Ep 41 – Brien Lundin: Addicted to Ever-Easier Credit
Brien Lundin joins Keith and Dickson on the Gold Exchange Podcast to talk about the storied history of the New Orleans Investment Conference, the inside scoop on past and future speakers, and how investors should think about gold in today’s Fed-controlled credit environment.
Attend the New Orleans Investment Conference
Connect with Brien on Twitter: @Brien_Lundin
Connect with Keith Weiner and Monetary Metals on Twitter: @RealKeithWeiner @Monetary_Metals
Additional Resources
New Orleans Investment Conference
Financial Crisis Protection John Exter Pyramid
Podcast Chapters
01:13–03:14 New Orleans Investment Conference
03:14–06:35 Jim Blanchard and Brien
06:35–15:40 Nixon, Friedman, Greenspan, Exter
15:40–19:22 Keith as Fed Chair and the One Ring
19:22–25:46 Ayn Rand and Jim Blanchard
29:31–33:48 Unsung Hero of the Gold Community
41:44–51:51 Rates, Debt, and the Fed
51:51–1:03:33 Yogi Berra, Black Holes, and Snowballs
Transcript:
Dickson:
Hello, everyone and welcome to the Gold Exchange Podcast. I’m your host, Dickon Buchanan. And I’m joined, as always, by the founder and CEO of Monetary Metals, Keith Weiner. We’re excited to welcome to our show today Brien London. Brien has over 40 years of experience in investment markets and he currently serves as the CEO and president of Jefferson Financial. Brien produces the Gold Newsletter, a publication that goes all the way back to again, note that date where he covers resource stocks, small cap companies, as well as macroeconomic and geopolitical issues. He’s also the host of the annual New Orleans Investment Conference, one of the oldest and most respected events of its kind. Over the years, the conference has been home to an incredible roster of speakers covering investments, economics, geopolitics and much more. And when I say incredible roster of speakers, that is no exaggeration. I had this vague idea in my mind that, oh, yeah, the New Orleans conference, it’s had some pretty famous people speak there. But I actually went and looked up the list of historical speakers and it is truly impressive. As tempted as I am to rattle off a few names, I’m not going to do that.
I’m not going to steal your thunder, Brien. I’m going to let you give us the full story and drop those names for us. But, yeah, it’s not just an alist, it’s an A plus list of people. And it’s no wonder the conference enjoys such a good reputation. That’s, of course, one of the reasons why Monetary Metals will be making its first appearance at the conference this October, which we’re all very excited about. So, suffice to say, Brien, it’s a privilege to have you. Welcome to the show.
Brien Lundin:
Thank you so much, Dickon. I really appreciate the opportunity. I will correct you. I haven’t been in the business 40 years. It’s only 37 and I’m clinging to that. That was probably marketing copy in my bio that said something like, spanning four decades in the business. But, yeah, it’s only been 37. But the bottom line is I’ve been around a while and we’ve been around a while.
Dickson:
That’s great. I may have been rounding up a little there, so apologies for that. But, yeah, as I said, we’d love to hear in the show today, we’d love to discuss the origins of the conference as well as have you give our listeners a taste of what they could expect if they were to attend the conference this year. But to kick us off, I’d love for you to start out, if you could just give us a little bit of background, specifically, how was it that you ended up where you are today? How did you find yourself in the gold industry? What was it that led to there?
Brien Lundin:
Yes, personally, I answered an ad for a junior copywriter for Jim Blanchard’s old coin and bullying company back in 1985. But Jim started the conference, started everything about 14 years previous. When he heard on the radio that Nixon was closing the gold window on August 15th, 1971, he knew that it was going to usher in a period of inflation, dollar depreciation, really everything that happened in the time, it was illegal to own gold. It was like contraband, like heroin or plutonium or anything else. You couldn’t own gold. It was illegal. So it seems pretty ridiculous today, but it was the state of things back then. So he decided to do something about it and he launched Gold Newsletter as really a tool in law being for and advocating for the return of the right of gold ownership. So Jim kind of led an organization called the National Committee to Legalize Gold and use Gold newsletters as part of that back then and was successful in early 70s or 1974, they were signed legislation legalizing gold, and he decided to have a conference to basically educate American investors on how to buy gold. And that was the start of what became the New Orleans Investment Conference.
Some 38 years later, I’m sorry, 48 years later. And this will be our 48th annual event this year. Over the years, we’ve had, just as you mentioned, hall of Fame of speakers at the event. We’ve had Margaret Thatcher, we had Ayn Rand for her final public appearance before she passed, Milton Friedman a number of times, Alan Green a number of times. The list, as you said, goes on and on and on of luminaries that have spoken at our event. And although we cover all of the markets, we are known for kind of starting off of a geopolitical angle on the markets and then economic angle and then drilling down into all of the asset classes. And though we cover really all of the asset classes, we are known still for being kind of the preeminent conference, for covering precious metals, monetary issues, the mining stocks, et cetera. That’s been a consistent theme over the decades. And we’re known as the granddaddy of investment conferences and one of the few out there that has this long distinguished history of really focusing on those issues and as a part of it personal liberty and free markets, that will always be a big theme of ours. And we have a big libertarian streak running through the event.
Keith:
It was so a strong connection between gold and liberty, as Alan Greenspan himself would know, that he wrote for Ayn Rand ran back in 1966.
Brien Lundin:
Yeah, and I actually have had some discussions with Alan Greenspan about that. And his history and the situation with the federal debt and everything else, he is an unreformed gold bug. Now he’s back to his old gold bug ways that he abandoned while he was within the heart of darkness, as you were.
Keith:
That’s incredible. I was just going to add one thing to what she said about Nixon in first of all, that pretty little speech of his is on YouTube. Anybody who hasn’t seen it, man I recommend it’s only a minute, or whatever it is, where he says, I’ve directed Secretary Connolly to temporarily, temporarily suspend redemption or payment of dollars in gold or other reserve assets, blah, blah, blah, blah. But the net effect is if you’re not buying your things abroad, then they should have no effect on the purchasing power of your dollar. That, to me, is the far greater crime, breaking into a hotel and stealing a few tapes from its competitors hail in comparison to the monetary crime that should be called a crime of 71.
Brien Lundin:
Yes, and I have some opinions on that that I would love to put past you, Keith, because of your background and your history and knowledge and views on the subject. But one of the things I gave Nixon credit for a couple of things I’m a bit kinder to him than a lot of other people. No one I think he was correct in calling it temporary. I think it will be reversed. I think we’re in the end game of a process that will probably show it being reversed eventually. That is one of the few options out of it. But when you look at it from Nixon standpoint, did he really have a lot of options facing, given the fact that the Galle was taking all of our gold and bank of England was taking all of our gold? If you wanted to keep the gold, you had to stop that. But in my view, he had an option that I think central banks still have today, and that he could have simply devalued the dollar, just basically changed the gold price to a more realistic one, and that would have instantly be valued a dollar. The issue.
Of course. With that is it’s all upfront and above the table. And everybody sees that you’re recognizing that you failed in preserving the value of the dollar. And so everybody sees it. Whereas this insidious. Below the table. Ongoing process of monetary inflation and dollar depreciation is something that happens in the background. And you can always blame on the guy before you and the guy after you. But when you devalue. It’s transparent. You screwed up. But that was an option he could have maintained. And that, going forward, is the reason why I think you can go back to a tie to gold, at least a partial coverage for the dollar and or other fiat currencies. The issue is that going forward, when you need to devalue, it’s obvious you are devaluing.
Keith:
Yeah, it’s interesting you mentioned Mexico devalued. The story goes that leaving Keynesian at the time, Samuelson had prepared an article, op-ed or whatever, from the Washington Post with a headline Nixon Devalues. And they were only just waiting for the number to plug in and run the story.
Brien Lundin:
Oh, wow. I didn’t know that.
Keith:
And it was actually Milton Friedman whispering in Nixon’s ear to just default entirely, go off the gold standard. One of those perversities where the left was just, okay, we’ll just make a $70 an ounce, or whatever they thought the right number would be and the right thing or the alleged right saying, no, just completely default. It’s fine dollars that need to be redeemable and gold at all just down the link makes it so much easier to adjust wages, which are sticky, blah, blah, blah, blah, blah. And of course, that’s what Nixon did. I have to assume Nixon didn’t really understand the implications of it. He’s a politician. But I have to assume that Milton Friedman did, should have, or would have.
Brien Lundin:
Yeah. And you know, as much as I love Milton Friedman and still love his talent for explaining free market principles, the whole gold issue was a blind spot with them. In fact, we have an archive of virtually all the recordings of presentations going back to 1974 at our conference. And sitting on my desktop right now is a recording of John Exter giving a presentation. And I’ve only listened to the first half. We’ve had to go back and have the cassette tape restored because it broke after we listened to the first half of it. And he was into slamming Milton Friedman. And I’m thinking, this is gold. This is gold. There may be only six other people out there in the whole world that will appreciate this like I do, but they’re going to love this. Literally. We just had it restored. I have the entire recording on my desktop. I have to finish listening to it, and we’re going to release it to the public and hopefully be able to go back and get some more. Actually, beyond that, I have another presentation from Milton Friedman that I have to listen to and get rid of that’s.
Keith:
Awesome! Good old Exter.
Brien Lundin:
Yeah, not very many people know him, but those who do really guess most.
Keith:
Of the serious people in the gold community would because of Exter’s pyramid.
Dickson:
I was about to say this is the same Exter of Exter’s liquidity pyramid.
Keith:
With gold at the very bottom.
Dickson:
At the very bottom.
Keith:
I was going to say Freidman maybe I’m at risk of giving some offense and saying this, but Freidman for all of his free market bonus feeds, there’s a quote from him talking about daylight savings time as an analogy to currency. And he basically says he might think that everybody could just reach out to clock twice a year if they want to or whatever, but how much more efficient it is to have a master clock. And that’s an analogy to employers and employees to renegotiate wages in a free market, but how much more efficient it is. The wages are too high and too sticky to just devalue the currency, and that solves the problem. And when I first read that, I just wanted to yell at the screen, wait a minute, what about all the savers who are not employees who need their wages adjusted? You’re just adjusting their life savings down by whatever percentage you think wages need to be adjusted down. Do you not think that that’s a pretty significant side effect? Like you go to the doctor and say, I have acne on my face and it gives you a pill that causes a heart attack, but at least it cures the acne.
Is that maybe a little extreme?
Brien Lundin:
Yeah. And it’s interesting when you look through history and God help us because we’re going to be judged at some point too. But you look at these people that are like you look at Milton Friedman’s free to choose series on PBS. And beyond the absolute astonishment that PBS would ever air such a thing. Or that Milton Friedman would get the Nobel Prize. He was such an eloquent defender of liberty and free markets. But he’s also the guy that started payroll taxes already, which he admittedly regretted as the big mistake of his life. But he also did have that blind spot for gold. So everybody’s just a mix of anachronisms and like Greenspan was one of the most radical libertarians in goldbugs in the 60’s when he was chairman of the Federal Reserve. He happened to meet Jim Blanchard one time at a Cato dedication of their new building. And he told Jim, I really think that’s the best stuff I ever wrote. And then, of course, once he got out of power, as it were, he came to our conference and he’s talking like the most diehard radical libertarian goldbug again. So who knows if we were in their same positions, what we would do?
But I guess I’m a little more lenient and tolerant of people in the public eye for that many decades that everybody’s at least granted a few mulligans. But the payroll tax deduction, that was a big one.
Keith:
I love to use the analogy of The One Ring. And for me, that’s the analogy for Greenspan. He got it. When you read that 1966 essay there it is almost the definitive statement why they don’t want you to have gold. Of course, in 1966, it was totally illegal for another nine years. What they can do because they trapped you in their dollar because they’ve made it illegal to own gold, he totally gets it and he makes it very eloquent, a very clear case. Then he goes into the Fed. As I understood it, he told Ayn Rand they were still friendly at that time, that he’s going to go in and try to end it or fix it from within. And then somewhere along the way, he’s tempted by The One Ring, which is power. And he had a good run where every time he would appear in public, everyone told him, the maestro. And with him with bated breath, what is he going to say? And that’ll get to be pretty heavy stuff.
Brien Lundin:
The power in the system. He pretty much admitted to that when he spoke at our conference in 2016, that he was trying to fix it from within and it was the job. And I guess that’s one way to look at it. It is the job of the Federal Reserve Chairman to finance the spending of the United States government. And so if he were not to do that, he were just saying, no, I’m not going to do that, then somebody else would be in the job next week. And that other person would not at least cling to the remnants of the free market or libertarian ideals that Greenspan did. But if you’re not going to put them to work and what use is holding those ideals buried within you if they’re not going to influence how you’re acting?
Keith:
I’ve had people suggesting, Keith, you should be there. They should make you the chairman of Friday, and you shut it down. And I was like, no, if you really want them to shut down the Fed, make me the Secretary of the treasury. And from that role, I could potentially, assuming that was a mandate, do something about the Fed. But from inside the Fed, all you can do is follow the mandate. And if you don’t follow the mandate, as you say, they’ll just put the next guy in the wood.
Brien Lundin:
Yeah. The most important thing you could do if they gave you the job of Federal Reserve chairman is to resign.
Keith:
To give it back to Ayn Rand. And then I want to stop bashing Greenspan, but I can’t resist one more good whack. Late in the book, they offer John Gault and Dixon, you should probably close your ears if you’re still reading right now, at the very moment they offer John Gault the job, economic dictator, and he refuses. And they’re like, no, you have to take the job. Tell us what to do. Economic dictators like, okay, shut it all down. And like, no, you can’t be serious. He’s like, I am serious, and that’s the world. So as I understand it, through the Objectivist community Jim Blanchard offered Ayn Rand when she was the speaker, was that she dies in 81. And I don’t know how close to her death that event was.
Brien Lundin:
Weeks.
Keith:
Wow. They offered her choice of either first class airfare or first class train, like her own private cabin on a train. And obviously there’s symbolic significance to railroads given in shrugs. And also, I imagine if you’re elderly at frail, being in a first class train cabin is probably a lot less physical stress than flying in the airports.
Brien Lundin:
No. You’re going to love this story then, or hate it, actually. Jim obviously was a tremendous Ayn Rand fan, and after his accident when he was a teenager that crippled him, put him in a wheelchair for the rest of his life, it was somebody tossing a copy of the book and them on his lap that turned around his life. He really wanted and Rand to speak and tried to get her for a number of years, couldn’t convince her. And he wrote this heartfelt letter talking about his experience, how he named his son Anthem and then offered a private rail car. One of the longtime conference attendees actually had their own private rail car, luxurious rail car, and he offered that to her as the mode of travel. And she loved trains, so just the romance of being coming down onto New Orleans and a train convinced her to accept the offer. And she did, and she spoke. And unfortunately, she didn’t really understand the conference that well. She thought it was a conference of business people and not really investors, so she did a speech on the obligations of business people to promote free markets and everything else.
Brien Lundin:
But anyway, it worked and it was Ayn Rand, so rousing applause and everything else. And she took the train back. But it was mid fall or whatever. It was a bit cold outside and the window in her Pullman car was open on their way up, and we kind of speculate that’s how she caught a cold of which she died from a month later. So we actually speaking at the conference may have actually killed Ayn Rand in a tragic turn of events, but she was very old at the time.
Keith:
Yeah, I didn’t know that. I think she had cancer too. So I’m not sure that there’s only one single death at that point. So fast forward. Tell us a little bit about was that the pinnacle of the conference? Did it continue to grow? You got hired in 85. How did you end up coming to, I guess, buy it from Blanchard?
Brien Lundin:
Yeah, I started off as a junior copywriter in 85 and got to become fast friends with Jim. But I was 25 years old at the time, and Jim and I on a company trip to Washington to lobby for this and that. A bunch of company executives and I got invited along. And along that trip we got to talking and realized that we were both big fans of Robert Heinlein’s science fiction work. And so it was mutual bonding right away. And I had, because of that, developed a lot of libertarian beliefs but didn’t know I was libertarian. I’d never really been exposed that much to whatever kind of structure there is and that philosophy. And so getting to know Jim and everybody involved in the conference, in his business and the newsletter kind of exposed me to that in a much more formalized way. Jim sold his coin company to a hedge fund that was spun out of General Electric in 1988, and they ran the company down. I was then the head copywriter for the coin company, and they ran the company down into the ground very quickly. You’ll appreciate this. I remember one time I heard a couple of suits walking in the hall, and they were wondering what the melt value of a half dime was.
And I’m like, These guys are total idiots. And so it was terrible that it went from $115,000,000 a year in revenue to almost closing the doors. So Jim bought the company back on a distress level from the hedge fund in, sold it back to the people who are managing it, and then took the newsletters and the conference into a new company that he started with me, and that was it. We were the two loan employees, really, at the time. And so I ran his business for the next nine years, and he passed away in 1999. And early two thousand s, I bought the remaining interest that I didn’t already own from the estate. So I’ve been in it since ’85. And sometimes I’m feeling my age, Keith, but especially when you look at what’s happening in the gold market these days.
Keith:
You look young.
Brien Lundin:
Yeah, well, I started young, but there are some mornings where I wake up, my bones creaking. I don’t feel that young.
Dickson:
I have to interject because you said there was a science fiction writer you mentioned. Robert?
Keith:
Robert Heinlein.
Dickson:
So I’m a big sci-fi fan. I’ve never heard of that name. Give me the quick take, I’m reading everything I can in the genre.
Brien Lundin:
He was known as the Dean of Science Fiction. He wrote Stranger in a Strange Land the Moon is a Harsh Mistress. The Notebooks of Lazarus Long Actually, that wasn’t the title, but Lazarus Long was a character in a number of books. Yeah, I can send you a list or just look up Google A list, but definitely I grew up reading his juvenile series and still as a juvenile got into some of his adult series, which were really eye opening for a kid into A Stranger in a Strange Land. But read The Moon is a Harsh Mistress first and then Stranger in a Strange Land, and that’ll give you a great introduction.
Dickson:
And you said he kind of gets into free market principles just in his world building and that sort of thing?
Brien Lundin:
You started off writing for the Pulps in the and actually started off as a liberal. Kind of made the not a classical liberal, but made that transition that so many people do over the years and ended up being very much libertarian. In fact, one of the books, Starship Troopers, they made the movie out of it. The movie was not really vaguely related to the book, sure, but it was a good movie, I thought. But it wasn’t the book. It was more of a campy kind of take on it. But that’s another one that actually is a bit more neoconservative, I would say, than a lot of his other works.
Keith:
Yeah. Because there’s this idea that only military service really gives you the full rights of citizenship.
Brien Lundin:
Yeah. Which actually I don’t know if it was actually military service or any kind of public service. In other words, you had to and really no cost to you other than your time or whatever. You had to want the right to vote to earn it. And I don’t know that that’s actually a bad thing.
Dickson:
Certainly an unpopular opinion today. But if you go back to the Founding of the United States, though…
Brien Lundin:
Say you graduate high school and if you want the right to vote, you go into some kind of spend a year in some kind of public service, like Civil Conservation Corps or something like that, for a year. But you earn the right to actually vote. If you really care about voting, you look at a lot of these ads that are out there, especially during presidential elections, trying to convince people to vote. I don’t want anybody to vote that had to be convinced to vote. I want people who have actual responsibility or feel an actual responsibility to vote and know the issues. I want them voting. I don’t want anybody to have to twist their arm to vote. I don’t want them out there, please don’t go vote.
Keith:
Yeah, we’ll vote for food. I can see holding the sign right now.
Dickson:
Well, I appreciate you taking that detour. I’d love to go back to James Blanchard, though, because I’m a bit on the outside looking in, but James Blanchard seems to be this kind of unsung hero in the gold community. Maybe if you’re kind of deep into the gold community and industry, you know him, but if you’re not you may have never heard of him, but it seems like he was quite an important figure in the history of gold, at least the United States. Can you give kind of like an overview of I know you started to, but maybe just give the audience an overview of who he was, what his contributions were to gold and the gold community.
Brien Lundin:
He may be the most important figure in modern history as it relates to gold. He wasn’t the only person who was advocating and lobbying for the return of the right of gold ownership, but he was one of the key people, if not the most important person, and certainly the one that did the most on the ground. He went around the country having press conferences that were announced to the Treasury Department at every stop, and he had a two ounce bar of gold that he would brandish at every investment, at every press conference and say, why is this illegal to own? I own this. This is illegal. Please come arrest me. And they never took the bait and never did arresting, unfortunately. But he led protests on the treasury steps in Washington. He famously hired a biplane to tow a banner that said legalize gold over Nixon’s second inauguration, which today they would throw you in Guantanamo Bay for that.
Keith:
Today anybody who posted about it on Facebook, Facebook could put this little sticker on there that says, PolitiFact determines that this is bullshit. And for the real gold story, click here.
Brien Lundin:
Yeah, so he did. He was very important for that, for getting gold legalized, and I think also very important for starting the New Orleans Investment Conference, which is you can ask anybody that’s been there. It’s a really important thing in their lives and the history of investing in the future, I believe. But Jim was the most charismatic individual I ever met. He’s just an amazing guy. He would roll into any room and dominate. It not that he would dominate it in terms of wanting to dominate, in terms of his personality, but everybody knew he was there. His energy level, his enthusiasm were just unbounded. I mean, the guy went everywhere from the north to the South Pole, all around the world, behind the iron and bamboo curtains in a wheelchair. And I hold him through some of those areas myself, and a number of us other people who are close friends of his help do that. But he was just really just such an inspirational person. He could convince you to run through a brick wall. And so many times I would get in a cab with him and there’d be an immigrant cab driver and he would ask them about where they were from, how were the politics and everything else.
And we would get out of the cab and the cab driver would be wearing Jim’s tie around his head and yelling, go freedom. Go freedom. And it was just amazing, his impact on people, know, incredible individual, and very sad that he is gone. And what we do every day here is just try to burnish and extend that legacy.
Dickson:
Right, that’s great. So, yeah, maybe now is a good time to transition into, I guess, going through what you would describe as the highlight reel for the New Orleans Investment conference. We mentioned you’ve had some incredible speakers and you’ve already named some of those. But I’m curious, as someone who’s been doing it for as long as you have, are there any particularly memorable conferences that come to mind? Anyone that stand out?
Brien Lundin:
Yeah, that’s easy for me. I was very fortunate to meet a lot of these people, a lot of these giants of recent history at least. But the one that really stands out for. Me is Margaret Thatcher. She was a deal. We had a lot of these people, and I won’t go into names, but a lot of the celebrities to shore either, military generals, senators, past presidents, secretary of State and all that, but they would be basically empty suits. They got their check, gave their rousing speech and left, and didn’t really project their personality or even talk to anybody who was below their stature. But Margaret Thatcher was definitely the real deal. We were very fortunate to have a lunch that Jim had organized and my wife and I were at one side of Margaret Thatcher near the head of the table.
She was at the head of the table and Jim and his wife were opposite us. And then we had a bunch of luminaries down, big name speakers. We’re also at the table probably another eight or so and some really big names. And Margaret Thatcher realized at the time that my wife and I two children were the same ages as her grandchildren. So she started talking to us about young children and her grandkids and our kids, and for about 20 minutes she’s just talking to my wife and I and ignoring anybody else at the table, all these other luminaries. Well, eventually Jim Rogers further down the table, at the end of the table, I said, Enough of this. So Jim pipes up and it says, lady Thatcher, why didn’t you join the Euro? And so Lady Thatcher turns from talking to us, slowly looks down and gives Jim basically her pat answer, political answer, and then she turns back to us to continue talking about her grandkids. While Jim’s a magnatius guy, as you probably know, he ain’t going to take that for nothing. Jim says something like, well, we’ve all heard that. What’s your real view? And she slowly, slowly turns and looks at him, and nobody at the table that was there can remember what she said, but she rhetorically sliced him to ribbons about raising her voice, just tore him to pieces, stopped, then turned right back to us and continued in mid sentence talking about her grandkids.
And everybody was just shocked. And I’ve never seen Jim Rogers speechless before since. It was just absolutely amazing. But that’s what she was. And she was just so personable. And you think about her and she’s depicted as this Iron Lady, but she was just so gracious. And one of those people who was willing to talk to anyone, didn’t matter their place or station in life. She talked to everybody as if they were in equal.
Keith:
That’s amazing. And of course, she is famous for that quote where she said, having power is like being a lady. If she has to say it.
Brien Lundin:
You’re not one.
Keith:
Yeah, there you saw both power and she was a lady first class. That’s cool.
Brien Lundin:
She was amazing. She really was very eloquent, very personable, and really stands out among the crowd.
Dickson:
What was her talk. What did she present on it, though?
Brien Lundin:
I’m just trying to think it’s actually online. People can go to our website and get it. But she had a few little quips. The most important things were when she was talking about Reagan and had a few little clips like, yeah, I was telling Ronnie, don’t go wobbly and this sort of thing. And that was the best part of it. It was whatever the issues of the day were, I forget. And of course, you reminiscence about the.
Keith:
Falklands and all of that as a 9th grader. It just seems bizarre that this little third world country, Argentina, would be messing with the UK as a 9th grader and you don’t really get it.
Brien Lundin:
Yeah. And it was a time of the decline of the British Empire, and it was the British Empire partly primarily because of Thatcher’s influence. Being rejuvenated is the de nationalization of key industries and everything, and it was their last great swipe of being a world power once again, and they were able to do it, but there was a lot of determination. I mean, it was her iron will that really drove that.
Keith:
Yeah. You kind of look at the situation there today and say, somebody like that isn’t possible. Would they ever arise to any degree of prominence given the political situation there? Or here, for that matter, will we ever see another Reagan here?
Brien Lundin:
Yeah, and I don’t know if we’ll ever see another Reagan or that you’re somebody that has that power of personality in the right way. We see some of these people like Trump that have a power of personality, and I think it’s possible to get people behind you, but it’s also scary when somebody has that ability and they don’t use that power. Persuasion for good and politics is so screwed up, and even in one of the key things, and I’m talking about in investments, if you look at some of the people that are there, if you look at Paul Volcker, is Jay Powell or Paul Volcker? He’s certainly trying to be right now, but my big argument now is that it’s a moot point. It’s irrelevant because he doesn’t have the tools that Volcker has, so at some point he’s going to have to take a knee in the fight against inflation because there’s nothing he can do with the debt this time.
Keith:
Yeah, it reminds me of that Elizabeth Holmes, who was the CEO of theranos maybe that was committing fraud. She was so consciously trying to beat Steve Jobs with the black turtleneck and all that. I’m trying to remember who was it that some reporter or somebody said, are you the next so and so? And he’s kind of surprised the question. He’d turned around and said, no, I’m the first whatever his name was, if you’re really sitting here thinking, I’m going to be the next Paul Volcker, Paul Volcker wasn’t sitting there thinking, he’s getting the next Secretary Connolly or Morgan Dow or whoever he was trying to be Paul Volcker. He was trying to do what he thought was the right thing and that has to be sorted out later kind of thing. So I was going to say, I think one of the things that everybody’s going to be keen to hear about is what do you think is a key or the top either investment scenes of where we’re at right now or what do you think would be the top investment scenes coming up in New Orleans conference next month?
Brien Lundin:
Yeah, I think there’s only one thing, and it’s the only thing that drives the markets. It’s the only thing that’s been driving the market, really the markets since 2008. And that’s Federal Reserve Policy. And everything is dependent on that. The price of gold is set every day in New York by Wall Street traders and algorithms, and they have a very simple formula. It’s anything that points toward a more hawkish bed is bad for stocks and it’s bad for gold. It’s bad for anything that’s been driven by this central bank liquidity as it has been for the last dozen years or so, and to a lesser degree even before that. So that’s why you have a red hot inflation numbers come out and gold gets sold off along with everything else because that means the Fed is going to raise rates and they never take it to the next logical step. But I think, and this is my personal view, that in the next really few weeks, if not a few months, there’s going to be a big reckoning coming up because the debt is so large that the Fed is not going to be able to continue hiking rates.
And that’s going to be a really big issue. The federal interest payments are already at $600 billion on an annual basis and that’s the highest level in history. The trend line is pointed straight for the sky and those are quarterly numbers. They compiled quarterly, reported quarterly, so they don’t we’re looking at the second quarter for those numbers. We don’t have the third quarter yet, which will include the effects of all of the Fed’s most aggressive rate hikes. And so even small rate hikes are tremendously impactful to the bottom line interest costs, debt service costs, because the debt is so high, the debt right now is four times larger than it was in 2008, over four times larger. And we’re increasing rates right now at a vast multiple, four or five times the rate that we were in 2015. So the impact is going to be just tremendous. It’s going to be like a steam train hitting you in a tunnel. There’s going to be nowhere to hide. And it’s coming up very soon that we’re going to get those numbers reported. I think that’s going to be a political and fiscal barrier to the Fed doing much more on the interest rate front.
And the end result of that is we’re going to have high inflation and the Fed essentially being proven powerless to do anything about it. That’s an environment that’s not bullish, unlike all the previous environments. It’s not bullish for equities, it’s not bullish for bonds, but it is bullish for precious metals. And if you have even a small fraction of investing public out there of those investable funds realizing that and being allocated into precious metals because the metals are such a small market, the impact, if that happens, the impact would be stupendous.
Keith:
I just tweeted earlier today, I said, when will the three months to ten year treasury spread invert? Yeah, I’ve been as a poll just to be kind of funny and perverse about it, and I said tomorrow choice A soon enough. Choice B was something don’t know. We don’t tweet anymore. The choice to you would never. And we’ll see what because it’s pretty close. It’s like 14 basis points right now.
Brien Lundin:
You said tomorrow soon enough at the next bed hike or never.
Keith:
That’s right. Thanks for following what it comes up as what’s winning right now?
Brien Lundin:
Right now, soon enough at 41%. Tomorrow is in trailing in fourth place and Never is at 17%.
Keith:
Yeah, it’s pretty close. And of course, the inversion is another. There’s the interest expense to the government. Of course there’s also the interest expense to all the zombies and companies that weren’t quite close. We’re close to being zombies, but not quite zombies. As the interest expense goes up, then all these companies are dragged in to where they can’t even afford their interest.
Brien Lundin:
Payments, which is going to deepen a recession, which is going to reduce tax revenues for the deficit increases.
Keith:
But the other thing is the inversion, because the banks are all in the game of borrow short to lend long. So now if they’re borrowing at higher rate and lending at a lower rate, then they’re getting crushed, right? If you want them to have a healthy economy, impairing that. So actually the bank get crushed two ways. One is the cash flow is impaired because the cost of funding goes up immediately. The long term assets they own aren’t changing very much, except they’re losing. The price of the asset is going down. So it’s actually hitting them in the balance sheet as well as the income statement. And if you want a healthy economy, probably not the best way to go about that is to cause the banks to be impaired. And how long does the Fed continue to play with us before the triumphal?
Brien Lundin:
There’s really three legs to this. That three factors that could convince the Fed to at least stop. And I think that would be sufficiently bullish for the precious metals, much less pivot, but at least stop. And one is the impact on the economy. One is the impact on the financial markets. Wall street basically telling them to stop. And of course, Pal has been able to ignore that so far. And the other one is just the cost of servicing the debt soaring to the level where already it’s about to dwarf defense spending. And then you have the rest of the entitlements. It’s going to hit, I think, a trillion dollars a year, which was kind of a magical big number that I think will have some political sway out there. It’s going to hit that pretty soon. But think about this. If we’re paying a trillion dollars, we’re running a trillion dollars deficit right now. And you add onto that a trillion dollars in debt service expense, and now you’re running close to $2 trillion deficit without increasing spending. You’re just paying that added interest costs on the federal debt. How are you going to pay that in a deficit situation?
Brien Lundin:
You’re going to borrow more, so you’re going to borrow more to pay the interest on the debt you already have. So then you’re going to create more debt that you have to pay interest on. So what are you going to do? You’re going to borrow more. So it’s a classic debt spiral.
Keith:
Exactly. That’s it.
Brien Lundin:
That would crater any kind of a private enterprise almost immediately. But obviously, sovereigns don’t play by the same rules, and especially a sovereign that has the world’s reserve currency doesn’t play by the rules, so it can extend this process a lot longer. That’s one argument. But the fact is this is a 60 year old process since the guns and butter of the 1960s. And if you look at it going back that far, you see that the Fed has lowered interest rates every instance of this, any kind of economic hiccup since the 1970s, and it’s never been able to raise them again. So you’ve always gone progressively lower until you reach zero. And you have to bring out all these other tools, quantitative easing, all the acronyms like Tarp and everything else. So things are happening more quickly now, like when the water gets drained out of a tub and it’s going around the drain, it goes much more quickly. I think we’re in the end game of this multi decade old process of basically the long, slow default in the dollar and the debt. And we’re in that end game whether it’s going to be another ten or 20 years, whether it’s going to be this cycle that does it or the next and next it’s going to play out much more quickly now.
I think that’s why I think this is a really crucial time.
Keith:
So that’s the reason for buying gold right there, for the battle of price, if the price can go up next week. Well, maybe, but if you own gold, you don’t own the Fed liability.
Brien Lundin:
Yeah. And you know, Keith, that there’s a lot of smart people out there on the Internet, on financial, Twitter and the like, and we get arguments all the time on a daily basis of a lot of them. A lot of people out there really smart, great arguments, plotting the exact path of events going forward and what’s going to happen. And as far as I’m concerned, I’m not smart enough to figure all that out. And frankly, I don’t think anybody is. There’s just too many variables. But the one thing we can be confident in is you’re going to want to own gold and silver going into what’s ahead.
Keith:
I was going to say, I always like to try to Yogi Berra a joke. He says predictions are hard, especially about the future.
Brie Lundin:
Yeah, exactly.
Keith:
What’s the exact timing, what’s the exact order in which this bank is going to do this and then that’s going to fail? And then very hard to say. But we can see the general shape of it, which is the Catering Institute monetary conference. This would have been maybe 2014. And it struck me that speaker after speaker after speaker, so they had some current Fed governors, they had some ex Fed, other high Fed officials, they had John Taylor of the Taylor Rule of Stanford. They had all these people that one after the other, they all have the same monitors playbook, which is purporting to say what the right interest rate that the Fed should impose largely tower rule. At that time, speaker after speaker was puzzled and they said, I don’t really know why Chairman Bernanke hasn’t raised rates. And at that time I was still kind of working on the ideas for what became my theory of interest in prices. One of the ideas I was kind of stuck on was this analogy of a black hole. And you’re in the spaceship and I’m assuming you have a big enough rocket on the back. You can step in and out and do all these things as long as you don’t get inside the event horizon, which is this radius that’s way outside.
I mean, the black holes, this little point event, something like half of light year. It’s huge, a lot bigger than most people would think. As long as you don’t get inside that, you’re fine. You can sing it out. But if you’re falling, falling, falling, and you get inside your event horizon, then you’re going to the singularity and you’re going to zero. And then it clicked for me because I was thinking like, the interest rate keeps going down. And here’s an analogy that if you grew up in New Orleans, may not necessarily appreciate us, but I grew up in upstate New York where we had plenty of snow on the ground and plenty of hills, and every young boy of six to eight years old has to try this at least once. We take the snowball because we see them in cartoons, movies, and then you start pushing it. And then if the snow is kind of that spring snow, which is kind of sticky and wet, it will accumulate on the snowball. And then you’re pushing it down the hill. And first it’s kind of frictional, and you’re tearing up all the snow from the dead grass under it.
And then you get to that point. Usually the hill is getting steeper at that point, and the snowball is picking up mass exponentially. There’s a point at which I call it the ocean moment that every eight year old boy has to have myself included. And at that point, you can kind of run with it for quite a while and hover your hands over and pretend, but it’s gotten away from you. And only two things are going to govern its state, which is gravity and the house or the car or whatever is at the bottom of the hill. The thing I was struggling with was that’s an analogy for the interest rate been falling since the analogy for it. And then when speaker three or four speakers in a row, four or five speakers, it was a lot. We’re all just puzzled. Bernanke has the same playbook. Why hasn’t he raised rates? It was like ding. Because he can’t. Because he’s trapped. And this is the direction of the shoot. It goes down, it does not go up. Was 1947, 81. You can’t go back and be vulgar at this point for so many reasons, and that’s one of them.
And that Bernanke probably realized he couldn’t, but didn’t necessarily trust even these relatively high officials. He didn’t include them in his counsel. They’re clearly puzzled. I don’t think they were lying. I don’t think they were politicians in that instant. I think they were just genuinely, why isn’t he doing that? I don’t know. They have their charts. That Taylor rule. What the interest rate should have been six months ago. They should have raised my 50 reps or whatever they’re saying. The question that I have is, okay, they tried to hike rates in 2005, and that caused or I shouldn’t say caused, I think it was baked in the cake but precipitated a crisis of eight. But we’ve now gone on this aggressive and getting aggressive rate hiking binge. What is going to come out of this, and how bad will it be? And how many backroom deals will there be where they take what was his name? The CEO of bank of America at the time, hank Paulson, summons him to Washington, DC friday evening. And so bank of America was in the process of acquiring Merrill Lynch in the fall of 2008 and discovered there was a material adverse change.
And I said, okay, the deal was off. Of course there’s a material adverse change. Everything was materially adversely changing during that couple of month period. And so Hank Paulson summons him to a basement meeting in Washington, DC friday evening. And by Sunday and I was joked, he made him an offer he couldn’t refuse.
Brien Lundin:
Yeah.
Keith:
And by Sunday morning, that guy what was his name? CEO of bank of America was on TV. Sorry, tip of my tongue I can’t. I remember was on the air on Sunday saying the deals back on and Hank Paulson’s Treasury had twisted his arm and nobody’s going to know what he got.
Brien Lundin:
Ken Lewis.
Keith:
Ken Lewis. That’s right. How many stories are going to come out of this one? My gut feeling I’m interested in your take on this too, is that that can still have a good number of kicks left in it. That yes, we’re in the end game, but the end game has as long as we can play out, it’s not tomorrow, next week or next month.
Brien Lundin:
My view is, yeah, I could I’ve gotten in heated discussions with Peter Schiff about this who thinks the next one is a big one, the death of the dollar, and I just don’t know. They successfully kicked the can. But what hits me is that things are moving much more quickly right now, which they do as these processes play out. You look at 2008 and you look at what they did in terms of quantitative easing and lowering interest rates and it took four to five years to do. They did it in four to five days, in some cases four to 5 hours. So everything happened much more quickly. And not only that, they did much more than they did before. The way I look at it very generally is the next crisis because the markets aren’t addicted to easy money, they’re addicted to ever easier money. Because the patient has such a tolerance to the drug, they’re going to have to do that much more of a dosage. So whatever they did in March of 2020, they’re going to have to do many more times the next time. So at what point and this is not just the dollar, this is all fiat currencies.
At what point do these fiat currencies lose credibility? Because the markets will look ahead and say, not only are we having these crises much more frequently, but we’re doing god awful amounts more in each crisis. So this is having a real world effect on what is that currency, what is that unit of currency worth when it is going to be multiplied by the next crisis that’s going to come again much more quickly? So people at some point will look at not so much value of that paper, which is being eroded, and they know it’s going to be eroded. Gold is not an inflation hedge. It doesn’t track the CPI, doesn’t attract prices in any way. And you can tell that by obviously looking at the chart. But if you look at that chart, you see these jaggered jumps every now and then where it really rises. And what that is, it’s a barometer of people’s freaking out. It’s a freak out barometer measure or hedge. When people really start to worry about the value of their currency next week, what is that going to be worth then? That’s when people go into gold. So it makes up for that lost time that kind of be BOP along doesn’t do much.
Brien Lundin:
Then when things get really bad everybody rushes into it and it even overshoots equilibrium. So I think we’re coming into a point where we’re at the end of this multi decadal cycle of the rapid depreciation and loss of credibility in fiat currencies because of this deficit spending in every EC or money policies. And at the end of that cycle we are going to get to something that will very much resemble the 1970s when people are really looking to gold and silver as that last bastion of value. And I think that’s probably going to be involved in the endgame what the great reset is going to be. It would be very easy to as a number of people are shown to just back the dollar 20% level. That the current level of M two. That would imply $10,000 gold price. That’s not out of the realm of possibility. And interestingly, what else are you going to value against if you attach the dollar to any other commodity or whatever because there are so many dollars out there it would entail really revaluing that other commodity. Gold is the only commodity out there that you could change its price from one thousand seven hundred dollars to ten thousand dollars tomorrow and it would not affect any industry, wouldn’t affect the end prices of anything except the jewelry sitting on the shelf right now.
Keith:
That’s a very underappreciated historical point. That is when people turn to hoarding money. Good thing that money isn’t editable because if food were money then the need to hoard money would mean that the marginal consumer is going to start to death. Whereas if that happens to money that doesn’t change the availability of food, for example. I’d love to continue that conversation. Maybe face to face in New Orleans or maybe we’ll get you back on the show.
Brien Lundin:
Yeah would love to be fun.
Keith:
We got to wrap it here because believe it or not we’ve gone over an hour.
Brien Lundin:
We could go on forever.
Keith:
Keith, time flies when you’re having fun and that’s an awesome conversation. Thank you so much for coming on. I look forward to seeing you face to face next month.
Brien Lundin:
I will be there. You know that I would just encourage all of our listeners to go to the link which I’m sure you will put up to look at our list of speakers because it really is just an incredible list of speakers that we have this year and of course the issues they’ll be discussing have never been more important.
Keith:
That’s for sure.
Dickson:
Absolutely. Yeah. We’ll provide links and resources in the show notes want to echo. Keith, thanks. Thank you so much Brien. This is great.
Brien Lundin:
Wonderful to be here. Thanks guys.
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Another great podcast! Both informative and entertaining. Thanks a lot!
Thank you!