Transcription
My view has been that about since last summer the economy is actually in recession. The government, they calculate GDP and its growth, and then they take into account that consumer prices go up. Consumer prices are for goods like cars and so forth, and for services like travel expenditures, hotels, and so forth and so on, insurance premiums. And then they take the rate of growth of the GDP and adjust it for the so-called consumer price index of personal consumption expenditures, and then they come out with a figure that shows, say, 2% gross, 3%. But you can see right away that this figure of the GDP depends heavily on how you measure inflation, and the way they calculate inflation varies because you, what you take hold of inflation is a basket of different services and goods, and you can overweight or underweight certain things.
So let's say you underweight healthcare, you underweight education. These are services that went up very dramatically in price in the last few years. And so my view is, if the cost of living increases, which I prefer to the word of inflation increase, and the GDP increases less, then you have essentially a decline in the standards of living. And if you go around the US and Canada, and you ask 700 people or a thousand people, 70% will tell you their standards of living has gone down because their cost has gone up more than their salaries. Period. This is a fact, and I have very precise figures on this topic. The cost of living has gone up more than what the government is publishing.
I come from Zurich in Switzerland. In every business survey about cost of living, Zurich, Geneva, Bern are among the five most expensive cities in the world. But the government in Switzerland says inflation is 1%. It's a complete joke. And so if you ask me, is the US already in recession? I'd say yes.
But now comes another point that I think Wall Street doesn't want to have bearish views. They want to be bullish all the time. This is also endorsed by the Democrats and the government and so on. But if you look at how much money people have been able to spend because they had an increase in the asset value of their stock portfolios and in the value of their real estate holdings, we call that a wealth effect. The assets go up. You and I say, "Oh, this year we are a million richer because we have a stock portfolio of, say, $10 million. It goes up 10%. Let's go on a holiday, or let's buy a speedboat, or let's buy a new car and so on."
But now asset prices are going down. Commercial property is already down in the order of 40s to 60% or 70% even. But now home prices are likely to go down because the affordability is at the lowest in the history of the United States. Under these conditions, if prices no longer go up but down, it will have a very meaningful impact on the consumption of the people that already bought the house. And then stocks, I mean, I go out a lot to bars and I meet all these clowns. You ask them, "What do you do?" and they say, "I trade cryptos," or they trade Nvidia, or Tesla. But I tell them, I've never met anyone in my life who was a day trader who made money, not one.
I've been positive about gold for the last 40 years or so, since the mid-80s when it was depressed. And at the end of 1998, 1999, I specifically wrote about the bull market in commodities, which was also part of the subject of my book, Tomorrow's Gold, Asia's Age of Discovery, that the demand in Asia, specifically in China, for raw materials and for precious metals would go up a lot, and that also central banks would eventually buy gold as an alternative to the US dollar. And so, it doesn't surprise me.
What I think has happened is that obviously the price has gone up in the recent times. Over the last one year, we're up something like 40%. But what strikes me is that there is not a euphoria in gold or silver or platinum because the young people prefer to speculate in cryptocurrencies rather than in gold. Gold was for them not sexy enough, not volatile enough. So they go gambled on cryptos, and in the last few months, cryptos have been weak. Number two, what strikes me is that as the price of gold went up, people took a lot of profits because it hadn't moved for a long time. So they sold gold.
And I have to explain here a factor that is important. When in poor countries, say I live in Thailand, when the economy is poor, people get into debt problems because they borrow money for emergencies and so on, and suddenly they can't repay. So they have to sell something. Are they going to sell the car and the motorcycle with which they have to bring the children to school every day, with which they have to go to work every day? No. That they will keep also for face reasons towards their neighbors who would see that they suddenly have no car. Would they sell their house? No. They have to live somewhere. But gold is something they can easily sell. So there's a lot of selling pressure by people who are in emergencies, who essentially have to repay credit or lower their credits outstanding. And so there has been a constant selling pressure in the gold market. There hasn't been any panic buying at all.
Now, the central banks are in a different position because compared to, say, 50 years ago, the central banks have very little gold reserves compared to monetary reserves. And so they are accumulating, and they don't pay so much attention to the price, then to the fact that they say the board of directors of the Bank of Thailand, or the board of directors of the Bank of China, they decide, "We're going to have 30% of our reserves in gold," and so they keep on buying, paying until they have the 30%. Now, I'm not saying that every central bank will have 30% of their reserves in gold, but some will, because of the wisdom of the American State Department that freezes the assets of foreigners that have assets at the Fed in the United States. You understand that? So, when you have money and reserves, you're worried that someone will suddenly freeze your assets. And so these countries like China and India and Russia and Cuba, and so of course, they will keep more reserves in gold than everything in dollars. This is the reason gold is sort of moving up or creeping up.
Now, I'm not saying that there won't be a correction in gold, but there has been a steady flow of money out of the gold market, or from people who say gold is overbought and too high and so worse. It is relatively high compared to, say, the price of wheat or soybeans and so forth, but it's not that high compared to all the monetary assets. Go and ask your friends, have you heard about gold? And they say, most people will say, "Yes, gold is going up." And then they will say, "Well, we have some gold." Then you ask specifically, "Well, how much gold do you have?" And then they will tell you, "Well, a few coins." But who has 20% or 30% or 40% of his assets in gold, silver, and platinum? Hardly anyone. Or take a billionaire. He has a $1,000 million. How much gold does he have? Maybe 1 million in gold. The portfolio managers, 70% have less than 1% in gold. If I look at the investment community, most of them have no gold.
This is the first bull market in gold where actually the physical has outperformed, say, gold stocks. Now lately, it's improved. Say gold is up this year by about 10% or so year to date, and the gold stocks have rallied a bit more, the GDS, the gold mining ETF. But by and large, gold stocks in past bull markets have rallied significantly more than the metal. This hasn't happened yet. And I don't have the full explanation, but I can see why this is the case.
Let's say if I have lots of money, my concern would be the financial system. Will it stay alive? I mean, we all know the way it is now with all the deficits in the world, with all the debt accumulation, is not going to survive forever. Some sort of a crisis will occur. And then if you're wealthy, if there is a crisis in the financial system, how do I protect some of my reserves? And you say to yourself, in the case of such a crisis, what I want to have is some physical commodity that can be easily stored. So you buy gold and silver and platinum, and you buy it in physical form because the physical, yes, they can take it away from you, but it's a question of how easy is it for a government to take everything away from you if they don't know where you keep it and that you have it.
In the 70s, when I started to work, the saying was, you put over portfolio 10% in gold and gold shares. That was kind of the accepted norm. But recently, I never heard that a portfolio should be even 5% in gold. But I've heard a lot about Bitcoin and other cryptos. The system is so broken already. No central bank will be willing to pursue tight monetary policies. They will print more and more. It will accelerate. And there is a way out, but the other way out is very painful. So this way, the pain can be postponed to the next administration. And I think the Trump administration, maybe they had the impression that they could do something, but now they must realize that the mess is so complete, there's only one way out is to print, no other way out.
I think that more and more people realize that the government, under the present political system of democracy, cannot tighten monetary policy. How do you want to cut social security? How do you want to cut defense spending? And so in my view, the western democracies will have to continue to spend money. Now, I admit they can go and say, cut certain expenditures of the budget of the United States annually. So it's around $7 trillion. You can maybe cut $200 billion, but you cannot cut it meaningfully. How are you going to tell the retirees of the police force, the firemen, the train conductors, the army and so forth, the veterans, "We're going to cut your pension by 30%." Most people on their pensions, they cannot survive on what they're getting. No way. And then all these people, they're organized. They have unions. They're going to march and torch the entire cities. This is another issue. I think it was a bad system to set it up in the first place, but now it's gotten out of hand in terms of its size. I know many retirees, they have only the social security payments that they get, nothing else. If that gets cut by 30% or 20%, we're in a depression.
I went through the figures also in Europe, and the US is maybe not even the worst country in this respect. But they, I can't see how in a democracy where everybody has a vote, they will vote in favor of cutting the government expenditures and cut down the subsidies that people receive and the pension contributions and so forth and so on. On the other hand, I find it difficult to see how they will vote for tax increases. They can't pay the taxes already now. So I think it's likely that in the years to come, we'll have higher interest rates and higher inflation rates. But at the moment, as I told you, the economy is weaker than what the government is publishing at the moment. It can be that for six months or three months, interest rates decline.
I would not tell someone, "Put all your money in gold today." But I would never tell any investor, "Put all your money in something." You understand? I'm always in favor of diversification. If there is a financial crisis, if there is a World War II, about which many people are writing about and which is not totally unlikely, if we have these unfortunate events, it is likely that your gold holdings would do very well in monetary terms. So I would advise, knowing that the price of gold is not very cheap at the present time, that I would still advise to keep some of your money in gold and silver and platinum.