript: 

Chris Martenson: Welcome to this Peak Prosperity podcast. I am your host, Chris Martenson, and today I’m going to be fielding reader questions with Adam Taggart. Hi, Adam.

Adam Taggart: Hi, Chris. How are you?

Chris Martenson: Good. Well, this is Part II, and I understand that we’ve got more questions. Actually, we barely made it through a third of them from last time. So what else is on our plate for today?

Adam Taggart: A better question is, what is not on our plate? We’ve got lots of questions across a` variety of topics here, but why don’t we just dive right in here. You ready?

Chris Martenson: I am.

Adam Taggart: Okay, the first one is not an easy one. This comes from user Doug: The environment seems not to get as much focus on peak prosperity as the other two Es; is that going to change, especially in regards to addressing climate change?

Chris Martenson: Those are two separate questions for me. The environment, I believe we do give pretty decent coverage there. Obviously we haven’t solely focused there, but we’ve recently had things on GMOs and the wheat incident that happened out of Oregon and what’s entailed there. We talk regularly about things that are happening in aquifers; we talk about soil, farming, water issues. We’re pretty well covering those things.

I don’t believe that we give a huge weighting to the global warming piece, although we have I think one of the better threads you will find anywhere on the net right now, that our very own Dr. Mark Cochrane is hosting for us. And we do have an open discussion around it. I personally made a choice a long time ago not to make global climate change a centerpiece of how I wanted to engage and talk to people. So a lot of our work, Adam, as people here know us, is to spread the message and to engage more people. And let’s be honest, talking about these big changes that are coming are not easy topics under the best of circumstances. In the prior podcast, we talked about how difficult it is to talk to friends, loved ones, co-workers, spouses even, about something as relatively easy as, say, risks that might exist in the stock market or what the Fed’s doing. These even are difficult topics.

And one of the things that I learned this came from our work, remember, when we were talking with Dan Ariely was a number of years ago, and behavioral economists have worked out some of the fundamental underpinnings how we’re wired as organisms, in terms of how it is that people either will or will not undertake change. And we know that most people are wired to go through change after experiencing some form of pain rather than insight. And so that’s one learning. And then another learning is that in order for people to really want to change, a number of things need to be there in place.

And one of the most important ones is to have a sense of control, a sense of agency. That is, if I feel like I’m being presented for something for which there is no solution, my tendency to take concrete action around that might be low. As well, it helps if the thing that we’re talking about is very concrete; it’s easy to get your hands around. We’re wired as organisms to respond to threats that are near and immediate in preference to threats that are farther and more distant. And so for all of these reasons what I found early on and what working with you and what all the other people that are slightest confirmed with all of the thousands of success stories that we have where people came across some information that’s insight, chose to change around that insight, take action, do concrete things like install solar panels, or start gardening, or maybe move to a more resilient location to begin engaging with their neighbors. To take these very concrete steps.

Those are all things that I think people would be and should be doing whether they believe in global climate change as a story that’s an organizing principle. Whether they believe that an economic difficulties might lie in our future. Whether they believe that the energy story tells us that we will have to learn how to get by on less. Whether they just want to do this for quality of life reasons because living more simply has its own large advantages and living a more engaged and resilient life have their own advantages.

For whatever reason that somebody wants to go down this path of becoming more resilient in their life, I truly believe that it’s at our best interest to find the easiest, most gentle path to have that conversation. If I could tell three different stories and each one of those stories would result in somebody putting up solar panels on their house, I’m going to prefer the easiest route that I can take in telling that story, because it’s the action that matters to me. Not the why people undertook that change, but that the change and the concrete steps got taken.

And so for a variety of reasons, in looking at the global climate change story, it’s a very difficult one to present in a way where people feel like they have any control at all over this story. That is, even if the United States decided to completely stop emitting carbon tonight, I think everybody in their heart of hearts knows that maybe China would step up to fill that void pretty quickly. So even our national sense of control is low, and it’s a distant threat as compared to some of these other things that are coming down the pike much sooner.

In my heart of hearts, I believe that we’re going to run into economic chaos well before we run into full-blown climate chaos, in a way that really is going to prove disruptive to people’s lives. I think we’ll hit an energy wall well before we run into any other larger problems down the road.

And let’s be real, these are predicaments; they’re very real. I fully support that if somebody finds it to be their organizing principle and it’s what they care about, that’s absolutely something I support. And in terms of the mission of the site, we’re trying to reach more people with what we think is already a reasonably difficult story to tell, this narrative of change that there are ways to do that where we can get from point A to point C in the easiest possible way.

And this is hopefully not sounding controlling or Machiavellian; it’s just that we’ve learned that in this business, it’s not just what you say, and it’s not just how you say it, it’s also when you say it. And trying to control for all of those pieces is just it’s felt to us that there’s actions that people have taken. I think anybody who really cares about global climate change would look at the actions that people take as a consequence of going through the Crash Course and related materials and say, Yeah, those are the right things to do. And I think they make sense on all these dimensions and many more: job security, national wealth, health.

There’s a whole variety of reasons that these are truly, I think, the right actions for people to be taking. So that’s a long-winded way of saying we’ve looked at it and we just have decided to not make it a centerpiece for a variety of reasons. Did that make sense?

Adam Taggart: It does; it does. I think the only additional things I’d underscore there are as I think you said the steps in which we would take on both an individual level and a policy level to address things like Peak Oil, which we spend a lot of time focusing on, are pretty much a lot of the same steps you’d be taking to combat climate change anyways. So to your point that it’s the actions that really matter, you know we find that by our current focus on steps for dealing with a resource depletion and specifically Peak Oil, you know we’re already presenting a lot of the steps that we would if we were wrapping the climate change banner more tightly around ourselves.

The second thing I’d add is that it’s not a verboten topic on the side at all. Again, you mentioned Mark Cochrane’s excellent thread, and we will be bringing in some voices from the climate change discussion as time goes on. I think we’ve talked about inviting Bill McKibben on, and we may indeed invite a few other folks like him on in the future.

And lastly, you talk about the ease of discussion to have when you have options, and we’ve certainly found from history on the site that climate change is still one of those topics where people bring a lot of passion and a lot of entrenched beliefs into the discussion. We find just for whatever reason, it’s one of the discussions that people have a hard time having without emotions getting inflamed and getting in between the constructiveness of the dialogue. So again, it’s not a discussion that by no means we’re avoiding or prohibiting on the site; it’s just one of those things that we find the deeper we wade into it directly, we tend to have unintended consequences there, which is just one more reason why we don’t fully wrap the site’s focus around climate change. But everything else you agreed with made total sense to me.

Chris Martenson: Absolutely, and we will be looking at it and continuing to assess the data as it comes in. And just personally, last year I lived through the hottest year on record that we’d had in this region, and a lot of people at that moment were saying, Well, this is full confirmation of climate change. And this year we lived through one of the coldest ones, and so I agree that there’s a degree of chaos. And if this chaos goes across our food-bearing regions, it could be really obviously a very large game-changer at this point in time, but it’s very, very confusing to figure out what’s happening, at least locally you know that old “don’t confuse climate with weather” piece.

But it’s been a very, let’s say, fast moving story to try and get our arms around it. Science is constantly involving what we know is evolving, and it’s a very chaotic system. So, with all of that said, we are going to keep our eyes on it. In terms of making it more central, I think it’s about where it’s going to be for a while at the site.

Adam Taggart: Okay, great. Well, let’s move on to another question here: Is there a scenario in which the U.S. avoids a 3E-induced hard landing? This is somebody, I think, trying to be hopeful here.

Chris Martenson: So the realistic answer is no. The unrealistic answer would be sort of like Mr. Smith goes to Washington but this time really changes things. There would have to be a huge wholesale changing of the guard, as it were, of our way of thinking. It was interesting the Post Carbon Institute recently just spent some of their valuable time and they went down and they did a tour in Washington D.C. and came away pretty much confirming our views around here, which is that there’s not really enough time in the daily life of a Senator or Congressperson to even attend all the meetings on which they happen to be committee members, let alone really fully digest everything. They depend on staffers. It’s an interesting machine going on down there, and the short answer is, they came down talking about how the shale gas revolution may well be much more short-lived than anybody is potentially hoping. And they found almost no traction for that idea because they were coming with data and that’s not really part of the conversation down there yet.

So realistically, are we going to avoid a harder landing or some sort of disruptions around this? The answer for me is no. We’re going to again, I’m creating beliefs here, but I believe we’re going to have to wait until a crisis comes. And it’s going to have to be pretty serious, because we had this 2008 crisis, that was as serious as I could imagine then, into 2009. And in terms of the structural reforms that resulted in terms of our spending policies, bank regulations, the too-big-to-fail breakups that didn’t happen; nothing really substantive changed. So even that wasn’t a large enough sort of a moment to really begin to talk about things in a realistic sense. So from the totality of the three Es, where are we on having an honest energy conversation at this point? Nowhere. And in terms of the environment it’s just as bad.

So my view is, we’re going to have to have some sort of a crisis, and in that crisis there’s a lot of different ways it could go. And the important work that we’re doing here right now is to lay the groundwork so that when that time comes, we can start to have the kind of conversations we really need to have. And that’s work that thankfully we’ve still got time to do. Thankfully we haven’t entered the next stage of this crisis yet, and so that’s the gift all this money printing is giving us the ability to really start to hone the ideas and work through them, and polish them up at the site and the conversations in our minds, so that when the next crisis comes we can really start to talk about what we actually have to be doing.

Adam Taggart: All right, I think the only thing I would add there is because we’re not facing reality as collectively right now, and until we start having those adult dialogues that you mentioned there, we’re basically digging the hole just that much deeper. And so the reality is that we are going to have to take our medicine, you know we essentially are going to have to take our lumps. We lived above our means for a while; we’re going to have to live below them for some time to correct things. So just from my perspective, I feel like the hard landing is actually the best-case scenario.

There’s a lot of opportunity there for a harder or very much harder landing, and I think those are the ones that we really want to try to avoid with the progress that you’re referring to.

Chris Martenson: Absolutely. So here’s just a case in point. I was just reading the newspaper today and looking at auto sales, and they’re worried that they’re leveling off, but they noted that the bright spots in the auto sales figures for the past six months or so have been light trucks and SUVs. And so one of the stories that we’re telling ourselves with all this shale oil that’s coming out of the ground is that, oh, actually we’re at peak demand, because we’re going to be burning less because our fuel efficiency is going up so much across our fleet. And then I look at the actual light vehicle sales numbers and I see that we’re actually buying some of the least efficient vehicles out there. So the idea that we are in any way, shape or form grappling with this predicament in an adult-sized fashion is as you say, we’re not having that narrative and discussion yet. So we can, we will; but boy, it’s going to take something more than we’ve got. And the hope is that it’s just a hard landing and not something a little bit more rugged.

Adam Taggart: Okay. All right. Next question comes from user cowtown2011: Do you have a recommended asset allocation at this time? As you mentioned your high percentage of holding gold in terms of your own personal gold stores, and you shared that percentage in the past, they’re not sure is right for everyone, which I think we would completely agree with. So what’s your reaction here?

Chris Martenson: Oh, yeah; I know the exact precise portfolio that everybody should have. You should have the portfolio that allows you to sleep well at night, and that’s what my portfolio does for me, and I sleep like a baby. I have absolutely no concerns about the direction of where things are going in this larger story of fiat money being overprinted. I’m reasonably confident that gold and silver represent ways to protect my purchasing power. I’m very happy every time I spend money that improves the soil fertility, the energy efficiency, the water redundancy of my property. Those all just feel like rock-solid investments to me at this point in time. But as you mentioned, everybody’s situation is different, so whether your age has a huge bearing on this, your risk tolerance, how much capital you actually have these are all things that people have to take into account.

Listen, investing is a tricky proposition under the best of times. These are the worst of times. We were just talking with Bob at Portola, one of the recommended advisory firms, today, and he was mentioning that in his 30 years in the business, this is as treacherous an environment as he’s ever seen. It’s impossible to really fully understand what’s happening next because we’re all depending on what the Fed is or is not going to do, what the European Central Bank is or is not going to do, what Japan is or is not going to do at the central banking level.

And so that really speaks to the idea that the portfolio that you need is the one that you feel safest with. And for that, you’ve got to trust yourself. Everybody is going to have a different opinion about this; some are going to believe that we’ve got many business cycles between here and whatever; maybe some larger catastrophe in the dollar system will arrive. Some might think that’s coming sooner; some are going to find their gut is telling them that they would much rather be in physical tangible assets than financial assets, and some will have the opposite point of view. So for everybody listening: Figure out what you believe in, and then find yourself a trusted financial advisor who can help you execute that strategy.

Because my belief is that this is the time to stick to your guns, get a theme, analyze what makes sense. Don’t get whipsawed, which is so easy to do in these markets by the daily gyrations of whatever is happening with respect to prices or policy decisions. If you just back up three big steps and say, where are we going on this? Listen, we lived beyond our means for a while, we have way too much debt, energy prices are high and likely to stay that way, this is just a bad combination for typical tried-and-true financial investments to return great profits over time.

So instead, it’s time to start really thinking more carefully and picking stocks very carefully and individual investments be that at the local level or in your homestead or with somebody you know picking those very carefully and really knowing what you’re getting involved in. And for me, given the demands of my time at the website, I don’t have time to do a lot of that (or any of that) at this point in time, so I’m perfectly happy right now being invested in gold and silver and cash at this particular junction in time, and also in my homestead. And those are my big areas where I keep most of my liquid net worth at this point in time. And that’s me, so again, find somebody you really think you can work with, trust yourself, and get yourself the portfolio that will allow you to sleep well.

Adam Taggart: Great, and for those folks that haven’t heard us mention it before given the large demand for people that have watched the Crash Course, who really like the framework and are looking for financial advisors that share a similar perspective on the future, we’ve taken the time over the years to identify a couple of firms. If you’re interested in learning about them, just go to the front page of Peak Prosperity, scroll down to the resources section, and you’ll see a section there for endorsed financial advisors, and there’s more information to learn more.

All right, we have a couple other investment-related questions that we can hopefully bang through here Chris. No particular order; one is: Are Roth IRAs safer than traditional IRAs?

Chris Martenson: Safer in what respect?

Adam Taggart: I’m not entirely sure.

Chris Martenson: Well, that would be a great question to run by a financial advisor. My own personal view is I have not been contributing to IRAs for many, many years, and the reason for that is that I have a belief that tax laws can and will be changed in the future. Obviously we’ve been seeing all sorts of laws get changed, including the Cyprus Bail-In, the MF Global mysterious ruling where client accounts were just taken and who knows why that was allowed to not be criminally prosecuted. The Roth IRA is just another form of 401k, where the difference is putting money in after tax rather than pre-tax. And in both cases, whether it’s a traditional 401k or whether it’s a Roth or even a 521 college savings plan, what we’re counting on is that when we want to use that in 10 years, 15, 20 years, whatever, your horizon is that the rules will be the same when we get there. And I’m not confident of that. I’m pretty convinced that, as we talked about, the final conclusion of this is living a much lower standard of living that is below our means for a while, and that’s going to involve higher taxes and fewer return services from government. That combination feels pretty solid to me at this point.

So I’ve had a strong personal bias towards not having my money in vehicles that require future tax treatments in order for them to make sense to me today. But that’s me, and I know they make a lot of sense for other people, and that’s something that everybody has to make an individual decision around with their own financial advisor or somebody they really trust.

Adam Taggart: Yep, and for the record, I, too, follow a similar path as you; I stopped contributing to my retirement funds largely for the same reasons a number of years ago. I just re-read the question. The question really had to do with confiscatory risk; you know, if the government does decide that they need to raid pension funds, is there something about a Roth that makes it a little bit less likely to be accessed by a government in distress than the traditional IRA? I think the honest answer is, there is nothing that I know of for sure and if you do, chime in but otherwise, as you said, I think it’s best just to talk to a financial advisor with that question. But all my knowledge tells me that there’s not anything really special about a Roth IRA that gives you any additional protections.

Chris Martenson: Not that I’m aware of, either.

Adam Taggart: Okay, a similar question: For those with money stuck in retirement funds, those often come with limited options for what you can invest in. What should we be doing right now with markets so elevated?

Chris Martenson: I’ve been an advocate of the idea that markets are elevated kind of under false terms at this point in time. I think nobody would disagree with this statement here. If the Feds suddenly stopped their QE efforts tonight, the markets would fall, and fall heavily. They’re inflated, and they’re being inflated for the actions of a fairly dedicated, fairly what would I say here? I think the Fed is in for a penny, in for a pound. They certainly got themselves backed into a corner; yes, they’re absolutely committed. So I think one line of thinking would be Well, I’m just going to count on them keeping that level of commitment going forward; I think that’s probably a fairly safe bet. However, personally, if I were in a position of having money in the stock market at this point in time and I had the capability of either taking that off the table and watching and waiting to see what happens, or at least buying some protection in the forms of puts against that so that if the market did go down you’d be protected in some way that’s my personal view because I have this piece out, wrote it in February, said that I think there’s a reasonable chance of a fairly significant market decline by Fall based on fundamental things such as corporate earnings being at all-time elevated levels, they’re probably going to have to revert to the mean. We’ve got all kinds of new pressures bearing down on consumers; we’re starting to see some of that leak into the data.

So fundamentally it looks to me like the economy is not yet roaring off, you know, cleared the tree lines. The wings are still at or below limb level in the nearby forest, and it won’t take much to upset that. And meanwhile, stocks are priced for perfection and also bonds are priced for perfection. However, one of the things I noted in that article and I noted recently as well is the idea that junk bonds were and I’m using this now in the past tense at all-time record-high prices; that is, record-low yields for junk bonds. This is triple-C corporate junk. And those have started to reverse course a little bit, and we’re starting to see leakage also in the Treasury markets, so this is actually pretty profound. The ten-year Treasury went from 1.69% to 2.2% in just about eight or nine trading days. It was in percentage terms; I know 2.2% is not a lot, but going from 1.7% to 2.2% is actually quite a lot in just a few days.

And so we’re seeing those early signs that bonds are starting to leak a little bit, and I think we’re also seeing topping signs in the stock market; so both of those together are just caution signs to me. They’re yellow; they’re not bright red yet, but they’re flashing yellow. And so were I to have money in the market, either a 401k or some other place like that, I would certainly be thinking about thanking my lucky stars that I had my money in the market while it ran up to all-time new highs, and maybe backing away for a while as we watch what happens.

Adam Taggart: Okay, so it sounds like now is a good time to consider getting to a higher cash percentage in your IRAs. The only other thing I would mention is, if you have a 401k through work, often times you’ll have the ability to talk to your plan administrator and you can actually convert part of that 401k to a brokerage account. It still is managed on a tax-deferred basis, but it does give you the opportunity to purchase a much wider array of securities. So if you wanted to be a little more defensive by actually making some investment bets that way, you can. And this is not personal financial advice; it’s just letting you know that you have more options oftentimes then just the four or five plan options operated or offered through the traditional 401k.

Chris Martenson: Absolutely. Or if you can get to your financial advisor, if you have a 401k under management, just tell them to move some or all or whatever you feel comfortable with to cash at this moment in time as you wait and see.

Adam Taggart: Okay, one last retirement fund question here; this comes from Tycer: Retirement funds can be liquidated for up to 60 days without penalty if the money is put back in. Would there be a milestone at which you’d advise folks to liquidate their holdings for short-term safety?

So I guess what he’s saying is, perhaps if it’s in reference to this potential large market correction you’re looking for, do you foresee a time at which you might actually issue say an alert that says, Hey, everybody; things are so dire or Seems like they’re going to get so dire, you might want to pull your money out of your retirement funds just to have it in hand, and if I’m wrong put it back within 60 days?

Chris Martenson: Larger question lurking under that for me is, it really depends on what percentage of your assets they happen to be. I still have money in a 401k; it’s Legacy for my time at Pfizer and SAIC. It’s maybe six or seven percent of my total net worth and it’s sitting in a 401k. I can’t imagine any scenario under which I would say, I need to pull that out under the scenario that Tycer has mentioned here, because by the time I’m pulling something out it, first of all, it takes an extraordinary amount of paperwork and time to be able to actually execute such a maneuver like that. I’ve certainly learned in rolling over 401ks and moving funds in and out of them that it’s just a time consuming process, so if you’re imagining that there’s something like October 2008 happening again, a very fluid environment, it’s going to be exceedingly difficult to actually get things to move from point A to point B.

So here’s the thing: If your 401k is a significant portion of your assets, you’re going to want to start having a harder conversation about whether you want to have I’ll make a number up here 50% or more of your liquid net worth tied up in a vehicle which is fairly illiquid. Illiquid in the sense that you might have liquid assets in it but it’s still illiquid in terms of your ability to get your hands on it; the rules could change on it. In a real market crisis it could be difficult to get to.

So for anybody that has a significant portion of their wealth in a 401k, I think you need to start having these sorts of conversations with your financial advisor, such as Do I have everything in place so that if I wanted to, I could pull it out for this 60-day grace period if I felt I got into that position? That will be an eye-opening conversation for a lot of people. You think this is your money? Wait until you try to get access to it. There’s a lot of forms to sign; there are a lot of different steps that have to be undertaken.

Secondarily, where would it move from and to? Most of these plans, some of them do not even have a way of getting you your money electronically; they cut a check. Woo, we’re back in the 80s, right? If you do have the electronic funds transfer, you have to get that set up in advance, ahead of time, and you actually have to ping it at least once so that it works and so you would be able to move it in a free-floating environment like we’re talking about, a potential crisis.

The short answer after all that is, I have not yet seen anything that was extreme enough, even in 2008, that would have told me to tell somebody to take those steps. Is it possible we could get to that? Absolutely. But it would be a fairly significant global systemic financial/banking crisis, and once we’re in that particular environment either you have already got your ducks in a row to be able to make those sorts of maneuvers, or you haven’t.

And by the way, if you have more than 50% of your liquid net worth or total net worth in a 401k, you might want to think about ways depending on your age or other circumstances that that could be reduced, or to, as you and I did, stop contributing and park assets elsewhere if you’re still in that mode. There’s certainly some things you have to think about. I would personally be very uncomfortable if I had 50% of my net worth in a vehicle where I felt I couldn’t get liquid access to it.

Adam Taggart: Okay. There are probably a lot of people listening that probably do have 50% or more of their assets in a retirement fund, so I don’t want to spook them too much. But one thing I will underscore that you said is if you think this is a step that you may take at some point in the future, particularly if you’ve got a good chunk of your net worth in a retirement account, as Chris says while things are still working relatively the way they always have been, before a crisis arises, take out a nominal amount just to go through the steps, just to make sure that everything is set up, that you know what you need to do. So that if indeed a time may arrive where you felt you needed to take that step, you’re not doing everything for the first time, and you’ve reduced your probability of negative surprises of finding breakages in the system when you really need to rely on it.

And another thing I’ll mention really briefly is that there are people that hold precious metals, physical precious metals, inside a retirement account. I have heard of people who have been able to take delivery of that those precious metals, and as long as they are returned within 60 days, they avoid the penalties as well. So if instead of getting a check during times of duress to sit on, if you actually wanted to hold and then get delivered to you precious metal that was being held initially in your retirement account, that is possible. Again, all these things are things you need to be talking about with your financial planner. But I did want to let people know that that is possible.

Chris Martenson: And absolutely, again, if the first thing in this story is always to make sure that you’ve gone through the necessary steps to figure out exactly what’s required to move money out and Adam, you made an important point. It’s not just investigate them and read the words and understand what the steps are, but you have to go through the process once of actually taking $1.00 out or something, some nominal amount, just to see that it works, because there’s always learnings; that’s been my experience.

Adam Taggart: There’s always Murphy’s Law; there’s always the unexpected or the unplanned.

Chris Martenson: Always, you thought you did everything, and they say, Oh, well, we didn’t have that form on file at the home office or something. Who knows what, but that’s been my experience so far.

Adam Taggart: Okay, great. All right. Next question comes from Kathy P: What’s your opinion on holding savings in a credit union versus a commercial bank?

Chris Martenson: Well, credit unions operate quite differently. They’ve been relatively safe. They’re a different ecosystem from the commercial banking system, and so are savings banks, and so are cooperative banks. They’re all different ecosystems. Like, once you’re in an ecosystem say it’s a cooperative bank, or in this case a credit union system you’re going to want to look at that particular institution very carefully. There are services that rate them, and I’ve always been comfortable myself with institutions that are B+ or higher through the Weiss Rating System. Or Bankrate.com also has a system which gives you sort of a three, four star kind of a deal. But for me, I’m always interested in being with very sound institutions.

The credit unions I’m not familiar enough with them to know that on a state-by-state basis how they’re really managed in terms of the insurance system that goes on there. But here’s my general philosophy on banks and whatnot: Keep your money spread in a variety of accounts, never get over the limits for what are currently insured, and be prepared to move money between accounts rapidly if you think the institution you’re involved in is in difficulty. And never, never get involved with a bank or institution that’s got a C or lower grade, or a two-star or lower grade in these ranking systems.

There is something else called the Texas Ration, which is something that feeds into many of these ranking systems. You can look at that. There are a variety of ways that you can tell bad institutions from good ones. But there are flaky institutions out there in any particular banking or credit union ecosystem. So know your bank. The ones I’m involved with are extremely sound and well run, and I truly believe they will be more immune to whatever next crisis comes than the next bank. And that’s where things stand right now.

Adam Taggart: Okay, if I could restate what you said and maybe add a few words that you can either dial in or not obviously, know your bank; no matter what type of bank you put your money in, that’s key. Second, it sounds like its good to diversify amongst things like commercial bank, savings bank, credit union; they all have different models. So just like you diversify with stocks, diversifying your savings among different banks is probably not a bad idea. Probably not a bad idea just in general because you’re diversifying just by having your savings in a multiple amount of institutions. So if any one goes down, the others will be there.

Is there anything to the savings bank or credit union model in terms of benefit that you don’t get at a commercial bank that you like?

Chris Martenson: Well, it’s just that you’re attached to a different system. So I do have one large commercial bank and have some accounts there. The larger commercial banks are all sort of tied together. So the thing I’m clear on is, what happens if there’s suddenly a derivative accident for JP Morgan? My belief is that a lot of the commercial banks will sort of get swept up in that, and I can envision a scenario where potentially the commercial banking system shuts down, but the rest of the ecosystem is still operating, and other parts.

So the only one that I’m really aware of that truly seems different to me is, in Massachusetts, where I live, the cooperative banking structure has it’s own charter, has it’s own insurance, has it’s it’s off line compared to all the other banks out there. And they’ve never lost a penny, even through the Great Depression, back when things were uninsured at the national level through FDIC. They still had their own cooperative structure that served them then, and they’re just exceedingly cautious. They are the model of what I would call a regional bank, these cooperative ones. They just -- you know, 20% loan-to-values, knowing their customers, very cautious, and certainly not ever involved in any of the high-faluting sub-prime derivative kinds of behaviors that I think are just an accident waiting to happen.

Adam Taggart: Right, okay. So, bottom line, probably not a bad idea to diversify your savings amongst the different types of banks out there?

Chris Martenson: Yeah, and there’s still some very, very well run banks out there. You know, most of the regional community sub-level banks.

Adam Taggart: Okay, great. All right, let’s see here. Any specific advice for European residents?

Chris Martenson: Yeah, don’t have your money in a Spanish bank or a Greek bank; Portuguese bank, or Ireland even, I hate to say. The situation looks to be more and more like it’s headed for some sort of a breakup at some point. And I know that’s being avoided at every possible turn, but the underlying structural weaknesses that gave us the you know, the snow and the coronas to give us the first avalanche of this crisis, those have not been changed. The snow is still falling, as it were in this metaphor, and we’re seeing it with the unemployment levels in Spain and Greece and Portugal, and we’re looking at the increase in civil unrest around many of the austerity measures that have been imposed when we’re looking at the level of bank-loan failures and things like that. I think it seems fairly likely there will be some sort of a break up or disillusion. Maybe not back in individual countries, but certainly maybe north from south or maybe one exit or two here or there. But still, I’d be prepared for that.

There’s huge imbalances in the banking system over there. We’ve talked about it before with the target to imbalances, and the ECB is doing everything it can to keep it all balanced, but if there is some sort of a Greek exit, or a Cyprus exit, or a Spanish exit or whatever happens to occur, that’s really going to wreak havoc in the banking system over there. So, same advice I would have over here, which is make sure that you are keeping your primary assets in your country of residence as much as possible. Understand that capital controls might be part of the future. Make sure that you’re involved with banks that are as least exposed to that huge dynamic that we’re talking about. I would, again have very strong personal preference for smaller banks rather than the gigantic banks that have footprints in all these different countries.

And so yeah, just from the financial side, that’s certainly something I would be keeping aware of at this point in time, because the genie is out of the bottle. They’ve already said what they’re going to do over there, which is they’re going to do balance. They’re going to tax wealth, if necessary, and all of this will be to preserve the banking system and structures as they currently exist. And European banks are more levered have done less deleveraging I think are more exposed than the U.S. banks at this point in time.

Adam Taggart: Yeah, Kyle Bass has really sounded the alarm bell on that one, too. So I would agree with you, and maybe even be a little bit more directive and say even more so than our U.S. listeners if you’re living in the E.U. I would be taking some probably not too insubstantial of my net worth and trying to get it out of the banking system. Whether that’s just going to cash, whether that’s probably even better is precious metals. I think the cash-earning precious metals is probably even better if you live in the E.U. The banking system, like you said, is fraught with all sorts of risks, from freeze up to a Cyprus type haircut for safe money that is just on deposit in the bank. So I would make sure you’ve got some percentage of your holdings that is just not in the banking system. And precious metals, again is a great way to do that. It’s the one ethic class that you can hold in your hand and nobody has any claim on.

Chris Martenson: Absolutely, totally agree with that.

Adam Taggart: A related question to the E.U. is: Are we planning on doing a London seminar any time soon? I’ll answer that, which is no we don’t have one on the calendar. We were over in London late Fall. We don’t have any immediate plans to go there again soon, but that could certainly change. And one of the questions was: What size audience would need to get us over there? I think the quick answer to that one is, there’s an opportunity cost to this travel, and when Chris is on the road, he is not writing, so you know I’m guessing we would probably need a similar audience at a minimum of about 50 or so people. Ideally, you’d like it a little bit larger than that for the dynamic of the seminar, but to answer the question, I’m going to put that down as sort of a minimum threshold.

Chris Martenson: All right, sounds fair.

Adam Taggart: All right. And then, interesting set of questions here from Poet: How does your advice around building resilience change, if it does, for the following populations: the poor, the elderly, the infirm, and minorities?

Chris Martenson: Well the primary thing, the most important thing that you can do and this is something that Adam and I have talked about quite a bit it’s not going to be the financial crisis that’s really going to unnerve people and really do them in. It’s going to be the response to it. And so the most important thing that anybody can do, whether they’ve got all the money in the world or whether they’ve got no money or even worse, they have a negative net worth situation is to work on their emotional resilience. And one of the best ways to do that, of course, is to have community. I truly believe that whether you’ve got unless you’re the truly, truly wealthy and you can just buy anything you need everybody else is going to be as safe, as secure, as happy as they are in terms of the depth of their community relationship.

So again, whether you’re in an urban setting or in a completely rural setting, knowing the people around you and knowing them reasonably well, having undertaken any sort of steps to have engaged with them, whether that was as simple as a barbecue or maybe it was doing some projects together, or maybe it was even just a potluck. But that’s going to be the most important thing for anybody wherever they happen to live, is being able to both lean on people for support when you need it, and to give support. Both of those things have very, very high value. And I know we talked about this in the past, which is that sometimes it feels so much easier for me the way I’m constructed to give and to receive, but in the community-building aspect, being on both ends of that transaction, equal measure, is really important. And that’s certainly something I need to work on because I find it much easier to be on the giving side than the receiving side.

And this is what I would be doing regardless of where I lived or what my personal net worth was. And interestingly, having lived in a very rural, very poor area of North Carolina, having been a rock climbing bum, lived out of a van for a year at one point in my life decades ago, I know that for people who have relatively little, there’s already a culture of sharing that’s very, very different. And so honestly, I think that it’s middle class on up that have the most work to do in terms of building community and learning what it means to really be reliant on the people around them as well as to allow people to give and to also be able to receive in that setting.

So that, to me, is going to be the most important thing regardless of your circumstances, and a big part of that emotional resilience is just being aware of what’s going on, knowing what’s possible so that when it happens, you don’t have to work through that shock phase of going through the mental exercise of letting go of these things that we think we have or we own, understanding what’s truly valuable and important. It’s time; it’s relationships. These are all things that I think come into sharper relief when the moment is poignant, but it’s honestly something that we can work on anytime, anywhere we happen to live and should be.

Adam Taggart: Yep, and if you’re working on strengthening those relationships, whether they’re within your local community or whether they’re even within your family, there’s no time like the present to start working on them. And the stronger you get them before the crisis, the more natural the help is going to come during a crisis. If you wait until the crisis happens to start looking around and start knocking on doors and whatnot, the dynamic is very different.

Chris Martenson: Absolutely.

Adam Taggart: All right, so our last stretch of questions here and congratulations; we are seeing a light at the end of the tunnel here are questions about the precious metals. I’m going to try to collapse a couple of them together here. First one is: How surprised were you by the recent drop in precious metals prices, the one that started about a month ago?

Chris Martenson: All right, well, I was pretty surprised, just like most people. First of all, it was not just an unusual drop; it was an eight sigma, once-in-30-years kind of a drop. It was really very unusual. I was surprised at all that such a magnificent drop was not investigated by the CFTC or the SEC, and part of the reason I was surprised is that I’ve not seen a more gold-friendly environment in all of my years, given the bail-in that happened at Cyprus, looking at an entire continent of Europe suddenly realizing that their wealth held in the banking system is now exposed and at risk, looking at the degrees of monetary printing going on across the world. But with Japan fully doubling their monetary base in the next two years, seeing China just absolutely start consuming not just a little bit, but way more probably 60% of all the newly mined gold in the world is going straight to China and there’s an extraordinary amount going straight to India as well. And seeing other central banks start to accumulate rather than dis-forward their gold; these are all very, very clear obvious signs for why gold should be in a bull market, if anything. We’re in a very price-supportive market, so seeing it suddenly get taken out to the woodshed like that yeah, that was surprising.

At the same time, I’ve been watching these things for years and years and years, and I know that when the big bullion banks get a giant concentrated short position, somehow the price always ends up going down and wash, rinse, repeat; they’ve done this so many times and they know they can do it. They have complete impunity and immunity; nobody is ever going to investigate them and they know that and they make money doing it. The interesting part of this story is that, as the bullion banks play their little shenanigans and scoop money off the table as they execute these bear raids on the precious metals, one of the things they can’t control is that when they drive the price down it’s almost like it’s a commodity or something demand goes up somewhere else. And the amount of demand from the East at this point in time is so startling that I truly believe sooner or later the West is going to have to come to terms with that particular dynamic. And I don’t know how they do it besides let prices rise, but the other alternative is kind of an ugly scenario where they just shut the gold markets down because they’ll make something up; pick some excuse.

But yeah, was I surprised? Sure.

Adam Taggart: Okay. Nate adds a follow-on question there, which is: Is there a price at which for the precious metals which you would advise folks to accelerate purchases, and possibly should mining stocks be part of the 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6 Comments

Grover's picture
Grover
Status: Platinum Member (Offline)
Joined: Feb 16 2011
Posts: 507
Here's to the future

This was a much better podcast than Round #1. Thank you very much!

I saw one of your bulleted talking points was "advice for the younger generation" and I was hoping that you would address career choices for people just finishing high school. Sadly, you didn't have time.

I've got 2 neighbors with children who are graduating this year. One is a straight A student who has gotten several acceptance letters to colleges along with scholarships. She wants to study something in the medical field and would like to be an MD someday. When I asked her some of the details, the largest scholarships came from the more expensive schools. (Her folks are just getting by financially.) She would need to find other funding sources and flippantly said that she would just take out student loans. I suggested that she consider the local community college for the first 2 years of study. Her folks said that she could continue living with them. Her cost would be much less and wouldn't really impact her long term goals. It is an understatement to say that she wasn't thrilled with my advice. (I'm not too worried about her. She is smart and dedicated enough to make it work. I hate to see her saddled with debt.)

The neighbor boy is just glad to be done with school. He doesn't want to go to college. He just wants to work in a trade that will let him move out of the house and get on his own. He's got an aunt who can get him a job as a baggage handler at the airport. She didn't tell him what the hourly wage would be. I sat down with him and looked on their employment site and found a help wanted ad for an experienced baggage handler that was paying $12-$15 per hour based on experience. Then, we worked up a spreadsheet to include income and expected monthly expenses for living alone. It was an eye opener for him when he saw how little discretionary income was left.

He's good with his hands and practical. I can see him being a welder, electrician, plumber, carpenter, truck driver, etc. I can see problems with long term stability in each of these fields.

I've worked hard to build my community and watched these kids grow up for the last dozen years. In the next few years, there will be several more trying on these same shoes. This is their time when dreams and possibilities should be abundant. Yet, all I can see is the potential negativities. Rather than poke holes in their dreams, I'd prefer suggesting possible options that have a better chance of success. That's what I was hoping to hear.

Grover

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 2380
Guiding Kids.

Hi Grover,

When my step-son asked me what he should do I told him to be an airline pilot. Not because that is is what is a good job, but because it allowed him to dream big. It supplied the motivation to learn. He suprised me and got his commercial pilots licence. Not bad for a non-english speaking kid. (Russian).

He then matured enough to decide to become a dentist. By that time his basic education and study ethic was well established. He was so good that he won a free holiday to Russia from the dental school.

I worry about my second son as he is making a big bet on a technological future. He is going to get his doctorate in computing and mechatronics. (Think Robots) Common advice is not to go there but I am loath to pop his bubble. And besides which he would not pay me any attention.

The bright young girl's future is assured if she becomes a doctor. 

KathyP's picture
KathyP
Status: Bronze Member (Offline)
Joined: Jun 19 2008
Posts: 81
Sleeping Well

"You should have the portfolio that allows you to sleep well at night, and that’s what my portfolio does for me, and I sleep like a baby."

Good advice.  However, don't read Jesse's Cafe Americain just before going to bed.  I wonder when I'll catch up on last night's lost sleep.  Have you noticed the increasingly foreboding tone of his recent posts?

Nate's picture
Nate
Status: Gold Member (Offline)
Joined: May 6 2009
Posts: 461
great post

Grover wrote:

I've worked hard to build my community and watched these kids grow up for the last dozen years. In the next few years, there will be several more trying on these same shoes. This is their time when dreams and possibilities should be abundant. Yet, all I can see is the potential negativities. Rather than poke holes in their dreams, I'd prefer suggesting possible options that have a better chance of success. That's what I was hoping to hear.

Grover

Grover,

You are an amazing asset to your community.  I sincerely hope the individuals getting your advice will appreciate it and thank you for it someday.

Nate

Amanda Witman's picture
Amanda Witman
Status: Peak Prosperity Team (Offline)
Joined: Mar 17 2008
Posts: 409
Grover wrote: I saw one of

Grover wrote:

I saw one of your bulleted talking points was "advice for the younger generation" and I was hoping that you would address career choices for people just finishing high school. Sadly, you didn't have time.

Grover, I just wanted you to know that you're not alone in these concerns, and I have no doubt Chris and Adam will address them in time.  My kids are almost-15, 13, almost-11, and 9.  The older one is already starting community college classes (as is not uncommon for homeschoolers) with a plan to get his first two years out of the way as inexpensively as possible, and only then consider going on to finishing a four-year degree if it makes career sense AND financial sense.  I do not want my kids (or myself) taking out loans to fund their education.  I might have to bend that a little for a relatively small loan, but I hope to hold that line.

My hope for my kids is that they will reach age 18 with some reliable means by which to make a living.  I am very glad I thought to begin talking about this now (at the start of the "high school years" for my oldest) rather than at graduation age.  I do not support college for my kids unless we have done our research and are sure it will pay off for them in the short-term -- i.e., that they're very likely or nearly guaranteed a job in their field at graduation.  And I do not support any of us going into debt to make that happen (as if I could even afford that). 

For now, there is government money available to help with college expenses, and you betcha we'll take advantage of whatever we qualify for, short of loans if at all possible.  That is one advantage the current crop of young people may have over generations to come -- free government money for college.

But I think one of the most important things for parents to do is to set the expectation that college is not a given and not even appropriate for a number of career paths.  Apprenticeships, internships, on-the-job training, mentorship, "career center" or technical school courses, self-study...all of those may be more prudent, effective, relevant paths to various careers. 

My dad insisted that my sisters and I get college degrees.  He did not have a degree, and his earning opportunities in his field (engineering) were severely limited by this.  He ran a machine shop for decades and often spoke of correcting significant design errors made by the "white collars upstairs.")  Ironically, my degree hasn't paid for itself (even after 18 years), and neither of my sisters are working in degree-related fields.  But I do think that for my dad's generation, the logic was sound.  It just wasn't for mine (Gen X) and it won't be for my kids.

The hard part for my oldest child right now is my asking him to narrow down his interests and envision what he might see himself doing as an adult so we can create an educational path for him that will likely lead to a job.  My own generation didn't start addressing these questions until age 16 or so, and even in college (liberal arts, for me), we were encouraged to "explore" and "find ourselves" and so forth -- we were not training for a job after graduation; we were simply "getting a degree."  I think today's young people need to find their focus at a younger age so they can maximize their opportunities as efficiently and quickly as possible.  I think many middle-class (and upper-class) young people graduate from high school (and sometimes even college) without it being on their radar that they need to be prepared to earn a living.

"Finding your career" is so often presented as a personal preference issue, not a realistic pay-the-bills issue.

Anyway, I have many thoughts on this as my family is right on the edge of these kinds of decisions and projections.  I would love to hear from others who are in the same boat or who are close to those who are.

Grover's picture
Grover
Status: Platinum Member (Offline)
Joined: Feb 16 2011
Posts: 507
Thanks all

Thanks for the kind words and encouragement. I'm not too worried about the neighbor girl. She will make lemonade if things turn up lemons. I only wish I could talk her out of assuming the student debt that can't be discharged through bankruptcy.

The neighbor boy is a different issue. He has a loyalist personality. He will likely find something and stick with it (until it fails.) I just wish I could give him solid advice.

I didn't have too much of a clue of what I wanted to do when I was that age. But it was different then. Jobs were easy to find and opportunity was around every corner. Now, it is downright scary. I'm glad that I'm at the stage of life I'm at.

I will look forward to the next Q&A answer podcast. Hopefully, Chris and Adam can provide wise insights.

Grover

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