Peak Prosperity - Making sense of Junk bonds, Gold, and skyrocketing Insurance Premiums

Episode Date: July 5, 2024

Watch what they do, not what they say. Stocks are busy telegraphing the signal that ‘all is well!’ while bonds are sneaking out the back door.

Hello everybody, Chris Martinson here, and today we're going to be talking about finance and economics as part of Finance U. Remember, anything that you see in this video and all resources available at our websites or affiliated websites are not intended as or construed as financial advice. This is for educational purposes. Remember, if you have a financial decision, please consult a financial professional. We are not attorneys. We're not CPAs. We are not financial managers. As well, we do our best to be accurate, and everything we represent is as accurate as we know it to be. Now, let's turn to our program. You know, everywhere, the common information I'm hearing is always running to people, hey, how's business going? Things as

good as they've been? Everybody's saying that things are slowing down. Happy 4th of July, everybody. Welcome to this edition of Finance University. I'm back with Paul Kiker of Kiker Wealth Management. Hey, Paul. Hi, Chris. And happy 4th of July to you. You're looking nice and cash. I didn't get the dress code. I should have come in with that. Yeah, I actually thought that I brought my long-sleeve shirt and my sport coat from home this morning, but I did not. So at least I'm festive for that Fourth of July because it looks like a firework show went off on my shirt. Nice, nice. Well, hey, listen, you know me. I'm always out of step with the markets.

Equity markets are sort of grinding higher today, yada, yada. But I'm getting lots of signs, Paul, from people, automotive and housing, that there's a big slowdown upon us. upon because they are bored and they need something to do that you can easily find certain models of cars out there that have been languishing on the lots for a very long time. Things are going way below MSRP again as well. I'm hearing from another friend who's a very, very experienced real estate individual that there's just a big slowdown out there. Multifamily, single family, they have product. It's not moving. And it's just,

it's literally like one of those things where somebody blew the silent dog whistle, you know, and the buyer's all scattered. I don't know. What are you seeing on your end? No, we're seeing the same thing. So, you know, now I was surprised. So I had to go pick up a few new shirts over the weekend. I buy clothes about once every five years. And there was a lot of people shopping, but they weren't spending tremendous amounts of money. But auto dealerships around here, one of the things I pay attention to are the 2,500 diesels. I sold my diesel before we went into the farm. I want another one. They're $7,000, $8,000 below. Now, there's a couple of colors that seem to be pretty popular, but this is the first time we've seen them below MSRP.

Real estate is slowing. There's some activity, but everywhere the common information I'm hearing is always running to people, hey, how's business going? Things as good as they've been? Everybody's saying that things are slowing down. And real estate's frozen, and you're starting to see some price drops. Even in our area, there's some land prices that are starting to drop a little bit, which we've not seen that since 2016, 17. So yes, and I'm hearing it to people I'm talking to all across the country as well. Well, we got some data sort of the macro level that can support that as well.

And here's what, so, you know, Paul, one of my models is I call it from the outside in, which is that if you're going to watch for change, you have to watch from the weaker end of the bond market so for people who don't know it's structured from a to c right um you know triple a a plus b but when you get down to what's called um junk bonds so that's um triple c like these this is junky stuff i'm surprised that people are still trading this stuff but first thing up paul is this, which comes to us from the plunge protection team here. That's James Games Blazer 06 here. These are credit spreads between triple C versus lower U.S. high yield index. So this is spread. It's just saying that we're seeing more and more and more spread. So the triple C is getting weak and it's weak compared to other high yield things so i wouldn't touch triple c with a 10-foot pole some people do but i still watch it paul because we're weakening so this is

not consistent with things getting stronger this is consistent with things getting weaker um and i i like bond markets usually give us i think one of our earlier readings is they say on wall street what is it um stocks are for show but bonds are for dough right meaning they paint the tape to make stocks look all glitzy and happy that that's sort of the walk into the casino and all the bright lights that you get hit with and the sounds right those are stocks right but the guy counting the cash up in the back room, that's bonds. That's where the smart money is. That's right. And the bond traders are the smartest traders in the world, quite frankly. They are. Some are better than others, but they're the smartest individuals in the market because they have to consistently make smaller amounts of

money typically from a long-term standpoint. So that's telling us that people are finally realizing that loaning money to crack addicts is probably not a good idea. Is that what we're seeing? Or maybe they're starting to regret that a little bit. I mean, you know. Yeah. Say that again more slowly. I almost, I almost followed. You know, that's what I always tell everybody. They're like, Hey, I want to reach out on the yield curve. And I'm like, okay, so just think of your local crack addict. And if you're willing to go loan them a hundred thousand dollars, you know, without, without concern, then maybe you you're in the right place. Yeah. Triple C is that's crack addict territory, you know, just C rated debt,

uh, which is higher than triple C. Yeah. That's your drunk uncle who just got out of prison. Right. But triple C. Yeah. So, uh So carrying on in that vein a little bit, bar charts just put out, this came out last night when we're recording this, said Justin secured overnight financing rate jumps to 5.4, but it's a pretty steep jump right here. This is what you normally see with a steep jump like that um right at it when things are getting a little tight out there in the markets so for liquidity like overnight lending cash so there's this big jump that's what we saw during the repo madness of two september 2019 remember this is pre-covid but there was something really broken we started to see overnight rates jump the fed had to spring into action and start like you know papering everything. So this is the creaking and popping sounds we're seeing. So, uh, it looks like a little banking stress, maybe. It sure looks like, and I actually saw that right before I went to bed last night and I actually

dreamed about what that meant. Cause I was just sitting there saying, okay, what, what's it telling us? And it's not that often I dream about the markets, but that was relatively shocking to me because that, from what I understand, if I remember correctly, hit the highest level ever in that overnight lending. Now, granted, we've been in that range, but that rate of change in that short window of time is relatively substantial. And what's interesting is you've got this narrative coming out right now, which has fueled the markets that, hey, Fed's going to cut at the end of July. Well, okay, if the Fed's going to cut, then why are we starting to see yields creep up higher? Is the bond market starting to say they're wanting to cut too early and inflation seriously going to be a problem on the other side

of this? Or is this credit stress under the surface that's starting to break out in yields? We're not going to know for several months, but these are certainly warning signs and tremors that are going to give us an indication that we really need to be paying attention. Well, I was just talking with somebody yesterday who's from Canada about, and they manage money. And the subject of our conversation was, what is even going on with these markets? And their position was, I have no clue anymore. So they're backing away, um, just because, you know, many years of experience just saying this is weird. Right. And so what's weird is like the German DAX right now, Paul is about 2.3% off of its all time highs, which had just reached a few weeks ago. And this is weird to be only a couple percent off because German manufacturing is down a massive amount. It's down 12.3% in the last five years.

It's down a bunch of that just in the last year, year and a half. So, and Germany's an export market. It's not like, well, you know, their production's down a little, but, you know, they're the Cayman Islands. They don't really produce much anyway. No, this is Germany. Like, most of their prosperity is due to manufacturing. And it's just been like this while their stock market's been like this and it's a weird thing it just doesn't really comport with reality so

no no yeah it's kind of weird yeah what the what the what the economic data is telling us and what the markets are doing are two completely different stories and and i heard a great analogy um yesterday i don't know who to attribute to but but the more i thought about it made a lot are two completely different stories. And I heard a great analogy yesterday. I don't know who to attribute it to, but the more I thought about it, it made a lot of sense. So if you're going to set a trap for a monkey, you can take a jar that's just long enough for it to put its hand in with some candy or something for it to eat in the bottom,

and that monkey will reach down in there and not let go of it once it gets it. And my concern is that a trap's been set for investors that are willing to believe the lies that are being told out there and the deception that's taking place for political purposes. And then on top of that, you take this option craze and just this absolute fear of missing out and the greed that's out there that sets the perfect backdrop to set the stage for, um, to deliver a lot of damage to individuals and transfer into the share of hands of retail investors. Um, you know, uh, shares of big institutions that really do understand fundamentals matter, you know, because the other side of this is nothing makes sense. You know, why in the world did anybody go to college and spend an education to learn fundamentals and time value of money and cashflow and balance sheets and debt limits? You know,

why do creditors even pay attention to limits that they put on people anymore? If we can just live in this fantasy land from this point forward. So, you know, my concern is, is like Pavlov's dog. You've got a situation where the Fed has so conditioned investors. And right now you've got institutions and retail investors who are stretching out dramatically. You know, they're both bullish, which doesn't happen that often. Cinnamon Trader, Jason Goford over there at Cinnamon Trader does a great job of keeping up with that. But you've got this backdrop to where, hey, the Fed's going to save the day. And even though people have learned that you're not going to say it out loud, there is this pervasive belief, I feel, that it's different this time.

It's different this time. And I think we're going to see before this is over that even real estate is not different this time. You know, some of the data that I'm starting to see out there is we've had this narrative that real estate is underbuilt, but there's other data out there right now that tells you that maybe we're not as underbuilt as what people believe, that inventory is catching up. And just because people are frozen right now doesn't mean that we're not going to have a crisis because what happens when the Fed cuts rates, if we do have a recession, if they're too late, and it looks like we're persistently marching towards a recession and all of a sudden, yeah, you may have a great rate, but now rental prices are a little bit less than the mortgage

you have on your home or rates are low enough to where you can transition to another area, you might see a flood of investors starting to take or homeowners starting to take lower prices. So we don't know. But I can tell you, everything is priced for perfection in the markets, but the underlying fundamentals are not telling us that perfection is coming. You know, Paul, they said for a long time, like, we have a shortage of workers. Like, they meant that in the fast food industry. I'm like, nah, we have a shortage of pay, right? You pay people enough, they'll show up, right? Same thing in the housing market.

Like, well, you know, there's a shortage of houses. Like, no, there's a shortage of affordable houses. That's true, right? And the cure for that is lower prices, right? Not to build more houses at that price. That's not the problem here. Last I heard, and again, they may be in the wrong spot and they may be second homes or this and that, yada, yada, but we have plenty of homes. We have a lot of people who have second homes or investment homes or people bought a lot of Airbnb homes, right? That's a whole different model, but it's a different question from saying, do we have enough housing stock for the people

where they want to live? Because it doesn't really help if we have a lot of housing stock in Ames, Iowa, but people want to live in St. Petersburg, Florida, right? So again, it's a local sort of a variable. There is no such thing as a national housing market, as far as I'm concerned. No, I mean, you can have some areas that are absolutely being decimated in price and other areas that are holding up for forces. So I am a believer that housing is regional, even though you can, you know, it's easy to consider it from a national standpoint. So I'm with you there. Now, here's another piece of data from Lisa Bramowitz uh came out this is the lowest ism services institute of supply manufacturer services reading since the heart of the pandemic so that's that's not a good

reading right there this is not consistent with expansion this is lower than at the depths of the recession and ben hunt said new orders collapse but prices paid are at 56.3 that's what's holding it up even as high as it is stagflation increasingly his base case here stagflation meaning high inflation but low growth if not even negative growth it's a very bad place to live because prices are going up but your wages aren't the economy isn't opportunities aren't right and this is this is yeah this is this is actually fairly concerning piece of data right here and it's not consistent with stocks just sort of like you know what my vision of the stock market is paul that was i used to watch a lot of monty python back in the day

right and there was this monty python skit i loved which was it was like maybe 20 seconds long and it was a fake uh olympics piece and the announcer says right now we're gonna have uh the gold medal finalist for the most average walk right and there's five guys and they all start walking but they're looking at each other to try and see if they're like you know as average as the next guy right the most average walker so they're all just like it like oh no, Bob's pulled ahead. Classic mistake, right? You know, it's just, anyway, it's fun. I think that's what traders are doing in the markets right now.

They're all looking at each other, trying to not get away from the pack. And the pack is doing what it's doing, right? While somebody is throwing in tons of liquidity on the bottom end just to keep the whole thing moving at some average pace. But they're not paying attention to this, I don't think, or to other risks. Chris, the reality is it's going to be their job if they do. Because if they're not at least close to tracking what the S&P 500 is, because that's kind of the gauge, then there's going to be money flow that's gone. So you've got a struggle between

those who are hiring the money managers, both in retail investors, institutional investors, but then those that are responsible for profitability of that particular mutual fund company as an example. And if money flow is going out the door, you're out. So where else are you going to go? I mean, these guys make a lot of money. So you, you know, everything is driving them to be incentivized to be a part of the herd, not to walk the path less traveled. I mean, just, just not to, I mean, really the action of the federal reserve for in the government since 2008 has, has decimated those who are willing to walk the path less traveled. And there's just very few of us that are out there anymore, really, just because, you know, if you're with corporate, you're not going to last very long if you're not performing or you're

against railing against the narrative. I saw a uh, Mark J.P. Morgan pushed out the guy that's been bear bearish for the past, you know, 24, 36 months, or who knows whether they pushed him out. Let me recorrect that he's leaving the firm. So that's just a clear example of somebody who goes against the narrative that's out there. And that's my concern. I think you're right. It's it's herd mentality. There is no alternative. You know, the, the magnificent seven have been the story. If you're right. It's, it's herd mentality. There is no alternative. You know, the, the magnificent seven have been the story. If you're not participating in those, then you're underperforming the market and people are desperate right now. And they're gambling without realizing that they're gambling because they don't have a strategy. They're, they're passive. I'm going to put my

faith in someone else and, and hoping that it's all going to work out. But, Chris, you know this. I don't have to state this to you, but hope is not an investment strategy. It's not. It's not a sustainable investment strategy. Indeed, it's not. But, you know, so I'm getting calls all the time now, Paul, from from people who are obviously worried. I do think that this whole Biden fiasco, you know, caught some people flat footed because a really not. I don't I don't know. Personally, I don't know anybody who's like, wow, I did not see that coming. You know, in terms of because Biden's decline has been obvious, right? But, uh, but, but the idea

that the machine around him was able to perpetuate for itself, its fiction that it suddenly had to change its tune on. It was just sort of, it was that it was that, Oh, what does it tell us that we have a machine that operates, you know, with such a level of self-deception i don't know what it is but but something like that and so it raises the uncomfortable specter of how many other things have have we got wrong here um correct i don't know i i could i could probably dig it up real quick but it's based on on this you know like this is npr trying to like make us feel better they say um yeah why experts say inflation is relatively low, but voters feel different. Paul, can you help them understand this a little bit?

This is part of this self-deception where NPR is like, but our experts tell us inflation is low. The voters must be wrong. I know. Well, I don't know that you can explain something to them that they I don't know that you can explain it to them and whether they can gain that concept, because there seems to be an arrogance in those that are what we tell you to do. Don't pay attention to the science. Don't look at the data. We don't want you to have a debate. We don't want any debates to enough to really understand what's going on. So I'm going to entertain their talking. And then I'm going to tell them exactly what I told them to begin with. Cause they just don't get it. Am I wrong in that? But that's the way I feel when they're presenting information out. Cause I'm dealing with, I'm dealing with people and lots of people and lots of relationships and conversations and, and, and people are feeling it. They're talking about it

everywhere they go. I was at the gym the other day, filling up, filling up some water. And this individual comes in, drives up in a nice truck, you know, comes in and says, Hey, I need to cancel my membership. And I'm trying not to listen, but this is, you know, I want to know why. Right. And, and his argument to, to the lady behind, you know, the employee at the gym was, look, I got three kids. The cost of our insurance has gone up. My car insurance, my home insurance, you know, my wife blew out a tire the other day. We didn't have that in our budget. I just cannot afford to come to the gym anymore. And I have to cancel, you know, and there was a penalty apparently that

was in the cancellation. He's like, you know, that, that really upsets me, but you know, I'm better to pay the penalty than I am to be waited out for the next 12 months until I get in there. So maybe it's just coincidence, but I didn't go looking for that. But, but these are things that we're seeing all over the place. And I want to show you one piece of data here, which really goes along with that. So the Mad King, and I've subscribed to his work. He does a really good job. But if you can see this, Chris, he's countering. The argument is the consumer is resilient and consumption is strong.

After enduring a lasting high-yield environment, the U.S. consumer is telling us the complete opposite. So this is University of Michigan buying conditions, and look how low that is. So that's for houses, for vehicles, and for large household durables. So houses is way down here. This is lower than it was back in 1980. So this is what people are actually feeling. So if you're at NPR or these other areas that are trying to promote propaganda, if they know the data or they're not, they're not even paying attention to the data that's here. And this is clear. This goes all the way back to 1980.

People haven't felt this bad since then. This is not what the economic data is telling us. And there's all kinds of charts in here that he has. I could probably spend the next 45 minutes just going through each chart that's in there. But chart after chart after chart is telling us things are deteriorating. That's starting to accelerate some. But yet the markets are coming out and breaking out to all time highs on the belief that the Fed's going to be able to save the day. And if they come out with a July rate cut, hey, that may be the final blow-off top that keeps things up into the election. But at some point, reality is going to overtake fantasy land mentality. Yeah. Well, the thing that bothers me

about all this, Paul, is that, you know, we know from official data, this comes from the Federal Reserve, that 92 and a half percent of all stocks are owned by the top 10 percent of families. Right. So it's a very uneven distribution. But they pretend as if this is some sort of universally good marker of health for everybody. So I think that's why they spend so much attention on making the stock market go up into the right, you know, circumstances be darned, right? So that's what they do. But people are increasingly not fooled by this. You know, let me just show you this. So this is just a very simple thing where somebody said, here's how much it costs to feed six kids.

Right. And here they are coming on down, coming on down, coming. I mean, like it just costs hundreds and hundreds of dollars now just to do basic shopping right here at Trader Joe's. Right. And, you know, it's just stuff. And what was interesting was, um, so Janet Yellen, a millionaire, Janet Yellen spotted grocery shopping following her

her focus group told her she had out of touch remarks about soaring prices and here she is obviously it's windy out so she's having a bad face day um because that's not the best expression you could have for the but the funny thing so the bags she's using pa, on her I'm a regular person out shopping trip, right, are bags from a home delivery food service, right? So even her trying to get back in touch is out of touch. But that's the world we live in where the power elites are very much out of touch. Inflation doesn't bother them. It doesn't touch them. Jerome Powell and his $100 million net worth, he doesn't know what inflation is paul krugman

doesn't understand what inflation is all these people who are pining and telling us including the lunkheads at npr that why are you so concerned about inflation i'll guarantee other people at npr who are struggling with inflation they could have just pulled their own staff right yeah instead they run with that crazy headline that you know experts are convinced you're just nuts if you think inflation's bad here's why right um yeah and and so we're fib into ourselves in this stuff inflation's bad my prediction paul's gonna get worse yes for all sorts of reasons right yes but i think they're gonna have to print again because when you say the auto stuff the housing stuff the ism stuff all this data we're looking at says, wow, things are starting to deteriorate economically. No surprise. It happens. But this is an election year. And not just that, but it's kind of a volatile election here. A contentious one, if you hadn't noticed. Right. And predictions easy to make. The Fed always opens the checkbook in years like this. They'll print more.

They just will. Well, and one of the things I'm concerned about, I've mentioned several times over the past year, my working thesis because of understanding history, what's taking place, fundamentals, is that we're going to have deflation at some point. Now, deflation being stock market that drops 30%, 40%, or 50%, 60%. John Husband does a great job of explaining all the fundamentals behind it. And then I believe that we would get the really severe inflation on the other side of that. Now I have to be careful because there's a thing called confirmation bias. I don't want to go out and look. So I've been careful, you know, stacking for short-term deflation, longer-term inflation, kind of weighing those

against each other. But in the past two weeks, I've started to see several individuals that have made the case, hey, it looks like we're setting up for a deflationary outcome, at least here in the short run, some deflation. But, you know, again, if the Fed's trying to front run this, the argument with one of the speakers out today was, hey, if we don't really start cutting rates, then unemployment may get out of control. So we may not get that. And that may be what the markets have just determined. Maybe it's not Pavlov's training, like Pavlov's dog that, Hey, you know, it's just the fed, maybe big institutions are realizing that, that we're gonna have to lean towards inflationary, but those inflationary pressures at some point are going to squeeze corporate profits. So

that doesn't mean that we're going to get out of this because we had the stagflation in the seventies market went from all time highs in 1973 to a 47, 50% approximately decline in 1973. And, you know, and that reset the price in the market and the market was fairly valued. So we've got some extremely volatile times ahead. And, you know, I don't, you can't pick the top of the market and our tools aren't telling us to run for cover yet. Although I'm, you know, very nervous and we're not completely fully invested. I can see that deterioration under the surface. But as for now, the markets are kind of ignoring that and they should give us some indication

that they're going to roll over before it's over. But, you know, several individuals have said, Hey, hold the market until we get the first rate cut. And then that's when you really start looking for running for the exits, because on the other side of that's where the trouble is going to come. And we might get a blow off top in the interim period. But the question is, will it last into the election? Will it last into August? The reality is, is where the market's priced right now.

What concerns me is what if these regional wars that are taking place turn into something larger? Then you get the Wile E. Coyote moment for the markets. And if investors haven't been prudent, harvesting some profits in the interim period, they're going to give them all back before it's over. Well, there's a lot of weird things going on out there that I think represents sort of whistling past the graveyard one is you know watching european stocks just sort of float higher when obviously there's a risk there there that you just mentioned right there's regional conflict is a is a risk right um who knows right uh and so normally that risk gets priced in but

it's not everything's priced to perfection, as you mentioned before. And then the other thing, all the way on the other side of the world, we're watching the Japanese yen blow up. And Paul, it's just like chirping crickets in the financial media. They're just like, oh, just whistling past that, you know. And I'm a little, I haven't been able to, I've been digging. I can't figure this out. Like who's selling all those yen? Somebody is. I can't figure this out like who's selling all those yen somebody is i can't figure out who it is yet um because in theory it sounds like a carry trade coming on

right because you know you would you would take those yen sell them into the market right take the resulting dollars go off and buy some u.s assets with that which would make sense right because the japanese as much you know their Japanese, their 10-year is blown out to 1.06% yield. Sell the yen, go buy a 4% yielding US bond and all that. But who would be slathering on such a magnificent carry trade at this point in time? I don't get it. So I'm not quite clear what's happening yet, but it's happening. Well, and it's no different than the institutions that are shorting volatility right now. I mean, you just seen volatility has just been crushed. It's an income strategy that's being created for institutions, regardless of the risk that's

taking place on the other side. And it's just continuing to feed upon itself. So, you know, Chris, I kind of come back to the to the from the standpoint of just being in this industry over the past 26 years. Now, we mostly use ETFs now and individual stocks, but there was a time before ETFs that mutual funds were really what mattered. One of the things that I paid attention to and we were taught to pay attention to is how does the fund manager experience how long have they been there? Well, in the late 1990s, Putnam Mutual Funds, for example, just cleaned house with a lot of their mutual fund managers that had had good historical returns because they didn't participate well in the late, you know,

1990s, 97 to 2000, you know, boom, technology bubble. Well, on the other side of that, those funds had some of the worst performance that they had had throughout history. So my concern is, is anybody who's paid attention bubble. Well, on the other side of that, those funds had some of the worst performance that they had had throughout history. So my concern is, is anybody who's paid attention to the risks that are out there and adapted their portfolio, which were steamrolled by the Fed's reaction and paper and paper and over the markets, you know, not adapting quick enough, have been pushed out. And those that that are there are like, I don't want to lose my job. So I have

to ignore that because nobody else is ignoring it. And that comes back to your attitude. It's like looking around, what's everybody else doing? Well, they're not doing it. I mean, I've had conversations with other advisors that like, look, Paul, I really understand why you manage my funds the way they are. But you know, I just, I don't want to walk the path less traveled. If the market's down 50, 60%, my clients are going to be miserable, but everybody's going to be miserable. So they're not going to be all mad at me because because of something that happened to everybody. You know, I don't want to be in a situation where clients get mad at me because the market goes up 15 percent and you went up 10, you know, because they're going to fire me and go somewhere else. I've got to be with the herd.

And I'm concerned that that's what we have out there is nobody's willing to pay attention to this. And they're all going to run off the cliff together because there's a lack of courage to walk the path less traveled. Even if that's in the best, in the best, it's best for their clients. I've completely lost, my mind went in two different, but even if it's best for their clients to walk the path less traveled, I mean, Chris, you know, and that's one of the things I've enjoyed about getting to know you and Nick and, and others that are out there, you know, we, you challenge each other's ideas. It's like, we're not yes people. And that's how we get better, right? If you're a boxer, you spar with somebody. And if you get better, you spar with somebody better. If we're surrounding ourselves with people that are

unwilling to warn us, if we're headed in the wrong direction, then we're going to get exactly what we deserve. And a lot of times exactly what we want is not the best thing for us. And, and sometimes we're not going to get exactly what we want is not the best thing for us. And, and sometimes we're not going to get exactly what we think we're going to get. We're going to get a baseball in the mouth because we've refused to, to walk the path of wisdom and prudence to, to take the path less traveled and sidestep that. Indeed. Yeah. No, I, I've, I've, I remember reading Hussman, and I talked with him about this years ago, that to do what you believe to be right has career risk in the financial business, right? It does. Because of that whole dynamic, and I get that.

Well, can we talk about, you mentioned before we started this show, you mentioned insurance in California. I want to talk about that. Then I want to talk about gold and the gold markets because there's some fascinating stuff that just popped up on my screen about that. I think people should know about. Yes. So check this out. What do we got? I want to share that with you real quick.

So let me make sure I've got the right one here. Okay. So major insurer gives brutal ultimatum to entire state. And let us put up prices by 50% or we will leave. So largest insurer in California has given the state government ultimatum as the cost of the provider coverage continues to soar. So State Farm on Thursday told California's Department of Insurance to let them raise home insurance rates for millions of citizens or they will ax cover. And the article goes on to just talk about just how tough an environment

that has been in. But why? What's caused their delivery of services to go up by 50%? Well, they blame it on the intensifying risk of climate disasters. And, uh, you know, as a result, more than half of all Californians say they've been affected by rising property or have been dropped by the insurer within the past few years. I know they like to spout that, Paul, but I have not yet seen any data to support that idea that we're seeing more larger or more intense anythings, right? Correct. So, yeah, you know, we just had a cat five barrel, you know, they said, oh, this has never been seen ever in history in June.

But, of course, history is 81 years old because that's when we had our first, you know, plane hunter flights, right? So they make these claims. But when you look at the number and intensity of storms over time, there's no trend there, you know, that I can see. And the same thing for fires. We used to lose a lot of acres to fires and then we learned how to fight fires a little better. So, so yeah, there's still fires out there, but awkwardly last year in Canada, a lot of the fires that they finally figured out what happened were caused by arsonists, right? So we might have an arson problem, but they,

they didn't mention that they mentioned changing climate and changing climate. And that feels like an easy thing. Like, that's what I would, honestly, I would advise them. That's what you tell the legislature in California. Just call it climate. They'll be on your side right away. But is it true? I'm wondering if the insurance business isn't hemorrhaging out their commercial real estate portfolio and they have other losses they have to make up. Bingo. That's exactly what I was thinking because they are the largest owners

typically of your major office properties. So as you asked that question, I was like, oh, I wish I had that article. Apparently there was two hotels in California that these numbers are going to be completely off, you know, so please don't take them outside of example, $800 million or something that the property sold for and, you know, five or six years ago, and now it's, you know, appraised or sold for $86 million, something like that, just a dramatic hit. So what would you rather do? Go to California and say, Hey, we've taken these huge bloodbaths on these office commercial properties, so we need to raise rates. Are you going to blame it on climate disaster and the thing that they're telling everybody is their narrative that it might come through?

So I'm with you. That's my concern is that what they're doing is transferring their foolish decisions over to their customers, and the regulators are going to let them get away with it to paper over their losses. Exactly. And if we track that story to the headwaters of the Nile, we'll discover that this was because the Fed engaged in monetary vandalism, drove rates artificially down to zero. And if you're in the insurance business, you have actuarial horizons where you have to match duration of liabilities against some sort of income and you're forced to yield chase well then yield chasing is a fancy way of saying i'm gonna take more risk you know what i'm gonna buy some triple c debt at five percent you know oops now it's nine percent uh i just lost half my money right or you're gonna buy you know these office buildings buildings with a cap rate of like 2%, 3%, something that's not even going to remotely entertain the value of that.

And particularly once rates start to rise and to the extent that it has some sort of a rolling or maturing loan on it, you're just hosed. So the Fed set up the condition to hose these insurance companies. They get hosed. And then the insurance companies go to the legislature and say, oh, it's climate change. And next thing you know, my bill goes up 50%. Yeah. That's how this story plays out. It's not an accident.

This is intentional. That was an act of policy. Yes. We should get the vote on it. All right. We should. Well, and here's the thing. The insurers should go under if they've made these mistakes and allow somebody else to step up and take over that business and move forward.

This shouldn't be hidden. It shouldn't be set aside. But here's another aspect of that, Chris. for yield, then why can't it happen to your average individual who stretched for yield in real estate and rental properties? And they may own seven, eight, nine, or 10, and they're leveraged. If they're paid for, that's one thing. But if they're leveraged up, you know, and they don't have all of those fixed and all of a sudden now it's a lot more expensive to insure those.

It's a lot more expensive to replace the roof. It's a lot more expensive to replace the roof. And you've got a tenant that walks out and destroys the property. It's very possible that you could still see that type of thing roll over into the real estate market. Most people are going to think that I'm absolutely crazy by saying that. But at some point, you're going to have to have real estate prices come down by 30% or you're going to have to say salaries go up by 30% to 40% to get back to a long-term sustainable affordable situation. And maybe we stay the same and it goes up, but the large majority of the gains, if that's the case, are gone and you've still got that downside risk. So, and hey, look, Chris, we're not even to a

recession yet and these things are rippling through and in office properties, what's going to happen when we have a recession? And how many more companies are we going to see at risk? And again, I referred to it as monetary vandalism. It was right. Dropping stuff to zero. And we even remember I'm old enough to remember 2019, Paul, when we had 18 trillion dollars of negative yielding debt in the world. Like, what is negative yielding debt? I pay Germany to lend them money. I mean, it's just the whole thing was preposterous. You know, we had to pretend as if it was all good as we did our most average walk. Like, are you OK with negative interest? Yes, it makes sense.

Right. It's a weird it was a weird, weird, weird thing. So that weirdness. Listen, one of the most so people that, you know, I still get relatively censored and shadow banned on various social media platforms because I have a bad habit of saying what's on my mind. And sometimes the power structure doesn't like that. The number one thing that gets me the most shadow banned on Twitter still, and I love what Elon Musk has done. It's the free speech platform. It's where I get most of my news now.

It's great. However, I still run afoul of whatever is happening in their algorithm when I criticize the Federal Reserve like this. It's like one of those things you just can't, like, no, no, no. If I said Trump is responsible for the fact that young people can't form houses. Fine. If I say Biden is responsible for that. Fine. But if I say who's actually responsible, that goes nowhere. Yeah, that doesn't surprise me. I'm hoping that they just haven't found that gotten to that algorithm yet to fix that from when he took over. I will say this. X is far superior to what it was before he took over.

Absolutely. Absolutely. No complaints. Thoroughly enjoyed it. I mean, far superior. But there's still things like that that bother me a little bit. Hey, I'll tell you something that I saw this week for the first time ever. Yeah? I'll tell you something that I saw this week for the first time ever. Yeah. So the state of Connecticut is apparently taking over, and I don't want to say the name, an insurance company. Well, they are forcing them into rehabilitation. Do you know what rehabilitation is, Chris? Apparently, their financial situation is so bad that the state of Connecticut is having to put them into rehabilitation. So, you know, I was fortunate.

This is a contract that I'd had a client work with for a long time. They had so many gains in it that they had it before they worked with us. And it's like, okay, we got a 1035 exchange this thing out. No warning, no nothing. They just showed up one day and said, hey, your insurance company has been forced into rehabilitation. Rehabilitation. This is a new one. I know what receivership is. Yeah. Rehabilitation. Your insurance company has been forced into rehabilitation and rehabilitation. This is a new one.

I know what receivership is. Yeah. Rehabilitation. I don't know what this is. I read the documents and, you know, I could have replaced rehabilitation with receivership across the board. But, you know, and I called the company. I was like, hey, how's this affect the client? Are we locked up?

Because it did say some contracts were going to be locked up until the process was over. In their case, theirs wasn't locked up. And, you know, and the company that was answering in the interim period is like, yeah, they took a few too many risks. So, you know, the state had to step in. Quite fast.

First time I've seen that since 2008. Since 2008. Correct. It's crazy. You think they're going to be able to paper this all over again? That's a really good question, Chris. I think they're going to try. I really do. But I believe that the consequences are of trying to paper it over far superior to the consequences of just letting us have the reset. You know, I got to ask the question, I've thought about this a lot because initially I answered it, you know, during the great taking webinar, you know, somebody asked the question, is the great taking and the great reset the same?

And to an extent, I think it probably could be, but I really regret the answer that I gave on that day because the great taking is, I think, a little bit different. The great taking is snatching all of your assets so that these in power can have ultimate power and we're just their minions. But to an extent, I think the great reset, the more that I've thought

about it is just let the system, let the system cleanse itself, purge itself out. Let us have true capitalism companies that should fail, should fail. Yes. There's going to be pain in the interim period and there's going to be people that are going to be laid off, but, but there's going to be others that will step up and run a better company. It's not going to be financialization. They're going to pay their employees better because here's the thing that I've noticed. You know, the individuals that I work with that spent their life building businesses

and they sell them for what they consider ridiculous sums of money when they first started out, they pay their employees really well because their employees have grown with them as time's gone along and they understand I could have not gotten here if I hadn't been surrounded by really good people. But the ones that are coming in and buying those businesses, if they take them to the next level, they're in some C-suite and some access to money in some state that's far away.

And all of a sudden, they really could care less about paying these employees long-term because, oh, we've got the cashflow to paper it over and we can drive prices down to hit our competitors. And we're to the point now where, where you've got, you know, those that, that really didn't have any skin in the game or relationships that are making all the decision. And they're, they're withholding the wages that they should be giving the people that are working for them and building. And that's why you're continuing to see corporate profits continue to get higher and higher and higher. And those are the same people that are like, Hey, you know, their argument is open the borders up, let as many people in because that's

going to drive wages down. Okay. Well, when the average American can't afford a house in the country right now, why in the world do we want to be driving wages down? Right? I mean, if you, if you want to maximize corporate profit, sure, but that's the concern. So I believe the great reset would shake the hands of power out of those individuals. And, and I think they're going to try to paper it over because, because they've surrounded themselves with those same individuals and they want to maintain their power. But I'm, I'm hoping that, that they're not going to be able to be successful in that. And those who are willing and have the courage to see the truth and take the path less traveled will protect themselves and be in a position to step up and grab those reins of power. Now, maybe I'm idealizing that, but I don't believe that they're going to be able to paper it over this time without major consequences, either currency collapse or hyperinflation, which would be one and the same, or what would be an absolute nightmare scenario is a high is a inflationary

depression where people don't have work but the cost of everything is going up now that that's like hell on earth from everything that i have studied from a historical standpoint as venezuela that's zimbabwe and and yes but but so well i like this differentiation between uh the great taking the great reset and by the way, that webinar came out really well. The feedback we've been getting still on that. And by the way, anybody watching this, if you want to know how to protect yourself from the great taking, our webinar, it's available for purchase at our site anytime you want. We put good work into that. Really happy with that. We've got some more things we've got to, we've got to resolve things that came out of that, Paul, including what do I do with my mortgage and people from Canada have different questions and there's more to add to that, but the core is good. But let's separate that from the great reset. Okay. So the great reset's really important because, you know, Paul, I do this thing with exponential growth, right? Where, you know, you take the magic eyedropper and, and it's this story about,

about how to embody understanding things that go like this, you know, because, um, we don't understand things that go like this, you know, we understand things that go straight. So we live in a world though, surrounded by things that go like this. And so the question is, what do we do with that? And by the way, there's no better example of that than this, as far as I'm concerned, right? This is you know oh yeah we have two and a half trillion of new debt in the last year just to govern federal debt right but we live in a debt based society but look at this this you look at this and you're like oh yeah we'll just keep doing that we've been kicking the can my whole adult life which is basically you know that curve that's

my whole adult life is that curve that whole that curve that's my whole adult life is that curve that whole thing that's just how the world works right but that's not how the world works and and it can't do that forever and the only way this works this is the thing drives me that's the only way that that chart works out paul is if somehow we get magic amounts of economic growth to to make that square that circle but it's growing faster than our economy that's a recipe for disaster so that's what nobody wants to talk about we're talking about it i think people need to know about it because as soon as you see something like this your first question ought to be how am i positioned for that ending yes that's that's the only question to

resolve because it will end it's going to break right and when it breaks predictions pretty listen i might be surprised it could be that deflationary outcome it's just the great depression 2.0 but in the world of electronic printing presses it's very hard to imagine how that comes along but let's say it's not zero but it's close because the alternative is like well this is terrible our money system's broken let's print and then maybe they have to give us central bank digital currencies or the fed has to open accounts for everybody so they are technically electric accounts so they can put money in so that you can spend it because you know who knows but but the thing that that this shouldn't happen in

the first place no this shouldn't happen in the first place. No, this shouldn't happen in the first place. This is failed leadership. Weak people make hard times. That's a lot of weakness. We got hard times coming. That's right. That's right. Especially for the unprepared. Yes, it is. And that's the thing that's so heartbreaking to me, Chris, is there are people that will look at this, they get terrified, and they participate for a short period of time, and then they just go back to it, right? Yeah. Then there are those who just refuse to consider any alternative outside of things are going to be great because they've got their picture in their mind of what they want the future to be. And, hey, the markets are going to get them that way. And think about the poor generation that entered the workforce.

If you're 25, that was 16 years ago. Let's say you're 24, you entered the workforce after 2008. You hear about all these bad things that happened, but now you're 40. You're getting into the halls of power if you've got work ethic and you're starting to work your way up to the C-suite and you've heard every argument from people that were rightfully so talking about how unsustainable this path was. And then you hear people say, well, if you're early, you're wrong. Well, there are some things that it's impossible to get right. And you know, and that's the people who don't want to even try because it's one thing to be early but to adapt. And it's another thing to warn people about things but also manage money in a way that allows you to participate in it because you have to educate people about the concerns that are coming so that they'll be willing and able to make those adaptations in time.

So in reality, it's a blessing that somebody warns us something early because it gives us time to prepare for it. But I am so extremely concerned about what's going to happen to the average individual on the other side of this, and especially those baby boomers that have a picture of what the world's going to be like. They've stretched for yield when interest rates were lower, and then they've had advisors that are like, hey, why do you want to own bonds? The market's going to be great. You know, they read articles that says if you don't own NVIDIA, then you're an idiot, right? And you and I know the math from a historical standpoint,

but there are so many people out there that just don't understand it. And they're surrounded by people who are telling them this is where you need to be. They turn on, you know, the major media, this is where you need to be. And they're going about their life and going on cruises and they're going to have an absolute calamity at some point in the near future, which is going to completely up in the picture of retirement of what they think that they have.

Yeah. Yeah. Well, I, um, as we close this out, I to talk about um gold yes talk about gold um because you know i can't do anything about all this printing and those wackadoodle charts that do that i can't there's nothing i can do to influence the chart but what i can do is like neo and the matrix dodge that you know and uh get myself positioned in things that aren't exposed to that, right? So I could go on and on for a long time about gold because one of the things that, I'm a deep contrarian, Paul. I just like, if the CDC says do this, I'm going to do that, you know? And so I heard for my whole adult life that gold is this barbarous relic and it's terrible

and it has no role. And that's what they were telling me, but that what they said i like what people do and i watched central banks hold on to gold lie about it um hypothecate it lease it but not let go of it right and and so and so i found this fascinating so this just came up from Jan Nieuwenhuis here. It says, today, on July 2, 2024, the Central Bank of the Netherlands, the DNB, invited 12 journalists to have a look inside its new gold vault at the Dutch Army base near Zeist. DNB stores 190 tons, one-third of its gold, in this vault. The Central Bank states it invited journalists.

Come on in to show the gold is there, how it's safeguarded and serves as the asset of last resort insurance. Speaking of which, journalists couldn't bring cameras, but video images were provided by D&B. So earlier in May of 2023, a year ago, D&B said that gold is the ultimate anchor of trust. If the entire financial system collapses, you still have the gold and the gold retains its value. It's pretty rare, Paul, to hear central banks talking about if the entire financial system collapses and then bringing journalists in to show them the shiny stacks. I take these actions to be very important because they did that on purpose, right? That wasn't like some random intern at the central bank decided one day to invite journalists in to see where their gold is, you know? How do you interpret that? Well, I interpret that as we told you and we showed you.

And if you didn't listen to us because you, you know, are following everything else, it's not our fault. Seems to me like I want this from a historical standpoint. Say, hey, look, we took you into journalists in there and we told you that if the system collapses, gold is going to have some value. And so I think that's a pretty big deal. Why would they tell us? Why is it a tier one asset for banks to be able to hold right now? And in other news, I think I was telling you about this a minute ago, you know,

along with that, hang on, let me show you, share the screen. I think this is it here. Okay. Even Nigeria plans to bring home a gold reserves home to minimize risk. And for the sake of time, Nigeria is pulling their gold back from the UK and it goes in here somewhere. If I can find it for the sake of time, according to the world gold council, a substantial share of central banks expressed concern about potential us sanctions and other Western countries froze almost half of Russia's

$650 billion in gold and forex reserves in the wake of the invasion of Ukraine. According to the War Gold Council, 68% of the banks surveyed said they planned to keep their gold reserves within their country's borders, which was up 50% from 2020. So it looks like I'm not the only one with trust issues anymore. Good to know. No, no. And those are the people that are most connected around there. I thought that was a pretty interesting headline. So it is. So that that's part of that larger bricks movement too, because Nigeria signed up, I believe for that whole thing. So, so they're all like just bird in a hand worth two in the bush, right? Get your gold home. And then we're going to find out.

So I think this is going to create disruptions. And I think it's part of the reason why we've seen GLD, which is the ETF that putatively tracks the price of gold, hemorrhaging tens of millions of ounces as the price was going up. Unusual. And I read that as saying, well may not have they meant that might not have been their gold right and so they might have had gold that belonged to them but it was leased or was hypothecated or was encumbered but it wasn't actually theirs right they didn't buy it so if when nigeria says i want it back and it was over there hanging out in GLD's, you know, putative vaults. Well, it's got to go away just like it leaves.

Right. So anyway, lots of crazy stuff going on. But I trust what people do, not what they say. And so central banks have been some of the largest accumulators of gold in the past few years. So that's what they're doing. And Chris, how you want to interpret that? I fully believe that the gold that is leaving the West will never come back because we're not going to be able to afford to purchase it. Yep. That's my biggest concern.

I agree. It's a one-way trip. One-way trip. Yes. Out it goes. So, well, here we are in July. I know that we're going to be seeing you, Paul, at the summit that we're having in September 13th, 14th, 15th in New Hampshire. Really looking forward to that.

This gentleman, Aaron Day, is going to be there presenting some stuff. We got Alan Booker. We got you. We got so many great people. We have a lot of content. We're developing three tracks now. So, bad news, people won't be able to see everything they want to see because some of it will be happening in parallel. But really looking forward to that, looking forward to seeing you there and still just getting great, great feedback from people who are working with you and your team at Kiker Wealth Management. It's just fabulous to be working with people of your integrity and skill. And so for anybody who would be interested in having a conversation with Paul and his team,

just go to peakfinancialinvesting.com, simple form, fill it out, and we'll take it from there. So with that, Paul, happy 4th. Hope you have a great one and see you next time. Happy 4th to you as well, Chris, and many blessings. Thank you. Hello, Chris Martinson. I'm the CEO of Peak Prosperity and also Peak Financial Investing. And after watching that, you're probably wondering, well, what do I do with my money? Look, you both deserve and need somebody who can talk to you about what's really going on in this world,

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