Peak Prosperity - Decoding The Japanese Carry Trade Tsunami

Episode Date: August 9, 2024

The “markets” are busy shaking themselves apart on the one hand and being propped up and rescued by central banks on the other. Which force will prove to be greater over the next few months?

Nothing in this program should be considered investment advice. It is for educational purposes only. Please hit pause and read this disclaimer in full. If you're risk managed, this is the period of time where you've got to step back and say, hey, worst case scenario, a little missed opportunity. That's easier to make up for than lost capital if this market turns and accelerates down hard in into September and October. Well, hello, everyone, and welcome to this edition of Finance U. I'm Chris Martinson, your host, back with Paul Kiker of Kiker Wealth Management.

Hey, Paul. Hi, Chris. Yeah. Oh, so a little something-something's happened in the markets between last time we talked, which was last week, and today, and today being the 7th of August. August is the quiet month, Paul. I used to, when I was a day trader, I would just take August off. Nothing happens. It's just like the ball ping-pongs around, and there's nothing fun.

Whoa. Story as I have it is that the worst day in volatility since the great financial crisis was triggered by the Bank of Japan raising interest rates by 0.25. That is correct. Did I miss anything in that story? No, you didn't miss that at all. And I think I've got a chart of it here that I can show on the screen because it is relatively interesting. I find that insane, though. That's just that's just nuts to me nuts that a quarter of a point oh wow look at that yeah that's volatility that's

yeah that means markets are as volatile as they've been since the great financial crisis because of a quarter percent and then it takes. And the best part is just trending down and then suddenly and all at once. Well, hey, Chris, here was my favorite part about it. So the Bank of Japan comes out, you know, over the past day, yesterday, and just basically completely reverses, you know, starts talking. And they're discussing, it's like, we will not raise interest rates during periods of excessive volatility. Well, wait a minute,

you raised rates before the volatility. So, so how are you going to do anything in the interim period? So, you know, and then, and then they, they basically kind of job on the markets and, and we get this huge reversal reversal up, which is not uncommon to see a big bounce on the other side of a decline like that, because we're still in by the dip mentality. I mean, you've got a lot of individuals that are trained to pick up pennies in front of the steamroller, but I do believe that this is a shot across the bow. It's a birth pain. It's a warning, uh, to investors and indexing and blackout, um, buyback blackout going away and buybacks over the next month or so may help the market rally.

But we're really not going to know if we make it to September because we're reversing lower today, which is surprising after we were up a substantial amount this morning. If we make it to September, that's when the real fireworks have a chance to to to start unfolding so so i worked hard to sort of explain this my way and i may have it wrong um but you know this isn't a sell-off like like a bunch of people got together like you and i went to a bar had a drink and said yeah i'm a little worried about my nvidia position and we both went home and hit hit the robin hood sell button at the same time it wasn't that this was this was a liquidity event right and i knew this was i knew monday was going to be bad because on sunday night bitcoin started selling off hard right and bitcoin is my liquidity gauge like people think oh it's

freedom money and it's the people have spoken it has a component of that but it also has a component of being a liquidity gauge the best one i still have in my toolbox because all the rest of them are a little manipulated i'll say right controlled yes uh bitcoin still feels like it has this beautiful free and wild thing a little bit um and uh and because of that because it's starting to sell off i said wow this is a liquidity problem right now uh and so that's different it's independent of whether you think nvidia is too high or not this is not stock advice obviously you and i was just education but so that was all triggered by 30 years of carry trade on the yen which you and i have talked about many times in the past it's this fancy sophisticated thing where people use money to make money by carrying from a low interest rate environment to a higher one they make the spread and they do that with leverage typically so that's all fun on the way up and

it's a lot less fun on the way down we started to get that down aspect that reversal that's what was started to happen and that was blown out even as you mentioned before the bank of japan's did their old back shuffle. They don't mind if the volatility is upwards. They don't care about that. Nothing happens, right? Well, on the other side of that, you've got institutions that have been substantially short the VIX,

the volatility index. So I think you had two components taking place at once, and this is just an outside observer. So somebody in the options market and the yen carry trade may argue with that. But the volatility index just steamrolled some of those that were picking up pennies in front of that steamroller. And then you've got the yen carry trade and all this forced deleveraging that's taken place. And I saw somebody post on Twitter, it's like, I thought gold was a safe haven, but it went down too. Well, the reality is, and this is what I tell people, gold is that safe haven. But if you get a big sell-off in the market, gold is going to go down as well because there are individuals that are stuck in these positions to where it's, hey, I can sell this at a, just an example, an 80% discount, or I can sell my gold at a 10% discount.

I'm going to try to live another day for that other trade. So, you know, when you get those forced liquidations like that and deleveraging, um, you know, that, that lack of liquidity, lack of buyers on the other side is what led to that massive event. Worst day, worst day, even worse than 1987, uh, two day decline for the Nikkei index going back to 1987. And I've got a chart of it here somewhere. Yeah, let me pull that up and I'll share that. Wow, well, yeah. And while you're pulling that up, I'll just cut to this real quick, which is, so this is the S&P, right?

And here's, it started its big decline. This is the big, you know, monkey hammer drop right here over these days. People are talking about, but it already topped off here starting around the middle of July there on the 15th or so. That was a top came down a bit, rallied, came and then came down hard. And this was this was this is today. I woke up this morning to the opening move in the market was plus 75 S&P points, which is pretty bold. First move. And it's just been sort of, you know, wobbling that down all day long. It's just sort of been bleeding away. So that's typical that Paul, the bounce, very typical. But the way I'm reading that is it ain't over.

No, I'm concerned that it's not over. We've been talking about it. Dylan and I have been discussing it on the investment committee pretty heavily. It's like, okay, you get this initial sell-off. What positions need to be sold into the rally? And reduce positions that are down right now because you get this initial sell-off and then a bounce, and you break some levels of support, which is the same thing we did in the U.S. markets in 1987. You rallied for a couple of weeks and then, you know, you had that big black Monday, 1987. And look, I don't know. This is what makes top so hard and so challenging because you've got individuals out there right now, I've seen,

that are taking advantage. They run risk-managed strategies, you know, or they're traders and they're like, hey, we timed this, you know, great. They traders and they're like, Hey, we, we, we timed this, you know, great. They set the expectation up that you can time it perfectly. You can't, some people's strategies are going to get it really good in the short run. Some people are going to navigate better over the long run, but the reality is this is a very, very tough environment and you have to go against, you have to set those emotions aside. Now I changed my sign in the back to sometimes defense is just as important as offense instead of, you know, invest your plan, not your emotions, because I do think defense is important right now. You've got to make sure that you're, you're protecting that capital and making wise decisions. But, you know, we've been trained that, Hey, bank of Japan comes out. Hey, let's try

to save the day. The expectation is the fed's going to save the day. Goldman comes out today and kind of throws, throws cold water on the emergency rate cut narrative. That's what the market's screaming for. But the reality is the economy's slowing. How fast, we don't know. We have to look at the revised numbers to see because of the ministry of lack of truth tells us one thing. And so I think we're coming into that danger period. I mean, I mentioned last time I'm on top watch right now,

and it's impossible to pick the top. And who knows if this is a dip in hindsight that everybody's going to wish they purchased. But if you're passive and all in, then you're not really buying a dip. But if you're risk managed, this is the period of time where you've got to step back and say, hey, worst case scenario, a little missed opportunity, that's easier to make up for than lost capital if this market turns and accelerates down hard in the September and October. Yeah. Well, I mean, in a normal market, right, you have overbought, oversold conditions where you typically expect some kind of a reversal off of those conditions, right?

And there's lots of reasons for that. So let's say, what do I mean? Oversold. A lot of people have been selling, selling, selling, and it gets your reading say, wow, this is just, it's gone a little too far. And there's a way that they put those numbers together, right? And so then you get that bounce. The problem is, is that after a period of excess, when you have a bubble, right? Or like, we've had a lot of bubbles, can we just be honest about that? Right. Remember, I'm old enough to remember 2019. Right. I hate to date myself. But remember 2019 when there was 17 trillion dollars of negative yielding debt in the world, whatever that means. Right. You know, I was like, it's a little bit of a bubble there. Thanks, financial banks. You know, a little frothy, right? And, of course, that's all been reversing.

But the point I want to make here, Paul, is that when markets are really frothy and they finally break, they sell off, they hit oversold, and then they break. And so every market crash I've studied that I call a crash, like it's a big, like, you know, we're peeling off whole tens of percentages over the next few months. Those all are in oversold conditions the whole time they crack right through that oversold condition and keep piling on so that's why i'm watching this very carefully how's it going to respond is it going to be a weak bounce and that's what we're seeing today kind of a weak bounce that it's already red and it was up 75 points so this is at current trends this will be 100 point intraday reversal um so that's that's not strength no that is not strength and yesterday we did not close on the highs you know if we were closing on the highs four or five six seven days in a row then i'd be inclined to believe that it

was a little bit more of a short-term event but when you have that much damage that takes place across the board and then there's still the there's still geopolitical risk out there right now. You know, so what's going to be the next trigger? Um, you know, this, this is a, this is a dangerous time. And, and, and this is one of, one of the things I taught to individuals out there about, you know, we addressed a couple of weeks ago, the question about, you know, performance, people, people ask about performance or they look back in their 401ks to see what it is because they don't know what questions to ask. What questions you need to ask or what are the strengths and weaknesses of an approach?

You never want to walk away from a strategy at the weakness, at its weaknesses, and you never want to buy into a strategy of its strengths. So if you've been a passive kind of buy and hold index investor, you're waking up to what's taking place in the world. You know, you're, you're seeing the truth there. If they're listening to you, Chris, they care about the truth. We're at about the greatest strengths of a passive, you know, strategy right now. We're close to all-time highs. U.S. has only been the only game in town for the past 16 years, really. So diversification hasn't rewarded you that well. This is about as strong as that strategy gets. And who knows,

it may run up another six or 12 months, but you want to get close to that period of time. So for someone who is looking for a more wise, kind of prudent approach to manage their assets, this is a good time to start looking away because you're getting rid of it. You're adapting from, or you're changing from a strategy at its strengths, not its weakness. You know, bottom of the market in 2008, when the market's down 57%, that's the weakness of a passive buying whole strategy. You're going bottom of the market in 2008, when the market's down 57%, that's the

weakness of a passive buying whole strategy. You're going to have to endure that. That's not the time that you walk away from that. That's the strength of a risk managed strategy. So you don't want to walk away when you're down 57% to go to risk managed at a strength. What you want to do is walk away when you're in a period of time where the strengths are so strong that it's running on emotions and expectations of investors more so than fundamental financial reality. And that's the problem where we are right now. You know, everybody's trying to come up with an answer. And yes, the yen carry trade did reverse in the interim period. That's something that has been a birth pain that I think will continue. But the reality is we're in a massively overvalued market,

and that's what happens in environments like this. When everybody realizes that the game is over and the music stops, it's suddenly in that all at once, and that's when we get these big declines. And look, if we have a Black Monday like we did in 1987 where we are now can the Fed kick that can down the road another five or six years I would argue that that they can't I think they've reached the point of diminishing returns and they may do more damage than what then what they can and good and paper in this over in the interim period because if they paper it well, food prices are just going to get a lot worse and we might end up in a currency crisis.

We've mentioned this before, Paul, but there's the chance that as goes Japan, so go we, just with a little lag, right? Because Japan has just been in front of the United States. You know, we like to think we're the leaders, but they've been running Qe for a decade longer than we have they've been running the zero interest rate policy longer than we have right um they have a variety of things but the thing that always caught me off guard i think daniel lacalle uh really did a good job with this um he said here on august 6 today being the 7th so this was yesterday he said bank of japan one prints insane amounts of money two becomes largest holder of etfs in the nikkei remember this incentivizing investors to purchase japanese etfs by borrowing in yen oh no three yen falls to 40 year lows four bank of j Japan blames speculators. A classic. Five, Bank of Japan spends billions stabilizing the yen. So that blue lines in that chart below, that's holdings. Bank of Japan holdings of ETFs. It's such an extraordinary, extraordinary number. It's unbelievable like if you ever heard that i'm sure you have the old uh

the old saw that the old joke about um trading where there's a gentleman who decides he wants to go into egg futures so he buys some egg futures and and they go up and he's like oh this is good i'm making money so he buys some more egg futures and they keep going up and he keeps doing this he keeps buying more and more and it keeps going up. And then finally, one day he's like ready to ring the cash register. So he goes to his broker and he says, sell all my egg positions. I'm ready to retire in the Caribbean. And the broker says, well, to who? He says, well, to the egg market.

He's like, sure, you are the egg market. That's great. And for those who haven't spent much time in the markets, if you think hard about that, you'll understand it. There's nobody to sell to because, yeah, that's great and it for those who haven't spent much time in the markets if you think hard about that you'll understand it there's nobody to sell to because yeah yeah that's great then do you get a good corner market if there's nobody to sell to no no but i mean that's the bank of japan look at them they've like they are the egg market here they like literally uh it is it raised so many issues for me at the time paul which is like it's because they are majority holders does the the Bank of Japan have a seat on the board of these companies?

That's a good question. It's very weird from a governance standpoint. Anyway, they overdid it. And even despite all of that Bank of Japan ownership, even despite all the printing, it still broke on them. Yeah. So to all those people who are holding on to this idea, well, the Fed will bail us, they'll print, they'll print us out of this. You might want to have a little caution on that strategy, you know,

because it might not happen. Let me share this. This is actually a really good piece right here. So the Burry Tracker, and I'll watch what he puts out from time to time, posted this on Twitter, or X, which was pretty interesting. So he's got a thread, and he said, how big are we talking about the yen carry trade and what they're doing? Massive institutions were involved in these carry trades, and the balance sheet is vastly larger than the country's GDP at 127% on the central bank of Japan. Fed's balance sheet is at 25% of GDP. So the BOJ balance sheet is about five times more influential on their market.

Look at this since 2010. Look at just how substantial that has been. That puts it in perspective, doesn't it, Chris? I can't quite make it out. What's the blue line? What's the red line? The blue line is the Bank of Japan balance sheet, and the red line is the Federal Reserve balance sheet. In the same nominal terms, or is this percentage of GDP?

This is a percentage of GDP. Wow. So they're at 127% of GDP. We're at 25% of GDP. This is a percentage of GDP. So they're at 127% of GDP. We're at 25% of GDP. So that would be like as if the Federal Reserve, instead of having a seven and a half trillion balance sheet, would have a $38 trillion balance sheet, roughly. Yeah, yeah, yeah. So you look at that. Now, going back to 2013, 14, that was 30% of their GDP. It's absolutely incredible. So, well, it's insane. They're absolutely nuts. They're nuts. These people nuts. Yeah. And, and the problem is, is, is you've incentivized a world of

institutional traders and, and investors in the financialization of our economy to go, to go out and take advantage of that. And I can't help but think, you know, if I go back, because this just came to mind, let me find another chart. Because, you know, around 2014 is when that really took off. And that's about the time that the U.S. markets really started outperforming the rest of the world. And I didn't think about it until we started talking about this but I do want to share it here that's about the time the u.s. really started separating from all of the other asset classes so if you can see my screen here you know the black line is the S&P 500 this is going back

to January 1st of 2008 around 2014 is when that took off. And all of the other asset classes have stagnated, but yet the U.S. markets have grown relatively dramatically in comparison to everything else about the time that that accelerated. And then on the shorter term window, what I'm showing here is the Japanese yen versus the U.S. dollar. So Japanese yen against the U.S. dollar. So that shows the weakening. That green line is the NASDAQ 100. So no correlation through that, you know, 2020, but NASDAQ rallies, you know,

on all the money that's printed in 2020 after the COVID shutdown. We have the, you know, the market correction, potential recession that never happened in 2022 or slowdown, but look at how this reversed right here. So just as soon as the yen started, uh, strengthening against the U S dollar, I mean, that's a straight correlation. The moment it turned the NASDAQ 100 turn. So is this just been a continuation of that carry trade that's fueled out of the U.S but also just the valuations that are out

there if if we don't get this perfect kind of fantasy world soft landing um or no landing uh over the next 12 to 15 months with real estate shut down like it is i just it's hard to imagine that we're going to end up in a goldilocks scenario it's just, it's hard to imagine that we're going to end up in a Goldilocks scenario. It's possible, but it's hard to imagine. I think the market is starting to understand that and those creeks and popping that you were talking about back in the spring are starting to be board snapping now. I think that was one board that snapped. The question is, can we continue the journey with that board snapping and and others not snap but when the stress comes again that's the birth pain that's just going to get more severe until this situation is resolved well so here's why i think that you know this is why they that's the central banks

why they ride into these rescue operations so quick and so furious right now because they learned their lesson in 2008 right listen if a couple of collateralized debt obligations went belly up the problem is is once you had that first layer where oh no bear stearns and then oh no lehman right once a behemoth the size of a lehman which was very big at the time goes belly up now now it's everything under that, right? So you've got all these hedge funds that we've been borrowing, they have lines of credit, and now they have these other trades, and those are connected to this and that and all of that. So they can't let that get down a couple layers.

So that's why when I said this was a liquidity event, this isn't a couple of people going, maybe I should sell some stocks, right? When you have a liquidity event, they have to stop it in its tracks because if it goes two layers deep now now you have a different problem on your hands because now you have the worst thing that could possibly happen which is a loss of trust like I don't know if you're broke you don't know if I'm broke none of us know if they're broke and and it just goes on and on and and and then the whole thing freezes and then I hate to say this Paul but that brings us right to the conditions that we were talking about when we were talking about the great taking which gets activated

when one of these intermediaries freezes up and suddenly you know let's say it's a clearinghouse for derivatives right let's say magically they were like the settling house for yen futures right and oops somebody you know couldn't make good on those or um maybe they were uh housing a big old block of interest rate swaps and suddenly you know you had big movements on interest rates as a consequence of this then all of a sudden if that if that intermediary is like oh no we couldn't quite true up our margin accounts and margin calls and all of that now our capital gets dinged. We're done.

We can't, we no longer can make good on this $6 trillion of derivatives we were supposed to be backstopping. All of a sudden, now nobody knows. Like, I don't know, Paul, if you're good for it. You don't know if I'm good for it. We don't know anymore. That's right. That's when things go bad.

And that's when I could see, you know, the mechanisms of the great taking getting activated because the one thing they can't risk is for the system to freeze up. They can't risk it. Well said, Chris. And my great concern is FDIC's insurance and regulations came about because the banks failed in 1929, and everybody lost everything, right? If you had your money in the banks, it was gone.

SIPC insurance is there for broker-dealer failures in the past. The derivatives market, you know, as Warren Buffett talked about being these mass weapons of financial destruction, you know, what supervisory bodies are out there? What limits are there? I mean, technically, you can have derivatives on just about anything. And we're so financialized because they are sexy, right? Retail investors are doing it. Institutional investors are doing it. I had people tell me from time to time, you know, uh, in the professional industry, it's like, you know, buying stocks is so boring. You know, you want to, you want to dress it up and put a

little nice cocktail dress on it and buy some call options and some put options. And that was a horrible statement to make, but you know what I'm getting at. You want to dress it up and make it look really pretty, you know, instead of, uh, instead of just buying the individual stocks. And that's my concern is that if one of those counterparty blows, then you're, like you said, that's the fuse. That's not the fuse. That's the detonator to bring about the great taking if all the counterparties fail. I mean, the world changes the moment that that happens.

Well, and this brings us, so, but when people say, oh, well, you know, would they let that happen? Like, no, but how do you prevent that from happening? So right now, you know, retail level. Sorry for anybody. This offends anybody. I don't mean to. But retail level is, oh, well, the Fed cut rates. They got the shiny keys. They're like, look, we might cut rates.

Paul, cutting rates doesn't do squat anymore. Rates have nothing to do with liquidity. That's a separate set of shiny keys. Rates, okay. You know, the Fed can, like, pay less or more on interest and excess reserves, turn the interest rate dial. Who cares, right? At the margins, that'll help. You know, can I get a car loan for seven instead of eight and a half percent?

Fine. But that doesn't change the problem. To get to a liquidity problem, the Fed has to print money. Full stop. That's what they have to do. Right. And we found out because of the FOIA acts in the context of the great financial crisis and the Fed didn't want to tell anybody, but Bloomberg finally got it out of their hands that over the course of the next year, they had made $21 trillion of liquidity loans to everybody and their uncle all across the world,

foreign central banks, private equity funds, anybody who needed it, right? Just sidle on up to the window and the Fed had your back on that whole thing, right? They would have to do that again. And so the point is that that's going to lead to more inflation because that's just money printing. So I predict that they're going to have to go back to money printing

before the election. And the weakness in the market kind of makes me think that. At least at a minimum, it provides cover. And you're right. If cutting interest rates for as low as they did for as long as they did if it was that much of a magic bullet. Like they had to do that. I mean, you know, from the 2008 crisis and now we're back to a reasonable rate where you can you can earn on your savings still doesn't keep up with what's taking place from inflation at this point. But, yeah, my my concern is is how can they do this without inflation you know the to get rid of deflation let the markets drop but if they come in and print cut interest rates speculate that may be the straw that breaks the dollars

back at some point or crushes the bond market and then how's the government going to finance their debt this is you know we've heard of them being painted into a corner for for over a decade now the reality is there's people who saw that coming well in advance of the average person and that doesn't mean that they're wrong you know there's an argument hey if you're early you're wrong if you don't change your mind and the information changes you're wrong just because you're early and you saw it before everybody else does, doesn't mean that you're wrong. It just means that actually you took a lot of pain so that you could warn people out there and give them enough information and time to grasp the concept, do the research themselves if they're not too lazy to do it, to prepare and protect themselves. We need people to warn us ahead of time. So I don't I don't like that perspective of the financial media where they say that. I know. So I would

remind everybody, go watch the big short because you brought up Michael Burry. You brought him into the conversation. Right. I love that scene where in the movie, not played by Michael Burry, but his character says at one point he's getting yelled at by his investors like because he's losing money because he's early you know yeah and he and at one point he says something like um i might not have this i might not be i might not be right but i'm not wrong you know he's just like but i'm not wrong and he wasn't right so now So early, you also mentioned geopolitical. I just wanted to go there real quick because of because this this really surprised me quite a bit. I didn't think Ukraine had it in them to do something like this.

But apparently that his forces, Kremlin's announcing his forces thwarted a major ground assault from Ukraine into Russia's southwestern kursk region and uh fighting two days and uh they attacked indiscriminate shelling as civilian buildings are claiming here residential houses ambulances blah blah different weapons up to a thousand militants um it did like i'm not clear what the goal here was because ukraine's been hemorrhaging a lot this looks like something trying to get a provocation to get this kicked up into a higher gear and of course listen if you're in europe like the idea that ukraine is now directly attacking gas facilities that are still transiting gas into europe very bad very bad idea here um so i again as you and i have talked about this represents a form of risk that the markets just hadn't been pricing in and maybe we're starting to see some of that you know early snapping back to like oh maybe risk does exist

you know right as a concept it really really does. But somehow we forgot that. Right. I mean, I, in my 26 years and in studying history, in my opinion, these are the riskiest markets that I've ever seen. I mean, that, that would be a fact from my standpoint, these are far riskier from what I see what's taken place in investor complacency from what took place in 2007, 2008, before things came apart. The difference is I'm seeing the same behavior that took place in the housing market in 2007 in the housing market now. How so? What are you seeing there? Well, it's slowed a little bit because it's frozen, but just that belief. People are in more camps where back in late 1990s, everybody started chasing technology stocks.

Nobody really paid attention to housing. Nobody really was paying attention to anything else, you know, because this was the new shiny toy that everybody was looking for. Well, that bursts. A lot of people get hurt. But then they're able to fuel the next bubble, which is in housing. Well, housing seems to grab a lot more people than what the stock market did back then, because of the fact that most, you know, more people are involved in their houses,

their houses are going up and then you get that speculation and then everybody needs to own a house. And we know what took place back then for the sake of time, without going through everything. And then you get this housing bubble that bursts and the credit crisis that's on the bottom side. Well, now you've got, you've got that same mentality that's taken place in housing. You got a lot of individuals that own multiple homes from rentals at this point. So your, your wealthier class owns a lot of extra homes now because, because rental rates have gone up. They're starting to soften a little bit. There's been the argument that we're underbuilt. I mean, the data, at least in Georgia

and parts around the country, new homes, existing homes are hard to find, but new constructions come along relatively rapidly now. So then you've got the stock market bubble. You've got all these different bubbles that are out there. So I think that it's just much larger this time. And I keep looking for the asset class that's going to protect when the bubble bursts. That's really hard to find. I really do like gold and silver as an alternative, not a recommendation, folks. I'm just saying that. But we have to understand those are going to go down as well if things come apart.

Treasuries are a great place to park right now because you've got perceived liquidity, but you're in a decent rate of return. But at least as a U.S. citizen, that's the safest asset that you can own technically because it's backed by the full faith and credit of the government. But I don't think that that's going to be the right asset to own from a long-term standpoint. It's going to be the alternative to peel back, you know, when you're playing defense, protect that capital. But then if they come back with that major printing response on the other side, then, then, right, treasuries are not going to be the thing to own. And the thing that concerns me is if they don't let the deflation play out, which would, which would wrench all of this wealth out of the top 5% and distribute it, we would have a closer to a middle class again.

I don't think they want to allow that to happen because they're going to lose control. That's, that's what needs to happen. It's the most justice, the most fair, but if they don't, you believe, I believe my thesis is once we get that deflation, they're just going to print like nobody's business and universal basic income and all of that. That's the point that I believe. I believe an investor is going to have to understand there's no conservative way to protect yourself against inflation, right? There's no conservative way for a retiree to invest to protect yourself against inflation. It'd be nice if you could go out and buy inflation protected treasuries if the government was telling the truth about inflation.

And that may be a tool, but if we end up in a currency crisis on the other side of it, because our deceitful ways as a federal government causes the BRICS and other countries to provide an alternative to the dollar that's decentralized 40% backed by gold, that unit that we have talked about a few times before in the past, and at some point need to talk about a little bit more. But once you have an alternative and you've got dollars that are, you know, international dollars that are fleeing to that, then we have a nightmare scenario of high inflation. And investors, I hope we don't see that, but we have to be prepared for it and we have to have plans in place

to adapt your investment strategy, especially for a retiree, because you're going to have to protect that purchasing power going forward. Now's the time to play defense, in my opinion, and protect capital. But there's going to play defense, in my opinion, protect capital. But there's going to come a day in the future where you're going to have to embrace volatility. You know, they say that you always fight the last battle. And the Fed is desperately afraid

of deflation, right? The Great Depression, you know, Ben Bernanke, it won't happen on my watch. And so they've done everything they can because they're just desperately afraid of that. I'm a little confused by the Germans for a lot of reasons, but one of them is that their last monster was inflation, right? That Weimar inflation set the stage for a lot of bad things that came afterwards, right? So you would think they'd be a little more cautious about the whole inflationary side. But if we're at that point, Paul, where we're on that knife edge, i see it right and you kind of you're gonna have to pick your poison so you've said well let's take the deflation you know what the top five percent gets pretty trimmed that's fine but maybe we can keep the system intact and we carry on right but they don't want to do that because the top five

percent are the people who will not invite them to the cocktail parties going forward right so that that's that's a non-starter right that will directly hit my sense of self and importance as a fed person somebody will actually give me a frowny face at bridge club i can't stand that you know so it's not gonna happen right um so they're gonna go the other way right and they're gonna push us to inflation and if i had i'm a betting man so i'm actually hedged both ways, but it's not even. Right. I'm hedged about 15, 20% for the deflation side. If it happens, I'll have some dry powder. I'll pick up some stuff on the cheap. The rest of it is all inflation hedged because I'm just playing the odds. Right. Given the chance, unless it gets away from them, they are going to print and create inflation

because inflation ruins everybody's lives except the person across the card table at the bridge club. Right. Those people are insulated from this stuff. Right. Paul Krugman. I don't know. What what do groceries cost? And he has no idea. Right. Yeah. And by the way, did you see somebody asked Kamala about inflation? And it was one of the most torturously ignorant statements I've ever seen in my life. She couldn't even get the concept down. She's like, well, bread costs more and that stretches the family budget. So we take it very seriously. They're like, what are you going to do about it?

And the answer is simple. You want to hear my answer? Yeah, we're going to cut that deficit spending from 6.8% of GDP back down to three tops, and we're going to tell the Federal Reserve no more expanding the balance sheet without explicit congressional approval. There, next question. All done. That's it.

Because inflation is spending. You print money that you don't have, and you spend it. That's inflation. There it is. She's like milk you know milk she's clacking her fingernails together i'm just like oh get ready for inflation folks that's still a terrible answer but at least it wasn't well inflation you know is is is inflation and inflation is inflation and inflation. So there was some of that. So, but yeah, I mean, it, it, it's, it's, it's, it's heartbreaking. It's terrible that, that that's the path that they're going to take.

And, and again, like I said, you know, very well said, you've got some dry powder set aside and you've got some hedge, you know, that's one thing again, for those listening, I can't give a specific recommendation to you individually. You've got to talk to your advisor about it. But, you know, the government limits your ability to purchase I bonds, which are pretty good inflation hedges from a long term standpoint to ten thousand dollars per person per year. So that's something good to be averaging into with some, some of your, you know, I still think people need 12 months worth of emergency fund in position and Hey, businesses, you know, build up because that's opportunity money. But that's something that,

that I would encourage people to take advantage of if it fits their situation, talk to your advisor. If I buy one of those I bonds with my $10,000 limit, can I sell that to somebody else? Well, you can't go run into the, to their $10,000 limit. You know, that's a good question, Chris. That's actually a really good question. Well, you have to buy them directly through treasury direct. So I'm assuming I'm, I don't know if the government's buying those back or not. I've actually never thought who was on the other side of that trade.

Yeah. I don't know. It's my, it's my understanding. It's my understanding. The government just absorbs those. So there are a couple of things to know about on the I bonds. You really got to look at them for about five years. Cause if you sell them prior to the five years, then you're going to give up six months worth of interest in a period, in a interim period of time. And if we have, if we have deflation, you know, so it kind of works like the six month old CD penalties. If you sell them, you give up interest over a period of time, they pay every six months and they're going to adjust based on inflation. And what you have to be concerned about is we have deflation. You're going to get a 0% return

on those. But if we have inflation, I believe in 2023 for, for a period of time, the interest rate was like nine and a quarter percent, somewhere around nine. This is approximate. So, you know, you did get a base return and then addition. And I don't have those facts in front of me right now. It just popped in my head and I wanted to share it, but you're limited to that. So, you know, like an LLC can buy it, an individual can buy it, a custodial account can buy it. But from a long-term standpoint, you're not going to get a good yield right now. But if inflation returns, which I believe it will over the longer term, the little bit that you can purchase is a

good hedge. Well, good. Hey, while we have everybody's attention, I just want to mention that the summit isn't that far away. It's August now, so we're about a month out from our Peak Prosperity Summit. And we're going to have conversations just like this. So for anybody who's thinking about coming, it's in Lake Winnipesaukee, New Hampshire. And it's September 13th, 14th, 15th. So that's Friday, Saturday, Sunday. And we're going to have an incredible finance panel on that,

the money panel, right? We've got Lynette Zhang coming. You'll be there. I'll be there. We're going to have the CEO of panel on that, the money panel, right? We've got Lynette Zhang coming. You'll be there. I'll be there. We're going to have the CEO of GoldCorp is going to be there, David Russell. I think also Stephen Flood will be there. And we're going to have EQRP guys there, which is for people who have individual retirement account stuff. I think Josh and company are going to be there.

So we're going to have this incredible panel. So I just wanted to, for anybody who's thinking about coming, you've got to be there so so we're going to have this incredible panel so i just wanted to for anybody who's thinking about coming you got to come not just for that panel but paul i don't know if there's going to be any more i just that's my my uncertainty about the future now includes the idea that i can't plan more than a few months out in the hopes that we can count on it being there i hate to be that sort of macabre about it but i mean i really i'm serious um this is going to be a very important one where we also get to talk about i know you got a farm i got a farm we're going to be talking about things way beyond money um about what what we need to do given what we think is coming and things we can only really talk about in person um you know so anybody who's thinking of coming trust me this is you can't you don't

want to miss this not this year no well you know even last year chris just the conversations we had around the campfire and and and after the events and in between events and while we're sitting there eating just the collective wisdom of people that love the truth are i mean mean, I met some ridiculously intelligent individuals there that are specialists in their categories and to have truthful and honest conversation. It was one of the most enjoyable, uh, events that I've been to ever because, you know, every now and then you'll find one or two people you get into good conversation with. And, but in this, every single person I ran into was great conversation so so I do I know it is people to come to it's it's it's a great event build relationship wonderful

people across the country well the prime benefit is you find out not only are you not crazy but the people you're not crazy with are very successful very curious very interesting folks um and that that's that's important to know so that's why i hold it because i want people to know that same thing i'm in a catbird seat i have a very special job paul i get to talk to a lot of people who are like this and that's a great blessing but a lot of people don't have that so that is the blessing is to get them together and then they get to like that that's that's it i like i could get laryngitis for the whole weekend and not say a word. And the whole thing would be just a smash and success. It'd be, be awesome.

It would still be successful. If you couldn't talk, it would be missed. Cause, cause you're, you're eloquent and you say things. Well, you see clearly and you're good at getting conversations started. So we, we, we don't want you to have laryngitis. I know, I know sign language. You know, at first when I saw that, I was like, what? And then I was like, oh, I was sitting there.

How did I not see that to begin with? Are you still planning on doing the, is it the Bayesian experiment? Is that what you explained? Oh, yeah, yeah, yeah. I don't know why. know yeah it's one of the most important things i'm like a kid in a candy store i'm so excited about that i can't wait to participate in that i can't either because you know it's an experiment and we want to find out the collective intelligence of people i got a way that we can we can see what people collectively

think is going to happen and i believe i actually this is, this is me, you know, the WF, the Davos crowd, Paul, they hate the crowds. They think the crowds are dumb and, you know, what do they call us? Useless eaters, right? So they believe in their own supremacy and all that stuff. I actually believe that more people are intelligent than fewer people if you can get them together in the right way and let them really honestly express themselves. I actually believe in people.

So this is a way of summing across all the people who are going to show up. And I'm really, I can't wait to see what the answer is going to be, you know? Me too. It's going to be good because we're going to ask a lot of really tough questions and find out what everybody thinks. It's going to be awesome. Well, for anybody who wants to talk to Paul and his amazing team, better get on the list because they're quite busy at this point. And you go to

peakfinancialinvesting.com, fill out a simple form, and somebody from Paul's team will get back to you. So again, Paul, just such a pleasure working with you and your team and helping people with things they really need help with at this point in time. It's our honor. It's our honor. And I will encourage. So if there, you know, if, if any of you out there, if you know anybody that gets rattled by what's taking place in the markets, they don't know if they've got a good plan in place. They're not sure what to do. They're asking questions and they're being, you know, looked at like they have horns growing outside of their head, then, then give us a call, you know,

even if it's just to answer questions and point you in the right direction, we would be honored to have the opportunity to, to, to talk to you if we can make a difference in your life for the better, everything else will take care of itself. That's all that matters. Excellent. Well, until next time, Paul, thanks so much for your time again today and safe trading. Safe trading, Chris. Curious to see what will happen between now and next week when we see each other again. All right. Until then, everybody enjoy and I hope you got something from this and please leave comments down below. Anything you want to hear us talk about, always open to taking topics and suggestions and questions.

So yeah, please let us know what you want us to talk about. I'd be happy to do that. Until then, bye everyone.