Liveblog: The Future of Money & Wealth Conference

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Adam Taggart's picture
Adam Taggart
Status: Peak Prosperity Co-founder (Offline)
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Posts: 2995
Liveblog: The Future of Money & Wealth Conference

Chris and I are participating in The Future Of Money & Wealth Conference today and tomorrow. This is produced by the Real Estate Guys, as the kickoff for this year's Summit At Sea.

The event features speakers like Simon Black, Peter Schiff, Robert Kiyosaki and others -- with a strong bent on real estate, as most in the audience are real estate investors.

I'll be live-blogging my notes here as I'm able during the day.

Russell Gray (co-founder The Real Estate Guys)

  • The US dollar is still king (for now)
    • Required to buy oil (though increasingly being challenged)
    • Largest military (though increasingly being challenged)
    • US has largest gold reserves (though increasingly being challenged)
    • Most liquid bond market
  • The challengers to the dollar's hegemony right now are the Euro, the Yuan and cryptocurrencies. None is near to dislodging the USD as the world's reserve currency, but that could change.
  • China
    • Its new infrastructure bank will start making foreign loans (competing with the World Bank)
    • The yuan has been added to the IMF SDR (enhances the acceptance of the yuan as a currency for trade)
    • Shanghai gold exchange is facilitating the movement of gold from West to East (some see this as a strategy for eventually backing the yuan with gold)
    • Its new oil futures contracts are being traded at volume. China has announced its intention to challenge the petrodollar.
    • Actively increasing its physical gold reserves
    • Now the 2nd largest economy: huge importer and exporter
    • Building up their military at a faster rate today than the Nazi's did leading up to WW2.
    • Increasing their strategic alliances around the world (e.g., Russia and Saudi Arabia)
    • Right now, yuan is only 1.58% of global currency payments -- BUT, US was in similar position in early 1900s. By mid-century, US was world currency.
    • China is the #1 holder of US debt ($1.1682 trillion), almost 1/5 of all outstanding US debt
    • Barry Eichengreen in 2011: A trade war between China and the US could lead China to start dumping Treasurys as retaliation. That would cause bond interest rates to soar:
      • US debt growing exponentially. We pay $459 in annual interest payments on the national debt. What would happen if rates suddenly doubled, or tripled? Would crush US economy.
  • Peak Debt
    • US dollars are debt-based. Used to be a claim on gold. Now simply a debt of the US Treasury.
    • Key insight: debt grows exponentially, but income does not
    • Perpetually falling interest rates only delay the inevitable -- "it's all fun & games until somebody misses a payment"
  • We have a fatally-flawed system
    • Our money became debt (no longer backed by an underlying asset)
    • Our money is now borrowed into existence, the interest requires ever more debt to be created
    • Prices of all assets are influenced by all this debt (New credit used to buy assets, pushing their prices higher -- but when a credit crisis arises, asset prices plunge)

Simon Black (founder, Sovereign Man)

  • Agriculture led to humankind's first surplus (they could produce more than they could consume).
  • This surplus (savings) allowed humans to invest, and to prosper -- leading to the creation of civilizations.
  • Civilizations tend to rise, peak and then... priorities change. Then the inevitable decline occurs.
  • In US, we're not about production/surplus/savings anymore. We're consumers/debtors. We've changed our priorities.
  • This has happened throughout history. The most prosperous countries eventually go into debt -- because they can. They believe it's their right given their great prosperity. This ability to benefit today and pay tomorrow eventually becomes the status quo, and the wealth bleeds away.
  • Triffin: it's impossible for the largest economy to remain that way. When you get that big, you can't compete -- you start exporting less and importing more. Once you reach the peak, it's inevitable that the decline will follow.
  • Look at our leading companies (e.g. the FANGs). They largely are not productive in nature (watch movies, listen to music, buy stuff we don't need).
  • Our model encourages people to go into debt. Super easy to get credit. In fact, it's much harder to get debt for productive uses (like starting a business) than consumptive ones (buying crap).
  • 50% of US households spend more than they earn. That is not sustainable.
  • Central banks have been printing trillions out of thin air. Again, this has big consequences. It's a huge driver of the growing wealth gap.
  • This results in big distortions: companies are now rewarded for losing tremendous amounts of money. Tesla, Netflix, Spotify, WeWork, Uber -- these are all multi-billion companies that have massive negative cash flow and will *never* be profitable. 76% of the companies that went public in 2017 were not profitable.
  • Shareholder capital is being squandered on useless expenditures. Corporate debt/EBITDA is at an all-time high. 14% of the 1,100 largest companies have interest expense greater than their EBITDA. How much longer can this possibly last? These companies are so insolvent during the "awesome" times -- a recession will kill many of these.
  • The US Government
    • $21.1 trillion in total public debt
    • NET financial position: -$20.4 trillion
    • Total long-term liabilities: -$85.6 trillion
    • FY 2017 net operating loss: -$1.2 trillion
    • Trillion dollar annual deficits for the foreseeable future....
  • Who is going to continue to buy all the debt needed to continue this?? The usual suspects, the world's central banks, who were buying ~90% of this debt, say they are now going to tighten (meaning: not buying). We're seeing this in the recent data.
  • When you have to issue more debt, you need a buyer. As buyers get scarce, you need to raise interest rates to attract them. This worsens your interest burden, so you need to raise more debt to fund it, but you need to raise rates even higher to get buyers --- this is a vicious cycle. This gets to a point when the system collapses quickly -- the bad debts get wiped out and a lot of investors lose a lot of their capital.
  • We've reached this state because we have a failed model
    • Incentivizes debt for consumption vs production
    • Accumulation of debt leads to a cycle of higher rates/higher debt that impacts wealth and all asset prices. This is a logarithmic declines, that accelerates as it progresses. We're in the early stages.
  • [Simon ended with a hard-hitting montage quoting a historical account of the demise of the ancient Greek empire. Every point in the account was accompanied by a modern-day manifestation of the same symptom of decline. It was brilliant, and chilling.]

G. Edward Griffin

  • Money is a medium of exchange. Evolved as a better system than barter.
  • As savings accumulated, security was needed. Goldsmiths became the first bankers -- folks paid a fee to store deposits with the goldsmith, and received a deposit scrip in return which was exchangeable for gold
  • Then banks realized that most folks didn't redeem their scripts often, so began to loan the deposits out. Over time, a greater and greater percentage of the underlying deposits got loaned out.
  • Today, banks do this at a high ratio (close to 90%) = fractional reserve lending. Of course, unlike gold, today's money is fiat, and can be printed/created at will (by central banks and when banks lend fractionally)
  • History has shown repeatedly that whenever we cross the line from hard asset-backed money to fiat/fractional money, we ultimately kill the currency. It allows wealth to concentrate into fewer and fewer hands until the system breaks.
  • Legal tender laws are written by governments to force people to use their money. Of course, sound money doesn't need to compel anyone to use it -- they'll use it because it has durable value.
  • Currencies printed by the early American colonies, as well as the revolutionary war "continental", all experienced hyperinflation because they were backed by nothing. This is why the founding fathers were so adamant that the new country's ONLY acceptable form of money was gold and silver. They knew what happened with fiat currencies.
  • Of course, the US dollar is now unbacked fiat. It's in violation of the Constitution.
  • Banks are united against a hard asset-backed currency as it curtails their ability to make profits in the way they can from today's model of printing money for free and charging interest on it.

Peter Schiff

  • The crash he's been expecting (when he wrote Crash Proof over a decade ago) has not happened yet. It's still to come.
  • We doubled-down on the mistakes that caused the 2008 GFC instead of fixing them. So ahead of us are a currency crisis and a sovereign debt crisis.
  • Schiff didn't think the central banks were going to be able to reflate the bubble they way they have. Clearly they were.
  • The initial reaction to QE1 made sense: the dollar weakened and gold shot the moon. But by the time QE3 happened, everyone reversed their perception, concluding that the Fed's actions "worked" and that the weaknesses in the system were "solved"
  • That's not the case. The reflation and dollar rally allowed us to borrow much more additional debt than Schiff expected. So the eventual crisis is going to be much more painful than Schiff was predicting 10 years ago.
  • The economy is struggling. This is a big reason why Trump was elected, because he pointed out a lot of these issues and promised to address them (Though in office he's largely done the opposite of what he claimed he'd do around the economy. He's largely continued the same failing policies as previous administrations.)
  • Like Bush2 did from Clinton, Trump is inheriting a bubble (a much bigger one) from Obama. Like Bush, this will likely burst during Trump's tenure. Trump is not helping himself by taking the bait and claiming credit for the current all-time stock market highs, low unemployment rate, etc. Schiff predicts we'll be in recession by this coming Nov election and it's all going to be blamed on Trump's tax cuts, deregulation and increased spending.
  • Trump's projected deficits will be a disaster. Who is going to buy our annual trillion of new debt when the Fed is committed to selling (not buying) $800 billion at the same time. Without the central banks buying wantonly as they have been, there won't be buyers for that much debt.
  • Our fiscal deficit is colliding with our trade deficit. These twin huge and growing deficits will increasingly pressure interest rates to rise to attract buyers. Rising rates are going to crush the weak US economy as well as all of the borrowers out there -- every kind of debt (corporate, auto, credit cards, student, etc) is at record highs.
  • Interest rates are already on the rise -- still very low, but the highest we've seen in 6+ years and rising.
  • Gold looks poised to go higher from here.
  • Inflation is picking up. We're finally seeing the impact of all of the money printing of the past 8 years.
  • Schiff sees stocks as already in a bear market. We're seeing a change of trend -- massive volatility that we haven't seen in forever. Still, though, complacency reigns. When that sentiment gets broken, watch out below.
  • The economy is entering recession. Remember, no one saw the Great Recession coming -- even when we were in its first year.
  • Schiff thinks the tax cuts will have much less actual impact than expected, because there's going to be far fewer profits to tax.
  • Expect the Republicans to get the blame for the recession. The Democrats will then push for a massive stimulus bill, which Trump will have to sign. Expect $2-3 trillion annual deficits during that time period. The Fed will have to start easing again. This will kill the dollar, gold will shoot the moon.
  • Expect more US aggression towards other countries to find scapegoats.
  • Trumps current trade wars are only going to hasten this day of reckoning. The tarrifs are going to backfire and hurt US companies more than help, but more important, the Chinese will sell their US Treasurys. This will drive interest rates higher. Price inflation is going to spiral higher as our exported dollars come home and the Fed prints to purchase US debt.
  • Schiff lives in Puerto Rico. PR actually has lower debt to capita than the US. But it doesn't have a central bank that can print its own money -- so PR is crippled, while the US sails on (for now)
  • Need to get your portfolio positioned now for the coming inflation -- but not in the US. US assets are going to be hit hardest. Invest in assets of countries that run trade surpluses and don't deficit spend, that have high savings rates. [Peter is clearly talking his book here]
  • In short: America has been the short term winner: we get to buy lots of stuff with our worthless paper. And foreigners take that paper and buy our debt to keep the party going. But that won't/can't last, and it will be an unbelievably painful adjustment when the party ends. Our standard of living is going to plummet.
  • Schiff recommends international assets (foreign stocks and bonds from the right countries), precious metals, and (the right) mining stocks.
  • How much time is left? Who knows? But increasingly appears we're close to the very end.

Chris Martenson

  • Chris is on-stage right now. He's just gone through the general Three E framework, the unsustainability of exponential growth, and the implications of rising interest rates. We're now at the "Who's going to eat the losses?" part of the presentation.
  • It's nice to see the Peak Prosperity message get out to an audience of ~400 curious-minded individuals: 

  • Now he's going through the 1:1 relationship between energy (BTUs consumed) and economic growth. The world is still 80% dependent on fossil fuels and we don't yet have a better (more concentrated) replacement energy source to transition to. Renewable energy sources are contributing a tiny amount today (don't get us wrong, we still like them!)  and since they're so much more dilute, they will likely never replace the net energy of fossil fuels. We either need some sort of energy miracle, or we're going to have to downshift our lifestyles (willingly or not)

Panels

  • Argh! I lost my notes on the Banking panel due to losing internet access briefly. I was then on an Oil panel with Chris which I'll summarize soon, and I've missed most of the Gold panel troubleshooting an urgent bug with our site Comments. Heading to catch the end of that and will then post more when I get back to my computer...

Gold Panel (Brian Lundin, Peter Schiff, Dana Samuelson)

  • [missed the first 12 minutes of this, troubleshooting the Comments issue]
  • BL: The futures (i.e. paper) market for PMs is so large that it's been driving the price action for many years. Yes, I believe these prices are being deliberately manipulated right now. But physical market (supply & demand) will win out in the end.
  • DS: There's a stat out there that the average US household doesn't even own an ounce of gold. Estimates only 5-15% of US households own any material amount. Gold is performing OK right now, silver is underperforming a lot -- current gold/silver ratio at 80 is a historic extreme. If you're a value shopper, buy silver right now.
  • PS: Gold is still so cheap because the market is still super complacent. Most gold dealers are down 70%+ since Trump got elected. Trump's base were the ones buying gold during Obama era -- they're now not worried because their guy is in office. No one is worried, despite all the insane debt increases, trade wars, deficits, etc. But once folks wake up to this and gold cracks above $1,400 there's very little upside resistance, technically. It can and likely will spike very quickly.
  • DS: Technically, gold has spent the last few years stabilizing. It's now in one of its most solid uptrends of the past several years. When it breaks through $1,375, it should run up to $1,450-$1,500 pretty fast. Dana expects it to make that move this year.
  • BL: James Dines famously said "Don't think. Look.", meaning watch the technicals and figure out what the market is doing what it's doing. Dollar has been in downtrend over past year, that's been supportive of gold. Gundlach has recently commented on gold's consolidation, and he sees the dollar going down more and gold breaking out to the upside. From the TA analysts he follows, it sounds like once gold clears ~$1,450, there's not much resistance above until it gets close to its past high of ~$1,900.
  • PS: Gold stocks are another way to make money on precious metals. Mining stocks have gone through a vicious washout; they have been pummeled. They are an indicator of where the price of gold is headed. Right now, the market seems to be pricing in lower gold prices. But.... if/when gold punches higher, these mining stocks will go up several times (2x-10x). There is huge potential for folks who want to speculate. PS has a publicly-traded gold fund managed by Adrian Day (EPGFX). No one owns these companies right now...
  • BL: ...But they will. This sector will catch on fire once the PM prices move higher. Strangely, the worst-run companies perform the best stock price-wise during these market turns (because they switch from unprofitable to profitable).

Cryptocurrency Panel (Simon Black & others)

  • [Sorry, this is an impromptu panel and I didn't catch the panelists names]
  • 'Core banking software' is the internal ledger that banks each use to track all of their transactions. If that gets corrupted, the database can be permanently compromised/destroyed. With the blockchain, everybody has a record of every transaction (i.e., a decentralized & distributed ledger). Everybody controls the database collectively, vs 1 entity controlling its own database.
  • You can't really censor the blockchain. No single entity has that unique authority. In same way, your account can't be frozen/confiscated, as say, a bank account can today.
  • Bitcoin and other coins are essentially just different kinds of distributed/decentralized databases. They may have offer differentiating properties, but at the core, they're just databases.
  • A panel is explaining how getting his account suddenly frozen by PayPal hit home to him how vulnerable we are to the banking system. Your account can be frozen with little/no explanation or recourse if the bank decides for whatever reason it no longer wants to do business with you. Blockchain re-empowers the individual.
  • G. Edward Griffin agrees that cryptos meet the definition of "money". Not willing to say if it's 'good' money or not.
  • Simon Black, who owns a bank, says that all monetary transactions happen instantneously. When you bank says it takes 3-5 days for your transaction to process, it's a ruse. Just a way for them to hold onto your money for longer. Blockchain allows for much faster settlement of transactions.
  • Simon telling horror story about how to be in the SWIFT system, his bank has to have a computer that uses Windows 8 (an antiquated software version). That plus other fees Swift charges makes the blockchain must cheaper to transact on than the banking system.
  • Everything on the blockchain is traceable. Ridiculous to worry that 'only terrorists' use it -- it would be a gift to law enforcement if they did. They'd be able to track their transactions.
  • Also easy to move/carry/store your wealth. It's really stored as a long code. If you know the code, you can cross borders and access your money.
  • A large part of the world is still "unbanked", meaning there are no banks available to them. Now with cryptos, anyone with a cell phone can transact.

The bursting of the crypto bubble: why did that happen?

  • This was an example of reflexivity: a something goes up in price, people are more interested in buying it due to an expectation (reasonable or not) that it will continue increasing. With Bitcoin, there was (and is) limited supply. As the mania started, the sellers didn't want to sell. So the price had to rise higher to encourage transactions. This created a virtuous cycle. Higher price = more demand. Sellers hold tight. Supply shrinks. Price had to rise further for sellers being willing to transact.
  • There is no central Bitcoin price. Instead, there are a bunch of exchanges around the world that trade Bitcoin -- with price and transaction volume differences across them. These inefficiencies often resulted in big price jumps as investors gobbled up any Bitcoin they could find anywhere in the world.
  • After December, the virtuous cycle turned into a vicious cycle. Processed reversed on the way down.
  • G. Edward Griffin: the crypto space has been in a bubble -- the price is being determined by sentiment/psychology, vs earning potential. Not saying this is good or bad. You can make a lot of money in a bubble. But just be clear: you're speculating. Be very careful. GEG is taking his crypto profits and buying gold with them.
  • Be wary of Fedcoin: a cashless, fully-digtial and trackable currency is the government's dream. We don't want to be there.
cmartenson's picture
cmartenson
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So far so awesome...

This confernce is really great so far, as Adam's live blogging can attest.  

Simon Black's final montage comparing the final years of Athens (from a Will Durant book) as they employed money printing to solve their predicaments were set against images of modern headlines and it was a dead match.

Simply brilliant.   We hope to be able to reproduce it for the May seminar....

redinr08's picture
redinr08
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Book title

What is the book title?

cmartenson's picture
cmartenson
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We're going to get it...
redinr08 wrote:

What is the book title?

I'll have to hunt Simon down at lunch....I didn't catch it at the time...it was one of a series by Durant...I think the fourth book, but I'll find out for sure.

The quote was an exact match for the news and behaviors we are reading/seeing today.

Nate's picture
Nate
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notes from wealth conference

Adam,

I really appreciate your CliffsNotes from the Future of Money and Wealth Conference.  I simply don't have the bandwidth to keep up with all the information available to us, and distilling this down to several bullets for each speaker helps me stay current.  (and BTW, great lineup of speakers!)

Nate

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dcm
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The Life of Greece

Is the title I think. Some of my favorite undergrad classes at UCLA were Ancient Greece history. Criminal law constantly reminds me how humans make exceptions for much of their behavior - I didn't do it for that reason, I am not like the others, I only have non selfish intentions, and this time is different. In a way only the last phrase applies ..but for the wrong reasons. This time is indeed different because the system exhaustion and system destruction is global.  We've had global destruction before in many ways but not when humans ran the place.  Thanks for the notes.  They were great

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mntnhousepermi
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durant
cmartenson wrote:
redinr08 wrote:

What is the book title?

I'll have to hunt Simon down at lunch....I didn't catch it at the time...it was one of a series by Durant...I think the fourth book, but I'll find out for sure.

The quote was an exact match for the news and behaviors we are reading/seeing today.

 

From the 10 volume set of the history of the world they did ?

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richcabot
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Interview

You didn't post that there's an interview with the two of you and Simon Black

https://www.sovereignman.com/trends/cant-miss-podcast-recorded-live-from...

Adam Taggart's picture
Adam Taggart
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Joined: May 26 2009
Posts: 2995
Very enjoyable discussion
richcabot wrote:

You didn't post that there's an interview with the two of you and Simon Black

https://www.sovereignman.com/trends/cant-miss-podcast-recorded-live-from...

Thanks for flagging, Rich. Simon got that up much faster than I expected!

What an enjoyable discussion. Simon is a truly impressive guy. Big brain, sophisticated entrepreneur, engaging speaker, history scholar and philanthropist. And he's just 39.

Really hoping PP's and Simon's orbits overlap more in the future.

 

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MGRS
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Simon + PP

I hope so too Adam.  Peak Prosperity and Sovereign Man are the two websites that have had more influence, and motivated more action on my part, than anything else on the internet. 

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