Jeff Hayes:
Adam.
Adam Baratta:
Yes.
Jeff:
Thank you for being here with us today.
Adam:
It's my pleasure.
Jeff:
I've been looking forward to this. Little bit of a disclaimer, we met close to a year ago. We interviewed you, I was blown away, so I'm actually a customer of yours, so there's a disclosure piece.
Adam:
You are, yes.
Jeff:
Yeah. So, I fall in the category of true believer. I'm really excited to let you share your info. I kind of want to start with your book. This was really interesting to me. You were publishing a book, it was on schedule before the COVID hit, and really predicted everything that's happening anyway. And so, as opposed to having to go back and change your book, it's more like you went back some editorial that was, with kindness, it was kind of like, "See, I told you so. Not only is it that, it's even worse."
Jeff:
Let's go back to what got you interested in the topic that you wrote your book about. Tell me how you came to this.
Adam:
Yeah. Okay, great. So, I was not in the financial services business seven years ago. I was actually in the entertainment business. And I had some big things that happened over there. A big deal with Stan Lee, the superhero writer, Marvel comics. Deal with the NFL and then the NHL, and then that kind of all went sideways and I found myself unemployed with no real talent because I was in the movie business and I needed a job. And I had a friend who had a job at a gold company. And I asked him if he could get me a job. And I got hired, and I got a script, it was a one page script, and said, "Here, go sell gold."
Adam:
And I was freaked out. I had no idea what I was doing, I had no idea. It was physical inside of qualified accounts, IRA's. I didn't know what an IRA really was. And I decided if I was going to try and sell people on something, I better, number one, believe in it, and number two, really understand as much as I could about it. And that journey really led me to this story that I just became incredibly attracted to and overwhelmed by because it's a big story.
Adam:
And the more I got into it, the more I realized this is the story I'm supposed to tell. This is the story that people need to hear, because it's one that most people don't get. So, I started writing content for our clients, for gold. The transition happened where I became so passionate about gold, I became one of the top gold salespeople at the firm. And I didn't really like the way gold was marketed.
Adam:
Gold is marketed with this fear-based, doomsday kind of thing. And it's what sells, it's where gold is marketed. But I don't see gold in that way. In fact, what I was learning was a completely different story than that, and that's what I was talking to people, I was talking about. I sat down with my friend, who is also an excellent salesman and also really had the same kind of belief system, and said, "Look, I think we can do this better. I think we can do this better for the client, with better education, and we decided to form our own firm.
Adam:
And that was in 2014. We started with two employees, and through that process began me writing to try and point people to the things that I was seeing that were so... that I didn't think people got publicized enough. There was a Wall Street model. That Wall Street model is one that most of us follow blindly. And because I wasn't from the industry, because I wasn't someone who came up in that. And I should have been. I was supposed to do my GAD-MBA at Wharton in Penn out of college.
Adam:
I told my dad, "I'm going to go to L.A. and be in movie business. So, I had friends, family that are lawyers and financial advisors and hedge fund managers, and so I'm very familiar with that kind of training and upbringing. And I think because I came to it from the outside just looking at this story, it really was something that I thought people needed to hear.
Adam:
So, that culminated in the first book, which was "Gold is a Better Way and Other Secrets Wall Street Doesn't Want You to Know". And the big conclusion, I guess, of that book was that the equity markets are really fueled by the Federal Reserve. At the time, the Federal Reserve was promising they were going to raise rates, they were going to normalize.
Adam:
We had seven years of 0% interest rates and now we're going to start raising them, and they were also going to start taking money off the balance sheet. And that was happening-
Jeff:
So, hold on right there. What does it mean for the fed to take money off of the balance sheet?
Adam:
Great question. So, what the Federal Reserve does, they control the money supply. That's their job, okay. And the balance sheet is the way they measure the money supply, the way they measure how much money has been created by the fed. What the Federal Reserve holds on the balance sheet is actually paramount to some of the things we probably want to talk about. But that's what the fed does, is they control the money supply, and when they lower rates and adds the balance sheet, it's called monetary easing, okay. And when they raise rates and take money off the balance sheet, it's called monetary tightening.
Adam:
And the premise was markets aren't higher because of growth, markets are higher because of debt. And that debt has been fueled by low rates by monetary ease. And so, we are in a fed bubble, and when the Federal Reserve raises rates, the bubble's going to pop. They're going to collapse the stock market. And that's exactly what happened, and it coincided with the first book pub date. It was published on August 14th and in Q4, the stock market dropped 19%. Bonds dropped dramatically as the fed tightened and took money off the balance sheet.
Jeff:
Wait. What year was this?
Adam:
This was 2018. Yeah, this is the fourth quarter of 2018 and it's what began Donald Trump attacking the federal reserve on a daily basis because he had been promoting stock market everyday... it became his calling card. And my producer and I did a documentary on this thing. We actually won a Telly Award for it.
Adam:
Funny story, 25 years in the entertainment business, I never got an award, and here I am couple years into this business, and-
Jeff:
You finally get awarded for your talent.
Adam:
Yeah. I get this. So, but Donald Trump was attacking the fed for that very reason is these policies are headwinds for financial assets. So, the first book was published the same time this is happening and it made me look like I had some sort of crystal ball, but it really wasn't that difficult to see if that's what you're looking at. And what I track and what I show in the first book is that the federal reserve balance and the stock market since 2008 have literally gone hand in glove. And so, if the balance sheet goes down, it's pretty good expectations that the stock market will go down.
Adam:
And so when the fed pivoted, when they stopped raising rates, and when they stopped taking money off the balance sheet, I was right on top of it because this is what they promised everyone they were going to do. And the conclusion of that book was, they're going to collapse the markets, but they pivoted very quickly. And I think Donald Trump had a very big hand in that pivot because of his pressure.
Adam:
And then what happened was then they not only started cutting rates, then they started secretly adding to the balance sheet back. Something that has been called "Not QE", and the balance sheet, starting in August of 2019 started going up 50 billion a month. So, for those reasons, I'm looking at the balance sheet saying, "Okay, if I can look at financial assets through what the fed does to the balance sheet, and that led to the great devaluation."
Jeff:
So, yeah. So, let's talk about "The Great Devaluation".
Adam:
Okay.
Jeff:
First off, love the title, love the book. And again, what was unique about this book is that it was right on target before the pandemic and the pandemic has really amplified and sped up a lot of what you talk about in the book. So, walk me through-
Adam:
Sure.
Jeff:
...The Great Devaluation, the case for it.
Adam:
Sure. So, because these things happened so quickly, we did a gold summit in August of 2019, on the one year anniversary of the book being published. And I called that presentation The Great Devaluation. And I laid out ten chess moves to checkmate for the U.S. dollar. See, what I as talking about was not linear, okay. These are like chess moves. And when you're playing chess against a master, even though the game isn't over yet, when you make the wrong move, it's just a certain number of moves to checkmate.
Jeff:
Right.
Adam:
And so, that was the idea, was we just have a certain number of moves now to checkmate. And the Federal Reserve as a tool in a recession, lowers interest rates to 5%. 500 basis points. At the time, when they pivoted, they were two and a quarter percent. So, the highest they could get them to is two and a quarter percent. And then they stopped. And then they started cutting rates.
Adam:
And so, the question I was asking was, "Well, okay, how do you take 5% from 2%?" And the answer's a simple -3%, right? So, it was that idea, well what does -3% really look like in real terms. Well, that means if you have $100,000 in the bank, paying a -3%, that $100,000 is now going to be worth $97,000 in a year, okay.
Adam:
So, negative rates, which were happening, by the way, in Europe and other places, is something that is not sustainable long-term, because people will start to hoard. People will start to, "Why keep my money in the bank if I have to pay a fee?" Okay? And that ties back to the history of gold and where gold fits with the dollar, and that presentation was seen by a big publisher and they said, "We'd like to turn this into a book." And so, I found myself slaving away at the computer for 20 hours a day for 6 months.
Adam:
And, to answer your question then, this pandemic happens. The speed of this, yeah, everything that I talked about in the book which was, in the next recession, the Federal Reserve doesn't have any room to lower rates. So, they'll immediately lower it to zero, and for every 1% away from 5%, so if it's two, they'll drop to zero, and for every 1%, they'll need to print somewhere around 3 trillion dollars. And that was based on some white papers that had been done from Federal Reserve and what types of policies they could enact in case these things would happen.
Adam:
And so, when COVID happened, here we are. Fed cuts interest rates. At the times they were 1.25%, and they cut to .75%. And I saw it as, "Okay, this is the beginning." That was on march 3rd. By March 15th, they had cut to zero. By June, they had added 3 trillion dollars to the balance sheet, and everything I was saying in the book was happening real time. And that was where it got kind of a bit crazy for me, because the timeline between book submission and the book being in a store is like 5 months, 6 months. So, I turned in the manuscript on February 14th, at a time when the stock market was literally at all time highs. Donald Trump's ratings were at all time highs. This is before pandemic.
Adam:
And in the course of six weeks, that all changed. And the book of prophecy turned out to be a book of muse.
Jeff:
Yeah.
Adam:
Right? So, they publisher allowed me to rewrite the first chapter. I did that and then we put addendums at the end of each chapter to say, "What happens is just a few weeks later." And how all of the things that I had been talking about in the chapter were starting to play out and come true. So, that the story of the book and how it got there.
Jeff:
So, let's unpack some of this. Because I always viewed gold as something that everybody should have a little bit of as a hedge.
Adam:
Yeah.
Jeff:
I'm sure many other people have said it, but you're the person that convinced me that, "Forget about it being a hedge." Let's unpack some of your thinking-
Adam:
Sure.
Jeff:
...on that.
Adam:
So, let's start with one idea. And that idea is that we have choices where to put our investment dollars. Okay? You can put in in stocks, you can put it in bonds, you can put it in real estate, you can put it in commodities, you can put it in gold. So, it's really, to me, relative. Okay? Gold is gold, good or bad, or stocks good or bad, or bonds good or bad. They all have their certain purpose at certain points in time. It's relative to what you could be doing, which is where it becomes interesting.
Adam:
And, gold is a better way, just highlighted one very simple fact, which is Wall Street tells us stocks and bonds. And yet, gold has dramatically outperformed stocks and bonds over a very long period of time. And my summary on why that is is in a growth environment, paper assets are what you want to own. In a debt environment, you want to own gold.
Adam:
Because ultimately, gold, and this is what most people really don't get, gold is simply a referendum on the U.S. dollar. That's all it is. It's a referendum on our currencies. And so, if you think about it in that framework, 90 years ago, a $20 bill and one gold coin were the same. They were equal, okay. It was the value of gold. They were interchangeable, by the way. We were on a gold standard, so you could walk into a bar with a gold coin, you could walk in with a $20 bill and buy the whole bar drinks if you wanted, and they were the same. Okay?
Adam:
By 1971, one ounce of gold was $42. By the year 2000, one ounce of gold was $250. Today, gold's somewhere around $2,000. So, gold has gone up 100 times over the last 90 years, relative to the dollar. And I believe you're going to see gold, relative to the dollar rise to dramatically higher levels than this. And why I'm buying as much as I possibly can.
Jeff:
So, that's interesting you bring that up. So, first off, you talk about the massive increase in value in 90 years. Is it too late? I mean, should people wait for it to go back down?
Adam:
Well, I have some big thoughts on that. Number one, I think gold is among it's most undervalued in history right now. See, relative to the stock market, there's a chart we could put up that has gold relative to the S&P 500. In 2011, it was 1.7x, they S&P 500. I can't remember the exact numbers, but I think the S&P 500 was around 1,200 points, and gold was around $1,800.
Adam:
And so, it was 1.7x to the S&P 500. Today, gold is about .55x the S&P 500. So, relative to stocks, gold is dramatically undervalued, from where it was just 9 years ago. Okay? Keep in mind, relative to its own price, gold at $1925 an ounce nine years ago, we are just back there now. So, relative to its own prize, it’s just back where it was nine years ago. But, it gets even more interesting than that. Because relative to treasuries, gold has never been a better opportunity. But the big knock on gold is it doesn’t pay a dividend. Okay?
Adam:
It’s why I think Warren Buffett and other various smart investment mines have said, “Gold has no utility. It pays no dividend. And therefore it’s not something I a own.” But my argument in the first book was, “Yeah, but gold is up five times and the stock market’s up two times. That sounds like something I want to own.” But now, the real rate on the tenured treasuries is -1%. So, that’s the real rate when you factor in inflation versus what the tenured treasury’s giving you, it’s a -1%. So gold, while it doesn’t pay a dividend, it doesn’t cost you 1% to hold.
Jeff:
Right.
Adam:
And that’s why you’re seeing gold to get a lot of new attention. And I brought up Warren Buffett. Warren Buffett is someone who has set the mindset for investors for the last 30 years. He’s been a big critic of gold for a long time. And frankly, as someone who is so passionate about gold and who believes in gold and talks to people about gold, the one comment that would be thrown at me was, “Warren Buffett doesn’t believe in gold.” And so, that’s a pretty tough one to overcome. Well, on the day that The Great Devaluation hit number one on the Wall Street Journal, a friend of mine called me. And he said, “How validating is it that your book is number one on the Wall Street Journal? How validating is that for you?” On that same day, Buffett had announced his new holdings, but for the first time ever bought gold. And I said, “It’s not nearly as validating as the fact that Warren Buffett just bought gold.” And to me, there’s a lot to unpack there. There’s a lot to think about when you’re considering what’s going on there.
Adam:
Well, Warren Buffett is a valued investor, okay? Gold was $1950 on the day that was announced. So he thinks at 1950 gold's undervalued. I don’t think he’d be taking a big position on gold if he thought gold was going to 1000, Okay? So, I think Warren Buffett thinks that this is a very undervalued price. I think he’s looking at some of the things that I just mentioned and why it’s so important. See, my book could be number one on the bestseller charts for 10 years, it wouldn’t do for gold what that one move did.
Adam:
Remember, Warren Buffett is the champion of the passive in next investing model. Okay? In 2008 about 10% of the money in the market was in passive index funds. And he made a bet with Protégé Partners and his bet was, “I bet that the S&P 500, a low-cost index fund, will outperform any hedge fund manager over the next decade, and I’ll bet any manager that wants $1 million for charity.” And one hedge fund took it. It was Protégé Partners. They got smoked.
Adam:
And passive index investing became the range. And Warren Buffett, remember, after the housing collapse, we were scared. I mean, there was blood in the streets, the stock market had come... no one was sure was coming next. And what did he do? He bailed out the banks, he bailed out AIG. He bought a railroad. He doubled down on America and said, “My hold America forever.” And his certainty literally let the charge for the stock market over the last decade. And the passive index investing now counts for over 50% of the market. And I think that mindset shift that he began a decade ago happened for a couple of very good reasons. And I talk about in The Great Devaluation.
Jeff:
Well, let’s talk about them now.
Adam:
Okay.
Jeff:
I don’t want people to have to read the book. We got you.
Adam:
Okay, yeah. Let’s do it. So, interest rates being lowered to zero, Okay, which was what the Federal Reserve was signaling, and for an extended period of time didn’t stimulate the economy originally. Because even if interest rates, money is free, I still have to pay it back. And if I am a business owner or someone who wants to borrow money, I have to believe that I can pay it back. Well, then it’s worthwhile taking the loan.
Adam:
And so, quantitative easing was created to help incentivize that action. I think what Warren Buffett saw, which was exactly what happened was, “Oh, this is going to be a boom for corporate America.” Because if you remember after 2008, people like you and me or retail investors weren’t getting big loans. You had to have perfect credit and a lot more money you were trying to borrow. And so all that debt went to corporations. And what did they do? They borrowed for free. And rather than invest in [inaudible 00:40:03] and in new factories in hiring new people, they did something different. They bought back their stock. And as a CEO, this is a fantastic deal. Okay? Because buying back stock... can I explain that real quick?
Jeff:
Please.
Adam:
And how that works? Let’s say there’s four of us that on a stock. Okay? And let’s say the stock is worth $250 each. And the company is worth $1000. All right? If I buy back one of those shares, you now have three shares of sharing in $1000 company. And each of the shares are going from $250-$333. That’s a simple explanation of how easy buying back your stock is. And so, that’s what created the stock buyback boom. The stock market exploded over the last decade of 4x. Because of that, some estimates say it counts for more than 60% of the stock market gains over the last decade, have been from this trick. Which is really cool if you were the CEO. Because if you were the CEO, you get paid your bonus, your stock options, all happen on your share price. So, you get to buy back the stock, the share price goes higher, all the shareholders are happy, and your bonus goes from 3,000,000 to 30,000,000? Hey, let’s do more of that.
Jeff:
Yeah, and when I read this in your book, it was really frustrating to me. We just, a week or two ago, celebrated their 50th anniversary of a quote from Milton Friedman that has been criticized, questioned. But 50 years ago, Milton Friedman said that the only purpose of a company is to produce a profit for your shareholders. And so people criticized that and now we have stakeholders, they want to do more for the community they want to be more than just profit for the shareholders. And you can argue that point, but when I thought about that anniversary of that quote, and the context of what I read in your book, the CEO is no longer having to worry about a profit for his shareholders. Instead of making better products, instead of becoming more efficient, instead of moving the ball forward, driving the real economy, all I have to do is make a better market for my stock. All I have to do is have less of my stock out there trading.
Adam:
Right.
Jeff:
So forget about the morality of Milton Friedman‘s view. This is levels beyond that.
Adam:
Yeah.
Jeff:
I was also surprised that when the loans were announced in the pandemic, that they were excluding companies saying, “You can’t use this money to buy back your stock.” I didn’t realize how prevalent it was until I looked at the charts in your book-
Adam:
Yeah.
Jeff:
...and saw that lockstep with the increase in money.
Adam:
Well, on that note, keep in mind the airline stocks after 2008. 2008 to 2019, I think went up an average of 7 or 8X, Okay? Oh, 90-some percent of every free cash flow went into buying back their stock. So, this is what the airline CEOs did. And of course, if you’re a stock market lover, this was great for you because the stocks went higher. So, there is a large portion of the world that’s happy with this game. Okay? But the problem is, it can bring us back to Warren Buffett and what he’s doing and how he’s looking at the world, no one saves for a rainy day anymore. No one keeps cash in reserve. When it’s straight 00 you’re not incentivized.
Adam:
The federal reserve has created this environment. I blame them. I think it’s going to be looked at someday as criminal what they did. And we’ll get into the future because I really believe that that part of the discussion is something that people are going to want to focus on. But I was looking at when all of this happened and markets dropped and Covid happened and fed came out with third stream policies, what was Warren Buffett going to do? Because he had been sitting with a couple hundred billion in cash, waiting.
Adam:
What’s interesting, and this is where I really got aggressive personally on gold, Buffet in 1999 started taking his money out of the stock market. Buffet in 2007 started taking his money out of the stock market. He missed the last 15% of the dot com boom. He missed the last 15% of that boom before housing. And of course, he missed the last 15% here, because he’s been putting money in cash since 2017. Why? Because Warren Buffett understands value, okay? In fact, we talk about it in the book, I think we should probably talk about it here, there’s an indicator, Okay, a metric that’s actually become known as the Warren Buffett indicator. And it measures the total amount of money in the stock market, relative to GDP.
Adam:
And what his conclusion is, is that any time the amount of money in the market is above 115% of GDP, the market is dramatically overvalued. Anytime it is below 75%, the market is dramatically undervalued. And that Warren Buffett indicator is some thing that he’s personally said was his number 1 on how to think about investing. So, in 1999, I think the Warren Buffett indicator hit 130%. He was out. It went as high as 150%. And of course, it collapsed. In 2007, it got about as high as about 120%. He was out. And I think it hit it’s all time high which was about two weeks ago at 173%.
Jeff:
Wow.
Adam:
Yeah. So, when you’re talking about value or price, you want to be careful to understand the distinction. OK? Is gold at its highest price ever? Yeah. It’s at it highest price levels ever. But it’s at its most undervalued relative to where everything else is, and that’s why I’m buying as much as I can, Jeff. I’m so certain that when I show you the next two things, what it’s relative to, the lightbulb's going to go off.
Adam:
Because when you measure gold relative to the United States debt, and then when you see what happened to our debt, which we’ll talk about that in a minute if I can. In the year 2000, we had about 3 1/2 trillion dollars national debt. We’ve gone from 3 1/2 trillion to now 27 trillion. That’s a 8x, 8.5x, okay? That’s our debt. The Dow Jones has gone up 2 1/2 times in the last 20 years. So our debt has gone up more than our stocks dramatically, number one. Okay? It is a market that has been fueled by this debt.
Adam:
And why Covid is such a big deal is I think that most people prior to then didn’t really know that the federal reserve control the stock market. They didn’t really know that the federal reserve was adding or subtracting the main supply and all of these things, because it’s dense. Okay? And not a lot of people can explain it simply. And I hope that’s one of my talents is I’m a pretty good storyteller and I can see through it, and that’s why I think people responded to the book.
Adam:
But, when Powell, in response to the market collapse and it lowers interest rates to zero and then adds $3 trillion to the balance sheet, he is now out naked in front of the world, showing you, because of course the stock market's exploding. And now we all know that the federal reserve controls the market. And this has big implications.
Jeff:
I’m telling you, this was such a mystery. As I watched even airline stocks, as they’re talking about their potential bankruptcy, the Airline stocks were going up. I’m looking at all these, and in the midst of the pandemic, there was the initial crash, and then all of the sudden I am like, “Who is it that is buying all these stocks?” And for a while they blamed it on small, new investors that weren’t at home because they weren’t at work, so they were home from Covid, so they were... I’m like, “Okay. These little guys that are not at work are not driving up the entire market.”
Adam:
Right.
Jeff:
And it became so clear.
Adam:
Well, you know, the don’t fight the Fed has become the investment mantra. Don’t fight the Fed. The federal reserve announced they were going to start buying not only the stock market bonds, they were going to start buying junk bonds. Okay now, this is unheard of. See, my understanding of where we started with all of this, I mean, the federal reserve was created to be a lender for a last resort, Okay?
Adam:
When you start front running a recession and buying junk bonds, you now become lender of first resort. And what happened is Wall Street’s not dumb. I’m going to buy what the Fed buys. That’s fine but interest rates are going to go lower, we’re going to buy bonds, because interest rates are going to keep going lower. And it’s really where we’re at today. We are at 0% and that’s a problem. Because 0% sure looks like it’s a ceiling or a floor, Okay? You shouldn’t be able to go below zero.
Jeff:
Yeah, it’s hard to get your 5% correction if you’re at zero.
Adam:
Unless you start printing trillions and trillions of dollars. Unless you start adding to the balance sheet massively. And, a little story for you. The book was submitted on February 14. And all of this starts to happen. And I call the publisher, I was like, “I don’t know what to do here. Can we move up the pub date? Can we race to get this thing out, because it’s all happening?” Right? But then I decided to do some thing because I had been, and my readers know, my subscribers know, all I’ve been doing for the last few years is buying gold. Every month, every investable dollar, our entire pension is in gold. The only company in the country that has our entire pension and physical gold. I personally buy physical gold, so I am accumulating a lot of gold. And there’s a reason.
Adam:
I am not investing for today. I am investing for where I expect goal to be down the road. Five, seven, 10 years from now. And I am very certain of that date. And so, I have a number I’m trying to get to. And as far as number of ounces, okay? But, when Covid happened, I called a friend and I said, “I’m going to do something.” I said, “That’s not who I am. But I’m going to get aggressive here with this situation.” Powell just cut rates 50 basis points. This is before zero and added to the balance sheet. I said, “I know what’s coming next. He’s going to zero. And then he’s going to print trillions of dollars and gold going to boom.”
Adam:
And so, I started selling some of my physical gold to get long, some options. And I looked at it like an inventor trade. And what I mean by that is it has an end date. And I looked at the calendar and said, “When is the last fed meeting before the election?” That’s what I wanted to see. Because I figured that one’s going to be a doozy. Okay. And it turned out to be on my birthday. So, it was a memorable date for me. And things just aligned to the point where I was just like, “Okay. I now know what I’m going to do. I am going to get down on these gold options. I call it a Druckenmiller time. Do you know the story of Druckenmiller?
Jeff:
No.
Adam:
It’s a good story. So, George Soros is one of the largest investors of all time, okay? His claim to fame was shorting the British pound and became a mega billionaire. And Druckenmiller is a young trader working for him. Stanley Druckenmiller now is one of the top investors in the world, a billionaire on his own, one of the smartest guys out there. But, in his early days he was working for George Soros. And he saw a trade that he just thought was a winner. And started allocating capital to the trade. And the trade went against him. And he used it as an opportunity. He was so certain he was right, he kept getting more down on the trade. Okay? Until he realized he had about 25% of the firm's capital in this one trade.
Adam:
And so he’s got to sit down with George Soros and explain what he’s done. And so he sits down with Soros and he says, “Mr. Soros,” and he explains the situation and certain he’s going to get fired. And Soros looks at him and says, “What is wrong with you?” Are you a moron? When you see a trade that good you don’t put 25%, you put 200%.” And the point of that story is, I should have approached it like Soros. I sort of approached it like Druckenmiller. I got about 25% of my gold holdings out into this trade. And just like Druckenmiller’s story, it worked out that way for me.
Adam:
Initially, it went down significantly. And this is what people need to recognize about gold, see, gold moves based on where stocks go. So, when people sell stocks, they’re buying dollars and they are moving out of stocks in dollars and a dollar index and a dollar rise. And the dollar index put pressure on gold. So, when you see volatility in the stocks Powell, typically the dollar rises in the short term. Of course, gold is a safe haven so investors ultimately move into gold in times of uncertainty. So, it’s like this Chamaeleon investment that’s really misunderstood. So, I don’t believe in trading. I’m not a trader.
Adam:
I understand options really well and I understand the philosophy, and I know it’s picking up nickels and trading volatility and moving in and out. I am more of a story guy, and I see a story and I think I have a pretty good idea of where it’s going to happen, but it’s like, when you see the future unfold before your eyes come exactly what you thought was going to happen, well then it’s Druckenmiller time. And then it’s time to get serious. I told my friend that this is going to be the trade that launches Brentwood Research. Because this trade is going to do that well, and I’m going to get out of it on this date, and I told him all about it before it happened. And I got about 250 ounces in, this is what I cashed out to get in. And last week, when gold dropped below 1900, I bought 750 ounces and I also bought a house and paid some taxes. So, it was a nice trade for me.
Jeff:
I’m shocked. I’m serious. I would have never guessed that you would liquidate physical gold. And I’m glad you didn't do the George Soros approach.
Adam:
Yeah.
Jeff:
That’s a little too...
Adam:
The beauty about a trade like that, if you approach it like and event, if you approach it with discipline and dates, it’s interesting because on my birthday I was able to, by June, gold had moved so much higher, I got everything out and have doubled my money. And I was free rolling with seven figures. So, that’s a really nice place to be in. When you’re free rolling with seven figures, it’s like, “Okay. I’ve already locked down some profit, now I am absolutely certain I’m sticking to this date. And I could’ve gotten out earlier and could’ve done better, but that’s also where the research is headed is, I think there’s a lot of events coming.
Adam:
I think there are a lot of events coming up that we can now think about and think through like chess moves. And as they occur, they’re going to give you more value, Okay? So, I think gold needs to be a major portion of everyone’s portfolio, especially now. But I also believe that there’s other places you need to be allocating funds. What I was doing for the last few years was just out of not knowing where else to put it. I think a whole new mindset is coming. You’ve got to describe what the great devaluation is. I think it’s a mindset shift. And it’s really what I am excited to teach people about and the certainty of that and why and how I know. And what I’m looking at.
Jeff:
So let's talk about the future. Let's talk about what... You've done really good with predicting so far. Let's see what you're seeing.
Adam:
Well, number one, we are entering into what will likely be one of the most uncertain times in American history, the election coupled with what's happened to the social construct over... what's evolved to the social construct over the last decade. I write about some of these things in the book because the second book is really so much more than just about investments. It's about what happens. How have we gone from here to here? A really good movie out called The Social Dilemma. Have you seen it?
Jeff:
Yes.
Adam:
And what I've been following is this fake news and these fake feedback loops that we get. Are we in a recession right now? I don't know, the stock market's at all time highest. Then if you look at the stock market, you go, "Hey man, things must be okay." But if you are one of the 30 million people collecting unemployment, you're not feeling that. If you are a big corporation, if you're one of the top five companies, you're killing it. But if you're a barbershop or a laundromat, or a restaurant, or a nail salon, you're not doing well. And the real economy has detangled from the index. And the index is so poorly weighted and where I see the future is I think the passive index investing model is over. I think it's going to return negative returns over the next decade.
Adam:
I think that's why Warren Buffet is now moving into gold because he sees the future. And the future I think he's seeing is the one that has me so excited to buy as much physical gold as I can right now and why I'm going to keep buying. I have a goal in my head, like I said, of the number of ounces I want to get to because I think gold is going to be $10,000 an ounce. I think it's going to get to 10,000 an ounce, originally it said by my daughter's 10th birthday, which will be in 2029, but I think it could happen by her fifth birthday, quite frankly.
Jeff:
Wow.
Adam:
So I'm trying to buy aggressively, just like buy the dip was the mantra for stocks over the last decade, I think buy the dip on gold is going to be the mantra over the next seven to 10 years. And I'll tell you precisely why I believe that if you'll allow me.
Jeff:
Please.
Adam:
Okay. What did the Federal Reserve do on the September 16th meeting, my birthday, the big trade date that I had identified? Couple of very big things actually happened.
Jeff:
I'm assuming they celebrated your birthday.
Adam:
Well, you know what, it was a celebration for me, yes. And it's a celebration for people who understand the story because they've just solidified it. They did a couple things. Number one, they codified their new inflation target. So the Federal Reserve has targeted 2% inflation for the longest time. And they're now saying, "Well, we're going to target inflation to run above 2% to make up for all the time that it fell under." So that was number one, they've codified that they're going to let inflation run hot, so to speak. They also announced that they're going to keep interest rates at 0% for 2021, 2022, 2023, 2024. We don't get to a rate hike for four, four and a half years on their promise expectations.
Adam:
Now, they have been able to get interest rates to 2%. What makes anyone think they can get them to two and a half or higher? And that's the big, Wall Street's not trusting the disinflation target. Jeff, they're absolutely going to get inflation. They're going to get inflation in such a big way. And I'll tell you why. See, what they're really sending is Congress a message and the message is, guys, borrowing is free right now. Okay. So borrow as much as you can. In fact, we don't even see interest rates getting to 2%. So we don't see any inflation in the future. So you can borrow at will and believe me, the next Congress that gets elected, whether it's red, blue, or purple, we're going to see massive fiscal stimulus.
Adam:
We know what Pelosi and team want to do. Okay? Trump's saying, "Go for the gusto." So either way, we're going to see in the new administration, a massive fiscal spending, massive. And we're going to see fiscal stimulus, after fiscal stimulus, after fiscal stimulus.
Jeff:
In what form?
Adam:
Well, it's a great question. Tell me who wins the election, tell me if it's red or blue and I'll tell you how the form happens. See, think about it this way, student debt, okay? Is a crisis, $1.6 trillion in student debt. These are the millennials who are driving our economy. Okay? They're the ones that are supposed to be buying houses and cars, and spending money, and going out and doing things, taking risks, and they're spending a good portion of their money paying down their debt. So it is not stimulative for the economy to have students having to pay their debts. The blue team, they want to wipe out student debt, that's their solution. Okay? Let's just wipe it out. Of course, that's the opposite of what the red team wants. Okay? That sounds terrible.
Adam:
Wiping away debt is not a conservative thing to do. So you're not going to see them do it that way. But student debt's getting wiped out because we need to stimulate the economy. So whether it gets wiped out by a Democratic wave that removes it, or how does this sound? I'll tell you what, you can pay your debt, but we'll put the money in the stock market for you. Okay? So you're incentivized to pay your debts. So you have some stake in the future because it's too big a part of the population. This is the biggest part of population we have to not allow them to have a stimulative action. So it's how the rules get implemented, how the money flows, whether it's in incentives, in tax credits, or whether it's in debt forgiveness and entitlements. But either way, I believe the next administration will wipe out student debt.
Adam:
Students will have a different way to deal with their debt situation. That's what I believe.
Adam:
Did I answer your question?
Jeff:
Yeah, I'm surprised it hadn't happened already.
Adam:
We're talking here right prior to the election. Okay? So we don't know what's going to happen. But I certainly believe that the Republicans have made some missteps. We saw what happened to the stock market when they passed the CARES Act. Sure seems to me that the stock market has predicted the winner of the election like 97% of the time or something. So the number on the S&P 500 is 3,300. If the S&P 500 is above 3,300, the odds of the incumbent, Donald Trump being reelected are significantly higher if it's below, because it's all about the last 90 days, so what it does from August 3rd to November 3rd. Okay? So I think that number is about 3,300. And to me, if you pass the CARES Act Two, all of that stimulative, all that money would flow and you would see exactly what you saw when they passed the first one, stocks would explode.
Adam:
They didn't do that. Trump, he's really smart. He's an impact for what is going on with the people. Okay? I think it's his talent. So he's able to pinpoint the emotional triggers and he understands that this stimulus package is what we need. He said, "Go for the gusto." I think we should go for the bigger number. And it's an interesting thing to think through for the future if he gets reelected, how does this all play out with Congress? What I'm looking at, Jeff, is the following. So we have the blue team, which is progressive. You've got the red team, the Republicans, which are conservative. Okay? And there's no ground in the middle. You have a situation right now where we're in the middle of a pandemic, we're in the middle of a inequality crisis. We're in the middle of a global warming situation. And the Federal Reserve is the one thing that everybody agrees are heroes.
Adam:
They're the one entity that can't make a mistake. The Democrats love them. The Republicans love them. And here's what they've done. While we're all busy fighting each other, okay? Polarized, you get information on your news feed that tells you this. I get information on my news feed that tells me that. And there are two different pieces of information, and we get feedback loops that only solidify what we already believe. It's no wonder we don't know what the hell is going on. So we're in the information age, have never had less information than we do right now, valuable, real information, except one thing, the Federal Reserve are heroes. Okay? There's a saying for football, I'm a big football fan. Fans watch the ball. Okay? Coaches watch the line of scrimmage. And while we've been all watching the ball, the protests, and the pandemic, and the political back and forth, the Federal Reserve moved the line of scrimmage 90 yards and no one's saying anything.
Adam:
They've literally taken the balance sheet. Now this is where I think it's a bonanza for gold in the coming decade. Okay? Where the information we do really started to take off was which, the decade report I released in January, where I compared the US debt to a deadly virus growing in a glass. Okay? And the question was, if you had one bacteria in a glass that doubles every minute and you began at 11 o'clock and by what time would the glass become completely full? And most people guess 11:30. Okay? They think, okay, well, if it doubles every minute, it be halfway there by 11:30. The answer is no, the glass doesn't become half full until one minute to midnight. At one minute to midnight, it's half full, at two minutes to midnight, it's a quarter full. At three minutes to midnight, it's an eighth full. And at four or five minutes to midnight, you can barely see it.
Adam:
And this is why mankind continues to make the same mistakes over and over again. We don't experience exponential growth as it's occurring. I'll give you an example. The 75-year-old who has a massive coronary on his 75th birthday doesn't get it from eating birthday cake.
Jeff:
Right.
Adam:
Okay? That's something that happens from decades probably of bad habits. The coronary is called an asymptote. When you look at the doubling process, when it hits the asymptote, and an asymptote is technically a curve on an X and Y axis that starts to shoot towards infinity. Once you hit the asymptote, it's game over. Okay? There's no stopping it. And so Bush doubled the debt of Clinton. Obama doubled the debt of Bush. Trump's on pace to double the debt of Obama, and we're doubling it, and we've hit an asymptote. And that was the big story of the Decade Report. Well, let's take a look at the Fed's balance sheet. In 1980, it was $150 billion on the balance sheet. Okay? 28 years later, in 2008, it had grown to about 750 billion by 5X. So over 28 years, it grew five times. From 2008 to 2019, it went from 800 billion to four trillion, another 5X.
Adam:
So 5X in 28 years. Now 5X in 11 years. Now extrapolate that out because they just doubled the balance sheet over the last year. When I said the balance sheet was going to hit $20 trillion by the year 2025, I was actually wrong by a year. It's going to hit by 2024 if we continue on this pace. We've hit an asymptote. The only move that the Fed has is to keep expanding the balance sheet, printing more money. That's the only move they have. Interest rates are already at zero. They're indicating interest rates are going to be at zero. So we're going to see that. And the baton is now being passed off to fiscal stimulus. And the bell that went off, Jeff, as all this went down, I had submitted the book. I knew the progression this had to take, because Neil Howe is a guy I admire very much. He wrote a book called, The Fourth Turning. And what he talks about is the Supercycle, and the great devaluation is really evaluating that Supercycle.
Adam:
And the Supercycle is this 90 year phenomenon. Okay? And the Supercycle has its history back all the way thousands of years ago with the Etruscans. They were people in Italy who reigned for about 1,000 years. And the Etruscans didn't base their calendars on 100 years like we do today. They based them on crisis moment to crisis moment. And what it turned out to be was every 90 years or so, there would be a crisis. And the reason the crisis happened was, there was no one left alive to warn mankind of the mistakes of the past. That was the entire ideology. And this sounds kind of crazy. It sounds a little hokey, okay? Until you start looking at American history. 1776, Revolutionary War. Literally four score and seven years ago, Lincoln talks about the saeculum, read those words. And then 1945, a saeculum later, a Supercycle later, the end of World War II.
Adam:
So we have these crisis moments that come roughly every 90 years. I wrote about that in the book, I was saying we're back at that place again. I write about the five signs that are exactly the same and the signs are the same as we were in 1929. But it's most represented by the wealth gap. The distribution of wealth is the number one problem we have today. Okay? We have 20 billionaires that are worth more than the bottom half of the world combined. That's just a math problem. Okay? And every revolution is built on inequality. So change is coming whether we like it or not, change is probably coming in a very progressive way. And I really believe what you're going to see is modern monetary theory. You're going to see us being sold. Well, it's okay to go further into debt if we print it ourselves. If interest rates are at zero, this is what we need to do, and they're going to sell us, it's okay.
Adam:
And so whether it's the Republicans or the Democrats, we're going to get this mindset. Okay? So I believe that's what's coming based on the past. But what really let the bell off and the subject of my new model and what I'm so incredibly excited about is why. Why do these things happen? Because it's not enough to know that we're in a bubble. It's not enough to know that the signs are the same. It's not enough to know that populism is reigning again like it did back then. It's not enough to know the same similarity until you know why. And Neil Howe said something in interviews, a throwaway line. And he said, "There is a supply and demand for social order." And then he went on to talk about some other things, and that just stuck with me. And I just started plotting out history.
Jeff:
So what does that mean, a supply and demand for social order?
Adam:
That's a good question. Social order represents the social construct of mankind. Okay? And when there's high supply of social order, it means that there's a lot of institutional oversight. Okay? And when there's low supply of social order, it means that there's a lot of deregulation and a lot of... it's more individual, the high supply is more progressive. Okay. It's more the collective. And so if you look at low supply and high supply being on opposite ends, well, you also have demand. And demand also has times when demand for social order is low and times when demand is high. And if you chart this out on like a T-chart, and then you look at the Supercycle over the last 90 years, you find some incredible things. And so that's what I did. And we spent six months building this model.
Adam:
And what you'll see is that the reason this is coming, the why is it's like gravity. Okay? The demand for social order pulls the supply. In a democracy, we vote for what is good for us. And when the demand for social order gets great in times of depression, in times of war, in times where we need a big unified response, okay? We elect leaders that come in and fill that supply. So look back 90 years ago, we had a crisis. We had a great depression. Okay? There was populism reigning around the world. Inequality of wealth was the greatest it's ever been in history. Back then it was the Vanderbilts, and the J. P. Morgans, and the Carnegies. Okay? So you have this math problem and you have this demand for high demand for social order. And we got it. And over the next few years, we had a blue wave. And what happened when the blue wave happened with FDR? Do you remember?
Jeff:
No.
Adam:
Well, literally happened in the middle of a banking crisis. So an election happening in the middle of a crisis. Sound familiar? We have a similar situation, an election happening in the middle of a crisis. By the way, the president, the incumbent, Hoover, was a staunch Republican, conservative, populist. He put on tariffs to help the American worker, the Smoot–Hawley Tariffs were passed in 1930. So we got identical looking time, and president, and policy then as we do now. And there was a blue wave and you saw Congress, the Senate, the House, and the presidency all elected democratic. And in the first week, they shut down the banks for seven days. Then when they reopened, they opened with FDIC insurance. They then passed Glass-Steagall, which was massive reforms on how banks can invest money.
Adam:
They then passed the new deal on all of the new deal programs. And of course they devalued, they made gold illegal. And with the stroke of a pen, changed the price from $20 to $36, a 40% devaluation with the stroke of a pen. That all happened in the middle of a crisis. So for those who don't want to read the book, you got a pretty good summary. But on the back of the book, it says the following quote. "What seems crazy in normal times becomes necessary in a crisis." And right now the Federal Reserve is saying this is necessary and we're all okay with it. But the reality is we're about to see the baton pass. We're about to see a massive fiscal impulse, which means wiping our student debt. We're going to need a universal response to the global warming situation. We need a unified response to pandemics. They are things that require a bigger unified approach.
Adam:
And so demand right now is high, okay? Social order demand is high, and we're going to see the supply come to meet it. And that is very inflationary. So if you look at this on a grid, what you'll see is over 90 years, okay? At the nine o'clock, we have a deflationary crisis. At the three o'clock, we have an inflationary crisis. And what happens is the demand gets pulled either way as voted in by the people. So we had, if you look at the bottom half of this grid, you'll see it's the we, the collective, progressive and it's blue. And if you look at the top, it's me, the individual and it's conservative. And so there's this fine balance between social order, it's supply and demand and it's like gravity. And I think if you buy into this model, if you start to really understand, okay, where are we at on this scale? We have a deflationary crisis. It's what we have right now.
Adam:
We have social order where we need a bigger response. This is coming. And what does that mean for financial assets? Well, from 1929 to 1990, do you know how much the stock market went up?
Jeff:
No idea.
Adam:
Well, on a nominal terms, I think it went up eight times. On a real inflation basis, 0%, 60 years.
Jeff:
Wow.
Adam:
So inflation is terrible for financial assets. Deflation is great for financial assets. And so what we've had, we had a poll 45 years in this inflationary poll. And then what happens at the extremes is too much of a good thing becomes a bad thing. And that's the entire thing of the pendulum. And so each of these things, when they hit their peak, it's too much, and there's a pull back in the other direction and that's what keeps it going. And so we're going to have a new circle. If you think about life rather than linear, but more it's a circle, okay? There's a beginning, middle, and end. Everything has a beginning, middle, and end. Well, the end is a new beginning. And so we're going to have a new system, it's coming. And why I believe the monetary system is going to change dramatically is there's no one left to take the baton.
Adam:
Take a look at the last 570 years, Portugal, Spain, the Netherlands, France, Britain, the United States, okay? If you look at how long each of those were the reserve currency of the world, 95 years on average. The US dollar has been the defacto currency of the world since 1920 after World War I. We were the young lion, Europe was decimated. We had all the gold, we had all the power. And so the dollar has been the world's trading currency for 100 years. So if you understand, monetary systems come to ends every 95 years. And then you look at all the things that are happening, well, I think it's a pretty strong bet that you're going to see the dollar drop dramatically over time, but it could drop like that. And I think that's why this election is so important if we get that blue wave in a crisis. Now keep in mind, this is the... can I give you my conspiracy theory now?
Jeff:
Oh, please.
Adam:
Do we do that on Jeff Hays films?
Jeff:
Absolutely. Please.
Adam:
Okay. So I did a documentary, Trump Versus the Federal Reserve. I believe the Federal Reserve does not want to see Donald Trump reelected. I believe that he is a threat to their independence. And if you listen to what they're saying, Neel Kashkari goes on Face the Nation in August and says, "We need to shut the country down. We need to get our testing right. We need to get our tracing right." Now, the Federal Reserve is adored by Democrats and Republicans, and they're powerful. I believe they're are more powerful than the United States government. So controlling the dollar is what's given us our home field advantage. Okay? We've got 5% of the world's population, 25% of the world's wealth. And it's because we control the world's trading currency. So that's something we don't want to lose, but it's probably in jeopardy of being lost.
Adam:
But the big problem is, who do you hand the baton to? Because every other currency is in the same mess. You pass it to the Euro, pass it to Japan? Certainly we're not going to pass it to China. They might try and come take it, but we're not going to pass it to them. And so there's no one left to pass the baton to. And I think we're going to have a monetary reset and that monetary reset is going to reprice all assets. And I think that's what's coming in the future.
Jeff:
I like this concept of monetary reset. It gives me... when I was reading about that, and you and I have discussed it a little bit, let's go into what that looks like.
Adam:
Sure. So if you want to see the future that I'm writing about, that I'm thinking about, I think you're going to see the tokenization of everything. It makes too much sense. Why we're not voting on some blockchain that we can verify, we would not have any problems. There wouldn't be anyone worrying about it. We would know, that guy voted and that's who he is. That woman voted and that's who she is. So there wouldn't be any question. So you're going to see tokenized voting, blockchain voting, but you're going to see even more, Jeff, if you're a celebrity and you sign a big contract, okay? If you can pay a dividend, all right? You can become investible, you can tokenize yourself. So I'm a new quarterback who signs a big contract, and I want to raise $50 million, well, I can tokenize myself. People could start buying or selling my token. And as long as I pay a dividend over the course of the span of that time, well, then it's something that you can turn into an asset. And I think all assets will become currency, buildings, people, businesses. We're going to see a tokenized world and that's going to become the new currency. We're going to be able to argue, a home is worth $400,000, okay, great. We can measure that and you can actually take a loan, tokenize, and that's going to be the new currency of the future. I believe asset prices, and stocks, and bonds, and gold and other commodities are going to be dramatically impacted by that new system. And I think you're going to see a time when food prices surge, when commodity prices surge, when financial assets struggle because inflation really means real interest rates that are rising and they eat away at currency values.
Adam:
And I think that's what the Federal Reserve wants. The only way to pay back all this debt is with diluted dollars. So how do you pay back $27 trillion? You don't. Right? I guess you could, you could wipe it away and devalue the dollar. And I think that's what's coming. And if you know your history and you believe in this construct, and you understand the wisdom of why it happens, then it doesn't become something to fear. Then it becomes something to embrace. And I think it's the same kind of thing that people who fear death, who then have belief systems past that start to become okay with it. Right? Every end, we're all... We spend our lives not thinking about the one thing we know is going to happen. We're all going to die. I don't see life that way. I see a circle of life.
Adam:
When I was doing the Gold Summit, I talked about this. I said, "Look, I'm 50. My daughter was just born and my mom just died. So I am the perfect kind of example of the timeline, beginning, middle, and end. But she's the new beginning and we're going to have a new system. It's just a matter of when and how that occurs and with what kind of crisis." So we're going to have some challenging times. We are really polarized. It's going to be rocky. It's going to be volatile. But as we come out of it, I think it could be fantastic once we do.
Jeff:
I like that note of optimism. I love the example of a chick in an egg, a baby chicken in an egg. And the chick is growing. The food supply is gone. The air is noxious. There's no room left in the egg, it's miserable and it's the only world they've ever known. And I think of this, I can just picture the check finally giving up and saying, "Okay, I'm ready to die. I'm leaving my home and breaking through the egg and finding the world."
Adam:
Sure. Sure.
Jeff:
And so I like the optimism.
Adam:
I like it too.
Jeff:
It is scary to look at the, as I've read your book and thought about what you're saying, I don't see, I think we can kick the can down the road a couple more times. And that's like, my optimism is like, okay, please let this harebrained scheme just keep working for a little while longer.
Adam:
Well, look, it has to. It has to. See, and that's something that we all need to be aware of. And certainly something that Wall Street's aware of. When we had the great depression, 1% of the population was invested in the stock market. 1%. Today 55% of baby boomers' money is in financial assets tied to equities.
Jeff:
Wow.
Adam:
So if we have a big collapse, we're going to see massive financial challenges. And that's why it's so easy to buy gold because you know the move in advance. I'll do you a different one on an animal. See, I look at it as a larvae that turned from that into a caterpillar, turned into a butterfly. Okay? If you you told me that that was going to be a butterfly in 14 days, I wouldn't believe you. Gold is going to be a butterfly in 14 days. And we aren't at the egg stage. We're not even at the crawling caterpillar stage. We are at the about to burst out of its cocoon stage because this is the only solution. So it's going to be rough for those who don't change. See, we like to think about matter as something that doesn't change, but matter changes. And if you think about money and its evolution, it used to be something scarce, and rare, and gold, then it became paper money. Okay?
Adam:
And that evolution then led to, we don't need paper money. Now it's just digital transactions on a ledger. Well, it's going to continue to evolve. So it's not only evolving in form, it's evolving in mindset. And when the Federal Reserve just comes and prints money, and it's really maybe where the whole virus is a great analogy. A virus attacks a weak system. Okay? A virus works in a body that has underlying conditions. We have massive underlying conditions as a country. We know it. We're very insecure because of it. So just like that 75-year-old who has that coronary, he kind of knows, man, I probably shouldn't have been smoking two packs a day and doing the things I was doing, this is probably expected. So when this, I call it gradually then suddenly. That's life. Gradually then suddenly.
Adam:
And when that sudden comes, we're all going to go. Yeah. We just wish it had come later. But see, for me why if you know it's coming, and you know it can come at any time, why not just change? Why not change in advance? And that's what I talk to people about, the way you're doing it, there's a better way. And I'll stand by that title, in fact, it gets really full circle for us because I didn't know I could write. I wanted to put the conclusion on the cover because I believe it's better. Not that something else is bad or good. This is just better. So if you want to get to the airport, sure, you can take a train, you can take a car, you can take a skateboard, you'll get there. It's probably one or two of them would be better than the other. So I think we're entering into a time where there's a better way. And unfortunately, most investors aren't in that strategy and they're not going to hear that strategy from Wall Street. They're just not.
Jeff:
So you lay out this scenario, is there an alternative solution? Is there something else that you see as a potential?
Adam:
There could be. And in fact, Trump's most recent nominee to the board of the Federal Reserve, Judy Shelton is actually someone that espouses a gold standard. Now, what's interesting about this is, this is who Trump is nominating. Okay? He's got three other nominees that have been rejected. And now putting up Judy Shelton, she's going to get rejected because Mitt Romney, and Thune, and other conservatives are not going to put her on. They're not going to approve her. Okay? So she's not going to get on the board. And the reality is because the Federal Reserve doesn't want her on the board and that's why they're not going to approve her. But what's so bad about thinking differently? They're not afraid to put anyone else who doesn't think like them on their board. And that's the definition of too much of a good thing is a bad thing.
Adam:
The Federal Reserve is too much of a good thing right now and they are now a bad thing. So on the gold side, how would this look? Keep in mind the balance sheet is made up of assets. And sitting on the Fed balance sheet right now is gold. And rather than continue to add bonds and massively purchase treasuries, and mortgage backed securities, and other paper assets, they could do what other central banks are doing, which is buying gold and adding to their gold holdings. Think about it. The reason interest rates are zero, the way the Fed gets to turn that dial down there is they forward guide what they're going to buy. We're going to buy bonds and everyone then knows, okay, we're going to buy bonds too because you got way more demand than supply. So let's just keep buying them because they're going to keep going higher.
Adam:
Or if the federal open market, if the Fed did a open market operation and just said, "We're going to keep buying gold." And so gold gets to $10,000 an ounce. Well, guess what would happen? Gold will get to $10,000 now real fast. Now here's where it gets really interesting. Gold on the Fed's balance sheet is valued at $42 an ounce. So if you're looking for some new manipulative things to do, which is really what the Fed does is they manipulate, okay? They control the money supply, it's all manipulation anyway. And the rules change every 15 years or so anyway. Okay? And I could go through them. 1933, we recall all the gold. 1951, the power gets passed from the treasury back to the Fed for monetary policy. 1971, Nixon closed the gold window. 1985, Plaza Accord. 1998, the bailout of long-term capital management. 2008, creation of quantitative easing.
Adam:
So every 15, 17 years, we got to change the rules anyway. This is just a way that they could reapproach the balance sheet. But what's to stop Trump from just directing Steve Mnuchin, let's mark goal to the market price? And the balance sheet would immediately increase from $42 to whatever the price is today, I believe it's $2,000. It would be a 50 times increase in the gold side of the ledger. And if they move gold to $10,000 an ounce, it would be about three trillion dollars of real assets added to the balance sheet. And Jeff, that's where we're headed anyway, gold at that price. So an overnight move that does that is something I think is a really interesting, and logical, and real potential that could happen. There's only one reason not to, you know what that is?
Jeff:
What? Why don't they just mark to the market?
Adam:
Well, there's one reason. The Fed has spent the last 100 years telling us, "You don't need gold. You need dollars." So if the Fed goes out and starts telling us gold is important, well, then the whole identifier of the Fed being all knowing goes away.
Jeff:
Makes total sense.
Adam:
But think about it. They want to create inflation. They can create inflation, and you know how they can do it, start buying a bunch of gold. So this is a solution I think is one that is already being considered. Hopefully the book will help get that story out even further. And I think it's a solution that the Fed will come to. And at this point what seems crazy in normal times becomes necessary in a crisis. We just put three trillion dollars on the balance sheet. No one's asking how we're going to pay for this. Nobody. Nobody. And ultimately it's going to be paid for through inflation. And that's the big thing that's coming.
Jeff:
I watched... you remember in 2008, the hand-wringing over whether to create this money to solve this problem.
Adam:
Sure.
Jeff:
And the battles back and forth. And this time it was just, where are we going to spend it? There was all of the questions of, should we do this? How much? Who's going to get it?
Adam:
And when Powell says we'll do everything we can to, quote unquote, 'keep the expansion going,' he understands they can't afford to let it collapse. They can't afford to. So, okay, they're not going to let asset prices drop. They're just not going to, how are they going to do that? They're going to buy more, and more, and more, and more, and more. In fact, they're going to start buying junk bonds, they did. They're going to start buying stocks, that's coming. We're going to be Japan which has all the tools that they've done. And ultimately we're headed in that direction. Japan, by the way, you know what they've done?
Jeff:
What?
Adam:
They've wiped out their debt. You know how they've done it? The central bank bought all the debt for free. There is no more debt. It's a magic trick. It's fantastic.
Jeff:
I wish I could work that at home.
Adam:
Yeah, exactly. Well, the interesting thing about the Mandrake method, right? That's talked about in The Creature From Jekyll Island. Okay? The Mandrake.
Jeff:
Yeah. Mandrake the Magician.
Adam:
Yeah. That's what he talks about. And it's literally like taking money from your left pocket, putting it in your right pocket and calling it new money. That's what the Federal Reserve does. So this is a game that's been played. And once you realize this is what happens to currencies and why they break apart. See, and then you think about this 90 year cycle. In the beginning, its growth, and its strength, and its power because you just won a war and now it becomes devaluing the currency, devaluing the currency, and now you're weak. And that's where we are. We're fragile. Our mindset is fragile and a new mindset's coming.
Jeff:
We talked about stimulus. One thing I'm curious about potential stimulus is there's a lot of conversation about universal basic income. An idea that to me, a decade ago, what has been absurd that people were talking about.
Adam:
Right. Well, while the Federal Reserve moved the line of scrimmage 90 yards, the whole idea of conservative and progressive has also been moved 90 yards. Okay? We already have universal basic income. We put checks into the hands of every Americans when the pandemic happened. Guess what? Once you do it once, it's kind of like that, what you just said about the balance sheet and the hand-wringing that went on. Man, once you do it once, you do it twice, just keep doing it. And so when Andrew Yang and Mark Cuban come out and say, "We need to put thousand dollar checks into the hands of every Americans every couple of weeks," this is coming. This is what has to come. Okay? And it's just what it gets called. So there's going to be a lot of people that don't like that reality.
Adam:
We already have universal basic income. I don't think we're going to get less of it, I think we're going to get a whole lot more of it. And right now we need it. We have massive holes in this economy. And unfortunately, we're all living in some, this isn't a tragedy, this is a farce. Hey, we're living in a farce, not a tragedy and we should laugh. And I think if you have some perspective, able to take a deep breath, able to recognize, wait a second, don't listen to Adam Baratta. Okay? Don't listen to me. Listen to the smartest guy who's been the smartest guy for the last 50 years, the greatest American investor of our time is buying gold. He's selling bank stocks. Let's follow that guy. And so that all makes me feel really good about where I'm at and what I'm recommending people. And I think you're going to see a mindset shift. And in few years, you're going to see Wall Street recommending it like crazy.
Jeff:
I love your concept of a farce. But I can't help but think that 2020 is a play brought to you by Mel Brooks.
Adam:
You couldn't write a farce this outrageous than what's taking place on a daily basis. I think, Jeff, if we're going to talk politics a little bit, it's why we're so fed up. The hypocrisy is so great. And when you only do the thing that's expedient because it's good for you right then, well, you got problems, you don't stand on principle. And the Federal Reserve is in that place right now. See, I look at them doing that. This is way bigger than Lindsey Graham saying, "Well, mark the tape." And then, "Oh no, now I'm going to change my mind." That's hypocrisy. Okay? And there's hypocrisy on both sides. I'm not trying to get political in either way, but I am telling you that when the Federal Reserve loses sight of their main job, which is sound money, and we can just print away our problems, why do we pay taxes?
Adam:
If we can just print the money, why do we need to pay taxes? So a lot of big changes are coming. A lot of big changes are needed. And if you're an investor who understands these things, I think you can make fortunes in the coming years while a lot of people are suffering. But you got to move in advance. You can't wait for the wave to take you over because then it's too late.
Jeff:
Yeah. There's the great line. There's never a good time for preparation. It's either too early or too late. With your example with gold, I love that you've got me out of thinking of gold as preparation, gold as a serious investment on its own. And it just happens right now to be the only place I want to be.
Adam:
It's a bullish asset right now. As long as this is the mindset and where we're headed and we're going to print away our problems, gold is a bullish asset. It's something you want to own, you want to own a lot of. And yeah, I think it's probably a good idea. So I'm on a mission to share that strategy with as many people as I can.
Jeff:
Well, I'm glad you are. I'm glad to be a part of that mission. And thank you so much.
Adam:
Hey, this has been fun. Thank you.