However, this time what I suspect will happen is where we’ve seen this desire on the part of investors to buy sovereign bonds because the central banks have their back. I think this time around we’ll start to see it become a qualitative issue, and people are going to want treasuries. They’re not going to want negative yielding French or Spanish or Italian sovereign debt. I think that’s just going to increase the desire for treasuries. 

And who knows? You might even for the first time in many years be able to fund that by shorting some of the less solid credits, which would be a welcome return in my opinion. Look, I understand what Ray’s saying. He’s a smarter man than I’ll ever be, but I have to disagree with him in part, particularly on the treasury market.

Preston Pysh  4:37  

I guess from my vantage point, the thing that I’m just amazed by especially on the equity side of the house is you’re having interest rates go up because everyone expects more inflation due to the fiscal spending that they think Trump’s going to do. Whether that’s true or not, I don’t think it really matters. 

The thing that I think matters here is how people are justifying taking equity prices higher as interest rates go up, and the expectation is they’re only going to go higher because inflation and everything are up. I can’t wrap my head around it. I’m just totally [confused]. What is going on?

Grant Williams  5:08  

It’s a great point. These markets, they’re not behaving rationally. I think this is fundamental for people to understand. And bizarrely, I think a lot of the reason for that is the increasing introduction and reliance on passive strategies. You would think the more artificial intelligence you put in, the more rational these markets would act, but it seems to be happening the other way. I think a lot of that has to do with the fact that the market’s going in one direction. 

They’ve gone in one direction for a very long time, and we know the big reason for that has been this central bank backstop. We haven’t seen a market that’s really turned and gone lower. Thus, you know we are reaching the inflection point, where you are going to need an active manager more than you’ve ever needed before, because these markets are incredibly difficult to navigate.

Preston Pysh  5:54  

Grant, this is where your past experience over in Japan in the late 80s is really going to come into play for this question. Because when I think about how crazy things can get, and you know that the P/E in Japan during that period of time was close to 100, and we’re right now at a Shiller CAPE of, call it, 27 or 26. Somewhere around that. 

To think that we could go even to 35 or 45, is that in the realm of possible or is this thing really hitting its last leg? That’s where I think I have the biggest concern. Also, I think everybody else out there has the biggest concern of, “Is it going to get only crazier, or is there no way of knowing?” How do you look at that?

Grant Williams  6:39  

It’s a great question, Preston. Going back to those days, a couple of things come to mind. Firstly, Japan’s economy was performing well. We had a real estate bubble that was perhaps even more insane than the equity market bubble. I remember very clearly exactly where I was, when I was told that supposedly the land under the emperor’s palace in Tokyo was worth more than the state of California. And even as a young guy, when I heard that, I just knew, “Okay, this is…understand *inaudible*. This is not going to work out well. “

If you look back at what happened in Japan, it’s strange. The market never really crashed. The market basically stopped going up on December 31st of 1989. I was standing on my desk clapping along with all my colleagues in the office in Tokyo, and it just kind of stopped going up. It just went down. And if you look at the charts of Japan, you’ll see a few reasonably big down days, but you won’t see a crash. Although, what triggered this, interestingly enough, given what we’re talking about, was a turning interest rate cycle in Japan. 

When you look at what happened over there, you saw equities explode to these crazy valuations, but the rest of the world wasn’t choking on credit. Japan was very much in a vacuum at the time. And I don’t want to say this time is different because I don’t think it ever is. Looking back at Japan, we never had a crash. We just had a rising rate cycle, which just popped the bubble. Japan’s [market] has been going down for 25 years with a few counter cyclical rallies. 

People look at what’s happening now with quantitative easing, and they talk about Japan and say, “Hey, look! The Japanese have managed to do this for 20 years. There’s no reason why the US can’t do it, and Europe can’t do it.” To that, I would say that that’s true. Japan has done it for that amount of time. 

However, for the first 15 [years] of those, it was doing it in a vacuum. It was the only country doing it, and despite it being the second biggest economy in the world as I said, the rest of the world could carry Japan doing that, because we had 12% growth in China. We had 10% growth in India. There was real organic growth in the background that could kind of cushion the blow of a sort of failing Japan. 

We don’t have that now. Not only do we not have it, but if we do enter an interest rate cycle, that’s not going to help us find it. Also, I think everything that’s been down is essentially an attempt to deny the fact that the world is about to enter or has entered a slowdown phase. 

When this happens, it’s a cyclical phenomenon. Trying to stop that from happening simply because you’ve built up too much credit system over the length of what has been an incredibly long cycle doesn’t necessarily mean you get a win out. To me, it just compounds the problems. 

Stig Brodersen  9:12  

Really interesting discussion, Grant. I can just see all the listeners out there thinking, “Yep, we knew that Stig and Preston were always [bearish] on the market. And now, to pull someone in there, who was even more negative about the future’s prospect. So, where’s this going to go?” 

In a minute, I would like to talk about the opportunities that we do see in the markets. Grant, the interesting thing about you is that I’ve really heard you talking about a lot of different opportunities. I heard you’re talking about shorting Amazon, going along in gold, and bidding on interest rates. 

Now, having your insights to pull the trigger on so many different areas of the financial markets, and before we talk about perhaps potential opportunities out there, how do you size your positions in the current market conditions?

Grant Williams  9:56  

Carefully. Very, very carefully. I can’t stress enough to people listening out there, who aren’t people that do this for a living, it’s an incredibly dangerous time to be investing in markets, because to me, the biggest mistake any investor can make is to suffer a big drawdown, and that’s the hardest thing to recover from. 

The chance of a sharp drawdown is extremely high. So for me, cash is the most underpriced call option in the world. And people say, “Oh! If you hold cash, you’re guaranteed a loss.” Well, yeah. If you buy an option, you essentially have to write that premium off when you buy it. 

To me, owning cash right now, and if you say it’s going to cost me 1% every year, I’m okay paying a 1% premium for a call option on anything on the planet. Somebody said to me a long time ago, and it’s one of those pieces of advice that stuck with me forever: “You make all your money, when you buy a stock; not when you sell it.” I think that’s the single best advice I was ever given. If you buy something at the right price, you don’t really have to worry so much about the market now. 

For example in 1982, anyone that bought US equities in that year yielding 5-6% earned six times earnings. You didn’t have to worry about the ’87 Crash. You didn’t have to worry about ’99. You made your money just by buying and sitting. 

Jesse Livermore said the same thing. He said, “I’ll make all my money by sitting.” It’s a very tough thing to do, and so I don’t see those opportunities right. I don’t see anything priced, where I feel I could buy it and just own it with the exception of gold. I think people need to be very careful about position sizes. I wouldn’t have a big bet on anything right now, because I just think the uncertainty level is way, way too high.

I’m watching treasuries. As I said before, I think there’s going to be a buying opportunity in treasuries. I think Asian equities [are a good option] if the dollar continues to rally. Asian equities look interesting, as well as Asian corporate debt. However, you have to be very, very careful there. And I think there’s going to be a great chance to short the S&P, but all this kind of ease around the continued strength of the dollar, and I think that’s the one thing that everybody has to not only pay attention to, but also really understand right now.

Preston Pysh  12:01  

It’s interesting how you were referring to cash and the optionality of it because we’ve heard almost the identical same thing. When we were out at the [Berkshire Hathaway] shareholders’ meeting this past year, that’s what they were saying as well. They were saying, “We look at it as optionality.” If you look at [Buffet’s] balance sheet right now, he’s sitting on, what is it? $70 billion? Is it more than that?

Stig Brodersen  12:20  

Yeah.

Preston Pysh  12:21  

He’s sitting on $70 billion of cash and cash equivalents right now. So, I think [Buffet] sees it the exact same way as you, Grant. 

Grant Williams  12:27  

I think I see it the same way as him (*inaudible*).

Preston Pysh  12:30  

Sorry, I’m sorry *inaudible*. Grant, the thing that I find interesting, when you start getting into this cash discussion, the other thing that almost is immediately followed by that is gold. Everyone wants to talk about cash and gold. I’ve listened to so many of your interviews, where you’re talking to different people, and gold always comes up. 

Gold always comes up. Every single person is saying gold is going to be a good play. And I think that when sometimes people say gold, they’re not referencing their timeframe. So, they’re saying gold is going to be a good investment in a 5 to 10-year period, but maybe not in the next 6 months. 

I think that’s where it gets a little convoluted for a lot of people, when they’re trying to understand whether they should put gold on or not. The question I got for you is immediately after the election, we had billionaire Stanley Druckenmiller say that he completely sold out of his heavy gold position. Druckenmiller is not a big Trump fan or a Clinton fan, but he did say this after the election. 

In addition to his comments about selling out of all of his gold, he said, “All the reasons I’ve owned gold for the last couple of years, it seems to me they are ending. And by the way, they’re ending globally.” So, how in the world is a person to interpret that? 

For me, I look at that as Druckenmiller talking about the short term and not necessarily a 5 or 10-year horizon, but other people might see it differently. I’m really curious to hear your thoughts on that.

Grant Williams  13:53  

That is one of the best investors who’s ever walked this planet. Frankly, I think he’s wrong on this. Although, I think perhaps that he’s wrong for different reasons, but I think it’s important to understand. To my knowledge, Stan never actually owned gold. 

He bought ETFs. He bought GLD, and that tells me that he was looking either for a trade that he thought was going to go higher over the medium term perhaps, or he was looking to position himself in something that would perform well or hedge him in certain circumstances. 

I guess he kind of feels that right now, post election with what’s happened, he has better places to deploy that capital right now, and that I completely understand. As you said, “Gold is not a trade.” I never understand why people focus so much on the gold price because if you want to buy something at $1200 because you think I can get out of it at $1300, you make a nice profit. Why the hell would you do that in the most volatile, emotional asset on the planet? 

There are plenty of shares you can buy that will create their way towards $1300 and never give you a heart attack. If Stan had owned physical gold, that to me would have told a different story about his reasons for owning it. 

The way I look at it is this, I think we’re at the end of a credit supercycle here. And when that happens, big changes tend to occur, particularly secular changes, when you get real trend reversals. Stan has been a guy over his career, who’s made a fortune and a reputation of ignoring the terms in the market. He’s happy to give up the first 20% and the last 20% of the move to capture the middle 60%. 

To me, we are at the end of something and at the beginning of something else. Personally, I don’t want to own gold and make a few bucks on the trade. I think I have better vehicles to do that. And I don’t want it wholly to protect me from inflation. Although, to a certain degree, it will. 

For me, I want a currency. I want a hard currency that can’t be printed. And that I know is money good and has been money good for a long time. In the short term, action in gold is always choppy. In this year alone, it’s moved more than 20% in both directions amongst a group of assets, where nothing’s seen that kind of volatility. And that’s what you get with gold: short-term volatility. 

But if you look at the long-term trend, I think the reasons for owning gold are still intact. And if you go back to the last bull market, we saw gold’s [profitability] back in the 70s. We saw a tremendous spike in gold from $35 up to $800 bucks. And at that time, Asia as a continent was incredibly poor. 

The buyers of physical gold have traditionally always been from the east. It’s the way that they store money, and they have done that for centuries, down the generations. Back in the 80s, we saw that run. There wasn’t any real disposable wealth in Asia. The wealthy were still wealthy or buying gold, but we didn’t have that demand from Asia. 

However, what we’ve seen this time around is an incredibly strong demand from China and India. That’s a subject perhaps we can expand on a little bit later on. And so, I think there is a real desire to own physical gold. Also, I think as central banks reached the end of their credibility window, we’ve seen even them talking about that. They need to raise rates and *inaudible* for example to maintain their credibility. 

To me, “The reasons to own gold gets stronger, not weaker,” as Stan says. Could we get real organic growth returning? It could. It’s highly unlikely, but I’ll watch it very closely to see signs of it. Then, you get onto inflation and deflation. 

The problem with higher inflation as far as gold is concerned, is it obviously tends to lead to higher interest rates, which negates the case for owning gold. However, when you look at the debt situation, the chance of interest rates going to places that would seriously dent the reasons to own gold, given the reasons rates were going higher, is essentially impossible, because if rates go to those kind of levels, the US is spending about 300% of its tax receipts on debt service. 

In deflation, gold always does well in it. It always does well in a sharp phase environment. So yeah, I like owning it. I’m a huge fan of Stan. In the long run, you can bet a lot more money back at him than me, but with this one, I respectfully disagree with him.

Preston Pysh  17:57  

I really wish that he had his time horizon into that. I think that would help people out a lot.

Stig Brodersen  18:02  

Yeah, because the next thing I want to talk about is really the concept of cutting out all the noise. I think it’s so important right now, especially since we’ve seen so much irrational behavior in the markets. I saw this video with Hugh Grant, who talked about something you call the “Duck Test.” 

For everyone out there that hasn’t heard about the test, it’s actually a very simple concept. Basically, the logic is if it quacks like a duck, swims like a duck, and walks like a duck, well, it’s probably a duck. It’s a test that you can use to step out of the noise and look at the world more objectively. 

So, Grant, I have to ask you, looking at the current, chaotic market conditions, which macroeconomic situation do you suggest is the most pressing to use the duck test on today, and why?

Grant Williams  18:50  

I think this belief in a hiking cycle is just crazy. I mean, just step back. Ignore everything the Fed says, which really is that’s about as noisy as it gets in these markets listening to all these guys at various luncheons and symposiums talking across purposes. 

If you strip all that noise out and look at the practicality of how far rates could rise, it just doesn’t work. The math doesn’t work. And as much as we’ve watched these guys rewrite laws and change articles and all these things they’ve done to first get top through, and then in Europe, get all kinds of stuff through that would never have gone through without any kind of crisis. 

The one set of laws that these guys are never going to be able to rewrite is the laws of mathematics. And when you have this kind of debt, first of all, we know that deflation is a killer, so you need inflation. You cannot stand rates at 2%, 3%, 4%. Forget it. The long term average is about 6%. It’s unsustainable. It’s just [that] the math doesn’t work. 

So, I think if you look at the mathematics of this, yes, the Fed might hike in December. I think they desperately want to, but it’s for the wrong reasons. It’s because of this credibility issue they have. And so, if they get it to 50 basis points, it doesn’t make a difference. No, it really doesn’t. 

To make a meaningful difference, they have to somehow, without anybody realizing it, get it to 2%, so they’ve a little bit of room. But at 2%, the math just starts to get really sticky. So for me, if you want to strip the noise away from everything, there’s nothing noisier than will they won’t pay raise rates. If you strip that noise away and look at the numbers, it just doesn’t work. And so that, to me, would be the simplest place, I think, to apply the duct Australia.

Preston Pysh  20:31  

Grant, this is a little bit of a different direction than we normally go, but when you’re talking about these interest rates, and how the Fed is just backed into such a corner in any kind of decision making that they can do. Then, I look at real estate, particularly here in the US, and how all these housing prices, commercial real estate prices, and everything is dependent on these rates staying low for people to basically protect their net worth. Because I think the majority of people out there, their entire net worth is really how much equity they have in their house. 

If these rates would start going in the opposite direction, that’s going to have a drastic, cataclysmic event for the value of these homes that are out there. Same goes for all this real estate that’s out there. The typical American can’t afford to take the bath that they took back in ’08, where housing prices went down 40% across the board. 

If that happens again, I just think you’re going to be in a situation that is much, much worse than anything that we’ve seen in our lifetimes. Would you agree with that? Do you think that the Fed is pushed into such a corner that they’re going to break this thing before they allow those rates to start normalizing and going higher?

Grant Williams  21:48  

Absolutely. I’ve been talking about this for a while. I couldn’t agree with you more, Preston. If you think about what’s happened here, we have not even had a real recovery. It’s been a recovery from what was the second Great Depression potentially, so it was tough not to recover from that. However, it’s been the most anemic economic recovery in history. 

It’s been an anemic recovery that has been wholly predicated upon historically low interest rates. I mean, all time low interest rates. And so, if you take those away, absent the real growth that you would have hoped to get by now, and I think the Fed will be forced into QE 4 far before we get right to any kind of meaningful level, because as you said and to your point, they’re going to have to do that. They don’t have a choice now.

I think the one thing that not just the Fed, but ECB, the Bank of Japan, and all these guys, the one thing they have done over the last 8 years, but more aggressively over the last sort of 3 or 4 years is they have very consciously taken ownership of the outcome, but they own the outcome now. 

And so, if this thing does go down, it’s going to go down on their watch and on their shoulders. They’re all human beings. It’s in their vested interest not to be the guy who history books are writing about in 200 years. This was the guy who took the avocado. Legacy is important to these people. I really think it is. You don’t spend your life building a career and ending up in the public eye without being concerned about your legacy. 

I think the legacy of these guys collectively is really not going to be too good. I think more books will be written about this period than any point since World War II. So, good luck with that. I think you’re absolutely right. They have no choice now, but to continue doing what they’re doing, and that is reducing interest rates at the first sign of any weakness. 

Now, if you show me a 4% GDP print in the US, hey okay, fine. Maybe there is some room for *inaudible*. I don’t see that coming. If you show me a return to double figures in China, okay, maybe there’s a chance then. It’s not happening, and the higher rates are only going to kill them.

Preston Pysh  23:53  

Yeah, and I want the audience to know that whenever I say that I agree with Grant in reference to the Dalio thing that the bond prices have reached their top, I’m looking at this more from a long-term perspective. I’m looking at this from a 5-year perspective. I think that the Fed rates here are coming soon. 

We’ve heard from a lot of people, they’re going to go up in December. That’s what we’re hearing. Whether they go up again or the Fed tries to raise them another quarter of a percent moving into 2017. Who knows what they’re going to do? But I think in the short term, rates might go up a little bit. 

But whenever that recession eventually does occur, they have to go back to this zero-rate policy. They have to keep these things pressed lower. They have to take the long duration, the 30-year bonds. They have to start pushing those down if they want to keep this thing afloat. I guess that’s more of where I’m coming at it. I’m assuming you’re the exact same way.

Grant Williams  24:45  

Yeah, it’s ironic to me. If you go back to the 1987 Crash, which a lot of people have forgotten about. I’d only been in the business for a couple of years at that point. I look back at…and I remember it was a really bad day at the office, right? That stock market lost a quarter of its values in a single day, but it fell. It repriced to a clearing price where there were buyers, and we had some volatility around that drop. 

But if you look at it, it was a one and done. The market did all the work. When you look at what central bankers are trying to do, we saw this in January, February this year when markets got wobbly, and ironically, that happened just long enough past a 25 basis point hike in December that people forget that. They kind of don’t associate it to that, and I’m absolutely certain that it was very much their belief in a turning cycle. It started there. But as soon as it fell 5-7%, they jumped in. 

Now, we are at all-time highs on the S&P. If we gave up, let’s say 20%, it would take us back a couple of years, maybe even three years. Is that the end of the world? No, it’s not. In fact, it’s a price where you will get real long-term money coming in, looking for equities that are valued for the long term. 

However, they can’t allow there to be a stock market (*inaudible*), and I’ve had the belief for a long time that the reason this has troubled central bankers so much is that the man in the street, whether he be investing his 401k, or trading a few stocks, or not even looking at the stock market at all. Nobody writes a headline on the New York Post that says, “Bond Market Crashes.” That’s not a headline. People don’t really understand it. 

But you bet your bottom dollar that if the stock market crashed, that’s the headline in every newspaper. And people that don’t even understand investing, don’t look at the markets. If they see the headline: “Stock Market Crash,” they panic, because that’s what you’re supposed to do when there’s a stock market crash. 

So, I understand the binary. But I think allowing some area of this by stepping aside and say, “We’re not going to jump in to protect the stock market,” explicitly saying that, it’d be very interesting to see where the market reprices, but I guarantee it will reprice at a level where there are genuine buyers, who see value. And the only problem with that, obviously, we don’t know where that value is. Is it down 10% or 20%? Is it down 30% or 40%? We don’t know. But whatever price it is, it’s a real market once again.

Preston Pysh  27:12  

Grant, I was watching an interview with Doug Noland and yourself. And Doug said something to me that was really fascinating. He was talking about the typical business cycle that we’re accustomed to the 7-10 year business cycle, and how it’s a redistribution of wealth where you basically have this rebalancing of money from the people that bought at the top to the people that are buying at the bottom, and basically buying up all this equity, very cheap, whether it’s bonds or stocks or whatever. 

But then, he said something that I had never heard before, and that really kind of made me start thinking. He was saying that something very similar plays out between countries as well. So, I’m curious if you can tell our audience a little bit about who Doug is, and then also describe this idea that he was talking to you about on Real Vision.

Grant Williams  27:58  

Yeah. Doug is just such a brilliant man and a lovely guy. And he is one of the most astute observers of the credit cycle out there. He’s been watching credit markets forever. Just google Doug Noland, and you’ll find his blog. And what we’re talking about, as you said, was this idea that this is transfer of wealth required, and it absolutely is required. We’ve seen it happening, kind of on a stealth basis. We’ve seen it happening right around the world, but it’s going to have to move out into the mainstream now. 

And when Doug talks about this happening, not just between the rich and the poor, but between countries, he’s absolutely right. Again, if you go back through history, and you look at a study that was done, where they looked at the world economic center of gravity. And if you go back to sort of 1000 A.D., the center of the world gravity was in China. 

That was where the bulk of economic activity [was located]. As you go through time, you see that it’s a beautiful chart, and the center of gravity flows from east to west, but in the 1930’s, it’s on the eastern fringes of Europe. By 1940, it’s smack bang in the middle of Europe, and it kind of peaked in 1950 bizarrely enough over Greenland. 

But from 1950, that center of economic activity has kind of reversed. So we’ve had 60 years now of that going in the opposite direction. By the 1980s, it was kind of Finland and moving back over Russia. That’s not to say this is the country where the epicenter is, but it gives you a sense. And in 2010, it was kind of in Russia, i.e. way, way further to the east with forecasts that by 2025, it would be basically in Beijing again. 

And so, as that economic central gravity shifts and moves, and it has over time, so the wealth is transferred. And I think going back to our discussion about the gold markets, it’s a very interesting part of this, because physical gold for the last several years has been moving very, very rapidly [moving] from the west to the east. 

If you look at JP Morgan saying, “Gold is money, everything else is credit.” Gold is wealth. A lot of people don’t understand it, and I understand why they don’t understand it. It’s a very if you don’t understand the concept, it’s a shiny piece of yellow metal, and I totally get that. 

Real wealth, real physical, solid, tangible wealth being exchanged for dollars and exchanged to fiat currencies. It’s all moving in one direction. I think that’s the best example you could possibly see what Doug’s talking about. It’s a real transfer of wealth between nations. The same way that we’ve seen power being transferred now, for example. 

Nobody thought that power was something that would transfer, and it’s not transferring from east to west yet, or west to east rather. Although, it is transferring from the establishment, and it’s been taken away from them. Now, I suspect a transfer of wealth would seem even less likely than transfer of power. However, nobody saw Trump coming. Nobody saw Brexit coming. These are very real examples of a transfer. It’s a transfer that no one could have foreseen, and to think that that won’t happen with wealth is I think misguided.

Preston Pysh  31:11  

That’s one of the things that Dalio is really big on is understanding credit cycles and understanding monetary baseline versus money that is credit in the system and how that influences the way that these markets perform. You’re exactly right. Doug Noland is a master on understanding this difference between how credit cycles work, monetary baseline, and all this stuff. 

We’re going to have a link in the show notes to Doug’s site, and I highly encourage people to go read as much about this stuff as possible, because in my opinion, this is what really gives people just an unbelievable understanding of how this stuff works.

Stig Brodersen  31:49  

Grant, another thing I’m really excited about talking about that now you’re on our show, that’s gold, and we already talked about it a few times. So I would like to revert to this because we have had the pleasure of interviewing Jim Rickards twice here on The Investor’s Podcast. And Jim is always fascinating to speak to. And for us, he’s one of the leading global currency experts and experts in gold. I just want to give a quick shout out to the new case for gold, if anyone is thinking, “What is Grant talking about gold and something with China?”

I think the very best piece of literature I read about this that was in the new case for gold, and where you can actually see what China is doing right now, partly Russia, but mainly China’s doing in the physical gold market. It’s a very, very interesting discussion. 

Perhaps we will briefly touch upon some of that, because one of the most profound ideas I got from speaking with Jim and reading his books is the idea of a single currency. Well, it’s effectively backed by SDRs, gold, or perhaps even a combination. 

So, Grant, I know that you too are a skeptic about the current behavior of central banks and governments. Let me ask you: Which type of currency system or systems would your opinion be optimal for the global economy? And why?

Grant Williams  33:06  

Wow, a great question. Jim is, as you said, it’s a great book, who we should read it for sure. And he is the master of this stuff. I mean, I had the pleasure talking to him too. And it’s just fascinating listening to his thoughts on this. What Jim’s talking about essentially is a reset. And if you go back through history, resets happen all the time, all the time they happen. And we’re in fact, we’re long overdue one. But you get this. 

It’s human nature to extrapolate the past into the future, and we don’t like change until change is forced upon us. And then obviously, when you get these big changes, they cloud your entire way of looking at the world, anyone that went through the Great Depression, there’s a reason those guys saved all their money. They just didn’t want to have any credit. Yeah, there’s a reason why the millennials who’ve grown up on credit, don’t have any savings. This is human nature. 

But the one thing that’s been constant throughout recorded history are resets and they’re incredibly volatile. They’re incredibly destabilizing, but they happen all the time. You know, the last one we really had. I guess the last big one was Bretton Woods after World War Two, then we had Nixon going off the gold standard in 71. But what’s interesting, if you go back 200 years, go back the history of the United States, for example, and you’ll find that the world has been on a gold standard of some sort, more than it’s been off. 

And we happen to have lived through a 40 year period. That’s been pure fear, which I don’t think certainly in our lifetimes, and going way back, if at all. And so that’s what people are used to. So the idea of having a gold standard of sorts, is something people struggle to get their heads around. 

But generally, these resets happen when you get stresses on the system because of an oversupply of credit. And the antidote for too much credit tends to be sound money. People lose faith in money because of what happens at the end of the credit cycle and the amount of wealth that just vanished, even though it may have just been paid for wealth goes away, because that resets the credit markets. And so, there’s this need, this desire to own something that is solid as money. 

And that’s why gold tends to be at the center of these systems. And I think that’ll happen again this time too. I don’t think it’ll be a hard gold standard. But I’m convinced that gold will play some part. It has to be something like gold at the center. Because Can you have faith in Fayette County when there isn’t a single fiat currency in history? But it hasn’t as Voltaire said, gone to its intrinsic value, which is paper zero. And there’s no reason to believe that it’s going to be any different this time. 

The dollar has been the world’s reserve currency for our lifetimes. Before that it was the pound. At one point it was a Portuguese a scooter. I mean, in Portugal, having the reserve currency, the world, Holland, all these countries that seem incredibly unlikely Well, once the owner of the world’s reserve currency, so the dollar the day it became the reserve currency was on borrowed time. 

It’s been going for two years. Could it go another 10, 15, 20 shortcuts? But at some point in a reset, [it] will happen. And if you look at what’s happening now, the signs of stress are clearly there that it may not be too far away. So, it’ll happen tomorrow. And Jim is very good at communicating this. But it’ll happen, and it’ll happen without too much warning. And when it does, it doesn’t matter what piece of paper you have. Speak to anyone in Venezuela. It won’t help you.

Stig Brodersen  36:23  

So Grant, I’m really curious about your thoughts of who will orchestrate this new monetary system, because the institution that we have today, and I’m primarily thinking about IMF, in the past that have been resourceful at least to some extent, especially during the crisis in East Asia in the 90s. They’ve been very important. 

But when I look at what’s happening right now and what’s happened through the past decade, you see these huge foreign exchange reserves building up primarily in China, Japan, Taiwan, South Korea, and China being the big player. They’ve always been opposed to IMF, even though there’s a slight to begin to bank it now. 

The old people are against the IMF, because it’s primarily a western organization. And I’m just thinking that this new monetary system might be backed by gold, it was going to be back with it must reflect the new economic realities, which means that it’s probably not going to be the same western organization as IMF is and how it was founded. So what are your thoughts on that? Who will be managing the new monetary system?

Grant Williams  37:25  

But it’s a great question. If you think back to the last time we had one is reset, which was Bretton Woods. Well, guess what? They set up the IMF to deal with it. The IMF didn’t exist before Bretton Woods. It was established to do this, so it may be that we’re all looking in the wrong place. Will it be the IMF? Will it be the World Bank? Will it be the buyers? Who knows? 

It could be something completely different that’s set up. You look at the Asian investment infrastructure bank that came out of nowhere. [It} has very become a very, very powerful buyer on the world stage. It could be something led by the East. I don’t know the answer, but somebody will be charged with responsibility of instituting this, and it may be a completely new organization.

Preston Pysh  38:08  

So Grant, I’m going to change gears here a little bit. You had a really profound interview with a gentleman called Don Yeager. Oh, yeah. And I was listening to this interview, and I said, “This is some of the best advice I think I’ve ever heard somebody give.” And I want you to share this advice with our audience and tell the audience a little bit about Don, since they might not be familiar with Don. Tell them a little bit about Don and then say what this advice was.

Grant Williams  38:34  

Yeah, it was fascinating. It was one of my favorite interviews. I only had 25 minutes of Don’s time for sure. I could have talked to him for hours. Don was an associate editor of Sports Illustrated. He’s written about 9, maybe 10 New York Times best-selling books, and he talks about athletes and motivation and how athletes do what they do. It was an incredible conversation, and I’m guessing the advice to which you referred to was about the people you surround yourself with? 

Preston Pysh 38:38 

Yes. 

Grant Williams   38:38 

I think he got that from Coach Wooden of UCLA and the guy said, “Look, go home. Sit down and write a list of the five people that you spend the most amount of time with in your life.” And once you’ve written that down, work out what those people bring to your life. How do they make you smarter? How do they make you better? How do they advance your life? And if the answer is they don’t, then you really need to cut those people out of your life and replace them with people [who do]. 

At first glance, you listen to it and say, “Well, that’s pretty harsh.” In the cold light of day, it makes so much sense. We’re all a product of the people around us. If you surround yourself with smart, bright, intelligent, thoughtful people, it will improve you as a person. There’s no doubt about that. And listening and talking to Dan about this, the parallels between successful athletes and successful investors to me, were even though I kind of instinctively knew them to hear him talking about them was really, really interesting. 

You realize that it’s the same things that drive, but being able to deal with failure, compartmentalize it, and move on without letting it affect your next game or your next investment decision. There was so many nuggets in that interview that have stuck with me. I did that interview probably a year ago now. It was fascinating. But yeah, that advice. I went home and did that. I don’t want to mention any names if you haven’t heard from me since my you-know-why.

Preston Pysh  40:27  

Poor Raoul,  he hasn’t been talked to for a year. No, so I love this. And I think that this is so important for a lot of people because doing that audit and looking at who are the five people that I spend most of my time with because we study economen. We study Robert Cialdini and the psychology part of things. And what I think a lot of people don’t realize in their life is how much they’re actually influenced by their environment and the people that they interact with. 

I think it’s so much more than they actually realize. I think a lot of people go through life and think while I’m making all my conscious decisions. I’m choosing to do this and that, but deep down inside, I think that that inner circle of people that are constantly talking to you, constantly putting ideas in your mind are influencing you far more than you could ever imagine. 

And so, doing this audit is so important. I think the other thing that is important to do too is say, there’s a person you wish was in your inner circle. Maybe it’s somebody famous, or maybe it’s some blogger that you really like. Just because that person’s not communicating with you directly doesn’t mean that you can’t take an hour every day and read their information and bring them into your circle and treat them as if you want that person to be one of those top five for you. And I think that it can help people out so much. I just loved this interview, and it was so profound for me. I really appreciate it.

Grant Williams  41:51  

Yeah, I’m hoping to get some more time with Don to carry on that conversation because I could have talked with him all day. It was absolutely fascinating.

Stig Brodersen  41:58  

So Grant, this is my final question, could you give us a hand off to your favorite investment book? Also, who is a person that had a significant impact on your investment approach today?

Grant Williams  42:10  

I can’t recommend reading books enough. Yeah, there’s plenty that will teach you how to be a better trader, etc. For me, I’m a great student of history. I think all the answers are there in history if you look at them. I do believe in cyclicality. And so, I’ll cheat and give you two because one’s more recent history and one’s more distant history. 

The first one is “The Lords of Finance” by Liaquat Ahmed, which is an account of the four big central bankers in the world back in the early 1900s. It’s a phenomenal historical account. It’s incredibly well written, very readable, and page after page you turn, and you just change the names to the guys today, and it’s extraordinary how many lessons you’ll learn about not in what’s happening, but there’s a chance to see the future there. It’s an extraordinary book. I’ve read it three times. Now, I’ve read it again this year, and I can’t recommend it highly enough.

 Then, for a slightly more modern take, Sir Mervyn Kings’ “The End of Alchemy,” which was published, I think, early this year or late last year, which is his account of the 2008 Crisis as governor of the Bank of England. And again, it’s a fantastic piece of work. It restored some of my crumbling faith in central bankers. Those two books, I think, are not only incredibly informative, but they’re [also] actually easy and enjoyable to read.

Preston Pysh  42:53  

Alright, Grant, we can’t thank you enough for coming on the show. Just such a pleasure to watch you Real Vision. And now to have you here is just really exciting for us. We want to throw it off to you to give our audience a hand off. What’s going on with real vision right now as well?

Grant Williams  43:37  

Well, I mean, lots always. It’s crazy, but we’re actually just about to launch our second product, which I think is going to be really interesting. We’re trying to reinvent financial research and really democratize financial Intelligence. What we’re trying to do is bring together a group of incredible thought leaders. Guys like Raoul, Jesse Felder, [and] Stephanie Pomboy. [All] macro mavens. [They] really give the public access to the kind of financial insight that really has only been available to professionals up to this point. 

We’ve built a platform that we think is going to make people sharper, smarter, and much better investors by just bringing all these financial minds and elite market thinkers to one place. We’re going to publish 100 plus investment reports a year from about 30 different financial thought leaders. They’re going to have clear actionable investment advice and cover every asset class. We don’t think there’s anything out there quite like this. So, we’re really excited to launch that in the next couple of weeks.

Preston Pysh  44:34  

Just so I can kind of understand a little better, so Stephanie Pomboy, who you mentioned, I’ve watched the interviews that you’ve had with her. She’s insanely intelligent.

Grant Williams  44:42  

Crazy. Absolutely crazy intelligent, and one of the nicest people you’ll ever meet in your life.

Preston Pysh  44:47  

And so, she would be writing different reports or how would this work?

Grant Williams  44:50  

Yeah, Steph publishes something called “Macro Mavens,” which is one of the best pieces of research out there in my opinion. She publishes it weekly, and it goes to an incredibly high level of institutional investors hedge funds, some of the biggest name money managers in the world read Steph’s stuff voraciously. And so, she will be on this platform, and there’ll be pieces of homework for people to read, and it’s not six months or a year old. It will be up-to-date and current. 

And alongside Steph, as I said, guys like Jesse Felder and Julian Brickton, who in Julius’ case, really, again, the top echelon of finance have access to Julian. And we want to bring him to a much wider audience, and let people really see some of the guys that make a difference at top-level investment institutions. And as I said, try and democratize this information. 

Preston Pysh  45:37  

Wow, that sounds fantastic! All right, Grant, thank you so much for coming on the show. We’ll have some links to Grant’s “Things That Make You Go Hmmm.” We’ll have links to Real Vision TV as always. People know on our show that we’re big fans of Real Vision. It’s just great to have you here, Grant, so thank you so much for your time.

Grant Williams  45:54  

It’s been a real pleasure. Thanks so much for having me.

Stig Brodersen  45:57  

Okay, guys! Before we let you go, I just have a few quick announcements. We’ve been talking about the TIP event with the Bank of England. And unfortunately, this had to be postponed due to security issues. We’re really, really sorry about that. We hope we can do that another time. 

We’ll still be having an event in London, and I’ll be going on the 28th of January. I’ll be there not on the 27th, but the 28th of January. It will just be a small event, and it will be probably around 8:00 p.m. or 8:30 p.m., so after dinner in inner London. 

Also, please remember we have the event in Manila, Philippines on the 27th of December and the event in Tokyo, Japan on the 27th of February. So guys, I hope to see you there. This was all that we have for this week’s episode. We see each other again next week.

Outro  46:43  

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