We Study Billionaires - The Investor’s Podcast Network - TIP 093 : BREXIT - The Financial Impact (Investment Podcast)

Starting point is 00:00:00 We study billionaires, and this is episode 93 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, how's everybody doing out there?

Starting point is 00:00:30 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, you know, we might have been rapping for you folks last week with Jesse Itzler, but we actually have somewhat of a serious kind of show this week because we're going to be talking about Brexit. This was not something that we had on the agenda, but with everything that has happened in the last week, this is something that we feel is vital for us to discuss with the audience. And for Stig and I, this is really exciting because we have been able to just do some really unique things with our audience.

Starting point is 00:01:07 But today is one of the opportunities that we've taken to really have some fun and bring in some people that we've been communicating with for, I don't even know how many years at this point. But we have this form. It's called the Warren Buffett Forum, Warren Buffett Forum.com. We've been running this forum for years now. And we've been talking just through text, really, with two of the people that are. joining us today and they're they're two long time members of our forum they've probably contributed more to our forum than we probably have is that correct stick oh yeah 100% but we have we have david flood and christoph wolf with us today and these two gentlemen if you if you've ever

Starting point is 00:01:50 been on our forum let me tell you you're going to be blown away by their intellect they're extremely intelligent and they just so happen to live in your up. So Christoph is originally from Germany. And then David Flood, and there's a little bit of a lag with our connection with David because he's joining us via cell phone. But David is from the UK. And so he just comes with a fresh ground level point of view of everything that's happening on the ground over there. Now, we were going to have one additional friend. He was not able to join us. He works at the Bank of England. He was trying to get clearance in order to join us for the show. That didn't happen. They put him. him on the lockdown. So he was not able to join us today. And we're not going to mention his name because of the restrictions that he has right now. But Christoph and David are here to join us. They're members of our forum. They're very intelligent. And you're going to see that from our conversation that we're having today. So without further delay, let's jump right into this. Let's talk about what's happening. Let's talk about why it's important. Because I think a lot of people are, you know, one of the things that I see a lot of value investors doing is, and you see this all the time, they're just like, oh, it's a bond. opportunity, the market's affording us an opportunity to buy. And man, I think maybe that might be oversimplified. That's my opinion. So what I want to do is I want to open it up to the group. I just want a quick response from everybody here. I think the one question that people have to ask themselves is whether or not the company they're looking at is actually affected by Brexit. Because right now,

Starting point is 00:03:21 you're seeing that almost every stock in the world is dropping like a rock. And if it's not exposed to anything that has to do with the UK, you know, it might not be so severe. And yes, clearly it has spillover effects to Europe and some companies, most companies, has some type of exposure, but it does seem like it might be overacting for some stocks. All right, Christoph, what's your opinion? The wider picture for me is, I mean, how large has the drop in? I think the pound dropped by 8% or something. The FTSE, the UK stock market also dropped by, I don't know, 6 or 8% on Friday. So this is a small drop, absolutely. But in my opinion, worldwide stocks are so extremely overvalued unless we have a drop, let's say, in the order of 50% or something like that,

Starting point is 00:04:10 then it's a buying opportunity. But absolutely not right now. So just for some context for people so they understand the timing of when we're recording this. So right now it's the 27th of June. It's the Monday morning from the vote. The vote happened on Thursday of last week. It didn't really hit the markets. It hit the Asian markets Friday morning and then all day Friday. It was just like a total train wreck. You saw the Nikai was down, what, seven or eight percent. Some of the indexes over in Europe were down 10, 12 percent. In the U.S. markets were down about three and a half to four percent. So, David, let's throw it over to you. Let's hear your opinion. Well, I have to say, I agree with Christoph, that the markets are still significantly overvalued at this point. On Friday,

Starting point is 00:04:56 we saw the pound fall to approximately a 30 year low against the US dollar. Gold futures rallied to a two-year high. Oil lost over 4%. European and the Asian markets declined as well. I still think we've got a lot further to go. My concern is will this spread to a broader market sell-off and will we see more significant declines? Now, if you look at what George Soros and Stanley Drucker-Meller have been saying,

Starting point is 00:05:23 they seem to think that this is going to develop into support. something more systemic and they've both taken positions in gold. So I anticipate that this could spread further. The speculation that now multiple other countries within the EU may push for referendums. And if that happens, we could start to see a breakup of the EU, which I think would really destabilize the global economy. Yeah. And I think to be honest with you, David, you're hitting at the crux of the issue here.

Starting point is 00:05:51 And I think that whether you agree with the Brexit or you do, don't agree with the Brexit, I think is something that I'm not really too concerned in addressing in the podcast. I'm more concerned about, hey, it happened. And now what's the path forward and what does it really mean from a larger context? So according to George Soros, he thinks that this is going to have a compounding impact. He thinks that this is the first of multiple countries that are going to follow in the same footstep. Well, I think Soros has made some really interesting comments. He's talking about a further decline. He's saying that if the UK were to vote, leave, then we might see the pound be as low as $1.15 to the dollar. So that's quite significant. We're

Starting point is 00:06:33 not there yet. Now, we are around 1.34 at the moment. So I'm really happy, President, that you said, let's look at the countries individually. Because if you're looking at a country like Ireland, their price to earnings based on the Schiller P is 27.7, whereas Italy is 11.1. And this is for the last quarter. So this was before easily dropped, I want to say, 10 to 12 percent. So yes, there might be some buying opportunities, some indexes, but as Chris has also kicked this show off by saying, it's still overvalued. And Christoph, he's talking about indexes has to drop 50 percent before it's really value investment. In my opinion, he might be right. It's significantly overvalued. And what I found is interesting from a value investor perspective is really, is this the catalyst

Starting point is 00:07:22 that we've been talking about on the show for quite some time. Is this where you would see investors pulling out the money from areas where there's a lot of problems, southern Europe, Japan. Some people would probably include China and that question as well. I don't know. It might as well be. So Christoph and David, to you guys, more on this idea of, are there more countries that are going to join this movement, if you will?

Starting point is 00:07:48 And let me emphasize. I'm looking at a chart. And I have no idea how accurate this polling is, but I'm looking at this chart from the visual capitalist that shows that right now in Italy, it's showing something like 57, almost 60% of the people want to have a referendum vote. In France, it's over 50%. In Sweden, it's probably around 42%. Belgium, 40%, Germany, 40%. I mean, these are some high numbers. and I think you could maybe see them go higher pretty quickly in kind of the snap of a finger. So do you guys see that happening?

Starting point is 00:08:25 Well, personally, I think this may well happen because we're seeing an increased polarization between the political sides within each country, the left and the right. We're also seeing that in America, but certainly across Europe. We've got very high levels of unemployment, Greece, 24%, Spain, 20.4%, France. 10.2. The fact that wages have stagnated over the last decade and concerns about immigration arising, this is going to lead to significant tensions within these countries, which I think will encourage referendums to take place. And if that happens, then we're likely to see some kind of major disintegration of the EU. And if that happens, then I think that could have significant

Starting point is 00:09:13 impact upon the global economy. First off, go ahead. Yeah, it's really hard to say. I mean, first of all, I absolutely agree with David and you guys that we have this polarization in Europe. Many countries that are leaning to the far right, I mean, in France you have Marine Depend, in Austria we just have very narrowly, almost the president of the far right. Even in Germany, with our horrible past of the Second World War, even there we have a far right party evolving.

Starting point is 00:09:41 Well, if the disintegration of the European Union really will take place, not. That's really hard to say. And I think one very important thing that we come back to Brexit, to the public, is how this will now play out with the UK. In my opinion, because when Brexit now happens, when Article 50, that means the formal negotiations with the European Union and the UK will start. And after Article 50 has been triggered, negotiations start. Exactly how this will play out will have a huge effect on the rest of Europe. And in my opinion, what's going to happen is that the European Union will make very harsh, very strict conditions on the UK to show everyone else like the Netherlands, like France, like Poland, like Greece, like all other countries that are thinking about holding also similar referendum to show them if you go out, then it will by no means be any better for you. Instead, we will make life very hard for you.

Starting point is 00:10:43 well, not because we're evil Europeans or something, but just to show everyone outside, nothing is really much better. I was going to say I agree with that, but the flip side is that there are certain people within the German government coming out saying that we should make the UK an associated partner country of the EU and Merkel is saying that we could maybe have some kind of

Starting point is 00:11:07 constructive exit negotiations. I think perhaps there is some element of damage limitation on the part of the German government and the EU. So as much as they may want to punish the British economy, an example for other countries that are thinking about leaving, I think also that they're mindful of the impact that this could have upon the EU as a whole. Yeah, and I think the dilemma is really interesting. As you're suggesting, Christoph, if they're giving UK a good deal,

Starting point is 00:11:37 which they might do because it's really important still to keep UK closely connected, then we'll be sitting and saying, why don't we get the same deal? Because the UK, they have historically always been very skeptical about the EU, but you can say the same thing about a lot of other European countries. The European leaders, they can't win. And we can't go back in history and said, so what happened last time a country opted out of EU, actually it happened once before. And it was somewhat unnoticed. Greenland joined the EU together with Denmark. It's sort of a part of Denmark, and it come in 1973 and then it updated out in 1982. Greenland, it's very different.

Starting point is 00:12:18 There are 56,000 people. And to be honest, the negotiations were mostly about fish. And it's quite more severe now. You know, in the UK, the fifth largest economy in the world, it's significant what's going to happen. So, guys, I want to talk about first billionaire Howard Marks. I saw an interview where he was talking about this and they were asking, well, you know, what's going to happen? And his opinion was,

Starting point is 00:12:43 I think that you have to have a deep appreciation for basically saying you have no idea what's going to happen. But you have to be open to the array of things that could occur. And I think that from his vantage point, he says in the short term, you know, businesses aren't going to be producing less or more or whatever. He said, but this could spiral. And he really kind of hit it at. The bigger issue is really whether you have more countries that start falling out of the European Union and follow the,

Starting point is 00:13:10 the British example, if you will. And so let's talk about the elephant in the room here, because what this really comes down to, in my personal opinion, really kind of get into the crux of the issue of why this is a big deal is it all comes down to European banking. And, you know, Stig and I have been saying on this show,

Starting point is 00:13:29 the risks that we see are Japan because their monetary policy is just completely failed. We see China, real estate is just a disaster. The other one that we've been saying is European banks. So where this really starts getting interesting, for me at least, and just trying to depict this, and you guys correct me if I'm wrong, when you look at the banking and I look at a bank like Deutsche Bank, it is like the biggest debt bomb you've ever seen in your entire existence. Like you can't even make the number up. And this is just one bank in Europe. So now you start talking about some of the other banks, even some of the banks in the UK, for example, you guys were thrown off some of the numbers before we started recording of like how far some of these banks are down. They're like down 15, 20 percent just today. because guess what? Is the ECB going to come to their rescue now whenever they run into default issues? So let's talk about, let's say that this expands.

Starting point is 00:14:20 And I know I go into this worst case scenario, but I really think when you look at the numbers here of who else is wanting a referendum and all the numbers are like 40 to 60 percent of these other countries, this is a real concern. So let's say Germany, and I know their numbers are a little bit lower than some of the others, but let's use that as a worst case example. Let's say Germany decides that they don't want to continue. to subsidize all this stuff in Greece and they want to exit to European Union.

Starting point is 00:14:45 Well, that's being controlled by the voters. Those are the voters. Do you think that the voters actually understand the inherent nature of the risk explosion that could occur with Deutsche Bank if the ECB can't back them up anymore? Do you really think that people understand that? I don't think that the typical voter understands that. And I think that Deutsche Bank is just one example of many of these ridiculously over leveraged banks that can't get any kind of yield because the ECB and every other central bank around the world has pushed rates down to nothing. So they can't make money.

Starting point is 00:15:19 They're having the hardest time ever to make money. And as these countries continue to trickle off and not be a part of the European Union, how in the world are they going to back this up and print through the nose, which I guess was the solution here? I mean, do you see what I'm getting at? For me, that's the critical variable here. And it's something that we've been identifying as far as being a risk, but not necessarily. with the European Union falling apart and how that would potentially play out. So I'm curious your thoughts.

Starting point is 00:15:46 Am I out in crazy land or do you guys see this as the big elephant in the room here? Interesting question. I mean, independently from Brexit, already in the times before, we saw that especially, well, Deutsche Bank, I think their stock price is on a 12-year low or something. And although many Italian banks, they really had many problems. They have huge non-performing loans and so on, independently from Brexit. So, well, if it's the big elephant in the room, it's really hard to say. It's one of the big elephants in the room, not necessarily only on the European banks,

Starting point is 00:16:19 also the Chinese banks and so on. So, yeah, obviously, it's a huge concern that can always blow off. Well, maybe Brexit might be even the trigger, especially for the British bank. It was a concern before Brexit. Now, after Brexit, it might be even more dangerous. Absolutely, yeah. Well, personally, I'm pretty concerned about the exposure that some of these banks have to derivatives. And if we look at the legislation that's been coming through recently, the new implementation is going to be bail-ins rather than bail-outs.

Starting point is 00:16:53 And they place the claimants on the derivatives, which are the hedge funds, as having super priority, which means we may well see haircuts for bondholders and unsecured depositors in these banks. this could lead to significant bank runs and major liquidity problems. If you look at the banks in Italy, they haven't been recapitalized after the last finance and they're essentially trading in solven at this point. I think there's significant likelihood that we may see a more systemic outbreak of problems within the banking system. And whether or not the central banks have got the totals left at their disposal

Starting point is 00:17:36 to deal with this is up for the diet. 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. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year, bringing together activists, technologists, journalists, investors, and builders from all over the world,

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Starting point is 00:21:48 Back to the show. So I think this is a really important word that you said. The bail ends. Okay? because I think a lot of people don't understand what that necessarily implies. And one of the things that you hear a lot of people in the finance industry say, you hear this all the time. And I love this when people say this.

Starting point is 00:22:06 They're like, it's a zero-sum game. If one person loses, the other person has to win. And for the most part, that's true whenever you're in a pretty stable market condition. But when you start getting into a credit contraction type situation and a company defaults, there is no winner and loser there. There's a loser and a loser.

Starting point is 00:22:27 That is a situation where something is written off of the books and that is a loss. And that means somebody else's income is going to be lower next month, which means there's less buying power. There's less asset value, net worth to their name, all that kind of stuff. And when you're talking buy-ins occurring within some of these banks where they're moving from derivatives down into a lower class equity position that's worthless, that is a situation where you have just a total loss. It's not a zero-sum game kind of thing.

Starting point is 00:22:58 And I think that's very concerning. I love the discussion we had before. And David, when you talk about bank runs, I don't think it's my main concern here. I think if we look at what Mark Carney, the governor of Bank of England, has been out saying, he's saying that he's ready to put in an additional 250 billion pounds

Starting point is 00:23:18 in liquidity for commercial banks. And in a way, it seems, comforting, but it actually doesn't to me. I think if you look at the situation that you have in the UK and you will see that the yield on the UK 10-year treasury note, we're just at 1.08% right now. So there's actually no yield. If you look at the interest rate in general, you can see that last time after the collapse of the Lehman Brothers, the Bank of England decided to cut the rates by 4.5%. Now, where are they now, they can't do that anymore. What are they really going to do? They're saying that, yeah, we will use all means to prevent instability.

Starting point is 00:23:57 But what do they really have? I mean, more or less they don't have anything left in the toolbox when in terms of monetary policy. I'm curious to hear your take, David, on that. I think at this point, the only options they really have left is to move towards negative interest rates, which we're now starting to see in certain countries around the world. more of the same with the QE

Starting point is 00:24:21 and then other possible capital controls or illegalized confiscations of people's funds in banks or bondholders in order to recapitalize banks that may go under. I think this will create more social unrest if this kind of thing starts to happen. Another interesting point I think is worth considering is what Steve Keen's been saying.

Starting point is 00:24:43 He focuses on the expansion of private debt and the acceleration of that private debt. and he's listed to seven countries that he thinks are due for an imminent crisis. Either China, Australia, Hong Kong, Canada, Norway, Sweden and South Korea. Now, this guy seems pretty smart. He called the housing crisis of OA and the recent crash in the Chinese stock markets. So I personally put a lot of weight in what he says. And he seems to be pretty accurate with his prediction.

Starting point is 00:25:16 So I think it's worth bearing in mind that the credit, bubble that we're seeing in China now is absolutely huge. And that could really be the catalyst that sets things off. Maybe not what happened in the EU. So, David, I think you bring up a great point that Jesse Felder, who we had on our show, a former billion dollar hedge fund manager, wicked smart, he was on our show. You know, he's terming this thing, the everything bubble. And I think that Your comment goes hand in hand with what he's saying here. So let's say in Europe you have all these people start trading these assets lower. And that now has less buying power for people.

Starting point is 00:25:57 If the UK's currencies devalued significantly compared to the euro and everything else countries that would trade with them, isn't that a good thing for the UK that their currency, the pound is now devalued? Isn't that going to bring more business to them in the next six months or more? Yes, well, I mean, the negative impact it could be on the current account's deficit, but the flip side of that is it could induce increased exports because it's cheaper for other countries to buy our products. So it could end up being a net benefit for us in the long run.

Starting point is 00:26:29 I think the other thing that's worth bearing in mind is what we've been discussing, which is this deflationary pressure we're seeing across the globe. Now, Professor Bruce Greenwald has recently commented that he sees going to be very important. forward, major stagnation and growth across the whole globe and perhaps something like we've seen in Japan for the last 25 years. And that's a very real possibility. At this point, you just have to wonder, where is the growth going to come from if China's slowing down? Now, we could see it in India, but it's still up in the air as to whether India can pick up the slack from where China's left off at this point. And then with time, we'll tell whether that happens. I agree with you. Where in the

Starting point is 00:27:11 world's the growth going to come. Now, it's really interesting. We have a very, very smart individual coming on our show in a few weeks to talk about China. And I'm currently reading his book. And he's talking about how most of this Chinese growth that has occurred is purely based in the last 15 to 20 years, purely based on their currency manipulation that's been occurring. That's why they've been able to hit such high numbers. And so when... An expulsion of credit. Exactly. Yeah. Well, in the last five or six years, it's really been that shadow banking expansion of credit prior to that and during this last period that's been the currency manipulation that's really just induced all this growth that we've been seeing. So the question then becomes is how much of a mirage is that over there?

Starting point is 00:27:54 And then I think it goes back to this, guys. I think this is the key thing was the opening question that we started off with. Is this a buying opportunity or is there something much bigger going on here? And I mean, my personal opinion is, I'm not touching this thing with a 10-foot pole. I mean, I can't stay far enough away from this thing as far as I'm concerned. First of all, regarding China, well, actually, in my opinion, I agree with you guys, that this really is a huge debt bubble. In the economist, there was, I think, four or six weeks ago, a special report on the China debt bubble that's going to explode.

Starting point is 00:28:31 And basically, their question was not, if this is a debt bubble that will explode, but the only question was when this will go on to happen. Basically, David said, it will not be as catastrophic as Lehman Brothers and the financial crisis because it somehow contained within China because China is not a free market. The government can really do quite a lot, but nevertheless, it will be really bad. The second question regarding the appreciating pound, I think it hit a 31-year low today. I think David already mentioned this. In my opinion, this is a negative for, for,

Starting point is 00:29:06 Britain because of two things. First of all, the negative current account. They have a huge deficit in the current account. They're importing much more than they're exporting. So if the pound gets cheaper, yes, of course, then the British export also gets cheaper, which might be good for them. But they have to pay much more for the imports, so it gets much more expensive. And as long as we do not have the straight agreements between the UK and the European Union and the rest of the world, which we don't have at the moment, then also those exports from the UK are subdued. Let's take a quick break and hear from today's sponsors. No, it's not your imagination.

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Starting point is 00:33:19 not going to happen. And this is also why you see the problems that you see in the world because It's simply human nature. So what's going to happen is that if you're going to build something that is extremely expensive, then you will have someone who have to set aside money today. And that's not fun because if you have to set aside money today, it has to hurt today, then people probably wouldn't like you. And you need your successor to do that and again and again. That's what you need if you want to have big, sustainable things.

Starting point is 00:33:47 Now, I see this to be exactly the same analogy as you see for the central banks. what they actually can do is they can decide to hurt a little for the next few years. Your successor, he can make it hurt a little, or he can decide to use a tool one way or the other. So it doesn't hurt as much. So if you look at how the UK's position right now, okay, so we talked about the monetary policy before. They probably don't have any more tools left. And the tools they have, they are not useful in the current circumstances. So what do we do when we don't have monetary policy?

Starting point is 00:34:23 How can we just spend money that we don't have to stimulate the economy? Well, we can do that for fiscal policy. Now, we talked about the current account deficit a few times before. At the last quarter of 2015, it was down 7%. That is the largest recorded current account deficit ever recorded since they began recording in 1955. This is extremely important. So they would go from a deficit, historical high deficit, and perhaps borrow more money to stimulate the economy.

Starting point is 00:34:54 What do you think that will do? And just let me remind you, the UK after Japan is the country in the world that has the most debt to GDP. This is not a good position to start from. So this is basically the analogy I had before. You need as an economist or as an economy, you need to make it hurt a little from time to time. so it won't hurt you a lot at some point in time. That is why you see these bubbles. That is why Preston and I have been talking so many times are the big cycles

Starting point is 00:35:24 because you don't want it to hurt unless it really has to hurt. But it just compounds. And that's really what I found frustrating right now. Does that mean that it's irresponsible by the Bank of Inland? Under normal circumstances, it might say yes, but it seems like the previous eight years has just shown so much irresponsibility that I think we're just in a new normal in that territory. So sorry for being so gloomy.

Starting point is 00:35:50 I'm really curious to hear you three guys if you can find any tool that the Bank of England can use right now. I don't know exactly about the Bank of England, but I agree in general that the central banks, they have really run out of ammunition. In several countries, we're already in negative territory. In the ECB, for example, I think they're like minus 0.3 or 0.4, which results in the banks, especially the Italian banks,

Starting point is 00:36:14 they cannot make a profit anymore so they get problems. So there's just a limit how much you can lower the negative rates and they really have run out of ammunition. I mean, now they're talking about helicopter money, really giving people 10,000 euro or something that they can spend it, but it's really such a drastic measure that I don't really think that will ever happen. And even if it happens, it will not really solve the problem. Those monetary policies are really at the end, not only from the Bank of England,

Starting point is 00:36:42 but for the other central banks as well. And the only thing that really could solve this whole thing would be fiscal, would be structural changes in the employment rules and so on. But here, the countries in Europe and also the other countries, they have not done their homework. They have just waited for the ECB, for the Bank of England, for the central banks to do the job, but they just cannot do the job. And I think that's what the central banks always said.

Starting point is 00:37:08 We can just give you time, we can give you money, but then you must do the structure. reforms and the countries haven't done that. So yeah, we have a problem. And I don't see this going to happen anytime soon. So I got a question for David. So David, what do you think? And we're obviously all kind of in a similar mindset here as far as we think that this has a potential to be really bad.

Starting point is 00:37:30 We think that central banks have basically caused all this. But I would like to maybe transition and talk about maybe it not being as bad as what we might think. And I guess this is where this. could potentially occur is though the world leaders from the European Union and also in the UK are saying, hey, let's let's not make this as big of a deal as what we are saying that it's going to be like when you get into the legal portion of this, whenever they hash out, what this actually does mean? Are we really kind of blowing this out of proportion?

Starting point is 00:38:05 Are the people that are really kind of running these countries going to step in and really kind of subsidize the overall impact of this exit from the European Union. Do you see that happening, David? Well, I think at this point, their options are becoming increasing limited. They can try and push forward negative rates more. They can try and perhaps induce some kind of capital controls. But their aim is to try and induce spending for an expansion in credit to try and stimulate the economic activity in the countries. But if the people can't take on it on any more private debt, this becomes very problematic. I think the other issue that we need to bear in mind is why have capital? Where will capital go if there is a crisis? I can see capital

Starting point is 00:38:49 moving towards precious metals like gold, but also towards the dollar. The dollar is still the world reserve currency and it's perceived as a safe haven by many. So we could see depreciation in currencies across the board and a strengthening US dollar. Now, if you look at the actions of the BRIC's central banks and those of the central banks in the West, they've been diverging. So the central banks in China, India and Russia have been accumulating gold for the past several years. But in the West, they've been pursuing policies of quantitative easing. So I think we are seeing it diverging in the policies of these central banks and how this plays out in the future is still up in the air. But I do think we are going to see at some point flight of capital

Starting point is 00:39:36 when some kind of major crisis sparks of panic. And in that instance, I think we will see a strengthening dollar and a rising gold price. All right, guys, I think that we kind of captured the gist here. I mean, this is a big deal. I think this is a lot bigger deal than a lot of people think. And I think that if you're oversimplifying this, especially if you're a value investor, kind of oversimplifying this and just looking at, you know, you buy when the market's down and you sell when the market's up, I think if you really look at things,

Starting point is 00:40:06 that simply, you might be in a position where you're assuming a whole lot more risk than you realize with really kind of anything in the global economy. The U.S., Europe, Japan, China, anywhere, I think you might be assuming a little bit more risk just because the multiples that the people are trading these companies for sky high. The profit margins on these companies have gone down for the last six months to a year, but yet the multiples have stayed high, you know, like in the U.S. at a 26 or 25 on the Schiller PE. I mean, those are high multiples. So I think people need to have a deep respect for that.

Starting point is 00:40:42 I think they need to realize that this is a very risky and volatile time. Another thing that billionaire Howard Mark said on the interview that I was watching, he said, you know, the market does not do well when there's uncertainty. When there's uncertainty that usually induces selling. And so I think that that's something that people need to have an appreciation for. But any closing remarks, anything that people wanted to say before we end this discussion. So as always, let's look at Warren Buffett. And what is he doing?

Starting point is 00:41:13 What has he been saying? He is saying, I don't care if the breaches up in and out of the EU, I wouldn't change the thing. I know this is typical Warren Buffett comment, but I just think I should mention it here. And I love that comment. Maybe we need to follow his advice more often. All right, David, Christoff, you guys have any final comments? What I think in summary about Brexit, I think it's really a very negative thing. I think it's very likely that we will see a recession in the UK.

Starting point is 00:41:48 It will be very bad for the complete world, for Europe, but especially for the UK. It will help the UK really nothing. The pound is depreciating, which doesn't really help because they have not renegotiated those straight agreements. Politically, the European Union, I think we agree on that they might disintegrate. We will see how this will play out. Scotland and Northern Ireland, they have already said they want to depart from the UK because they want to stay in the European Union. Okay, well, I think I'd like to refer firstly to what Stanley Drucker Miller has talked about in his recent presentation. and that's the fact that you're seeing

Starting point is 00:42:27 unproductive debt increasing. So we're not seeing capital expenditure by companies to increase productivity. We're seeing it going into share buybacks to juice earnings per share figures. I think that's a very important point to bear in mind. And then finally, I think we need to go back to Warren Buffett. He says you need to concentrate on the fundamental value

Starting point is 00:42:49 of a company and it's long-term economics and don't allow macroeconomic factors to distort your view of valuing a company. So if you look at the kind of companies that he likes, Coca-Cola, Heinz, Kraft, these are companies where he knows that the products are going to continue to keep selling regardless of if there's a recession

Starting point is 00:43:09 or an economic crisis. You know, people will keep buying these products and these are dependable companies. So in a broad market sell-off, these are the kind of companies that I'll be looking towards, companies where I can determine that they have a long-term economic future and I can determine an accurate fundamental value for that company.

Starting point is 00:43:28 And the macroeconomic factors should just be a interesting side topic to bear in mind, but don't allow it to distort your view on an individual investment. Guys, so Stig and I, we are just so thankful for people like you, Christoph, and you, David, for coming on to talk with our audience. But more importantly, we want to publicly thank you guys for everything you've done with our forum through the years because you guys have contributed so much to what it is that we're all about with this podcast, with the Buffett's Books website, everything, just giving and trying to help other people out. And you guys, when I think about two people that have

Starting point is 00:44:11 been instrumental in our organization to do that, you two are absolutely two of the most profound people for our organization. So we want to thank you for that. And thanks, thanks for turning me on to value investing in the first place. Yeah, you bet, man. I came across a video on YouTube and I'd never heard of it. I'd never heard of it before and I found one of your videos and when I discovered it it made perfect sense to me like Warren Buffett said, you either get it or you don't. It made perfect sense to me.

Starting point is 00:44:41 Oh, I appreciate that, David. All right. So that's all we have for you guys and we just really appreciate everyone listening and we really hope the best for everyone over there in Europe. I know this was a really gloom and doom kind of conversation. We do want the best for everyone in this world. We want everyone to be successful. We want everyone to understand the risks that are associated with things that could happen.

Starting point is 00:45:02 And that's really what's driving our conversation. So we hope this was useful for everyone and we'll see you guys next week. 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. TheInvesterspodcast.com. Submit your questions or request a guest appearance to the Investors podcast by going to www. www.

Starting point is 00:45:25 Asktheinvestors.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. Thank you.

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