We Study Billionaires - The Investor’s Podcast Network - TIP 035 : How Currencies Work (Investing Podcast)

Starting point is 00:00:00 This is episode 35 of The Investors Podcast. Broadcasting from Bel Air, Maryland. This is The Investors Podcast. They'll read the books and summarize the lessons. They'll test the waters and tell you when it's cold. They'll give you actionable investing strategies. Your host, Preston Pish and Sting Broderson. Hey, hey, hey, how's everybody doing out there?

Starting point is 00:00:29 This is Preston Pish, and I'm your host for The Investors Podcast. And as usual, I'm accompanied by my co-host Stig Broderson out in Denmark. And today we've got a real fun one for you because we're going to be talking about currencies and the book called Currency Wars by Jim Rickards. And before we get to that, I just want to talk about some current events that happened this past week. And just so everyone knows, we're at the first week of May as we're recording this. And as everyone knows, that's whenever Berkshire Hathaway has its shareholders meeting is at the beginning of May. And so there's some interesting exchange.

Starting point is 00:01:01 is that came out in the news in this past week with Warren Buffett, Bill Gates, Charlie Munger, even the chairman of the Federal Reserve, Janet Yellen, was saying some interesting things. And that's what we're going to discuss here at the start of the show. So the interview that I'm referencing is one that took place on CNBC where Bill Gates, Charlie Munger and Warren Buffett were all sitting together. So the interviewer asked them about what their opinions were on interest rates and how they're basically affecting the economy. And so Bill Gates kind of kicked off the conversation, and he started off by saying how he was concerned with low interest rates persisting not only in the United States, but around the world and what that impact might have. And so his exact quote, he said, the environment with low interest rates, it's globally so unusual. It really shouldn't persist, he said.

Starting point is 00:01:50 It creates problems in terms of leverage and bubbles, but how we get out of it is really the major economic setback and concern. It would be very difficult. And that was pretty much the end of his quote. So then the interviewer asked Warren Buffett what he thinks about it. And Buffett has the opinion that low interest rates are affecting the real estate market in a big way. And ironically, that was something that we were talking about in our previous episode with Josh Dorkin. He shared the same concern and also felt that these low interest rates are creating a major bubble in the real estate market. And so the main takeaway that Buffett had, and this was his exact quote, he says, interest rates change the value.

Starting point is 00:02:29 value of real estate dramatically, especially as they persist in this country. And it's probably changed the value of stocks pretty dramatically. And then Charlie Munger, his vice chairman, said, I'm deeply suspicious about printing money and throwing it around instead of printing money and building infrastructure and so on. And then Buffett said, if interest rates normalize, we'll look back and say stocks weren't so cheap after all. So that's a really, for me, that's an extremely interesting conversation because they're really talking about the same similar stuff that we've been saying and just our concern about interest rates persisting and being low and how that's really kind of making things seem like they're a good deal, even though they might

Starting point is 00:03:11 not be as soon as the Fed brings up rates. So now this is where it got really interesting is Buffett continued this conversation, and he made the comment that he didn't feel interest rates were going to go much higher whenever the Fed starts bringing them in, or at least they won't be happening. at a fast pace. He definitely thinks that interest rates are going to go up, but he doesn't think that it's going to happen at a level of 4%. And that's the exact number that he actually quoted. And the main reason that Buffett said that he doesn't think that they're going to go that high is because he basically said Janet Yellen's hands are tied, the Fed Chairman's hands are tied,

Starting point is 00:03:46 and that she can't raise rates much higher simply because of the situation that's happening in other markets and other currencies. So when you look over at Europe, They've got negative interest rates in some locations. That's why he doesn't think that interest rates are going to go much higher than where they're at right now, or at least quickly. He thinks that it's going to be a slow and gradual process. And, you know, Stig and I obviously agree with what Mr. Buffett is saying. We're definitely not going to be arguing that point. There wasn't anything that they recommended or the path forward.

Starting point is 00:04:17 They're just basically expressing their concern. And this is where it got, for me, by the middle of the week, so that conversation really took place on like a Monday of this past week. And then by Wednesday, you had Janet Yellen come out. She made the claim that she didn't think that financial stability was necessarily too much of a concern, which is arguable. But she did say this, which was really interesting, she said, stock prices are still quite high right now. And I think for any Fed chairman to say something like that is pretty extreme because they live in the world of moderation and really not saying anything. In fact, there's an Allen Green's spain. in a quote where he said, I'm going to mess up the quote, but the quote went something like,

Starting point is 00:05:00 if you are reading in and you think that I'm telling you something, you completely missed what I was trying to tell you because my job as the Fed chairman was to be as ambiguous as possible, which I thought was a very funny quote. But so you have Janet Yellen coming out and saying that she thinks that stock values are high. You have two of the wealthiest people in the world, Warren Buffett and Bill Gates, both saying that they think that equities are high. and if interest rates would change even the least little bit, that it's going to cause stocks look like they are not such a good deal after all.

Starting point is 00:05:34 So just wanted to start off with that, and I want to kick it over to stick because I'm sure he has some comments. Yeah, I was really curious when Preston sent this to me. I know from, you know, I've been following one by five years, and he very rarely talks about the current stock price level. And I think that's probably a wise thing because if he did have a comment about the current, price level of the stock market, you know, he won't be talking about anything else. But he's been known for talking about the stock market, you know, when it's really extremely low. So he's quoted for saying something in 2009, and I'm probably completely going to miss up the quote again, but he was saying that you should probably start buying equities. I mean, there was not what he said,

Starting point is 00:06:15 but basically that is what he meant. And then, for instance, he was also famous for the speech he held in 1999 when he said that this is just going to explode. Again, there was not his exact quote, but that's what he meant, and he was completely right about both things, by the way. So, I mean, I think that was really what I took away from this article in this interview, that Warren Buffett rarely speaks about the current level. And it's completely true. The chairman of the Fed doesn't speak about it, but they do now. And that's just quite interesting, I'd say. Yeah.

Starting point is 00:06:47 Yeah, I totally agree. I was talking with Colin Yublonsky, our friend from our mastermind group on Wednesday after the Janet Yellen comment. And I said, you know, Colin, I'm not saying that this is a market top by no means, but I said, it is very rare that you see a Fed chairman come out and say that they think that the market is overvalued. I just found that to be quite unprecedented. What she was trying to do with that comment, what she was trying to generate, I have no idea, but I just found it extremely rare. And so I said, I don't short sell. So, or at least I never have short sold anything. and I told Colin, I said, but this is very tempting whenever you have people like this saying

Starting point is 00:07:28 those kind of things. I did not go out and place a short sell on anything. And I find it hilarious that the next day and Friday in the market, it was up tremendously from these comments. So that just shows you how euphoric things can be. And I just found it really funny after our conversation where I was just a total bear after hearing this kind of news. And the market just went wild on the two following days. So for people that are listening to this in the future, you can just hear how we're having this discussion where we think that it's bearish conditions, but yet the market is continuing to go higher. It's not even paying attention to these kinds of things. It's looking at other factors. So it's just fun to be able to document these conversations and to, as we're

Starting point is 00:08:15 going through this, you can hear our thoughts and the things that we're thinking about. But, okay, that's enough about the current events. We're going to go ahead in our. start talking about the book that Stig and I read. And for anybody that wants to get our Cliff Notes version or our executive summary of the book, you can sign up on our website. We send two emails a month. I swear by that. I refuse to send any more than two emails a month.

Starting point is 00:08:40 And in those emails, we always attach our book summaries. There's always something in it for you to gain from the emails that we send. So if you want to sign up on that list, go to our website, the Investorspodcast.com, and you can sign up on any of the pages there. So in general, I think that this book was, it was really good with respect to the information that it was sharing. It taught me a lot about currencies. But in general, there's a lot of things that I disagreed with in this book.

Starting point is 00:09:06 I guess my biggest complain or concern with the book is that after I was done reading it, you pretty much feel like the world's going to have a total meltdown, which I don't necessarily feel that I have that opinion. So that's kind of where I had a little. different perspective on this, but I did think that the book was good. So we'll just go ahead and start off by talking really kind of through the order that the book was presented. The book starts off with a discussion about what Mr. Rickards had a personal experience where he was working at a location called the APL, which is the Applied Physics Laboratory here in the United States. And Mr. Rickards talks about how they went through basically a war game, but it was based on currencies.

Starting point is 00:09:49 and it was a financial war game that the government had done. And so Mr. Rickards was part of this, and he wrote about it in the book, and he talks about how they had put different ideas forth. He and another gentleman were trying to really induce the idea of gold and how gold would play into currencies and currency wars amongst other countries. And at the end of this war game that he was involved, in. He really kind of his takeaway was that most of the people that were involved didn't really fully understand currencies or equities or how markets interact and that they were more like

Starting point is 00:10:33 military people and people that really didn't have that level of expertise that he and somebody else had. So from a style standpoint of writing, he was definitely boasting about his knowledge of markets and things like that. I found the introduction of the book to be a little awkward. word. That was my personal opinion. I'm really curious to hear what Stig thought of the intro of this book. Yeah, I was, I don't know what's just real to say about this, because I think it went on for like a chapter or two. And I was like, are we going to, so the reason I'm saying this is that he was talking about the different rounds. Like for instance, round, I don't know, two. It was something about North Korea. It might also be around three. So we're going through these rounds and discussing, you know, what would be appropriate in these different scenarios.

Starting point is 00:11:19 I know that the title is currency wars. Like, I listened to the book, so I didn't have the table of content. I was like, am I going to listen to 50 rounds of different scenarios about currency wars? I had read a review on the book before I started reading it. And one of the reviews was the first chapter was horrible, but the rest of the book was good. And so whenever I was listening to it, I was like, okay, yeah, I agree with that person's review. I don't really particularly like this first chapter. But it did.

Starting point is 00:11:47 The book definitely got better after the first chapter. I have to say. Yeah, so I actually just want to throw in that I got an email like a few months ago from one of our, from one young audience called Mark Little John. So he was actually the one who was suggesting that we would, well, actually take a James Ricketts, which is the author of the book on the show, and then also Recurrency Wars. So, I just want to add one thing before I move on. He's actually saying this email because I just pulled it off.

Starting point is 00:12:15 You and Preston almost makes Bel Air sound like an exciting. place. And it is not. Okay. Yeah. Sorry. That's hilarious. That was hilarious.

Starting point is 00:12:29 Yeah, I just pulled it out now. Yeah. So, Mark, first of all, we'll definitely send you a signed copy of a

Starting point is 00:12:34 most popular book, the Warren Buffett accounting book for suggesting this. So I was just thrilled. You know, I love getting book suggestions from your audience.

Starting point is 00:12:43 So, you know, when I hear is something called Currency Awards, I'm like, yes, that is different what you do.

Starting point is 00:12:49 Not because of the Bel Air comment, which was also hilarious, but also because the other thing. But also because right now, or actually it started a few months ago, Preston and I had really starting to look into currency. So I guess you can also say there was really, I wouldn't say a lucky punch, but the timing was really good because early on we really looked at the microeconomics of the company. And now we're also looking at the macroeconomics about investing. All right. So let's keep moving on. Thanks, Mark, for the suggestion to read this book. We were real happy, like Stig said, to dig into currencies and talk about that a little bit more. So we'll keep moving here on the book. And so for anyone in the audience, if you have a book suggestion, go ahead and send it our way. Particularly, we want to read books that billionaires have recommended. We've kind of got off that beaten path with a couple of the recent episodes, but we want to get back on it. And I think you'll notice that on our future books that we're reading. But anyway, after the first chapter, after the first two, chapters where he talks about this experience of working at the applied physics laboratory

Starting point is 00:13:51 at Johns Hopkins University. He then goes and talks about these reflections back on basically like the history of the gold standard and how gold interacted with currencies. And he goes back to reflect on different currency wars. So, Rickards describes the benefits of the classical gold standard that was placed in the United States back from 1870 to 1914. And, and, you know, And he refers to this time as the best era in the history of gold with several countries like Japan, Germany, Austria, Spain, just to name a few. And they were put into what was called the Gold Club. And the U.S. was the last one to join this club during that period.

Starting point is 00:14:36 And he says that during this time period, there was little to no inflation that occurred during that period. So he has a discussion about that in the book. after that he goes into another section where he talks about the very first currency war, which he put dates on, which he said was from 1921 to 1936. And so anyone that knows their history knows that that coincides with the Great Depression and the roaring 20s. What he really focuses on during this time period is the German currency, the mark.

Starting point is 00:15:07 For anyone that looks back at their history books, and they remember the picture of the gentleman with the wheelbarrel, and the whole wheelbarrel is just full of money. That was in 1922 time frame in Germany where they were trying to pay back their war debts from the First World War. And in order to do that, they went through this massive currency inflation where they were just printing money like Wilde in Germany in order to try to devalue their currency and pay back their debts. So in order to talk about Germany's currency and how they had to pay back this World War I debt, Stig's going to go ahead and discuss that. Yeah, so I found this really interesting because I think I knew from probably bagging my school days that there was a lot of inflation, but I just looked it up how much inflation there were. And it was for one US dollars, that was equivalent to $3 trillion mark.

Starting point is 00:16:00 I mean, that's a lot of inflation. And before that, I think it was something like 1 to 5 or 1 to 6 or something like that. So, I mean, it was a massive inflation. And the reason for this was the war damages that Preston was talking about before after the First World War. And there was actually a lot of discussion going on about how much that they should pay. And you have like a really clever economist like Kane saying that you should probably not, you know, be too cruel to Germany even though after this horrible war, because if they can't pay this bag, a lot of bad things will just happen. And so they actually decided on a really large amount of war reparations. I can't remember the exact amount, but it has to be paid back in hard currencies.

Starting point is 00:16:44 So what the German did, because they couldn't pay it back in Mark, was actually to print a lot of Mark and then converted to, for instance, US dollars. So that was why you would see this gradual rapid inflation and then pay the money back. And, you know, the history, the rest is history, as we say, because what happened was that you saw a massive instability and, you know, basically as a result of this, but not only as a result of this, but also. a major result of this, you saw the Second World War, because it was just messing up the whole, industries and everything in the country didn't work after the inflation. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer.

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Starting point is 00:21:24 That's Shopify.com slash WSB. All right. Back to the show. Well, you get into what's called with people. commonly refer to as a power vacuum. And you had this instability. And it's funny, I didn't know that about Keynes' warning about that. And what do you have?

Starting point is 00:21:42 You have Hitler comes in. And very interesting discussion. And so he talks about this. And this was the very first currency war that he attributes to, which was, like I said, 1921 to 1936. So then he talks about the, he goes into another chapter where he talks about the second currency war. And that was from 1967 to 1987. And so what he really talks about as being one of the key drivers in this timeframe was in 1971 Nixon announced his new economic policy that consisted of price controls and immediate wages where the gold window would be closed and a hefty 10% would be applied on imports. So this had a large global, I think for the first time you're really seeing the global piece really significantly play out where,

Starting point is 00:22:30 as soon as the U.S. came off this gold standard, nothing was pegged anymore. So you didn't have the U.S. dollar pegged anything. And at the time, the U.S. dollar was really the thing that was driving the world economy. The U.S. was definitely the leader in economic growth during that period. And so whenever they came off the gold standard, you had a floating currency. And as you study currencies and you learn about currencies, they're all relative. I think that's probably the biggest take away, that anyone could take away. So when we say that a currency is relative, what we're saying is that the dollar is always compared to some other currency, or it's compared to gold, or it's compared to silver. The value has to be compared to something else. So if the U.S.

Starting point is 00:23:17 government decides that they're going to print a whole bunch of U.S. dollars and add that to the monetary baseline, that's going to have an impact as to the value of $1.00. or in that overall system compared to some other country's currency or material or it always has to be compared to something else. So I think when you look at it through that lens, you're going to have a much easier time understanding how currencies work when you're constantly comparing it back to something else. So when you had Trace Knappa on the show, you know, last episode, he was talking about

Starting point is 00:23:52 how the Japanese currency, how he'd rather compare the Japanese currency to gold than the U.S. dollar to gold because he felt that the Japanese were going to have to print a lot more of their currency in order to offset the conditions that they had with all the amount of debt that they have. So that's why he has that opinion is because he's relatively comparing it to gold, which in his opinion isn't changing and that the supply isn't getting bigger. So he liked to use gold as that standard to peg it to. And you know what? So does everybody else because Ray Dalio has a very good piece on this discussion where he talks about how currencies work. And he used an example in one of his writings.

Starting point is 00:24:33 And I actually posted this on our Warren Buffett form for some people to read. But he compares it to loaves of bread. And I think that this is a great example. Just so everyone knows, Ray Dalio, billionaire, largest hedge fund in the world. And so he wrote this piece about how currencies work. So he said, if I could peg, I can peg anything to something else that's relative. So if I'm pegging it to a loaf of bread, if I can go out and I can produce more loaves of bread, it's harder for somebody to compare their, let's call it the dollar to a loaf of bread.

Starting point is 00:25:07 It's harder for you to compare those two in relative terms because I can produce a lot more loaves of bread on a whim. But if I'm comparing the value of the dollar to something that I can't produce more of and that's relatively fixed, that's a great measure for me to be able to look at the relative value as it progresses over time. So I found the read to be extremely valuable and interesting. We can provide a link to that discussion in the show notes to the form where I point that out where Ray gives a thousand times better than the way I just described that in his writing because he's a very good writer. And I highly recommend that people go and read that discussion so you can understand currencies a little bit better. So got a little bit off track there, but really the main point where we were discussing the second currency war was that the U.S. came off the gold standard.

Starting point is 00:25:58 Jim Rickards talks about this discussion in the book. It's a very good discussion. And the impact that that had globally where you had nothing but floating currencies around the world and how it really kind of was a destabilizing event because everyone's currencies were floating. When that happens, they have this incentive to print more money so they can devalue their currency and get investors. from outside the country to invest inside their country, which helps their GDP growth, which sounds really counterintuitive, I think, to a lot of people that devaluing your currency will spark growth, but that's what happens. Now, this is where it gets really interesting, and it leads into the third currency wars,

Starting point is 00:26:38 which he's dating from 2010 to the present and ongoing. So as we talk about this idea of countries devaluing their currency, to spark and create GDP growth, you have a very interesting scenario. Because from the individual standpoint, meaning the, let's just say, I'm Germany, okay? And if I devalue my currency,

Starting point is 00:27:03 it's conducive for me to spark investment inside of my country. That's good for Germany. But that's bad for every other currency and every other country around the world. So what you have is you have an event that's great for your own self-interest, meaning the country that does it, but bad for the global economy, because what you have is you have a competition. You have the euro competing with the dollar.

Starting point is 00:27:29 You have China competing with the dollar. And you have this race of who can devalue their currency faster so that they can spark their GDP growth. And so the collective impact of that is bad for the world because you're having these countries that are continuing to devalue their currency, which I personally think, and I don't think Jim's, says this in the book, but what I think is creating a major gap between your lower class and your upper class and the middle class has fallen apart because of this. That's my personal opinion. I see Stig has a point that he wants to add. Yeah, I think one thing that we should always remember when we're talking about currencies is that it is really extremely important for the financial stability. And we just discussed what happened in Germany in the 20s and the 30s.

Starting point is 00:28:12 And, you know, again, the major reason for that was the instability. And if you don't know what you can buy for a dollar, if you don't know what you can buy for a euro, if you think that your own central bank will start to print a lot of money, or if you think that your largest trading partner will start, you know, slamming down the prices of the goods, then it creates a lot of uncertainty. And even though there's always a lot of uncertainty in financial world, if you push financial instability enough, basically you have a system that is falling down. And it, you know, it has many form in shapes, currency, that's one of them. But what you saw also about the, in the last financial crisis, you know, that was financial

Starting point is 00:28:50 instability too. It was in a different form. It was not so much in currencies. But that is the end result that you see if you have a currency war. That is basically chaos. And I just thought that was something that we should always be thinking about. So financial stability. One thing I want to talk about, because, because, you know, it was really interesting when

Starting point is 00:29:10 And he starts, James starts to go into the current currency war. I mean, one thing is to the back at the two previous currency wars, but also when he's talking about what is happening right now. And the thing I found especially interesting was that he said that if you look at the US, China and Eurozone, so that would be 60% of the GDP. You see like a major currency wars between these three regions, especially between the the US dollars and the Chinese one. And I actually found that to be one of the most insightful things.

Starting point is 00:29:48 And the way that this currency wars works is that the Chinese has picked their currencies to the US dollar. So basically what that means is that the Chinese central bank, they're determining the exchange range between the US dollars and Juan. Let me just give you an example of how this work in practice. Say that you are a Chinese company and you're a Chinese company and you're a want to sell goods in America and you would receive like a million dollars. Then you don't receive a million dollars.

Starting point is 00:30:15 It's the central bank that are actually converting that and then you'll get a corresponding amount in Juan, which is determined by the central bank. So this is a major problem because as Preston was saying before, when you have a currency that is worth less, you have a big competitive advantage. Because the US, they're not just competing with other US companies. They're always also competing with the Chinese companies. And that was something. I thought found it was really interesting in the book.

Starting point is 00:30:42 I don't know what you took away from the Chinese-American relationship president. What I found interesting is how there's no relative change between the two of them. Now, you're not seeing that with anyone else in the world. You're seeing really more of a competition. But that's the thing that I found really interesting. The other thing that I think is good to talk about is the idea that we had Larry Summers. Remember when we played Larry Summers comments at Davos? This was probably maybe five episodes ago or something like that.

Starting point is 00:31:12 And he made the comment about everybody standing up in the auditorium. And so his comment said, everyone right now is sitting down watching us. He said, but if one person stands up, that person's going to be able to see better. But what the problem is is when that one person stands up, the people behind them can't see anymore. Their vision is worse. So they entail they have to stand up. Next thing you know, everybody in the auditorium is standing up. nobody's seeing any better than they were whenever they were sitting down, but now all their

Starting point is 00:31:40 legs are hurting. And so that example that he gave, and people might not have realized it at the time, but the example that he was providing is directly related to what we're discussing here. And what he means is if one person stands up, meaning if one country is devaluing their currency, they're actually making other countries want to stand up to, which would be devalue their currency as well. Next thing you know, you have everybody devaluing their currency. That's what he was referring to in that comment. And I don't know if everybody really caught that during that conversation, but that's what he was referring to. And that's what Jim Rickards is talking about in this particular point in the book. Go ahead, stick. Yeah, and you know, if you look at the American and Chinese relationship, I think what is really

Starting point is 00:32:28 important to understand is that the war is fought on many fronts. It's not just the Chinese who decided to pick this. The Americans actually made a, just to use the terminology, a counterattack a few years ago. So back then, I think it was back in 2010, you actually heard Obama saying that the US should free himself from this crisis and they should do that by doubling the export. So this was example that was really good in the book. And what's really important to understand here is that the American economy that's driven mainly by consumption. It's one of the economies in the world that's driven most by consumption. 70% of GDP is by consumption, whereas the Chinese economy is not driven by consumption, but more with investments.

Starting point is 00:33:15 And so why is this important? Well, this is actually very important because what happened in 2010, 11, well, you saw these different rounds. I think I actually saw this before with the QE. So what the US was actually doing was to basically print a lot of money. And this, no, the implication, this is really interesting. Because by doing this, they were actually, you know, giving China two very, very hard choices. So the first one is that China could not reevaluate. If they choose not to reevaluate, which would be, you know, one thing to do,

Starting point is 00:33:48 then they have a lot of inflation because they need to print more. money to keep up with this. And if they have more inflation, it's a big problem for China. So at this point of time, you know, in America you have very low growth and you have very low inflation. Whereas in China, you have very high growth and very high inflation. So you're basically exporting the inflation problem to China. So that was the first choice. The other choice that they could take was that if they did reevaluate, which they actually did. I don't know how many people are following those exchange range, but you can actually see that the Chinese after the QE decided to revaluate.

Starting point is 00:34:23 The result of this is that the American companies are now more competitive than the Chinese companies in comparison to what the war before. So the currency wars that is actually talked about in this book, I mean, that is what you see right now. If you open up a newspaper, you are seeing a currency war right now. So I just wanted to throw in an example of what is actually happening. So what's really interesting, okay, is what's the end state? Okay, where does this all take in us? And I think that that's the really fun discussion to be had is if everyone's got an incentive to devalue their currency at a modest rate so that they continue to spark some form of GDP for their country, where does this end is everybody continues to do this?

Starting point is 00:35:10 Every country continues to do this. And you find yourself, and I think that's why Jim Rickards has such a negative stance on where this is all going. as he sees it all ending very badly. I don't, I guess I just don't have such a pessimistic view on things. I think that, I think that there is a way out of this, but you have to have global currencies starting to get pegged to something that is very standardized. And so some people might highly criticize this comment, but I'm going to say it anyway because I think that it's really an interesting discussion. I really see that's where cryptocurrencies come into play. Um, cryptocurrencies are designed to be a world currency.

Starting point is 00:35:54 Okay. So let's just say that you do have a cryptocurrency that has a finite amount of units and that that, that number cannot be manipulated. It is, it is fixed. It can't be inflated, if you will, okay? Or devalued. Uh, when you have that and you have it on a global scale, you actually have something that would peg, uh, currencies to. and central banks are then forced to either peg their currency to it, or they're going to be forced to continue to devalue

Starting point is 00:36:27 and then pay the consequences of doing that. And so that's where I think cryptocurrencies really play a strategic and interesting role in all of this is maybe that is the solution. I don't know if that's the solution, but I think that it's something that's definitely worthy of discussing. So in Jim's book, he doesn't talk about that at all. But what Jim does talk about is that goal, is what he is really, I guess, recommending because he feels like that's a form of currency

Starting point is 00:36:53 that would peg everyone across the board so that you basically put an end to the madness. My problem with gold is that it doesn't have any utility. You can't go out to Walmart or whatever store you name and slap down some gold coins and pay for something. People are going to look at you like you're crazy. But I do see some form of cryptocurrency, whether it's Bitcoin or not, I have no idea. But I do think that if there is a form of a cryptocurrency, it can do the same thing as gold because you can't devalue it, okay, because of the algorithm and the way that the code on the program would be set up, just like Bitcoin is. Okay.

Starting point is 00:37:34 You have something that is standardized. And you also have the utility piece that I think gold doesn't have. I can pull out my smartphone. I can scan a QRC code and I could pay for something. And so that's where I see, you know, and we're. really talking way off in the future. I don't see that in the next couple of years, but I could see something like this playing out in 10, 20 years from now. And I think that that might be your solution to something like this. And I think that that's a more viable solution than

Starting point is 00:38:00 everything goes to gold. And I just don't see countries, I just don't see countries doing that because you don't have the utility piece to it. So I'm curious to know what Stig thinks because we've never discussed that idea. And I'm curious, do you share the idea that I just said? I don't think, well, the thing I do share is that I'm not as pessimistic as James says. So, like, he would be bringing in statistics saying, like, the dollar might fail and it's not as used a reserve currency as it used to be. So I'm sorry to interrupt, but I have to say this. I am not as bearish on the dollar as I think Jim is. When you look around, it's a relative game, like we said. So is the dollar really the worst currency? No, it might. it might be the best currency when compared to all the other, when you compared to all the other currencies that are out there. So go ahead.

Starting point is 00:38:52 Sorry to interrupt. Yeah, no, I guess it also depends on how you look at statistics. Because if you look at like the last five years, it is true that as a reserve currency, the magnitude of US dollars has been before it was 71% and today is like 61, 62%. But again, if you just look a few years back like to 1995, you can actually see that the US dollars as a reserve currency was even less popular than it is today.

Starting point is 00:39:21 So I guess it also kind of depends on how you look at the numbers. I don't think the dollar will fail. I think that as you will see, okay, let me put it like this. The current situation that we have right now where central banks can print the money, do we have problems with that? Yes, we do have inherent problems with that. I kind of compare it to democracy. Can I find a lot of different mistakes with the democracy?

Starting point is 00:39:47 Yes, I can. Is it the least bad solution? Definitely. I can't think of anything better than democracy. So I would go with democracy. And I guess I kind of feel the same way about currencies. Do we have a problem with the U.S., you know, Central Bank they can do QE and print more money? It's a problem.

Starting point is 00:40:05 Do you have anything better, like a better turn to? I'm not really sure. I know it seems like a very defensive answer and it's not like a half. have the right solution. But I guess that's how I look at it. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up and customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates your compliance process and brings compliance, risk, and customer trust together on one AI powered platform. So whether you're prepping for a SOC2 or running an

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Starting point is 00:43:44 I guess you have to stick with what you got. Yeah, you're probably right. No, but he is bringing a very interesting, some really interesting thoughts about the spacious drawing rights. He was talking about like a global currency. And I think that you'll probably know better than me. President, but your stories have been talking about global currency for a long time. Yeah.

Starting point is 00:44:08 And I think that that's why he has that opinion. I think he's had that opinion for a long time is because he's seen this thing, you know, growing. And all these billionaires, these guys know exactly what's going on. And I think if you pull up Warren Buffett and Bill Gates, they've got a lot of opinions on currencies. In fact, that same interview that we were talking about at the start of the episode, the lady that was interviewing them asked each one of them what they thought of different currencies in which currencies they thought were the best. Buffett said that he thought the dollar was the best currency out there. Bill Gates, surprisingly, said that he thought that the Chinese currency was the best that

Starting point is 00:44:44 was out there. And after he said that, Buffett asked Gates, he goes, how much Chinese currency do you have, Bill? It's just basically like jabbing them. Like, you're saying that, but, you know, why don't you put your money where your mouth is? Anyway, interesting discussion. So just kind of concluding the book, I think we're going to probably just, summarize and just kind of wrap things up here.

Starting point is 00:45:06 But at the end of the book, Jim really gets into a very negative position of like, basically, I don't know what the solution is here, but I just don't think that people were going to solve it, basically, was where he got at. He felt that a currency that would go to a gold standard would have a major setback initially. But in the long run, they would really have a major advantage over other currencies, which I think is true, but I don't think that you're going to find a contrary. and I think Jim Rickards would agree with this. I don't think you're going to find a country that wants to take that initial hit

Starting point is 00:45:40 and try to sell that to their citizens as they bear through maybe five or ten years of having rough economic times because they would do something like that and have a peg currency. Did you agree with that, Stig? Oh, yeah. I completely agree. Okay. So that's pretty much how the book ends is basically he doesn't see anybody really adopting a gold standard and that this is going to end in just economic disarray.

Starting point is 00:46:03 So, and Jim, if we summarize they're wrong, then let us know. But all right, so really fun discussion here. We're really curious to know what other people think. And if you go to our forum, the Warren Buffettforum.com, you'll see that we have, I don't even know how many posts. I think it's almost up to 100 posts where we're discussing de-leveraging, currency debates and all this stuff on one of the posts there. It's really getting fun. So if you've got some comments or you think we're way off base, Or you've got some different points that you want to highlight where you maybe think that gold does have utility or whatever.

Starting point is 00:46:39 Go on there and we like to shoot holes through things. I've really come to have a deep appreciation for Ray Dalio. I know whenever we first did the Tony Robbins book, I was very critical of Ray Dalio, but that's primarily because I didn't really know the guy or had really studied him very much. But the more I get to know Ray Dalio, I have a real appreciation for what he's doing. And one of his key tenants for Bridgewater, the company that he runs, is that, and it's a very strange culture. It's a culture that I don't think you'll really see in any other environment. But what Dahlia prescribes and actually forces upon the people that work there is this idea of having an open environment where people are absolutely truthful.

Starting point is 00:47:24 And if you have something bad or an argumentative stance that you have with somebody else, you have to say it to that person and you have to bring it to. to light and bring it out for everybody because Ray Dalio believes that mistakes are your biggest gifts that a person can receive. And so Dalio wants people to shoot holes and to criticize his opinions. He promotes it. In fact, if you're not doing that, you're really not adding any value to the organization. And so Stig and I really have a very similar opinion, especially on our forum. If I put an idea out there or I tell somebody, hey, this is what I'm I think. I really don't want somebody to agree with me. If you agree with me, I basically don't want you to say anything. But if you disagree with me, I really want you to tell me why. And I'm, I could care less if it makes me look silly, because that pretty much happens all the time. But I'm serious. I want people to disagree with my position. Stig wants you to disagree with his position. Because whenever that happens and you can quantify, the reasons why. If it's just emotional, it's, you know, whatever. But if you can quantify,

Starting point is 00:48:36 hey, Preston, I disagree with your opinion. And here's the three reasons why. That's value not only for, for you to be able to research that and figure that out, but that's value for me and it's value for everybody else in our community to learn from that mistake. And it's not something that we should be looking at, oh, my ego is hurt. I could care less about that. What I care about is that everybody learns something collectively as a group and that we come out of this thing better than we went into it. So that's really our, I guess our pitch. I guess you could call that a pitch for our forum.

Starting point is 00:49:08 But I'd also like to say that that's the kind of community and environment that we want to cultivate within our listeners and the people that interact with us on our websites is to, you know, help us learn, help us point out things that we're missing. So go ahead, stick. Yeah. And I guess that people can also see. that from us like, hey, we just had a whole episode about Bitcoin. I mean, we are contrarians by nature. We want to question everything. Right now, we're talking about that

Starting point is 00:49:38 the stock market is overvalued. We're talking about that we are transitioning into cash. And everyone in the world, you know, they are, you know, buying equities right now. So I think it's, it's very inherent in the nature that I have that we want, you know, just the same way that we're saying about currency wars, I'm not really sure we agree. I also want people to tell me that they don't agree. And the problem is that whenever you have an opinion, you seem logically to search for information that is backing you up. I think it's called confirmation bias, actually. I think we actually have a term for that in the literature. So if you have a certain point of view, it's kind of like, where can I Google and find an article that agrees with me? And it's just,

Starting point is 00:50:26 very dangerous path, I'd say. And I'd do it for myself. You know, whenever I decided to transition to cash, you know, I tried to find like 10 articles saying, Stig, you're right. But, you know, I could find a thousand articles telling me I was wrong, but I didn't want to read those. Yeah. So, yeah, that was just my two cents. No, you're exactly right. And Dahlia talks about that idea that you're, that you're mentioning Stig, and he says that he thinks that it's cultivated back whenever you go back to your days in high school or your days in college. If you, you make a mistake or you miss something, that is wrong. The teacher, that is a wrong opinion. You get a bad score. There's, there's a lot of negative reinforcement attached to mistakes.

Starting point is 00:51:10 And so he says that that's basically bred into our culture that if you make a mistake, you're wrong. So you should be looking for reasons to support the stance and the opinion that you had. And he basically goes in the exact opposite direction of that. He says, if you made a mistake, there is a learning experience that can be captured there so that you don't make, you know, more mistakes or you become more efficient in your thoughts. And it's just, it's amazing what he has. And he has all this outlined in a document called Principles by Ray Dalia. If you want to search that on Google and read it, it's a fascinating read. But we'll have all that stuff up in our show notes as usual.

Starting point is 00:51:47 But right now we're going to go ahead and transition into a question from our audience. And this question comes from Brendan White. And here's what he has to say. Hey, guys. is Brendan. I'm going to be a freshman college just fall and recently watched your buffed videos and started listening to your podcast. I had a question. With all these tools, techniques, and numbers at an investor's disposal, why do some not experience success? In other words, what mistakes are commonly made while investing? All right, Brendan, that's a good question.

Starting point is 00:52:16 It's open enough that I think Stig and I can throw a couple different things at you. So Stig, go ahead and fire away with what you think. Yeah, so the first thing I want to say, is analysis paralysis. You're saying that there's so much information out there and why doesn't people get into success? I think that's the problem. There's too much information out there. So, you know, if you didn't have any investment books but just had, you know, Warren Buffett, then I guess a lot of people would be quite successful. Like even though that you would like to pick an investing strategy that works for you, you know, there's just some underlying principles within investing that you just need to follow. And I think,

Starting point is 00:52:55 that is something that really confuses a lot of people. So you might be saying, okay, I'm interested in stocks. So you would read one article about, you know, of Warren Buffett, then you'll read about candlestick analysis with just like technical analysis, and then you would read one article about high frequency training. And you're like, huh? What should I do now? And I think that's probably the main problem.

Starting point is 00:53:19 Like there's a lot of different strategies that can make sense. But if you're mixing all of those and you're not like doing. one fully, I think you're really, really heading for trouble. Another thing is that I don't think people spend enough time in investing. I think that if you monitored one person, you know, throughout a year and looked at how many hours you spent on different activities, including investing, I think you would easily find 10 or 20 activities that he would spend more time on. So, So you know, you wouldn't expect to master rock climbing if you spend like one hour every three month.

Starting point is 00:53:58 But for some reason, people think that investing can be somewhat easy even though they don't spend the time. And then if you then add that investing is mainly males and it mainly attracts males, I think that they're better than the average and they don't spend the time, then you have a problem. So, there's just a few effects. I see the president have another thing to say, but I just want to throw in one more thing. The last, one more thing is that it's very intransparent. Like, if I was to, you know, race Preston or something, you know, I would probably lose,

Starting point is 00:54:35 but we will figure out pretty fast who is the best in this race. In investing, it's very, very different. Like, it would take years to figure out whether or not you're right or wrong. And even then, you can probably come with a lot of excuses. why you're not doing well. So, um, present, I see that you definitely have something. Well, I can definitely tell you, you'd probably beat me in a race stick. You're, you're very light. I'm slow. I'm very slow these days. But, um, Brandon, I really like this question. And I think Stig gave you some really good advice to be quite honest with you. I like the idea of you studying a

Starting point is 00:55:06 person that, in investing that you kind of have some similarities to. For me, for me, I started off studying Warren Buffett. I didn't really look at anybody in the entire, investing community for years. And I just studied everything about Warren Buffett. I read every single shareholder letter. I read every single thing that he came out on. And I focused on nobody else. And I think that that was good for me to be able to flush out a lot of other people's different opinions. And it was a good learning experience. Okay. And I think that it's important for you to start off with somebody who has made it. Somebody that has proof that they're, system works. Now, whether that's Warren Buffett, that's Ray Dalio, that's whoever, but you need to

Starting point is 00:55:52 pick somebody, and I think that you need to pick them based off of their personality and see if your personality is similar to theirs. The other thing that I'll tell you is there's a lot of different approaches out there, and there's a lot of different approaches out there that work. I'm obviously a value investor. I think value investing works, but I also think that there's people out there that can do, I mean, we just, Stig and I just finished reading the book, Hedge Fund Wizards, by Jack Swagger. And after reading that book, I was like, I don't know how this person can do this successfully, but the fact that they have 25 years without one down year using these techniques tells me that it works.

Starting point is 00:56:30 The statistics of them doing that consistently year after year is, you know, one in a billion or whatever it is. So the person obviously knows what they're doing. I don't understand that approach and that doesn't mean that it's wrong. So what I would tell you is try to match your personality with somebody. else that's been successful and study that person and stick to that person. And like Stig said, you have to dig into it. You can't do this for an hour a week and think that you're going to become a master at it. You've got to really dedicate some serious hours until the point where you actually start feeling that it's starting to come together and it's starting to click.

Starting point is 00:57:05 I've got one other point. For me, investing in the stock market is all about investing in real businesses. I look at a stock like it's a miniature business. Every single share is one business. And I think that for anybody to look at it any differently, that doesn't make sense to me. It just doesn't. And so when you look at it through that context, I buy one share just the same way I would buy a business on Main Street.

Starting point is 00:57:35 I look at the revenues. I look at the brand. I look at the customer base. I look at whether the revenues are. are increasing, decreasing the stability. I look at it through the same exact lens like I was going to buy a business on Main Street. And I think that that's probably the best advice I could give somebody that if you're buying shares of stock in any other manner or you're buying bonds, for example, if you want to go lend money to your buddy and he's in debt up to his eyeballs and you think that because you're going to get a 15% return, that that's a good investment, you know, I totally disagree with that. I buy bonds in the exact same manner.

Starting point is 00:58:12 Always try to bring things when you're investing down to the micro scale of how you might understand it if you were going to lend money to your friend or if you were going to buy equity in a business that your friend owns. Look at it through that same lens and I think that you're going to find that you're very successful. Stick, go ahead. I saw you had a follow up. Yeah.

Starting point is 00:58:30 It's just, you know, it really relates to what Josh, the guest we have last week, was talking about because I was asking him, you know, just how to figure out which which real estate investing strategy I should use. And he would say, what is it right for you? I mean, you might be a house flipper or you might be a buy up and a whole real estate guy. And it's quite the same here. Like, I'm a value investing guy.

Starting point is 00:58:52 I'm really into Warren Buffett. That is the right for me. I don't think I'll transition into like growth investing. I don't think I'll transition into high tech or real estate for that matter. I don't think it suits my personality. But no matter which strategy you're choosing, and this is really, real important for you also,

Starting point is 00:59:08 as soon to be a freshman, is that you just need to put in the hours. Like, you wouldn't expect to go to the Super Bowl by spending an hour here and there. That was what I was talking about before. You really need to put it in the hours. You know what the Super Bowl is over in Denmark? Yeah, I just learned that like two or three years ago.

Starting point is 00:59:28 No, just kidding. Yeah, but sometimes, Preston, you know, someone like yesterday, you come with metaphors, like, no, that's silly. Everybody knows that. I was like, I've never heard about that. So lucky. Yeah.

Starting point is 00:59:42 Oh, bye. All right. Sorry to make fun of you there, Stig. But no, I think this is a great discussion. And I think, you know, just to kind of give you an example of matching our personality with an investor. So for me, Warren Buffett was a really good person for me to model because he's a very patient person. I see myself as a very patient investor. Like for me to buy something and sit on it for three years, I'll think nothing of it.

Starting point is 01:00:07 That's no big deal. But for other people, they might not have that same personality or that same trait. They might need to get out of the trade within two weeks or whatever it is. And if that's your personality, modeling Warren Buffett's style of investing is probably a bad choice. It's just not going to work for you. So you've got to really kind of lay out, hey, this is my personality. This is how I do things. And so find somebody else that has a similar personality.

Starting point is 01:00:32 That's successful. I think that's the most important part that has a proven track record that their system works. and then study everything you can on it. So, okay, that's all we got for you guys this week. Like I said earlier in the show, if you guys want to get our cliff notes, our executive summaries of all these books, it's too easy.

Starting point is 01:00:50 Just sign up on our mailing list. We do not send spam. I absolutely hate spam more than probably anything on the planet. So if you sign up on our list, you're going to be getting executive summaries, and that is it. If you guys are enjoying the show, please go to iTunes, leave us a review.

Starting point is 01:01:06 It helps us out a lot. So we really appreciate that whenever people do that. And shoot me an email if you do so I can say thank you. And we're going to send a free signed copy of our Warren Buffett of vesting book off to Mark. And we really appreciate him asking his question. If you have a question you want to get played on the show, go to Ask theInvesters.com and you can record the question there. So we'll see everybody next week. And thank you so much for joining us.

Starting point is 01:01:27 Thanks for listening to The Investors podcast. To listen to more shows or access to the tools discussed on the show, be sure to visit www. Podcast.com. Submit your questions or request a guest appearance to The Investors Podcast by going to www. www.com. If your question is answered during the show, you will receive a free autographed copy of the Warren Buffett Accounting Book. This podcast is for entertainment purposes only. This material is copyrighted by the TIP Network and must have written approval before a commercial application.

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