Pricing Oil In Gold Is "Inevitable" | Luke Gromen

oil for

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welcome to welltheon I'm rich I'm the founder Adam Taggart thank you for joining us for the second part of our interview with macroeconomic analyst Luke groman if you haven't already seen the first part of this discussion with Luke in which he explains why The rapidly rising cost of servicing the U.S. federal debt, coupled with a recent drop in tax revenue, is causing the national deficit to soar and is likely the trigger that forces the Federal Reserve to pivot its policy towards our YouTube channel. .com richian and watch it there first, it sets the context for the investment topics we discuss in this video.

Luke's also generously shares how he recommends allocating capital for the turbulent times he sees ahead, so be sure to stick around to hear that, okay, let's get started. As we look at the second part of our interview with Luke Groman, let's move on to the market outlook side, so if I take anything from what he's said so far, there's a lot of uncertainty going into next year and it largely depends on whether the FED turns and when. here for the money managers, you know the fund managers that manage a lot of capital, as well as for the investors just for the individual, the people that are watching, you know this program, um, it's a tough year for say, how can I, how do I position myself?

What is your overall market outlook for 2023? Is the bear market that started this year continuing? Will we see new lows next year or a different game? I think the first quarter to the middle of next year is going to be difficult. and I think we'll see a resumption of the regime that we saw from February through college, September of this year, where a higher dollar drives up rates, everything else goes down, yeah, because again, it's the tax revenue picture combined with the lag The impact of the rates is going to force us to have a balance of payments problem in the issue of the world's reserve currency, period, and if the United States, if the reserve currency has a balanced payment problem, everyone has a payment of balance, so I think my bottom line view at this point is that the markets fall in the first three or four months of the year and at some point that force is something that breaks in a big enough way that the Reserve Federal has to pause and then I think kind of take off.

I think you can see that the CPI continues to fall. I don't think I'll ever go back to two or three. I think it will probably bottom at four five six and the Fed will have to accelerate back towards that level. And I think by the end of next year we could see stocks regain what they lost at the beginning of the year and maybe even get back to all-time highs, but I think it will be accompanied by inflation, that's probably also a new 40-year high Highs and Lows double digits in the United States, uh, and I think within a good stock market, I think there is a vicious sector rotation because if the CPI is working, you know that eight to ten you don't need to pay 30 or 40 times the profits for a high growth name, may you know?

U.S. steel will grow earnings faster than that and trade for a much lower multiple, uh, oil companies, uh, industrial companies, um, you know, but I think I see a fierce rotation of the sector toward sort of, ya you know, borrowing from the beginning of my career, the new economy to the old economy markets, generally higher inflation as we come out of 2023, but that's my baseline view is kind of a week to start the feed pivot, you know, something breaks. pivot and then you know, kind of a vicious, uh, vicious sector rotation thing that's already underway, really beefed up, okay, I'm going to congratulate you on being in good company, uh, I'm going to assume you haven't had the chance to see it yet, but Outlook to me sounds pretty similar to what Felix zuloff shared, right, yeah, I didn't see it, so that was pretty flattering.

Yeah, that makes me feel like you should look at that and let me repeat a little bit of what you said and what Felix said to see exactly how much overlap there is. He agrees with you that almost everything will happen in the first question. Sort of um so it's going to be a repeat of what we saw for much of 2022, like you said, he then thinks there's going to be an event that forces a reversal, like you, he sees inflation going down in that initial period and then Then, It's really going to take off over the next couple of years and hit new highs, which I know is depressing for everyone to hear.

He thinks there will be, you know, some assets that will perform very well instantly upon the pivot announcement. It will be bonds, in particular, you know, sovereign bonds will react very well, especially long-dated ones, so you think there will be a good six to nine month period for bonds after the announcement of the pivotal news, etc. Precious metals, you know, those will respond very quickly too. He believes stocks will take longer to recover. What history shows when there has been a pivot and you know that in a bear market. It usually takes a quarter or two for stocks to recover.

Mojo imagines that you will see the first response in the high growth stocks that the technology sector has because they have been hit hard because that is where the hot money tends to flood in initially actually, but then, like you. He sees it rotating relatively quickly in kind of a more cyclical cycle, the industrial sector, um, and since you expect them to do quite well in another in itself, he believes that probably, more than anything else, commodities will it will go better. um and from his perspective and his perspective could go a little further in the years that he believes the stock bull market will probably last until the end of 2024 and he believes it will be quite large, almost like a doubling of whatever. under the pivot happens since um, so he says doubling up to get people's attention like this won't be a small recovery, it will be a big recovery.

He believes that raw materials could go until 2025 and then he thinks that everything gets out of control. and we enter a great depression caused by this high inflation in 2025 and beyond and I'm not going to ask you to weigh in that far into the future, we'll have you back on this show many times much sooner, um, but how? How well does Outlook agree with your crystal ball right now? I think it makes a lot of sense. I mean, I could see bonds rallying. I mean, they've recovered a little bit. I could see them recovering, uh, mechanically with the weaker dollar.

That is, you can see that the dollar has strengthened. Currency-hedged Treasury yields have been very negative for European and Japanese investors, so to the extent the dollar weakens, it will mechanically improve. The foreign purchase of Treasury bonds. I think it's, I think it's a suboptimal way to play as a center. I think you'll make money, but you know, I don't think the 10 years that go from three six to you know one again or two, right? I think, you know, going from three six to a quarter to three you can make money there, but I think things like

gold

, Bitcoin Commodities, will be a much more optimal expression of that pivot trading, you know, in other words, yes, I think bonds will probably go up, but I think gold outperforms TLT. keeps going up I think copper over TLT goes up I think silver over TLT goes up I think you know oil over TLT goes up um so I think it's all relative but a lot of what he says I think makes a lot of sense uh I do. would do.

I would tend to agree and certainly defer to someone with his experience, yes, he is not a guy who bet against the position, no, um, but that being said, you know that no one has a guarantee of what will happen in the future and I value your opinions so much okay so you mentioned a few things that I have to ask you about as we start to wrap up here one is gold so do you think gold will do well just on the key news there have been some interesting articles recently written about the possibility of the price of oil being fixed in gold.

Sultan Posner has proposed this recently and you've written a little bit about this, how it could be done even if there's no direct price of oil and gold that you know, using the Shanghai exchanges, you could basically affect this exchange anyway, like this So can you just talk about the likelihood of gold becoming a real primary currency for something like oil? I think it has already started at some level, I mean, if we look, since the third quarter of 2014, foreign central banks have sold $370 billion in Treasuries on a net basis and have bought about $300 billion in gold in net terms in that same time, so it has been one of the quieter trends in a kind of macro in My view and it remains the same: for me, oil for gold is

inevitable

for several reasons, the number one if you are an oil exporter, and Putin gave us a detailed speech about this in August and June and of course it was ignored in the Western media because it was Putin and whatever, if you were an oil exporter you would be watching the peak cheap energy everywhere, you are seeing oil depletion and the cost of replacing oil reserves is rising inexorably everywhere, so if you are an oil exporter, you sell oil, you have a surplus, where do you put Do you put those surpluses into the sovereign debt that we just analyzed?

It is idiotic to accept negative real interest rates on your sovereign debt, particularly when your main oil export has to increase in terms of those bonds just to keep production stable, so that at some point oil exporters are motivated to switch to a reserve asset that can rise in price and keep them at par and if you look back to 1870 in 1870, one ounce of gold is equal to 24 barrels per ounce today, it's 22 barrels per ounce, so gold maintains its value at the oil period, yes, in contrast, US Treasury bonds in 1946. thousand dollars face value, since the treasury bought you 100 barrels of oil or so and now buys you 16.

Sovereign debt collapses versus oil more or less, that's only since 1970 or 75. So exporters are motivated to store the surplus in something that preserves the real value of oil real value of their wealth from their surpluses at the same time their oil importers with shortages of energy um uh your oil importers creditors with energy shortages, so you are China, your Japan, your Europe, your Indians, they are looking at this. going we can see what happens when oil rises, we saw it this year, what happens in Japan, not only because of a current account surplus, they go into a current account deficit, what happens until the end, it collapses, Europe passes from being a current account surplus to being a current account surplus. current account deficit because oil goes up, what happens to the euro collapses, um, you get into this dynamic where they have the same motivation on the other side and, oh, by the way, this is not just Europe, Japan, India and China, this is Ghana and this is Turkey and these are all these emerging markets around the world that have current account surpluses when energy pushes them into a deficit to a current account deficit that they have, they go into currency collapse a those who have to sell dollars.

They buy energy or have to cut back on energy purchases, they get into a currency crisis, so how do they prevent this from happening? It's the same dynamic they need to buy energy in their own currency, except they don't want to issue debt. I don't want to apply the same model as the United States, which is to buy energy in our currency and then just take our bonds because that means you have to offshore all your production and none of them want to do that, so they have to come to an agreement on something . although some of them will settle in Goods, but there will still be a net surplus, what are you settling?

Well, no one trusts anyone else, so everyone wants gold, so you're coming at it the same way in both directions and I. Think about what Zoltan wrote: you know, it's fascinating. You see several commentators who love everything he has to say about money markets and it's brilliant and then he says this and it's really a money market balance of payments issue and they completely dismiss it. It's because you know the word gold is there, so they just know it, their heads explode. I think gold for oil is inevitable. I think it's already underway on some level now, where it gets really interesting is that if you are, you know you can.

Use it to properly manage your balance of payments if you're going to like Morgana just came out and said we're going to trade oil for gold two weeks ago, what's well implied in all of this is that the paper price of gold is correctly manipulated. that's overblown, there's a lot of unallocated gold claims centered on London, relatively available underlying physical, that's how we manage the gold price and that's not particular, in some quarters that's controversial, but I don't think it's particularly controversial throughout, to be clear, you meant. theoffer is overstated by the paper market, not by the price, sorry, yes, excuse me, yes, yes, exactly, so if you are going to be right, you are in one of two things, you have two problems, you know you have, knows the dollar. has increased so your dollar debt has increased the cost of servicing your dollar debt and the cost of oil in dollars has increased so how do you manage your dollar availability? is having a dollar crisis it has a liquidity crisis the more the dollar rises the more incentive they will have to do this i.e. if they can trade gold for oil they can go to Russia and say listen we'll see you know we'll do we'll do the deal with you, uh, except we're not going to do it on, you know, the Comex, you know, the ratio of gold to oil, gold on the Comex.oil on nimex the comex nymex gold to oil ratios wherever it is today 20 20 22 says 22 barrels per ounce they can Ghana can go to Russia and listen, we'll give you 25 barrels per ounce, sure, let us buy it 25 barrels per ounce let's value the gold, so now, in theory, we can go, you know, and sell oil at 22 barrels per ounce and in Nymex buy gold, take the gold, take it in a hurry.

I get 25 barrels of oil, bring back the 25 barrels, recover the short. One of the 22 has three barrels left over and now, suddenly, the dollar is draining away from their energy. Imports can be managed by the ratio of gold to oil, and the more the dollar rises, the more this will incentivize not only Ghana but the entire world. make some version of this exchange because it's in everyone's national security interest, not collapse economically because bad things happen to politicians, so I think he's right, I think Zoltan is right, I don't think he's a former Federal Reserve and Treasury official. he writes something like this offhandedly um and I think it's the world we're in where you have the combination of cheap energy and a global sovereign debt bubble.

I think oil for gold is inevitable because no one is going to want to take the role. Can't it have to be at negative real rates? Just to avoid sovereign default and the Jeep energy spike, in the meantime it means that the cost of energy keeps rising, so the real value of that paper in terms of energy keeps falling over time, so those two . The Jeep peak power factors plus the global sovereign debt bubble, to me, make oil for gold inevitable and I think we're in the early stages of seeing that happen and I think as that gains momentum, I think it's actually very good for gold. time is not to say oh, is They're buying gold, they've been doing it for eight or nine years, right, but that's so fascinating and you know, I guess, in a nutshell, if the petro-dollar regime is replaced by the gold-for-oil regime, um I mean, that's just going to be a huge long-term tailwind behind gold, among all the other reasons to own it, oh my gosh, and again it has to be because if you're an oil importer, if you're China and you store your money in treasuries and in price of or you know that your interest rate is negative relative to oil, you are going to do this, your ability to buy oil in dollars deteriorates over time, which means that the potential growth of your economy It deteriorates over time, well, you have all that debt to pay.

You can't afford for the Russians to have the same problem the Europeans have the same problem the Japanese all have the same problem the other side you know like I said the producer side if you're the Russians listen you've produced a lot of oil today, but in 10 years, 15 years their oil runs out and now once Russia's oil runs out, we know what will happen to oil prices if we came out tomorrow and said Russia can't produce any more oil. What will happen to the price of oil? triples probably double overnight, well if Russia has swapped previous oil supplies for treasuries and then the price of oil doubles so now Russia has to buy back the oil they sold earlier and now it costs twice as much money, which is not a good trade for them. what they need if oil is running out, they need to maintain their wealth and something that will preserve purchasing power in terms of oil if we go out tomorrow and Russia runs out of oil, like oil is going to double and gold is going to double, ya You know, the oil is running out.

They're going to go up a lot, but Treasuries aren't going to go up, you know, double from here, they have to, they have to. As a matter of National Security, store reserves in something that preserves the purchasing power and terms of oil. or they need to find a new source of energy, so that's where the fusion material that we just got comes in, yes, sure, that changes things potentially, but assuming it doesn't come on the market in the next few years, cheap oil and World sovereign debt bubble produce oil to obtain gold. and inevitability in my future, yes, and right up to that point of presumption, I mean, I think we're referring to the headlines that came out literally yesterday about a potentially major milestone in nuclear fusion research, but under the most optimistic, uh.

You know, if everything goes perfectly well, this is still many decades away from commercialization, so Jeep's peak oil will have its day, unfortunately, whether we like it or not, before Fusion comes to the rescue, so this It's an oversimplified comment, but um, what I've taken away from what you're saying, Luke, um, I know you and Brent Johnson spent a lot of time going back and forth on Twitter, to some extent, you can almost see the gold, It is the release of pressure on the dollar shake. problem that the rest of the world faces, right, that as it gets more and more hurt by the rise of the dollar, you know, in the secular routine, gold becomes the escape hatch where you say well, the more you can settle in gold, it solves a Many of these problems are very paradoxical or ironic, yes, the stronger the dollar becomes, the more you will push people towards gold and away from Treasuries.

An interesting little mental exercise that I will encourage people to do because I know we have a lot of precious metals holders who watch this program. There are 31, a little over 31 grams and one troy ounce of gold, so if you have a gold coin and you take it out, it could easily hold it. my hand here um that would be worth uh if we're talking about a gram uh for a barrel of oil um I guess oil was marketed in 55 gallon drums or so, that's the size I think that's right, yeah, I think it's 55 gallons, yeah So in my office here, where I photograph this stuff, there's no way I could fit 55 gallon drums of oil in here and I can only imagine what I could do with all that oil in terms of how that would boost my lifestyle. for a long time. all packaged up in, you know, the storage unit of this little gold coin, so you know you were saying all the benefits of this on a national level, but I think it's helpful to even think about it that way in our lives.

You know, would you like to have the stored value and energy potential of 55? You know, a lot of people like oil drums, yeah, great, and you can store them in a very easy fungible unit, you know, easy to sell, easy to store, like a currency. Absolutely true, so, I just discovered all the useful mental exercises that I can do, just before I end here, because you mentioned it, you mentioned Bitcoin before. I know that Bitcoin and gold have been assets that have both encouraged people to have some ownership. I'm just curious if their Bitcoin investment thesis has been materially affected in any way by their poor performance in 2022, when we had high inflation, because my read of the Bitcoin market is that they have sort of given up on their Most.

It will be a currency that will compete with the dollar, so don't worry about the monetary part, but the store of value is really the biggest part of it and it hasn't worked very well as a store of value. This year, that's the number one development, the number two development, obviously, has been the recent FTX scandal, which is not specific to Bitcoin, but, you know, it has shaken some people's confidence in the whole explosion of cryptocurrencies so I'm curious why any of them affected your perspective on bitcoin the short answer is no um for me Bitcoin is traded like gold did in Weimar Germany um there were four or five separate cases between 1918 and 1923 when the mark of the Reich hyperinflated to zero against gold and people were selling gold to buy gold Reichsmarks because, hey, they implemented austerity, they were, you know, the Reich bank was raising rates, they're going to defend the currency and, in the end, the fiscal situation rules, uh, and I look at, you know, I said multiple.

Sometimes Bitcoin is the last working smoke detector and I think it still works that way. Bitcoin crashed and if we think back to early December of last year, right around this time, like $15,000 in one day and I remember looking and saying hmm and then you started seeing problems in the euro-dollar market around that same time. moment, which meant a tight dollar, and for me, you know, like I told clients in June, like the time I sold my in June of '21. most of my Bitcoin um and paid off my house , that was a pretty good inflation problem, thank you, I fed it, you know, at about fifty thousand dollars now, unfortunately, I bought it, I've been, I've been buying it all the way, uh, ever since. um and that's been suboptimal, but in terms of your reading, I don't think there's any change in that um, I think what bitcoin is telling us by being where it is in the first half of next year probably won't be good because it's just a liquidity metric.

I think it's probably being weighted to some extent by liquidation, etc. associated with the various crypto things, um and for me, I wouldn't really do anything with the other things, I would focus on bitcoin and I would focus on custody it yourself. I think you already know. I think the FTX that we have, what we've seen with FTX, should tell people to custody their own Bitcoin number one, but it should tell people that it's in custody, that it's in gold. you should know I should say it, um, you know, generally speaking, if you don't have it, you don't own it, so I think there are some pretty broad lessons overall, but no, it hasn't changed my point of view in the slightest. .

I think Bitcoin will do very well when the fiscal situation forces the FED to resume financing US deficits. Okay, okay, so I imagine you would advise me to buy at these prices here and then, obviously, maintain a cold room. solution is not a trade um and then hope that if the FED turns then that should be revitalized uh I think I think it will I think it will I mean it's like I said I've been I've been buying it back too soon after selling it in the middle of 21, you know, it is what it is, but to me, I think it is, it is still and it is still kind of the last working smoke detector, okay, well, and that is a sign of your conviction the fact that you've been buying it well, great, well Luke, this has been another wonderful conversation.

I love having you on the show. I'd love to have you back at some point on the first question to give us an update on where things are and make audible adjustments based on what we're seeing on the playing field. So for people who have really enjoyed this conversation, would like to follow you and your work, where they should go, you can visit us on our website fftt llc.com and then you can find us on Twitter at Luke groman l-u-k-e-g-r-o-m-e-n, okay, cool and when we edit this Luke I'll also post those URLs on the screen so it's super easy for people to know where to go.

Well Luke, it's been a pleasure, I really hope to have you again soon, but thank you so much again, absolutely thank you so much for your time. Adam, it's great to talk. Well, now it's time for the show where we bring in the senior partners. New Harbor Financial, one of the financial advisory firms backed by Richyon, to react to what Luke and I talked about and also talk about what the markets have been doing this past week. I'm joined, as usual, by John Lodera and Mike Preston. Hi guys. John, why don't we start with you? I know a lot of what Luke mentioned must be pretty consistent with your guys' perspective as I know it in New Harbor, but what were your key takeaways?

Yes, thanks Adam and it's great to be back. I'll try to take a quick look and I'm sure Mike and I can, along with you, delve into some of the general topics. um, yeah, uh, the ones that Luke talked about, it kind of framed where we're probably at and the assessment of him. of the economic and market cycle of being in the sixth inning privately continued to play outside of the trends and dynamics thatwe've seen in 2022, which has basically been higher rates, persistently high inflation, although perhaps declining, as we go. slightly after yesterday and I will emphasize a slightly better than expected consensus uh um inflation forecast um he believes that we will probably see a continuation of that dynamic in the first quarter of the first half of 2023 um and maybe that will meet with uh, a steeper market sell-off and an economic slowdown, uh, to get closer to the ninth inning, to use your baseball analogy, highlighted some of the fiscal situations that are happening, particularly in the US, with tax revenues , um, falling. um increasingly short on obligations and spending commitments uh I think he projected that on the current path uh we're likely to see tax revenues of only 60 of the needs uh and that that would be an increase of about 30 percent this year. , so a fiscally growing deficit in the U.S. um and um, you know, the implications that that would have for maybe a forced hand or allowing the market to have to price in some of the pressures of debt that the United States is likely to have. face um uh you know what he talked about um you know the remittances from the FED uh it's not surprising that suddenly they are way below um the story that you know typically the FED is uh like first of all uh well, they pay a dividend to the shareholders of the bank, that is your first obligation, but any surplus that the FED has must be disposed of by being remitted to the US treasury and for the longest time in history, the FED would have positive remittances to the treasury for the last few months to a year or so.

It's absolutely fallen off a cliff, so there has been a very massive deficit, it's not a surprise given all the stimulus and everything, but it's true, and to be clear, it's not a deficit in remittances, it's actually now been taken out. treasury money, well, yeah, basically, you know, and to add a little. The color of what perhaps incites some anger among listeners is that all of this is happening in a context in which the FED is paying very substantial amounts of billions each month to the banks in the form of what are called interest and reserves of access, now these are literally paid. done by the FED to basically park depositors' deposits at the Fed and the banks get a windfall essentially interest on excess reserves and most banks are not sharing that in the form of higher deposit interest rates, so we would at least encourage people to you know, get a little angry, but also vote with your feet, put your money in things like treasury bills, we'll get a decent return, not a bank account where you'll get 20 or 30 basis points, 0.2 or 0.3 percent if I'm lucky to have six basis points in my savings account, yeah, I mean, it's really unconscionable and fortunately investors can vote with their feet very easily, open a direct account from the treasury, work with an advisor who can buy you treasury bills for at least at least your cash holdings, like we do all the time for clients in this environment, um, and you know, I'll touch on a couple more things, um, you know , he talked about um, and you pushed him into this, um, the chance of them giving you a dollar.

You know how to lock things like resources, gold, oil into things like real assets and gold, and you know we'll talk about that, I think in a lot more detail, but that was the general picture that I'd like to reiterate. What I got from Luke's comments is fine and Mike, I'll come talk to you in a second, but real quick, John. One thing that Luke mentioned that I think is important for all of us to be aware of is that, yes, you were talking about tax receipts. It is going down and basically the deficit that we have to compensate is increasing.

He also mentioned that one-third of the current federal debt will be adjusted within the year, so what is the federal debt right now? It is more than 31 billion. I know perfectly. And then you know that more than 10 billion are going to be spent. I don't have the exact numbers in front of me, but I'm going to guess that from somewhere close to one or two, you know the price will change somewhere close. four uh three and a half four um that's just a tremendous amount of additional interest expense that will make that deficit even worse with the next tax bills yeah, the math is pretty simple when you look at it at a macro level and if you look at the balance sheet of a household in the same way you would say wow, this household is in big trouble, of course the FED through its money creation can stay solvent, uh, even though it's bleeding, um uh, and that has consequences on terms of currency devaluation. um stimulate inflation or maybe make inflation a little more intractable than yesterday, you know, a very modest surprise on the upside, um, you know you're not going to have inflation, um, go back down to two percent hundred or zero, uh, if you start monetizing debt like the FED has done in the last decade or so, okay, okay, so Mike comes to you, anything else you want to add to what he said John, maybe I'll seed your answer. a little bit and just re-emphasizing the similarities I heard between Luke's perspective and Felix zuloff's perspective that we had on this channel relatively recently, but what else did you bring up?

Yeah, I mean, there was just talk there, um, about declining tax revenue. Really the reason tax revenues have skyrocketed in recent years is because the Federal Reserve burst the biggest bubble we've ever seen in modern times, probably the biggest bubble of our lifetimes, and now that's all being reversed. and Luke spoke about the fact. that the Federal Reserve has lost between 1 trillion and 1.2 trillion dollars on its balance sheet, which represents more than 10 trillion in terms of the Treasury bonds it holds, so on paper they have lost between one and 1.2 trillions of dollars in money from American citizens and they actually don't. they have to report that they don't have to mark that in Market, they carry it forward as Luke said as a deferred asset and we're really in this game where everyone is theorizing about the game about the Fed and everything that we keep talking about as the FED because that's all that matters so far and has mattered, it's just mattered that way for a long time, but I should mention here that we're recording this on Wednesday, December 14, and in about 15 minutes, the Federal Reserve will release its latest statement . in terms of his policy measures for December and then Powell will speak after that, unfortunately we won't know all the reactions to that when we finish recording here, but, again, to your point, the world is sitting down. tingles and needles with bated breath waiting to see what a single entity is going to do and that's going to drive the price action from here, that's all that matters.

It is the final decision of the FED that will be known today shortly and by the time this video is published, I think we will all know that the technical aspects of the market are such that we were very concerned about the progress of the bear market, but it has been a very controlled and slow descent, we really haven't seen anything. the trap doors open to the downside, that's what we're worried about, whether or not this Fed announcement will be a catalyst or whether something else could be a catalyst or maybe that move down comes later down the road , we don't know, but the surprises should be for the downside and what we believe is a structural bear market, a true bear market, so let's go back to the FED balance sheet for a minute, more than one point, uh, one, one, one point, two trillion dollars in losses, that's taxpayer money, this constant Fed intervention hopefully comes to an end at some point, I don't think it's going to happen voluntarily because Luke said something there about um well, do you really want to be in charge and blow up the US financialized economy because that will mean it's just going to be horrible?

For us it will even be a recession and no one wants to be in charge of that and be guilty of that type of crisis, but at the same time it is being used as an excuse to continue the same. policies that have a lot of negative effects, the negative effects are that the FED can choose who gets the purchasing power and wealth and who doesn't, and I mean, those are the people who own the asset, so we'll see, I think Luke has reason. I think the first half of 23 is going to be down. I think we're probably in the 6th inning and we're going to see much lower markets in the first half of 23. so Look what happens okay John come back to you to get Luke's point about being in the 6th inning of the global sovereign debt crisis.

Just before we turned on the cameras, you were telling me about another notable veteran investor who feels like we're in a moment of radical change, um, do you just want to put a little more color on that? I sure want to quickly correct one thing I said before, although I mentioned uh. Luke threw out a statistic of uh, uh, tax receipts that just cover, uh, maybe. 60 spending, what I meant, what was the actual statistic is uh 60 GDP growth, so you know in a world where you can grow GDP more than tax spending, that's all well and good, but when you fall short , that's There's a problem so I just want to correct that little detail and I'm sure people maybe didn't even stand out but I wanted to correct the record but yeah I think it's very notable to mention Howard Marks came out Power Marks. is a legendary value investor, really on the credit side, i.e. bonds, not more Southern stocks, but as has often been the cliché, bond investors are, in many ways, historically the smartest guys and gals of the room because bonds really get to the core of the monetary system and it is a much larger market than the global stock markets.

Now, of course, the central banks have manipulated the corrupt bond markets, but we are returning to a credit bond market that functions a little more freely, but Howard Marx came out anyway. He's been around since 1969, I think his career started, so he's one of the Legends and maybe a more modest Legend than some of the ones that always grab the headlines, a very, very humble guy, um, but he came out with a market commentary. I think yesterday or the day before yesterday, basically saying that he believes we're embarking on really the only third major sea change in his entire career as an investment strategist and just for context, the first two that he talked about were in the past.

In the '70s, early in his career, there was a sea change where investors started looking at, you know, before people avoided risk assets altogether, there was no price that was compelling enough to to try to get investors to take risks for so long. As they were cleared from the early '70s through the '80s, the concept of

pricing

risk became more prevalent and of course it's not a perfect price because we've seen big explosions, but the idea that You can buy riskier investments as long as the prices are attractive enough to be compensated for it and that has been our big problem here in New Harbor for many years is that in most assets in recent years the price has been completely overvalued relative to risks, at least from a historical point of view and um and this is where you could say that valuations ultimately matter, so that was the first radical change that you talked about.

The second was really what we've seen for the last 40 years: a declining interest rate. Market if you look at a 10-year chart the annual treasury bond yields or even the fed funds target rates and the last four years have essentially done nothing but go down, okay and here I forget the statistic, heh, I think he said 60 or maybe even more than the entire market gains on that. that time may be attributable to the falling interest rate environment, um, and that brings us to what he sees right now: embarking on a new regime or a new sea change where there's probably no way we can expect the rate tailwind of low and declining interest rates over the next 20 40 years that we've seen in the last 40 years, so he projects, uh uh, that we'll probably see persistently higher interest rates, perhaps settling into the range of two to four percent, does not describe an almost zero probability of us going. move back to a zero interest rate environment like we saw over the last decade, um, but it also projects stubbornly high inflation, so maybe, in a word, let's say the Fed's long two percent target maybe be a pipe dream, uh, in his assessment, all I can say is he thinks, long story short, he believes that the strategies that have worked for the last decade, two decades, maybe even the last four decades, are probably not the strategies that will work for decades to come, and this relates to whether people watched the breakup video. that Mike and I did with you last week, Adam, where we talked and this is based on some ofFelix Zoo's stray comments you know the passive strategies, the 60 40 pie chart, you know, buy and hold, um, that have worked so well over the last 40 years, in general, are probably completely disappointing in the next decade or more, and you know, as an example we showed a chart of the S P 500 from the late '60s to the early '80s where you saw the index essentially. don't go anywhere, but there were definitely tradable rallies of almost a doubling in a couple of cases during that time period, but followed by massive losses, so a very tactical and practical investment approach is likely important to select sectors, you know Luke's reference to mass education of the sector, we couldn't agree more and we think we will look again at things that are fair valuations, like some of the resource sectors, like precious metals mining, which, as You know, we think it's a very low sector, emerging market stocks.

Relatively low valuations, you know, I can go on and on, but I really encourage people to look for that letter to investors from uh Howard Marks. There are some headlines, you know, stories in the media that give snippets of that and Adam, I would. I encourage you if you get Howard Marks as a guest. I think you would have a fabulous conversation. He's a really insightful guy. He's on the hit list and I really appreciate you bringing him here and summarizing his thoughts here for people, if we can. a link to that letter to investors, folks, I'll put it in the description of this video, below, so thanks for mentioning that, John, just another very experienced voice joining the chorus of many we've had on this. program here that highlights the shift from passive to active that you just mentioned, folks, if you want to go deeper into that discussion, since John made reference last week to the New Harbor guys here and I really went into that topic, so I won't.

I will do. do it here, but I'll put a link to the video right here for you, um, but, but the key takeaway from that, folks, is unless you're already an active investor with a lot of experience, which most people haven't. It was because they have done it. It had to be in the last 10 to 15 years because of these tailwinds that we've had on the back end of the market, where it's just inexorably increased every year and you can basically close your eyes and pick an ETF and that's it. Well, that doesn't seem like the future we're heading here, so unless you're an experienced active investor, you want to make sure that anyone you're working with from an advisory standpoint has that skill set. and much more.

We didn't talk about this in depth last week, but again it's because they didn't have to know that, understandably, most financial advisors today have grown up in a market with that tailwind at their backs and all the muscle. and the expertise they have developed they have been following that trend because that is what made them and their clients money, now there is a sea change to rip off Howard Marks and these guys basically have exactly the wrong expertise to guide you through you, you know the new environment that is coming, so see if your advisor has those skills they are great, keep them, they are a rarity, they are very valuable, if not, consider talking to one of the advisors that Wealthy endorses.

I'll give you the link at the end of this video here, but I really want to underscore that point because we're basically introducing a bug that will require a very different playbook than what retail investors and professional financial advisors have been using. Okay, so ignore that change and watch the change at your own risk. Mike gets back to you while we just start wrapping up here um I know you guys are big on natural resources, precious metals um they're one of the biggest holdings that you guys have precious metals and mining companies um I guess you know Luke's comments about Golden General um It probably sounded true to your ears, but I'm curious if you have any comments on his thoughts on the potential that he says is actually inevitable.

That eventually oil will be priced in gold and that could cause a dramatic revaluation. gold, I absolutely believe that will happen, he talks about oil for gold being inevitable, it makes a lot of sense, I mean, gold is one of the assets that has been proven to have purchasing power, versus, you know, a lot of other things . but you certainly know that in terms of the oil producing nations that are looking, they want to receive value obviously for the energy that they sell and receive gold because it makes a lot of sense and I think if that were to happen, gold. would be priced dramatically higher from a technical perspective, gold looks great here, we would talk about it almost every week, there has been a basic giant cup and handle formation and also a couple of false starts and a breakout from the handle towards the top of that basic.

The formation failed last year a year and a half ago and then we broke down and that failed and we go back to the middle again to the apex of that bullish triangle right at 1820 or so and then gold is trading at 1822 right now, and you know , we have been saying to look for that 1820 level because if it goes back there, then both the false exits, both the breakout to the upside and the breakout false exit and the breakout to the downside and the false exit will have proven to be false, so it is really true. taken people for a ride and we're back at that decision point, so if we can see gold really break back up from here, this decision point, this could be the moment where it really works and the Technicians say it should run up to around 2500 or so, so yes we like the miners, we think they are very undervalued, like John, I think I mentioned it earlier, we like the physical metal and whether or not oil happens to appreciate in gold or gold for oil, we think gold will do well.

If gold for oil happens, gold is going to perform phenomenally, so it's just a small allocation of five to ten percent of your investment assets and physical gold and silver is a good idea in our opinion and it's a good diversifier and should work very well. And you know again that the technical data looks very timely here, so we would consider adding it or taking a look at your allocation and rebalancing it. It's going to be interesting, you know, in the immediate term it seems like every time the Fed opens its mouth. This is a long history, you know, it always seems to, no matter what happens with other assets, it always seems to hit precious metals in the face.

We're going to find out in just a couple of minutes whether that happens again today or not. So when people see this, they will know that they also know Felix and Luke. I think they've both said, "Hey, you know all the assets probably won't be as successful in the first quarter, since we have more of the same." Well, with the economy slowing down, rates will potentially go back up a little bit, so who knows, we'll see what happens in the next quarter or so, and maybe they won't completely go up in flames in that time period. the reasons that Luke and Felix have mentioned, if so, I imagine you guys would say it's a good time to dollar cost average, if you haven't already and then of course both Felix and Luke and you know again No, but he has a complete Crystal Ball, but if his probability is correct, you know there could be some major events between the first and second quarter that force a Fed pivot and we would expect precious metals to be one of the asset classes that react most immediately to that news that others are right, Mike, I think so, you know, and you talked a little bit earlier about conventional financial advice.

Conventional financial advice isn't going to tell you to own real things like gold and silver, and we've heard stories from people we've spoken to. For that, I have advisors who have said things like, well, you can't go to the supermarket and buy a loaf of bread with gold. I guess that's technically true, but you can't really buy a loaf of bread with a part of Apple. stock, you know that, so I mean there really is this lack of acceptance in the general community, don't listen to that, listen to yourself and I'm not saying we're right, I can't guarantee it either, but it just makes sense that gold and Silver has been money for thousands of years and we are not saying that you put 100% of what you have in them, but rather that you put five or ten percent of your investable assets in them and again we are right. at that level where technically it looks great and any of these other catalysts will happen, it will work very well, so it's not about being a gold fanatic or being extreme, it's a very good asset to diversify and, you know.

We like it a lot, we're going to have to start finishing here. One thing I'd like to talk to you about, maybe next time it'll be Tesla, Tesla was the Wonder stock, of the whole, you know, hyper-growth tech movement. Um, the stock hit an all-time high of around $380 per share and this is after a lot of splits in November of last year. It's now below 160 at the time we're talking here, so it's lost a lot of its value and we had talked a few weeks ago after I interviewed David Traynor about zombie companies and he mentioned Tesla as a possible trigger that Tesla already has enough weakness because a lot of speculative capital has been invested in those stocks if there is enough that vaporizes and then it could start a cascade of losses in a kind of zombie, uh, swath of American corporations, um, like this which I think is something we should be aware of.

I'd love for your guys to think about that. I just want to kind of pre-sell that discussion here um John, I'm just coming back to you I'll give you the last word here as we wrap up again just a reminder that we're only a couple of weeks away from the end of the year um anything you want to remember people to do in the remaining days of the year would be great and just to remind you that they are open during the Christmas season if people want to have conversations about other things to wrap up the things that they need to do before the end. of the year or I want to talk to you about how to have a solid foundation for 2023, right, yes, the end of the year always brings tax planning to mind because that's how our fiscal year is structured, it's a calendar year fiscal year , so things like uh, managing or harvesting uh unrealized losses in a thoughtful manner, um, especially if you have profits on the books and you want to avoid, defer or decrease the amount of capital gains taxes that you might have, um, You know, think about that obviously if people have requested it. distributions they have to take from their IRAs and from their inherited IRAs.

Absolutely, do them before you win because there's a pretty steep penalty for withdrawing less than necessary, but also consider over-withdrawing, essentially taking elective distributions from an IRA, especially if, for example, you're in a year where your reported income they're going to be lower than what you might expect in a future year, maybe you were transitioning or you lost a job, you know, we think and this ties into the tax situation that we talked about earlier in this video and Luke talked a lot about something's gotta give. the notion of higher tax rates in the future, that's a very real possibility, just to plug the hole, if you want, so just so you know, take elective distributions now, when taxes increase tax rates. are quite possibly quite favorable to where they're going absolutely these are all the things that you think you should think about doing um um in terms of uh you uh Sorry, Adam, there was another part of that question you asked me, just remember it quickly. . tell me what it was and oh guys are you open oh yeah yeah yeah yeah we absolutely are uh we pride ourselves on being accessible.

You already know most of our clients and prospects. I think I would tell you that they very rarely receive it. a voicemail or a non-human message during working hours, you know, we value work-life balance as best we can, so I think the markets are closed the day after Christmas. Christmas falls on a Sunday, so December 26th. I think it's a market holiday so we won't be in the office that day, so please guys be thankful we'll appreciate that downtime for that day too, but otherwise we're open. available, we are available to make trades as needed, but also have conversations with people about their situation and we have a team to do that, that's why we have a team where we all work together on behalf of clients and we will.

We will make sure we are accessible. Alright, look guys, I highly recommend you keep going. You know the year-end best practices that John mentioned, either yourself with his current advisor or if you want help, contact us. to the team there in New Harbor uh to do that uh just go to richyon.comfill out the short form there, we will connect you with one of our financial advisors based on what you tell us your priorities are and just as a reminder that these are free consultations, they don't cost you anything, there is no commitment to work with these guys, you just do it we offer as a free public service to help people prepare as much as possible for the crazy year we think is ahead.

Given what Luke and I just talked about, so if you haven't already, go ahead and do it, okay folks and happy holidays everyone. I hope you are all having some great times with family and friends, maybe some wonderful experiences if you wish. I'm going to travel, but if you enjoy these great discussions we have with people like Luke Roman, if you want to see Luke again on the channel, other big names like him, please do me a favor, support this channel by hitting like. then click the red subscribe button below as well as the little bell icon right next to it and whatever happens over the remaining two weeks of this year will no doubt deconstruct whatever the FED announces in the next few minutes when John and Mike will be here with me a lot next week, we will do it here on this channel for you and I hope you will join us.

So John and Mike thank you so much for joining me again for another week. Everyone else, thank you very much for watching, you enjoyed it once. Again Adam, thank you very much, see you next week as always Adam, thanks for keeping us on our toes. Great conversation with you always and we look forward to the next one if you would like to schedule a consultation with one of the financial advisors. At New Harbor Financial simply go to wealth.com. These consultations are completely free and there is no obligation. The good people at New Harbor will simply answer any questions you have about your investment goals or portfolio and give you their best advice with the latest news.

Market Outlook are willing to do this because they care about protecting people's wealth and because richyon has connected them with so many thoughtful investors like you over the last decade. We started doing this because so many people have come to us frustrated looking for a solution because they feel misaligned or completely ridiculed by the standard financial advisors who have been managing their money - you know, the kind who just push all your money into the market. scoffs at the idea of ​​owning gold and when you bring concerns about sky-high market valuations, they say don't worry, the market will always take care of you for many of the reasons discussed in today's video.

We believe this is one of the most challenging and treacherous times to invest in history. We believe that today's investors are best served by working in partnership with a conscientious professional financial advisor who understands the risks involved. We are now independent of which professional advisor you will work with, as long as it is good, if you are already working with one that is fantastic. stick with them, but if you don't or you're having trouble finding one you respect or trust, consider talking to John and Mike and the New Harbor team now. For those who are interested in asking, yes, there is a business relationship between Richyon and New Harbor that we have implemented measures to ensure everything is handled in accordance with SEC regulations.

All the details about this are clearly provided on the richyon.com website. Additionally, it is important to note that New Harbor can work with US citizens who hold green cards and those with existing assets in the US. USA, but for regulatory reasons they cannot accept non-US clients. With all that said, if you would like information and guidance on how to protect your wealth during this unprecedented time in the markets, visit wealth.com. to schedule your free consultation with the good people of New Harbor thank you for watching foreign news