We Study Billionaires - The Investor’s Podcast Network - TIP296: Current Market Conditions 9 May 2020 (Business Podcast)

Episode Date: May 10, 2020

On today's show, Preston and Stig talk about the current market conditions in May 2020. Currently, the stock market continues to rise after record-breaking unemployment and intense government stimulus.   IN THIS EPISODE, YOU'LL LEARN: What is happening in the stock market right now. How Preston and Stig are positioned in the market. Whether the US is falling into the same liquidity trap as Japan. Pros and cons of fiat currencies. Stock market similarities and differences to 1929. Ask The Investors: How do I avoid catching a falling knife. BOOKS AND RESOURCES Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, and the other community members. Check out the momentum tool that Preston and Stig created for the TIP Community that predicted the crash in the stock market. TIP Finance also gives you access to our filter tool for the cheapest companies in the US. Subscribe to our newsletters about the current market conditions Link to Preston’s series of tweets that showed the momentum status on indexes Yuval Noah Harari’s book, Sapiens, recommended by Guy Spier and Stig - Read reviews of this book. Preston’s pitch of Biogen and Stig’s pitch of Allstate the Mastermind Meeting 4th quarter 2019. NEW TO THE SHOW? Check out our We Study Billionaires Starter Packs. Browse through all our episodes (complete with transcripts) here. Try our tool for picking stock winners and managing our portfolios: TIP Finance Tool. Enjoy exclusive perks from our favorite Apps and Services. Stay up-to-date on financial markets and investing strategies through our daily newsletter, We Study Markets. Learn how to better start, manage, and grow your business with the best business podcasts.  SPONSORS Support our free podcast by supporting our sponsors: Bluehost Fintool PrizePicks Vanta Onramp SimpleMining Fundrise TurboTax HELP US OUT! Help us reach new listeners by leaving us a rating and review on Apple Podcasts! It takes less than 30 seconds, and really helps our show grow, which allows us to bring on even better guests for you all! Thank you – we really appreciate it! Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

You're listening to TIP. Hey, welcome to the show, everyone. Today, Stig and I sit down for another current market condition overview. Since the last time we've talked, we've seen a massive bounce in the equity market. We've also seen a massive amount of unemployment and many other strange and abnormal things. Stig and I talk about a couple stock picks, negative interest rates, currencies, and the differences between the U.S. markets today and back in 1929. I think you guys are really going to enjoy this conversation, so let's go ahead and get it started.

You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. Hey, everyone, welcome to The Investors Podcast. I'm your host, Preston Pish, and as always I'm accompanied by my co-host, Stig Broderson. and we're back with you for another current market conditions episode. I mean, there's just, there's so much happening. We could probably do one of these every other day, but we're trying to spread it out,

trying to do one maybe once a month or whatever. And so here we are, Stig. What are your thoughts, man? Oh my God, as you said, you know, things are crazy right now. If you just look at the S&P 500, it was back in 3,300 back in February, and it was down at 2,200 March, Now it seems like the market has rebounded a little up to around 2,800. So I'm very curious to see where this is going.

Hey, you know, one of the things that I just wanted to talk about right out of the gate is this idea that you're seeing some companies perform quite well, and you're seeing a lot of other companies that are not. And there was a few observations that some of the people that I follow closely on Twitter were throwing out there. And something interesting that we saw with our TIP finance tool on the momentum side was some of the indexes, the ones that had really large quantities, call it the Russell 2000, is still red on our momentum tool.

But some of the companies that are specially oriented towards tech that have intangible assets, call it the Amazon's and those types of businesses that fit into those indexes, turned green and they turn green actually pretty quickly. So one of the indexes that referring to is the NASDAQQQQ is the ticker. And it was kind of fascinating because it turned red a lot like the S&P 500 back at the end of February. I think it was the 26th of February that all of our tools, all of our momentum statuses started turning red. But for QQQQ, it quickly turned back into the green as a momentum buy. And I mean, it was quickly.

So on our tool, the NASDAQ, it turned green again on the 6th of April. And it's continued to go up ever since that date. So I just kind of find that interesting. I can't tell you why I think that that's happening. I kind of suspect that it has something to do with companies that have intangible assets versus tangible assets and their ability to reprice, readjust, to conduct business from home versus in the office. And I just imagine that that index is made up of more companies like that than other indexes that have remained red on the momentum status. Whether that persists or not,

I'm not quite sure. But I do find it fascinating that we're seeing that trend. And I think you're also seeing that on the individual companies. And we'll talk a little bit more about that later in the show where we talk about a few companies that have really kind of stood out as performers that have good valuation metrics, have good momentum metrics, and we'll talk about that more later on. So with that initial comment or note, and I have a tweet, which we can provide a link to in the show notes, that goes into depth on this idea that we were just talking about it. It starts showing you all these different momentum statuses for different indexes. It's kind of a long, comprehensive, like 30 tweets or something like that, all combined into a thread. I'll provide

a link to that in the show notes so people can see some of the charts and see some of the ideas that we're talking about there. Anyway, let's start the show here. Stig, you were going to talk a little bit about the Fed. So I'm going to throw it over to you and let you hammer away at that. It's always interesting to talk about what the Fed is doing, especially these days. I mean, what is the Fed not doing? I guess that is the right question to ask.

And here in early May, the Fed has as announced starting to buy back corporate bonds, both directly from the companies itself, but also in the market. And what I'm really looking for is how much of this is trickling into the real economy. Because at the end of the day, as much as we talk about the stock market is not the real economy, the fundamental value of the stock market is still a function of the real economy in the long term. And these numbers are heavily debated. Some of the estimates that I've been looking at would say that corporate bond purchases

would only trickle down to, say, 10% into the real economy. And I would like to talk about some of the arguments you have in favor of doing this and some of that's not in favor. And of course, the first one is obvious. You could argue that if no one bought these bonds, and then again, remember, a bond is really a loan, then a lot of these companies would just go bankrupt. And it's very interesting. I was going through the Berkshire-Hathaway meeting here just a few days ago,

and we're going to cover that already next week. But just like a small thing that I took away from that was that Buffett said that he was starting to get calls from people who couldn't find financing. And then the Fed started printing and then the calls stopped. And I think that was very interesting actually to hear him talk about because Buffett takes no prisoner. So he's like this. Like he will dictate the terms. You know, it's funny. I was listening to an interview with Sam Zell, who's a billionaire in real estate and things like that.

And he had a very similar point. And if I was going to summarize this idea, I think what we're really getting at is how you conduct economic calculation is failing right now because you have the markets so manipulated. So if the Fed is stepping in and providing liquidity, driving interest rates to nothing, well, your cost of capital calculations that you're using, those discount rates that you're using in these models, discount cash flow models, are they accurate? It really becomes the question. And I guess I would say no, they're not. And to what extent I have no idea. But I think it's really important for people to consider that aspect. So like when you go and take a business class,

they're going to teach you a discount cash flow model. It's like the basis of everything in business school when you're doing modeling for financial assets. And everyone walks into that discussion, everyone walks into those math problems with a fundamental thesis or a fundamental understanding that the currency that you're using for economic calculation is sound and that it's not being manipulated. That's an underlying assumption that everyone steps into the table with. It's never even discussed whether the currency is sound or not. But if it's not, things get interesting. And so, in essence, that's what Buffett's talking about there. If he's receiving calls and then all of a sudden he's not receiving calls, well, something changed and some other entity stepped in and

adjust the currency. So I think that that's something that people really have to account for as they are continuing to use these models, which we're going to talk about using these models as we're talking about the valuation of a few different companies later in the show. And so I think that think it's important to, if you're using a discount rate, you need to really kind of understand what that means. And so that's one of the reasons Stig and I like to use an IRA, an internal rate of return, because what we're doing is we're taking the price and we're solving for the discount rate. Okay. And that's where it's a little bit different than a lot of the business schools do not like IRA because they say, well, if you have negative cash flows, then you get

two different valuations. I love IRAs. In fact, when we talked with Bill Miller, That's what he does too. He uses an IRA to figure out the intrinsic value, the yield, you're solving for the discount rate by putting in the price that you already know the company is worth because it's on the public markets and it's getting a printed price every single day. And so I think that that's important for people that are doing financial valuation is that they're using IRAs because at least you can look at something relative to other companies or relative to a 10-year bond, what the yield is. So if I come up with an IRA, of 20% on a company, well, that is mathematically, that is better than something that has a 10% IRA or a 5% IRA. And so I think that using IRAs in this type of environment is going to be a very important thing for investors to do because you have this economic calculation being warped through the currency being manipulated. So anyway, that's just some thoughts.

And I think there are important thoughts for people to consider as they're doing financial evaluation. But I know Stig wants to talk a little bit more about the Fed, and so we're going to go ahead and jump back into that. Yeah, because, you know, continuing in terms of what the Fed is doing and what the Fed is not doing, we always have this discussion every time we have a crisis. How many companies the Fed or the government, if you like, should bail out. And there's definitely no doubt that a lot of these companies have behaved responsible. And you can even make the argument that perhaps some even expected the Fed to print money for them if something went wrong. Essentially, this is a political question, and we don't want to talk too much about politics.

What I do want to say, though, I do think that is important for the government to step in in times of a crisis. That's one of the reasons why we have a government. I have, however, been a little concerned about how some of the funds are prioritized and also some of the magnitude behind that. Speaking of which, I was reading this very interesting interview with Ben Ben Ben Anki that he did earlier this year and where he talked about how good quantitative easing is and how important it is as a tool today. And he talked about how in 2008 that crisis when he was the Fed chairman, he said that what he did with QE was the same as lowering the interest rate 3%. To me, that was a very interesting statement because first of all, the interest rate was lowered 5%.

And then if you add in the QE, that would be similar to like 8%. And I just found that's a very interesting calculation because what textbooks would tell us and what empirical evidence would tell us is that you would need between 3 to 5% lower interest rate to come out of recession. Now, I don't agree with Ben Benignanke. I'm sure he thinks that's what he's dead. I don't necessarily think. Why wouldn't he be doing what he thought was best for the economy? But I think it's also a legacy thing because if you do not buy into that premise, a lot

of the problems we have today goes all the way back to him. and I'm pretty sure he doesn't want to feel responsible for that. But QE is just, it's not the same as loan interest rate. It has a very, very different implication. It's not for the general population. It's not as much for the general economy. It is very much good because you're basically buying long-term securities of a very different quality and really monetizing that debt.

Stig, I would describe it as hitting the afterburners on a jet. So when you're doing jet design and you are, building a jet engine. As long as you're under the speed of sound, the amount of fuel that you're burning is not all that high, relatively speaking. But as soon as you start hitting Mach 1, Mach 2, the amount of fuel that you're burning is literally exponential and you can't stay at that speed for any long period of time because you will literally chew through all of the fuel on the aircraft. I would equate quantitative easing as hitting the afterburners as far as Fed actions. So they can do it.

They're going to chew through it way faster. And as everyone has seen, the amount of the basement that has happened just in the past two months is on par to what we had done previously throughout almost that entire decade as far as the amount of printing that's occurred. And I would tell you, I think they're just getting warmed up because I think the next thing on the plate are municipalities that are going to need to be bailed out. So I think once you step into that use of QE, that's when you're literally hitting the afterburners. And unlike a jet plane, you can't throttle them back down. I think they have to stay on. And I think that you're just going to hit the point where the currency will eventually fail because of its overuse.

I think it's interesting that you would mention that. Just talking again about the discussion between the real economy and the stock market, something that definitely helped with QE or something that QE definitely did was to drive up the stock market. But it didn't help the real economy because we tend to look so much at the stock market as an indicator of how the economy is going, but the economy is just doing very different numbers than the rebound that you've now seen in the stock market is just two very different things because the stock market is so manipulated. And you can also argue the real economy as,

but definitely not to the same extent. Now, you're talking about municipalities is there before. One of the things that I've been thinking a lot about, I'm sure a lot of other people have too, is if we'll eventually see the Fed by equities. And one example, of that would be Japan. And just not too long ago in the talk about doubling their controversial equity buying program back to a 12 trillion yen, which is around 112 billion dollars. So I would like to actually make a comparison to Japan afterwards and why it might or might not be the case, but I'm curious to hear your thoughts, Preston. Do you think we will eventually see equities being bought by the Fed here in the States? They've just got a lot to go through from a change in the way

that the laws are constructed in order for them to do it. I think they're definitely going to try to do it, whether they receive the authorization to do it, I think, is the big question. And I just think that they're going to be there. Not anytime soon, I think it's going to be a year plus before you start to see the big movement for the idea of purchasing equities. And I don't know that it'll happen. I think there's going to be a lot of people championing the idea, though.

Yeah, for sure. I think that a lot of people definitely have an incentive for that to happen. But anyways, I really wanted to talk about Japan and how that serves as a scary example of a long period of time without growth and very ineffective fiscal and monetary policy. I've been thinking a lot whether or not that is what we'll see in the U.S. And what Japan is facing is typically referred to as a liquidity trap, which happens after severe recession or even a depression. You can definitely make the argument that we're hitting into it.

depression. And that's the point in time where consumers and businesses are afraid to spend no matter how much credit is available, because the fit has a gas pedal, and that's credit. And by providing more credit, it can only work under different scenarios. First of all, if no one wants to borrow money because they don't have any confidence in spending it, it doesn't really help. And if you also have consumers who are not deemed credit worth by the banks, You also have like a bottleneck there. You can't just force money out, even though whenever you hear about expanding the monetary baseline, that's true you can do that, but it's not the same as saying that it will go into the real economy.

So that's what referred to as liquidity trap. And really basically, in the occasion, is that capital monas do not work and a major balance sheet leveraging has to happen. So you might be asking, why don't people spend money? Like, shouldn't that just happen whenever you're forcing that out? Now, keep in mind that companies don't hire as they should, so wages remain stagnant or even negative wages. And without rising incomes, consumers only buy when they need to and they save the rest.

And without inflation, there is no incentive to start spending, especially if you have deflation instead of inflation, because that just means that things will get cheaper. And so we have this vicious spiral, really, of that unraveling. And we're also going to talk a lot about that. So another comparison I would like to make is that both the U.S. and Japan has a lot of debt. The boast reads this 90% threshold of debt to GDP. And the reason why I call this a threshold is that it's sort of like that level where debt just keeps on feeding on itself.

And actually, the ECB wrote a great report about that. And perhaps we can link to that in the show notes. But the main conclusion is really is that if you look at some of the evidence of what we've seen throughout history, going to that level is just a very clear signal of lower long-term growth prospects. So obviously, I don't hope that looking at the bigger macroeconomic picture that the US would fall into that trap, into not just a lost decade, but lost decades. And I do think that there's a risk of that happening if the Fed and the government are not careful, but I also would like to provide some counterarguments why it might not be the case. Culturally, there is

a difference. The US has a culture of spending, and Japan has very much a saving culture. And I don't think that it will be back to normal after COVID-19. And again, you can always make the argument, when is that done? But it's very much in the terms of mindset. Japan has been in this mindset for decades, and that can definitely be self-reinforcing. Going back to some of the numbers, in terms of GDP, Japan is 55% of that is consumption and it's declining, whereas in the US, it's around 70 and it's increasing right now. It's very easy to say this is what happening in Japan and can we just do a copy paste of this is what's happening in the U.S. It's very different. I was mentioning the cultural differences before. Just the whole taking care of each other in a family

and investing and saving for the older generation just has very different implications in terms of how you manage the real economy. And then immigration is another component. The U.S. has a long tradition for immigration, whereas the Japanese do not. And I know that immigration is a political loaded topic, but I just wanted to outline some of the arguments why the U.S. could fall into that liquidity trap and why or why not it could happen? I'm curious to hear if you have any thoughts, Preston, because I'm sure you must have been reading some of the arguments like this is the U.S. going to be the next Japan, and that's not meant in a positive way here, like a long period of very low growth.

I think there's some key differences between making that leap of saying, well, this happened in Japan starting in 1990, and that's what we're going to see here in the U.S. I think one of the most important distinctions for people to understand back in 1990, that was the top of their market. So I think that there's a really key distinction between just making that leap that America is now becoming like Japan. So the Japanese equity market peaked in 1990 and went through decades of downturn in their equity market. Throughout this period of time, their interest rates got polarized down to zero percent. And so that's where I think a lot of people are making the analogous comparison saying interest rates are going to go to 0%. It's going to force the stock market to go down.

Where I think that this is different is when you look at Japan's interest rates going to 0 percent and their stock market going down, you have to look at it relative to where it's at compared to every other country in the world. So when you looked at interest rates at every other country in the world, they had positive of interest rates. And so what you could argue is once the world stepped into this fiat-based economy back in 71, where every single country at the snap of a finger is now in a fiat world, right? Because the U.S. came off the gold standard.

So everyone else came off the gold standard because they were all tied to it. When that happened, Japan was the first one to get to this condition of where they printed, printed, printed, took advantage of that and was adjusting their interest rates accordingly, and now they're at 0%, and they created this. And this is a very, very important term that describes exactly what we're going through, and it's called contillin effect. And we'll have a link to some different articles on the contillan effect. The contillan effect is when you print and you get into the zero interest rate environment,

and central bankers are providing more fiat, more. liquidity into the system, they're doing it via financial assets. They're saying, here's a bunch of freshly printed money. Let me buy some securities off of the open market, whether they're bonds. Like Stig's earlier question will be stocks. They're providing that liquidity into the hands of all the people that own those bonds and then whether those owners that are now equipped with that fresh cash go out and spend it. Whatever they spend it on is where that money trickles into the economy. That's, in essence, a very quick summarization of the contillin effect. It goes into a lot more detail.

It's been around for 500 plus years, this idea. Many people don't understand it or know about it, but I would tell you to do a lot of research on that because that's exactly what you have playing out in Japan since 1990 through now. But now what you're going to start seeing is all these other economies having that same thing play out. And we've seen that here in the U.S. since 2008. So I think it's important that people understand going back to the original question that what we're seeing here in the U.S. and everywhere else is now somewhat like Japan,

but the reason that Japan was in that state for so long is because everybody else still had positive interest rates and still had these economies that hadn't turned into Franken economies because they had to base their currency so quickly. So I think that's an important consideration when you're thinking about this. I would like to provide an example of this contillian effect in a way that I think everyone can understand it. So let's pull out the game of Monopoly. Okay. And let's warp ourselves in the game to the end of the scenario, which is total consolidation at the end of the game. But let's say that you got four players, okay, you got a banker that's working the currency.

And one player has really dominated the game and you have three other players that are still alive. They still have a little bit of money, but they don't own much on the board because the one player has monopolized or consolidated a lot of it. Now, what happens at this point if players start to go bankrupt? Like the other three players that are barely surviving, right? What happens if they start going bankrupt? But we need them in the game so it looks like we have a real economy. Well, the banker says, well, I'm going to step in and I'm going to provide liquidity to the game. How does the banker provide the liquidity? Well, they go to the player who's dominating and they're saying, hey, you got a lot of financial assets. Let me give you cash.

and then you hand me those cards for those properties, right? So now that player who's already dominating the game is receiving the cash. The banker is taking the properties off the market. These would be the bonds. And this is what we've seen for the last 10 years under quantitative easing. They're taking those cards for the properties off the game and they're providing liquidity. Now, the player who's winning, who's receiving all this cash, what do they want to buy with all that money? Well, they want to buy whatever remaining properties are there that they're going to, that they're

the other players have on the game, which isn't that much. So now you have a lot of cash chasing fewer and fewer assets. Well, that's a recipe for bidding prices up for the financial assets, right? The financial assets go up in price. And so you can see the dynamic that's at play. And so every academic economist that would be watching this game, they'd be saying, well, there's no inflation happening here. And they're talking about monetary inflation, right? They're saying there's no monetary inflation. I know we're adding money into the system, but the CPI is at 0.05% or 0% or whatever. But we all know as we're watching this that there's more fiat, there's more money being added into the game.

Right. And the monopoly player, the one who's winning in an aggressive way, guess what? They don't need any more milk. They don't need any more of the CPI basket type things to buy. They're flush with cash and they want to buy more securities and assets that they can increase their cash flow, right? Because they have enough money to sustain their livelihood or their monthly burn rate of what they consume. That's what you're seeing. That's the contillin effect via monopoly. And so you're now seeing this play out on a global scale. You're seeing this play out in the U.S. You've seen it play out in Japan for a very long time. It's just the rest of the world is

finally catching up to it. And so this is a unique environment. Do I think the banker is going to continue to provide liquidity via financial assets? Absolutely. They have to. Here's why they have to is because these governments cannot afford for interest rates to go up. If interest rates go up, they can't spend at the speed that they've been spending and that they've been allocating capital into their local districts. So they have to keep interest rates at 0% because if interest rates go up, they can't afford all the debt that they've been denominating, the government debt. So they're going to have to keep doing QE, but now they're at a point where they have to start going straight to the other three players and providing them cash in the game, right?

Like, they can't keep inserting it via the financial assets that they're buying, which is QE. They have to now start going to the other three players and saying, hey, here's a hundred bucks. Please keep playing the game with this other person who's been dominating you for the last 10 years. We need you to keep playing with them. So here's $100 and then next time you go around the board, we'll give you another $100. And isn't this fun? Let's take a quick break and hear from today's sponsors. All right.

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Back to the show. Oh boy. Yeah. Great example. And I think that ties perfectly into the next major topic that we're going to talk about here today, whether or not this is the next great depression. And I will eventually go into a defense of fear occurrences. So I just want to warn everyone out there. You can bring out the bats already. Because what I really wanted to do, and I had a quick call with Preston here

some time ago, and I told Preston that I think the next episode I would like to make a really strong argument for why fear occurrences are great. And I can't remember if you laughed out loud, but I definitely remember you were like making some sort of gesture like you're either very, very courageous or very, very stupid. Perhaps both. Who knows? I can make a case for it, but not at this point in the cycle, right? So like if you look at fiat currencies, look at what they brought us through all the years. You accelerated productivity to the left at a speed that we've never seen in the history of mankind because we did it on a global scale. So why do you think we've got all of these amazing technologies as to where we're at?

Well, that was because you had a fiat currency that was being the base that was incentivizing the entire world to invest and produce at a pace that has never been seen. So that's what a fiat currency produces. But the problem is, is what we're seeing right now is you get to a point that as you overuse that fiat currency and you overuse that debasement, you have created an incentive structure that is so accelerative at this point that it's literally ripping the sides off the vehicle that you're riding in. And so if you're going to make a case for Fiat, that would be the only case you could make,

but you probably only want to do it in a very small dose. And whenever you stop doing it, you need to go back to some type of sound money in order to not rip the doors off the vehicle because that's where I think we're at right now. Interesting argument you bring up. So I actually wanted to go back to 1929. Let me instead go back to the 1500s. and people like, oh my God, this has got to be a long, long speed stick's going to make. I was reading this amazing book called Sapiens.

I've probably been reading that three times for the past year. And originally it was actually Guy Spear who told us about the book. I think it was like episode 14 or something. I'm a very slow learner. So I've been getting up here over the past year. But it was interesting. That's specific section about why the economy was not growing until the 1500. And I think that there was definitely some arguments that could be made about what happened whenever

you had the agricultural revolution. But let's not go back further than 1500. But it was very much about one of the reasons why credit systems didn't work almost didn't exist before then was that people sort of like believed that the economy was a fixed pie. The king of England could be wealthier if he conquered France and took their gold. That was sort of like their perception. They didn't have this cycle of if you have money, you can invest, and then you'll like more money, you can invest even more.

And you don't have the growing pie sentiment. And all of that slowly happened whenever Columbus got to America, and you started to have the whole credit cycle that was later adopted in the Netherlands, and eventually Adam Smith wrote a fantastic book about it, wealth of nations in 1776. But anyways, let me fast forward to that, because I think this whole credit system, I just wanted to tie this into this discussion. And perhaps then afterwards, we can talk about some of the day. dangers of created too, which also is very evident throughout history. And I've been trying to

figure out, going back in history and figure out which crisis resembles the one we have now the most. And of course, all crises are different. And lazy as I am, I decided to watch an interview with Redallio, where he just briefly mentioned that, because he was asked that specific question. And the question was basically, hey, what kind of crisis is this more similar to? And he said, yeah, we didn't have COVID-19 before, but the most similar is 1929. That was what he said. So I looked at some of the data from 1929, and that was a very interesting study. And I think there are similarities, but there are definitely also huge differences. One of the things that I really found interesting was that I think what the stock market dropped 85%. It was like a crazy number,

but you had six major rallies. Like major rallies as not just 10%. I think one of them was like 40 percent or 50. It was insane, like, on the way down. So whenever you're looking back, it looks like it was just all going down. It must have been so difficult living through that and thinking, well, you know, the stock market is up 40 percent. Now it's probably time to invest and then get absolutely smashed afterwards. As soon as you come out of your storm shelter, another tornado hits immediately as you open the storm shelter doors. I looked at that chart for years because it lasted three years, that people were going through that psychological, just bludgeoning, and it would have been one of the

hardest times ever to experience that type of event that you're describing Stig. Talking about it like today, the stock mag was just crushed in March, and then you hear people in April talk about, oh, we have the best month since I don't know when. It was up 13% or whatnot. Now is the time to invest. And it's like, well, it's because the time period you're referencing since February, you're not looking at years, right? And the stock market took 25 years to recover from, which is absolutely amazing whenever you're thinking about. And even Buffett, and again, we're going to talk a lot more about Buffett the next few episodes. But he said, because he was alive in 1954, and he talked about how people said whenever you read that, oh, is this a new

1929? Now, I don't think it would necessarily take 25 years for the market to recover. And here I can make the joke that it definitely won't take 25 years in nominal terms. Real terms is always a very different discussion. That was a very nerdy joke, even though it definitely had some of the truth to it. But if we look at some of these similarities, we had a rapid increase to double-digit unemployment. I think the latest number that came out here was 30 million people in the US. And we need to compare that to the labor force. So not the population, but the labor force in the US, which is 164 million.

So it's high. It's like 1929 high. And you can even make the argument that a lot of that unemployment that we see right now is not being recorded. You also had a swift double-dgeting contraction in the economy, and you had high inequality. And I think that's really important to understand that we haven't had this type of inequality since 1929. So what hasn't changed is that the economy is basically still goods and services. The rest is really discredit and accounting. I think that's so important to understand. Whenever you hear me talking about these numbers, and then they have this major

contraction and what's going on. A lot of that is definitely in credit and in counting. And what is also not different is that we have a system where those who control the system just by definition also benefits from the system because that's just how all systems work. So let's look at some of those systems and let's look at what is different. And so this is the time where I'm going to go in and try to make a case for fear currencies. And I really wanted to do that because I don't think anyone has been bashing fiat currencies as much as Preston and I have on our show. But I think one of the biases that at least I find myself having don't necessarily want to drag Preston into this, he might have a different opinion. But I think it's just like

Chandlemonger says, you know, you need to be able to argue from both sides. Being a lawyer, he would know. And he's also very much into, if you find an ism early in your life, it's probably not going to be good for you. So I really took that to heart after rereading Paul Charles element, and really try to invert, really try to think about why could it be good that we have fear currencies. Now, if you look at what happened in 1929, at the time the US dollar was pegged to gold. And to maintain that pick, the US had to tighten. And whenever I say they had to tighten, they needed to increase interest rates. And there was a time where you probably wanted to lower the interest rate. You wanted to lower exchange rates, which would be good for how well you

compete in international markets. And you also wanted to make. made easy to borrow whenever you are in any crisis. You definitely don't want to hike the rate and depress growth even more. But the point was that at the time, you had to hike interest rate to attract more capital to the country, and you wanted to incentivize. But instead, what happened was that the interest rate went up whenever you didn't want that to happen. And so what Frank Lloyd Roosevelt did in 1933, whenever he took office, was that he took the U.S. off the gold standard. And this has also been debated since. I would like to say that. there was some sort of consensus about that was a very important step to get out of the depression

at the time because he could increase the monetary baseline. And he already did that basically from the very beginning. And I don't want this to sound like that fear currencies are great and then fixed currencies are not good. I mean, because each system has its own pros and cons. So I would argue that it was as much needed to be taking off the gold standard in 1933 in the US as it was for Germany on the Weimar and a room. Republic, with hyperinflation, for that matter, to be packed to gold to ensure that stability in 1924. So the reason why I'm saying this is that it's so important to understand that being on a gold standard is akin to having debt denominated in a foreign currency. So really breaking the

link for the US really meant that they didn't have to work with such a limited toolkit anymore. And thanks to fiat currencies, there's a better probability of a short-lived deflationary pressure. So let me just ask everyone a question here. What happened to the stock market whenever Nixon said that he would no longer allow for paper money to be turned into gold? What happened to the stock market? Did it go up and down? And perhaps some people out there might be thinking that the stock market went down after that announcement because you would think, hey, that might be bad for the economy, but it actually went up. The stock market the very next day jumped 4%. And you can just see that whenever you study, go back in history

and you see what happens whenever you have these devaluation effects. Now, what you also need to remember is that it went up 4% in nominal terms. And that was because people expected inflation. And that sort of ties into the whole discussion whether or not inflation is a good or bad thing. And then another difference. I promise I will soon stop geeking out as much about history. I think for good reason you can make a lot of comparisons to 1929. I also think that it was vastly, vastly different.

And one of the reasons is that the system we have is just different. I'm not just talking about whether we're in a gold standard or not. At the time, the Fed could only help banks that were members. And at the time, only 35% of commercial banks were members, which basically meant that you had 4,000 banks that went bankrupt. That's not the case today. And the rebel effects of that was just catastrophe. We are in a very, very different situation.

The dollar shortages that you saw back then, we don't have that now. Now, yes, we do have a dollar shortage, but you have swap lines, you have hundreds of billions of dollars that's being swapped right now. So it was just a very, very different system. And as much as we can say bad things about the Fed and what they've been doing, if you probably should, we definitely have learned to tackle crisis better than definitely if you look back to 1929. We have more tools.

And I'd just like to add that now that I've been bashing fear currencies for so long, quantity easing for that matter. That's not my favorite tool. Let me put it like that. But we are in a very different situation whenever we're looking at that. So I'm very curious to hear if you're having your thoughts to this, Preston. I think fiat currencies are a total abomination. I don't think that there's any reason that a country should have them other than their intention to debase them so that they can apply a tax across the entire population without the population having a vote in that. That's pretty much the only

reason to have a fiat currency. So, I mean, think of it like this. Let's say you have a peg currency, right, and you want to go to war. Well, with a fiat currency, you can just debase the currency immediately without any of the citizens having a vote to pay for the war through debasement, right? But if you have a peg currency, now all of a sudden you have to issue war bonds and people have to get behind the idea and fund it before you just go out there and spill the blood of the young citizens that are going to go fight it. So I guess I, I, you know, I just look at fiat currencies as being a total farce for a country in order to debase their currency and to universally tax everybody without their input as fast as they possibly can.

So I just can't make a case for it. One of the things that I've been thinking a lot about, and I think it's definitely also on my record, are the issues that I do see with a fiat-based currency. I do want it to make the counter-argument again to be able to see it from both sides, not to be too one-sided. I'm not saying that you are, present. I'm pretty sure that you thought about. No, no, no, no, I'm very one-sided. I think they're terrible. You think they're terrible? Okay, no, I think it's very dangerous in life, and especially

when it comes to finance, whether or not you have the truth. I guess that's one of my issues. And that's one of the things that I've been thinking a lot about. We've been doing this for six years, and we've been talking a lot about the issues with fear incurrences, which is why I hear six years in what I'd like to make the case for it. And this might sound a bit more, philosophical, but I think that there is something about considering that in terms of how to take in new information. But regardless, one thing that I would like to talk about is what do we think is going to happen? Do I see the system that we have now break down anytime soon?

And how do I position myself as an ambassador? Whenever I do that, I don't think too many people, at least not the people who can do something about it, will change the system. I don't see too many people have an incentive to go away from a field-based currency system. And while we can definitely make the argument that that's not a good system, I don't necessarily see it happening. What I see most likely happening is that we'll have a major redistribution of wealth, hopefully without too much social unrest.

And we would see a redistribution probably in progressive taxes. I think that's how it will unravel. I mean, I think it's really simple. The more that you fight it, the more that you prevent markets from being free and open, the more social unrest you're going to have. The further you kick the can down the road through manipulation, the more you're charging almost like a spring, the more you push the spring and compact it and compact it and compact it.

The more you push that, you're going to have just an abrupt response whenever, whatever it is comes to the table with the new solution to. what's happening. Because this is not sustainable. There's no way this is sustainable for them to keep doing this. No, I don't think that's sustainable either. And I think one of the things that authorities would eventually do is to have this major redistribution. It might be in terms of UBI. I think there is definitely a case that could happen. It has also gained a lot more political popularity recently. But if you ask me, I think that at least within the next decade two, it's very difficult to make predictions that goes a lot longer than that. I think it will be

within that currency system we have today, just with eventually more redistribution. I'm curious to hear how you think it will play out. There's a reason I own Bitcoin. For 2020, it's up 29%. Since we talked about it on the last mastermind discussion, it's up 15% and the rest of the market is down significantly. And it's been like this for 10 years. In some years, it's been up thousands of percent. So either people buy into that narrative or not. And if they don't, I mean, that's their own prerogative. I feel like I've read a lot and I've studied it for five years straight. So I feel like I understand it really well. I think it performs really well. Yeah, that's my hedge for this entire scenario. All right. I just also want to say for the record that I also own Bitcoin. I think

I told that before. I think it's about time you told the audience that you own Bitcoin. I hope I've done that for years. But I think it goes back to my previous hammer in terms of I need to be able to see it from both sides. And I see some major issue with the current system. That's also one of the reasons why I own Bitcoin. I would like to talk to you more about trying to buy gold. And there was actually a fun story. We're going to talk about that later in the episode, how that went out. But I see some major issues. But for one thing, I don't know if I'm right. And the other thing is, I'm not that significant. Like, it's one thing what I want to happen and what I think would be best in terms of a monetary system. Another thing is what's going to happen. And that's two very

very different things. And this might be a silly example, but there's this famous quote, and I think it was from Richard Feynman, the guy who won the Nobel Prize in physics. And he was saying that people don't change opinion because of better facts. The reason why we adopt new knowledge is because those people who do not believe they die and new generations adopt that new point of view. And I think that's not talking too much about Bitcoin, but I think that's one of the things that I'm seeing right now that people are like screaming from one corner to the other. It's like, now I have 10 more arguments why Bitcoin is good. And then the other corner says, no. And it doesn't matter how good those arguments are if they're not good.

The other side just refuses to listen. And I don't know what the future system is. I definitely have strong opinions on that. But I don't think we will see a change because one side just has better arguments. 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 SOC 2 or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving. Instead of chasing spreadsheets and screenshots, VANTA gives you

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And it's just doing what it does. And whether you agree with it or you hate it or you love it or it doesn't matter, it's going to keep on doing what it does. And if country X, Y, and Z say that it's banned in their country, well, then it's going to be banned in their country and it won't be in all the other ones. And it's going to keep doing what it does. And if you don't like that, then hate it. and don't buy it. And I just want to throw it out for the record. Stick his own Bitcoin for a long period of time.

He fights me on this show. And you know why he does it? He does it because going back to what he was talking about earlier, he wants there to be a balanced argument. It goes back to what we both firmly believe, which is if you can't argue both sides of it, and this is really big on Charlie Munger, if you can't argue both sides of it,

well, then you don't understand it well enough. And so I think for the audience, they need to understand that although he has a position, the reason he's arguing or he's taking the other side of it is for the audience's benefit to hear two sides of an argument. But anyway, let's plow into just a couple different equity picks in this environment. And you already heard my comment, and I'm sure Stig agrees with me on the economic calculation because of what's happening with the currency and how difficult that is. And so when we talk about the intrinsic values of a couple of these picks and we're talking about that, we're using a an IRR, and we're going to compare it relative to other things out there just so you can see the relative comparison. So when I pull up our TIP filter tool, which basically goes through the entire U.S.

market, it prioritizes all the picks based off of value investing principles that Warren Buffett, Benjamin Graham, and all them have taught us through all their writings. So when I go through this filter tool, we're getting a lot of companies, a lot of financial companies hitting the filter. And because of a lot of my opinions on the currencies, I'm a little hesitant to recommend a lot of those. But I have found a few that are high in the filter, in the value filter, but also have good long-term momentum trends. And that's something else that our tool provides is this green buying momentum status. And so let me just talk through a couple of these. So the first one, and this is a pick that we talked about, oh boy, I think it was the first

quarter of 2020. Biogen. Is that when we talked that? Stigger was at the fourth quarter of 2019. It was around that time frame. It was around Christmas time frame, I want to say. So Biogen, here's a company that whenever I do an intrinsic value on this and I'm looking at the IR, I would tell you, I think the IRA on this is around 13 to 12%, which is extremely high. If you bought it at the current price, and today it's trading at $296. This is a pharmaceutical development. company. And really, it's a large company. They're doing $14 billion in top line revenue annually. When you look at their top line, it's been growing like crazy and lots of free cash flow. I think in this environment, this does well, considering we're dealing with a virus. You're going to have a lot

of drug development going forward. I don't see the impairment in that. Maybe they run into some issues as far as the development because of the facilities being able to manufacture it as far as coronavirus in the coming year. I'm not quite sure what those implications would be. But as far as a pure numbers and looking at the viability of the company, I think this is something that's worthy of consideration. The ticker for this is B-I-I-B. The next one that I want to talk about, and then Stig, I'll just go through, I got three

different stocks to talk about, and then we can kind of have a discussion around them. The next one I want to talk about is eBay. This just recently started showing up on our filters. It also has a green momentum status, which is rare for a lot of the companies in our filters right now. When I do an intrinsic value assessment based off the free cash flows, this might be around an 8 to 10 percent return based on the free cash flows of the company moving forward. I really like this because I think you're in an environment where a lot of people are

struggling. They're probably wanting to sell some things. And so then they're going on to eBay. They're selling their items. You have other people that are trying to save money, so they're not going to buy something new. So they're logging on the eBay and they're trying to buy the other side of it. So I just like this. I like the valuation on it. It's a counterplay to Amazon. And I would tell people to go ahead and check this one out. The ticker is E, B, A, Y. The third one that I have for you is Intel, and especially everything is going virtual, right? So you got people buying newer computers, they're trying to upgrade, whatever it might be. You just have so many different things that are going to need processors in the future. This is a highly commoditized type business, but there's

not a lot of competition. I guess when I say commoditize, I'm thinking more of the speed at which they have to keep pumping out new technology in order to stay competitive. But there's not a huge amount of competitors in the processing space. So when you look at this company, their top line just continues to grow like crazy. They hit 71.9 billion in 2019. When I'm doing the intrinsic value on this, here let me do another conservative estimate so that I'm giving you guys something to chew on here. I think you're around maybe a 6 to 8% IRR return if you buy it at the current price,

and this is currently trading at $57.99. I think you're around a 6 to 8% return on this one. And the ticker for Intel is I-N-T-C. I would tell you those are three picks that I think might do well in the coming year, even though we're in this crazy environment. Who knows what in the world's going to happen moving forward? Stig, your thoughts. So, Preston, is this the time where I'm going to pitch Bitcoin in gold?

So looking at the same filter, you know, I think it's very interesting to see that the top three where we now have a positive momentum in our large-cap filter, we have three different filters, large, medium and small-cap. But let's just talking about the large-cap, which is the most known companies. That is micron, technologies, biogen, and then all-state, which is sort of fun thing. because we pitched all three on her mastermind group. And you already highlighted myogen. And I think it was the fourth quarter of 2019. We'll make sure to link to that in the show notes. I was pitching Allstate.

Hari has previously pitched micron technologies. For full disclosure, I'm long micron, but I think that's a very interesting stock. Right now, it's trading at an expected return around 14% or so. And actually just our guest last week, Monis Paprai, has a significant precision in micron too. And as much as he doesn't want to talk about his current picks, he has actually gone on record. You can find on his YouTube channel, which is just a trashy-troth of information.

And he briefly mentioned that he found Micron to be a compounder. So in terms of looking at some of the momentum, Preston started out by talking about NASDAQ. NASDAQ that tund greened already April 8th. It is interesting. Preston was touching on this before that these technology companies, they perform really, really well. Another company I would like to highlight here is Google that also has a positive momentum. And I pitted Google a long time ago in the MastSmart meeting too. And Google has actually performed quite well during this recession.

I think the year of year growth now is down to 15% on a constant basis. And I'm saying down to 15%. That's actually a company that's not performing because of COVID-19 right now. But a lot of these technology companies are doing really well. That also implies that traditional value companies have not been performing well. And whenever you think about it, it does make a lot of sense why they haven't performed well, because a lot of those are very heavy in terms of equipment. Airlines could be one example.

Railroads could be another example. A lot of those stocks have really, really not performed well. In terms of talking about what I've been doing here since we have the last, Currie My Condition Update, I've been long U.S. dollar for a long time. I think I've been around 90 to 95% in U.S. dollar, which is a lot especially if you don't live in the States. And I definitely don't recommend anyone to do it. this and I tend to be way concentrated at times. I was quite sure that whenever the global

economy would tank, and even without COVID-19, we definitely were priced into something significant would happen. I was quite confident that the dollar would soar, and we see that play out now. So what I'm doing now with a strong dollar, my bag, is I've started to diversify globally, both with my stock picks, but also with currencies. And perhaps this is the time where I transitioned, just briefly talking a bit about some of the currencies. I mean, Antiet, I have been buying more Bitcoins. And Stig, people need to know you were in Bitcoin during the last bull market. Oh, yeah.

I think people that are listening to this might think that you just bought it in the last year. But like, you've owned it for many years at this point. For many, many years. But just like I'm trying to bash you as much as I can, Preston, and luckily we can record it. You know, I have friends too. And then I'm you, you know what I mean? Like, then I'm the guy who's just trying to like not being ripped apart because people

are like, that's the stupidest thing I ever heard. Because then I'm forced to come up with the good arguments, you know, why I have the position that I have. And I would like to really emphasize that again. One thing is, what you as a private person, as a citizen, think is good and what you hope will happen. But you really, really need to be able to separate what you hope will happen from what will happen. Preston or me for that matter might be writing a thesis about this fixed monetary baseline. Jeff Booth might be who we had on two weeks ago. It was amazing the way he talked about currencies. He might intellectual be right in that.

But if everyone in power just thinks about this very, very differently for decades to come, that's how we need to respond as investors. We need to take that into account. Now, I've definitely hedged some of that position away from few currencies, and since I've never sold, it's also a much bigger part of my portfolio that has been in the past. One fun story I'd like to talk about, now we're talking about currencies, is gold. I was speaking to a friend of mine, very wealthy individual, who's been trying to buy a large quantity of gold.

And he was told that to get fiscal gold, which obviously is what he wanted because he doesn't trust the monetary system too much, it would take six to 12 months to fill that order. And whenever he told me that, I was like, I need to test this out too. So I was calling around to quite a few places, both in Europe and in the States. And it wasn't as a significant of an order as it would have been for him, but I was trying to fill an order with a hundred ounce. Obviously, that's a lot of money, but it's not a significant, significant order. And it was very difficult to get a hold on fiscal gold.

Like most places would say at least a month. And I was a bit surprised. And then again, I wasn't surprised at all because the time that you need an alternative currency is the time that everyone needs another currency. So I just found that to be a very interesting study to do yourself. So Stig, I have a really unpopular opinion about gold. And it's evolved. and I would tell you, it's changed just, I would say, in the last two months.

And I'm just going to put this out there because I'm more curious to have the audience yell at me on Twitter about why this idea is wrong. But I think it's very right. So here's my opinion. I think gold is going to do quite well in 2020, especially with all the debasement that's happening. I think the next bailout is going to be announced tomorrow. And then the one after that's going to be the day after tomorrow.

I think these bailouts are going to continue. I think you're going to see global governments just debasing like crazy. And I think it's going to be a very strong environment for gold to perform, especially physical gold. My concern goes back to Bitcoin. So the timing of how that protocol functions, right? We've got this halving event that's happening on Monday, the 11th or 12th of May is when it's supposed to happen. Historically, when these having events happen, it reduces the amount of flow that's then coming on the market by half. So when that happens, you have less selling, less miners able to sell their position. Historically, when you look at this event and what happens following this event, it doesn't happen immediately. It happens about a quarter after the halving event. You see the price really start the run. And I completely expect that exact same scenario to play out again. A lot of the math, a lot of statistics have been done on this, Plan B, who we had on our show,

modeled this. It has like an R squared value of 95%. And model suggests that the price is going to 100,000 on Bitcoin. So now I want to walk you through how that relates to gold. So based on the timing of the math of how this plays out, this means that Bitcoin should be around its previous all-time high around Christmas time frame. We're talking $20,000 per Bitcoin. Today, it's at 9,000. So if that happens and we see Bitcoin make this massive run between, between now and Christmas to 20,000. And it's not stopping at 20,000. I mean, it's going to keep running after that throughout all of 2021. I think that what you're going to see is you're going to see people who have been hearing about Bitcoin now for over 10 years. You're going to see Bitcoin

pass its previous all-time high. And historically, when it does that, it really runs after it passes its previous all-time high. And the percentage gains that you're going to be seeing are somewhat mind-bending. The market cap is going to be in hundreds of billions approaching a trillion dollars in market cap for Bitcoin. I just don't know how gold that's already sitting at a market cap of, call it, $8 trillion, is going to possibly compete with this, especially when your clearance of transaction times are six months. You're not talking about conducting a transaction in near immediate terms like you are in Bitcoin. You're talking about something that to receive physical delivery of your gold takes six

months in order to get it. So my concern for people that are buying physical gold today is they're going to receive that at a time when this potentially, I mean, this is all potential, but the math suggests you're going to be seeing Bitcoin passing its previous all-time high. And I just can't imagine the media and the news that's going to be pumped. I mean, CNBC is already talking about Bitcoin every single day. So what does that look like in six months from now as it's passing its previous all-time high? People are seeing the daily percentages going up.

I mean, you know what 2017 was like it was insane. So if we're reliving that in the face of gold transacting at six months per transaction, I kind of think you're going to have a really significant concern for people holding physical gold by the end of this year and into 2021. and I know one thing, if Bitcoin's running like that, I don't want to own physical gold. I'm not going to be a buyer in that market, personally. Now, other people might be, but I don't know. I'm concerned for people that are taking physical possession of gold in that environment

if that happens. I'm kind of curious whether you agree with my thesis. Do you think that that's a concern? Yeah, so let me just for a moment not play devil's advocate because I have the same concern. I've been trying to track some of the progress of buying gold. And it's definitely many ways been a lot easier than it has been in the past. But gold is just such a different creature than something like Bitcoin. It's sort of like you would be tuning your SCOTA.

And then in comparison, you have the second fastest Formula One racer. Well, it's not the fastest. No. But, you know, it's still pretty fast. And it's just a silly analogy. But I think I would like to use that because I don't want to have own gold like having my home. So I called some of those brokers and you just had investigative questions like how does it work? Where is it stored?

And it's just such a, at least for me, I think it's a very cumbersome system. I can drop by Switzerland and pick it up or they can send it to me to my home. That's my two alternatives. And I'm like, I don't know if I like that system. And a lot of this comes back to one of the arguments I had before about generations. It sounds morbid if I say have to die. But I guess we're all going that way. But different things just happen in different generations.

So the best comparison I can make is that the millennial generation, they want to own significantly less than their parents. Like, just all stats just shows that they don't need to own the same size of a house. They don't even own their own home, at least fewer. They don't need to own car. They're okay with the sharing economy to a larger extent. And one of the arguments that two of the minister brought up whenever he was on a podcast, he said, millennials are crazy about Bitcoin.

that's one asset that they hold the most. And no, they don't have the most money now, but that's because they're millennials. It's because of the eight that they are now. If you look at where wealth is, typically only get more wealth you have because you have more time to accumulate that. And I think that in itself is just a huge shift in terms of how things would be priced. So yeah, I'm bull on gold for 2020, if that's what we're talking about. If we look decades ahead, I think there is something about the whole physical thing, about gold about how looking at that. And yes, I know it's been money for 5,000 years. And then another generation just thinking differently about money. If I was going to tell somebody to have exposure

to this, like let's say you're listening to this, you still like gold, trust me, I think it's going to do well. I think the way that I would want exposure to it is through gold companies. I don't think I want to own physical gold at all. Simply because of the risk that we were talking about is the speed that you can offload it if something goes below and by at supersonic speed. If you own the equities, we'll just sell the equity and then buy Bitcoin if you want to do that transition to something else, if it looks like that's the highly probable outcome. But I think the way to get exposure to it is through the gold mining companies because your clearance of transaction is immediate if you're within the eight hours of the five

days that it trades. And I said that kind of snarky because Bitcoin trades 24 hours every single day, holidays included everywhere in the world. So that's how I would go about getting exposure if you do want to have gold in your portfolio. But those are the risks. People need to hear them out and go to the direction that they want to. All right, so let's go ahead and play a question from the audience. This question comes from George. And here it goes. Hey guys. Firstly, just wanted to say thanks for what you do. I started learning about investing around six months ago and definitely couldn't have got to where I am without your resources. My question is a simple one.

A few months ago, I could see that the market was looking pretty expensive and that we might be due for a correction soon. I didn't think it would happen so soon. And it caught me off guard like I'm sure it did many other listeners. I keep hearing and reading the phrase, don't catch a falling knife. I get that. But what I'm finding hard as a new investor,

looking to invest just after a crash, is not just how do you know that the knife has fallen, but is this the time to be looking for those companies that were already undervalued and try to remain calm, while you see blue chips selling for 50% less than their previous stock prices. Or should I be looking at more of a momentum strategy to help minimize the risk of the falling knife? With set sell and buy prices working off momentum percentages.

Thanks. So, George, I'm going to take a crack at answering this. What you're talking about is exactly how I'm investing these days. I am obviously interested in the valuation metrics, but I am not putting on any position unless it has a positive momentum trend with it, simply because I think that what we're experiencing is something that is very rare. And when I say very rare, like this isn't your typical business cycle like we've seen in the past. I think this is something that's way different and going to be way more difficult to navigate

successfully. And so let me just expound on that. Do I think it's possible for the stock market to make a new all-time high right now? I do. I think that could happen. Do I think that we could see a 1929 type chart where it just progressively goes down after it gets bid 40%? But overall, the market keeps trending lower. I absolutely think that could happen.

So for somebody who hears that, they're saying, well, you're basically saying it could go anywhere. And you're right. That is what I am saying. I think the array of potential outcomes on the stock market is so wide that it'll blow people's socks off. Because what you're seeing is total market manipulation. And not just in the U.S., you're seeing it globally. These central bankers are doing things that we have never seen in our entire lives. And as a result, I have no idea which direction it's going to go.

So that's why I think momentum is such an important part of the investing approach these days because it's completely based on price action. It's looking at what was the statistical volatility in the past? When has it stepped outside of that statistical volatility? And if it did, it's red and that's a sell. And I know that sounds really simple. Preston, so you're not even considering 10Ks and 10 Qs anymore? No, that's not what I'm saying.

And all I'm saying is that if I do buy something, I'm trying to not only find something that has great value characteristics, but something that also is in a positive momentum status so that I can protect my downside risk. That's it. I have no idea whether we're going to see a stock market hyperinflate like we saw in Kola, call it Venezuela, go back, pull up any chart of a stock market during a hyperinflation scenario. And guess what? The stock market goes up. It just keeps on running and it runs a parabolic way. In the U.S., I think that could happen. I also think that we could see some type of deflationary spiral on prices. I don't know, because so much of it depends on government intervention. It also depends on some random technological solution, maybe stepping in and redefining what money is. There's so many different outcomes, and we have no idea what those are going to be. But if I'm using some type of momentum strategy, it's going to protect my downside risk. I do know that if the market goes lower. And it's also going to help me step back into the market if it's going to run higher. So I think the best thing for people to do at this point

is to have a very open mind, extremely, extremely open mind as to the possibilities of what's coming next. And then use sound principles, in my opinion, the most sound principles out there is a value investing approach mixed with momentum strategies. And yeah, that's exactly how I'm I'm doing it personally, and I know this is a very biased opinion, but I think somebody who does not have exposure to Bitcoin, I think that's absolutely crazy if you don't have some type of exposure to it. And if you're scared about the volatility, minimize your risk by position size. Have a 1% position.

And if you're wrong, well, then you lost 1% of your portfolio. Congratulations. Right. But if this is right and you have 1% exposure, it could potentially cover the other 99% of your investment. So I think that it's important for, and I'm not telling people that they need to invest in. I think what people need to do is they need to educate themselves on what it is and what it isn't. And the only way you can do that is going out there and reading a ton of books.

But that's the only way you're going to get comfortable. And if you're concerned, adjust your risk through position size is my recommendation. So Stig, I know that was really long. I'm sorry, but I was quite animated and excited about responding to that question. Let's hear what you got. I think you need to use both, especially in times like these where I wouldn't say that value is out of style. I would just rather say that value is just manipulated.

And so much of that comes from that initial manipulation. Some of that is difficult to cope with because, for instance, something like quantitative easing that's completely messing up the market, whenever you're taking away quantitative easing, even though it might not supposed to be there in the first place, it is sort of like tightening. And so it's just very, very difficult environment to maneuver in. But I think it is still important to revert back to value, especially in volatile markets like this, because you might be tricked into thinking that companies can change the fundamental

value 10% almost on a data basis. And the intrinsic value of companies just moves much slower than that. And even though you have definitely seen significant changes in the intrinsic value of some companies because of COVID-19, it's still a very sound principle to go back. to. At the end of the day, buying and holding great companies, at least to me, I don't think that would go out of business. It might just be a more difficult time to do that than a long time because the market just gives you very different signals than it used to. And if you are completely blank of what you should invest in, something like Vanguard's World Market

ETF, the stock ticker is a VT, the expense ratio is eight basis points, and you have a great diversification. If you do that, the momentum of that is still red. So perhaps now is not the time to go into it. And it actually did turn red at February 26th. Whenever the US stock market did that too, obviously the US stock miners also have half of the global market cap. And there would still be a good call for you if you have made that at that time. So the indicator still tells you to sit on your hands. But that might be a way to do it if you're very unsure, when is the momentum going to change, I don't really have too much of my opinion on individual stocks, you might consider something like that specific world market ETF that's just very cheap to buy into.

I would say people just need to be prepared for being whipsawed all over the place. Would you agree with that? Yeah, I never know what the stock market is going, but right now it's a very tricky time that we're in, because there are so many who has such a huge incentive in terms of manipulating the markets. And I know that the future has always been difficult to predict, and this time is no different. And I've talked a lot about history before. At least the last hundred years, I don't know whenever the market has been as manipulated as it has been right now. You're just talking about 1929. And again, I'm not saying it's going to be anything like 1929, like you also mentioned before,

but I think it's important to say we just have a very different system. Like, this system couldn't be manipulated the same way in 1929 because the system was not. set up to be manipulated the way it is today. And that manipulation is good for some reason, but it's also bad for other reasons. For instance, like I mentioned before, the Fed couldn't go in and support the banks. So it was raw capitalism. And you know, I can't help but say, we talked about Brooks de Hathaway and again, we'll talk more about that later. But Warren Buffett right now, he's been pious for being a capitalist. It's sort of interesting. He's been sitting waiting for that phone call when people like need cash. And that's whenever like a true capitalist

would make money. But guess what? He gets no deals because they get free money for. from the Fed. And so that sound principle that he was relying on that with credit freezes, whenever we face a huge crisis, that's the time that I will make great returns. I can easily understand if Buffett has been thinking that. That's also what happened 2008. And what's happening now? Well, the Fed printed trillions of dollars, and now it's just a different ballgame. So, George, we just want to thank you for asking such a great question. Because you recorded your question at AsktheInvesters.com and got a plate on the show, we're going to give you a one-year subscription to our TIP finance tool. This tool filters the entire market. In fact, this is what I

was using whenever I provided the three stock picks earlier in the show. It filters the whole market with value investing principles. It then shows you the momentum trends like we're talking about, and it helps you find great picks among the many, many stocks that are out there and on the market. Our momentum tool also covers indexes. So if you want to see the NASDAQ or you want to see the S&P 500. Those are also all covered in the momentum status to help people navigate these very trying times. So George, thank you for that, and I hope you enjoy your free subscription to TIP finance. All right, guys, that was all that pressed on the hat for this week's episode of The Investors Podcast. See you next week. Thank you for listening to TIP.

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