The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick
Kevin: David, we are coming in after a long weekend, and you are coming in a little worse for the wear, I must say.
David: Well, thanks, Kevin. Do I look that bad? (laughter) We went to the desert. My sons wanted to spend some time in the desert, and so we did. Moab, Utah – a beautiful place, but gale force winds this weekend, 60-70 mph winds, and somewhat unexpectedly, our tent collapsed. Tent poles piercing the outside of the tent, calamity at midnight, it was a fantastic trial for all of the family, to move into emergency mode and deal with it. And deal with it, we did.
Kevin: Those things can be bonding experiences, but David, as you left on Friday I told you that there were winds that were forecast to be 70 mph. I said, “Goodbye,” and you said, “Oh yeah, we’re going to Moab.”
So I guess what I’m asking you is this: When something is forecast to be really bad, and it is bad…
David: And we were prepared for it, actually. I pride myself on having equipment that is able to take that kind of a gale force wind, and whether it is climbing Rainier in the middle of winter, or whatever, I’m not going to go unprepared.
Kevin: Right, you have good – the best – equipment.
David: The problem is that sometimes the preparation that you bring to the table is inadequate, given variables that are outside of your control.
Kevin: I’m wondering if that doesn’t transition us into the weekend in Europe, because we keep hearing about these tens of billions, turning into hundreds of billions. It’s a problem, but how big a problem is it, and are we prepared for what comes afterward?
David: It’s a huge problem, and I think, to look at the scale of things, whether it is Greece, whether it is Spain, what we had in Ireland and the bailout packages put together now a year-and-a-half, two years ago, this is in real time, a crisis that is unfolding in front of us. I think the important point to make is that tens of billions, or hundreds of billions, while a large problem, pales in significance to our domestic issues, which are in the tens and hundreds of trillions, if you can wrap your mind around that.
Kevin: If you can wrap your mind around derivatives. Of course, this is more of an American phenomenon than a world-wide problem. So give the Europeans their hundreds of billions, but we Americans, we can take out trillions.
David: And hundreds of trillions (laughter). Yes, the equity markets in Greece over this holiday weekend, and on Friday, were signaling a commitment by Greece to stay in the euro. Every Greek official that was given a turn at the microphone seemed to have the power to swing shares very significantly. Certainly, fear is priced in. Bankruptcy is in the back of people’s minds, but hope has not been fully purged, and what we saw was traders stepping into the financials and the Greek banks. Shares earlier this week were up 10-15% in a single day, which frankly is not all that impressive when you are talking about a 25-cent stock soaring to 28 cents, or something like a 5-cent increase on a 50-cent stock.
As recently as 2008 there was one particular Greek institution, a bank, which traded at over $25 a share and is now 50 cents. That is a 14½ billion dollar market capitalization which is now roughly 300 million. 300 million dollars is still a lot, but relative to its former size, yes, as we mentioned in Friday’s written commentary, the Greek banking system has benefited thus far from a 100-billion dollar European Central Bank liquidity infusion, which was secretly approved, and yet, we are still seeing banks that traded for double-digit numbers, now trade at a fraction of that, literally pennies.
Kevin: And when you see these traders coming in Dave, it is interesting, you talked about a 10-15% swing – is Greece going to stay in the euro, or are they going to exit the euro? These 10-15% swings can be very painful. We saw that last week with Facebook. Sure enough, we had a 10-15% swing. It was an initial trader move. Maybe some of those traders got out and got their profits, but the public was left holding the bag. So it is obvious, Dave, that no one really knows the future – not the Facebook buyer, or the Greek buyer, at this point.
David: I would call it Flopbook at this point, although time may exonerate the public offering that was not. The greatest public offering of our era apparently went over not so hot.
Kevin: Let me ask you about another bargain. Greece is one thing, but Spain is a much larger issue. I was looking at the Spanish issue and I was thinking, “Gosh, 400 years ago during the time of Queen Elizabeth, Spain was the dominant European power, and then sure enough, a storm came up that sank their fleet, and it literally changed European history for the next 400 years.”
David: There are these unpredictable events that you feel like you are well prepared for. Yes, the Spanish armada was a force to be reckoned with, and certainly could deal with outside factors, but not on this particular occasion.
Kevin: And not 70 mph gale force winds.
David: And they didn’t really rebound. They didn’t really have a plan B. They didn’t put that into motion. So you are right, Kevin, there was this displacement of power as a result of this exogenous event.
Kevin: Okay, let me put it this way. I can either buy a pack of gum, or I can buy a share of Bankia. What should I be doing?
David: Bankia is the third largest lender in Spain. We talked about this in the last few months. What happened is that a year ago they took a number of small regional banks and they put them together into one bank. It was essentially a forced merger, a forced marriage. There was bad balance sheet, after bad balance sheet, after bad balance sheet – loans that had been made that were very, very shoddy in nature. And lo and behold, they just thought that if you brought all of those loans under one roof it would be easier to manage and perhaps that would be their form of bailout.
Kevin: So it’s like having a bunch of small boats with holes in them, pull them all together, maybe they’ll float.
David: And that’s what they are finding, is buoyancy-deficiency. Bankia can’t keep its head above water. Bankia shares are now selling for the equivalent of a pack of Wrigley’s Juicy Fruit. We were observing this last week, the required bailout funds went from 9 billion euros, to 19 billion euros, with 23 billion being whispered, to fix this lender’s problem. The difference between those two numbers, 9 and 19, was two days. Wednesday it was 9, it was 19 by Friday, and again, this is Spain’s third largest lender.
Kevin: Which they have almost completely nationalized at this point. Why don’t you explain nationalization a little bit David, because there are different ways to nationalize. Our government comes in and just spends taxpayer money to continue to bail out. But there are times when someone comes in and says, “Look, we’re going to take over the risk. The government will take the risk. Yes, it’s a taxpayer risk, but we’re going to either gain or we’re going to lose. We’re not just going to feed it with taxpayer money.”
David: In some instances, nationalization is quite straightforward, and there is just a confiscation of the asset. It once was privately owned, and today, for no remuneration, that asset is now controlled by the state. The railroads – that has happened. The utilities – that has happened. Gas companies – that has happened. Really, there is no money exchanged, and value is lost by the shareholder.
In this instance there was 4½ billion dollars put on the table by the Spanish government for a 45% stake in the bank. Now they are having to come back around and spend a lot more money, and by default, they are going to end up with the entire bank. In fairness to taxpayers, I think they should just wipe out the equity class of investors in a situation like this. Don’t let the state simply save the bacon of a risk-taking investor class.
Kevin: Well, it’s not quite free market. When we talk about free market, the investor class either gains or loses and the state just stays way out of the way completely, which means you let the bank fail.
David: I don’t mind there being a kind of nationalization – not the confiscation of assets, but where there is almost a stewardship role that is taken on. If the taxpayer is going to ultimately pay the price, then ultimately they should have the benefit of a recuperated company, of a re-engineered company on the other side. In this case, they have gradually been forced into that situation – to properly nationalize and take the burden on, along with the full upside of a stabilized institution at some point in the future. But the subsidy of a nonperforming business, if that is what you actually create, is both at the expense of the taxpayer, and other industry participants that simply cannot compete with a “nonworking business model” that is receiving funds from the government.
Kevin: But we have our too-big-to-fails here, and some people would actually say, not only are they too big to fail, but they are too big to bail out. At some point, when do you stop throwing good money after bad?
David: In the case of Bankia, this is just one of those that is too big to fail in Spain. They said that they made, last year, 41 million dollars, and they have actually gone back and had to revise that. No, they didn’t remain in the black by 41 million – there is a 3.3 billion dollar loss.
Kevin: (laughter) Wait a second, wait a second. How is that possible? They went from a gain of 41 million, to a loss of – what?
David: Como se dice in Espanol, “accounting problem?”
Kevin: (laughter)
David: How do you say in Spanish, “accounting problem?” A 3.3 billion dollar loss on what was supposed to be a 41 million dollar gain, and they just happened to relook at the books – it’s a bit of an issue.
Kevin: One way to find out that people are sweating bullets is how much interest they demand. Germany is a good benchmark to look at everything else in Europe to see just how much the spread is between German bonds, which are seen as safe, and Spanish bonds.
David: Kevin, a ten-year German bond is yielding today, 1.36%. That is less than a U.S. Treasury ten-year, at 1.71%. If you wanted to call a bond bubble, I think you could reasonably call a bond bubble – not only here, but there. Frankly, the appetite for bonds is a little bit misplaced, in our opinion, as when you look at our fiscal issues, next to Greece’s, we’re in about the same boat. Next to Spain’s, we’re in about the same boat. It’s just that they are under the spotlight today, and have to answer for their books, whereas we, today, are not in the spotlight, not under the limelight, so to say, and no one is asking us to justify the imbalances, or the misstatements, on our own books.
Kevin: But the difference, Dave, is 5%. You are talking about 1.36% in Germany, and in Spain right now…
David: Nearly 6½.
Kevin: For the person who remembers years ago, when on a Treasury bill, you could get, safely, 6½ percent, and really, you knew you probably were not going to lose money, the dollar was king, this is a little different. Getting 6½ percent in Spain means – how many days?
David: Exactly, and what they are viewing as a full-blown crisis level is at 7 percent, which made everyone twitchy when Italy was moving toward that level. So we see 6½ in Spain today, in the next few weeks we may see yields exceed 7%. The German bond market, again, is reflecting liquidity concerns, just like the U.S. Treasury market does here, as well. For anyone supposing that the whole euro project is going to fail, consider the implied windshield risk.
Kevin: Okay, now, wait a second. You’re a man of many technical terms. Is this a technical term for the bug just about the hit the windshield?
David: Exactly. Very technical. “Splat” is how you would describe Spain, Portugal, Greece. These are the bugs, if you will.
Kevin: And Germany is the windshield.
David: The windshield, yeah. But if you are looking at the German yield, just like the U.S. Treasury, you’re not seeing failure on the horizon. You’re not seeing failure tomorrow. You are seeing safety relative to these other asset classes. Ireland obviously already had its “impact moment.” But what we are getting ready to see, I think, is an impact moment for both Greece and Spain.
By the way, the Greece market for ten-year treasuries is at 28.21% today. Again, by comparison, Spain is just fine relative to Greece, but relative to other members in the euro area, with the French bonds yielding 2½ percent, U.K. being at about 1.77%, you can get an idea about where the risk is. The U.K. is in a tough fiscal position, but Spain is still priced in as a worse risk by over 100%.
Kevin: I’m going to bring this back home, Dave, because of a lot of the listeners that we have are worldwide listeners. They invest in Europe, they invest in Asia. But the lion’s share of people who listen to this program are sitting here, in America, saying, “All right, I keep hearing about Europe. It always looks like it is on the brink of failure. There is always some reason why it is just about to fail, but it doesn’t fail, and actually, how in the world does that affect me?”
We have had guests on who have said that this, actually, is something that will culminate as a death blow, not to Europe, but the United States, because of derivatives, because of these hundreds of billions instead being trillions here in America. Can you tie those two in, and tell the American listener, the average, educated American listener, why in the world this European situation is going to affect them, and how much it will affect the pocket book of Wall Street.
David: Sure. I think the focus on derivatives is a healthy one. First of all, the derivatives market is huge, it’s complex, and by design, it’s meant to divide up the risk of a given asset so that the risk can be more appropriately assumed by an investor willing to take on that risk, with generally higher rewards, as well. What that is intended to do, what that is meant to lower…
Kevin: It’s supposed to spread that risk around.
David: Exactly, and by spreading the risk around, theoretically, it is reducing total systemic risk. But Wall Street took the notion of lower risk, by better apportionment, and simply multiplied the number of risky bets…
Kevin: They just leveraged it.
David: Exactly, believing that such actions were allowable following the limited, or, as we mentioned, the spreading, of existing risk.
Kevin: What is the primary consequence of that?
David: You do end up with greater systemic risk, today, than ever before. In fact, if you go back to that 1998 event where the U.S. financial market was a bug quickly approaching the windshield…
Kevin: Are you talking about LTCM?
David: Long-Term Capital Management, and the implosion of one company run by a bunch of MIT scholars. Kevin, the bets in play, and what was at risk at that time, was the equivalent of 3.7 times GDP. This was the derivatives market, domestic only, in the United States.
Kevin: Which is still huge – 3.7 times all of Gross Domestic Product for America.
David: Right, but the problem is, today, and in fact, over the last 14 years, that the derivatives market has grown to where it is now 15 times that of GDP. This last year was the first time since LTCM that growth in the size of that market actually stalled. It had been running at about a 19% annual rate.
Kevin: What you are saying is that the derivatives market has ratcheted up from 3.7 times our GDP during the LTCM problem, now to 15 times, but it is not growing anymore. Is that what you are saying?
David: That’s correct. The notional value of the world’s derivative market stands at roughly 700 trillion, with U.S. commercial banks carrying about 231 trillion of domestic derivatives. When you look at U.S. commercial institutions, and there are both domestic derivatives and international, that puts you closer to 300 trillion dollars in notional value.
Kevin: David, I was just talking to my son, who is 21 years old, while we were out mountain-biking yesterday. We were talking about Keynes’ approach to being able to get yourself out of a crisis was always to borrow more and spend more. My son, fortunately, understands this enough to know that he is disgusted with Keynes, but I do know this: When global contraction in credit starts to occur, that is no longer GDP for America. In other words, the Keynesian system can only work as long as we can continue to borrow and spend, unless I’m missing something.
David: That’s exactly right, and that’s why this notion of the death of credit is so important. We see a contraction ahead and now we have these multiplied bets, and in the case of J.P. Morgan, this is a classic case in point. J.P. Morgan and Goldman-Sachs are the two largest institutions in the U.S. in terms of exposure to the derivatives market. They have been purveyors, if you will, of these products, in the name of safety, in the name of systemic stability.
The problem is, as a derivative-pusher, they have begun to use their own stuff. They have begun to abuse the substances that they simply were pushing before, and instead of it being a risk mitigator, they are using it as a speculative vehicle. Move to the center of the stage, will you, J.P. Morgan, and the current 2 billion, 3 billion, potentially 5 billion, as noted by the Wall Street Journal, as much as a 7-billion-dollar loss for this quarter. Again, this is a derivatives transaction gone awry.
Kevin: David, aren’t we really just talking about five banks here? Five banks own 95-96% of all of this derivatives exposure?
David: Yes, in terms of a percentage of risk-based capital, there are five banks that account for 96% of all derivatives. Goldman-Sachs has over 600% relative to risk-based capital – J.P. Morgan, City Group, Bank of America, HSBC. These are companies that are in a very interesting position. Morgan Stanley doesn’t stack up against these top five, but you can see how askew this is.
If you are looking at the total assets of the individual institution like Morgan Stanley compared to their derivative portfolio, you have a 70 times difference – a 70 times difference. You have gone from pushing a safe product for the purpose of mitigating risk, to now speculating with these vehicles for the purpose of adding to proprietary profits, and that is a growing problem. The J.P. Morgan woes began at 2 billion, as we mentioned. Then it increased to 3. The Wall Street Journal, ten days ago, estimated 5, with the outside number, as we mentioned, moving to 7 billion in losses.
Kevin: This is almost sounding like Spain, except that it is much, much larger.
David: We have a master risk mitigator, and pusher of derivatives, who has used a little too much of their own juice, it seems, and we are confusing, now, a hedge, with an outright speculation.
Kevin: Sometimes it’s just one guy. We are talking about some guy coming in and saying, let’s roll the dice big, but the dice actually add up to more assets than a lot of countries are worth.
David: Kevin, that is very interesting. Some of the great institutions of the last 200 years, whether British or American, have gone the way of the dodo bird as a result of one person. We don’t know that that is going to be the case this time around, but the “London whale” which is the nickname given to the J.P. Morgan trader that has put on these derivatives trades, is in the news, and was in the news, long before these problems began. Because of the scale of the trades, no one person had ever handled the scale, the size, of these trades that this person was handling.
We suggested several weeks ago that whether it is this one instance, or one just like it, we think this could be critical in defining congressional resolve for something like the Volcker rule, or more simply, the reinstatement of the old Glass-Steagall Act.
Kevin: We are not into large government intervention, but sometimes you have to have some regulation when things are out of whack.
David: We saw this in the 1920s and 1930s. We saw Glass-Steagall implemented, which took away Wall Street’s ability to double deal and know what all clients were holding, in terms of their own cards. It went even further because Wall Street was creating these cutting-edge products in the late 1920s that the hoi-polloi were supposed to feel privileged to own, because it’s what the big guys were buying and selling, when actually it was what the big guys were selling to them as garbage paper and stuffing the accounts of these unassuming or trusting investors with. Glass-Steagall basically said that you are either a commercial entity dealing with the public and with a loan book, or an institution dealing with the syndication of debt and equity – you are an investment bank. But you can’t be both, because the public safety has been compromised when you have the ability to double deal.
Kevin: That’s the thing, Dave. What are the chances that the Volcker rule is actually going to be allowed? Volcker basically says that if you are going to be a brokerage firm, you are going to make money from commissions on trades, but you are not going to make money on the profits of what you do with the public’s finances. That is really what Wall Street is at this point. They are worth hundreds of billions, and have trillions of dollars worth of exposure, and gigantic bonuses, all based on being able to get the trust of the public as if they were a bank, and then turn right around and speculate it as if they were a Las Vegas gambler.
David: Again, this ties back to Bankia because what we have is outsized bets being made, and if you win, you keep the profits. If you lose, the taxpayer gets the bill. If you are a too-big-to-fail institution, this is the perfect place to be, and many people have called this crony capitalism. It’s not. It’s crony socialism, where everyone else is cleaning up someone else’s mess, and the folks in government don’t have the resolve to make that stop.
Kevin: When we get to the end of this next quarter, Dave, when we get to the end of June and J.P. Morgan comes out with their results…
David: I think that will be remarkable, if second-quarter earnings for J.P. Morgan turn out to be not that bad, it will be because Bruno Iksil’s trades – that’s the London whale – the bank is right now putting lipstick on the pig by selling as much as 25 billion dollars in assets that have profits. These are older purchases of paper, higher-yielding paper, looking at paper profits and supplementing income for the quarter with the gains therefrom. Now, they obviously have to pay taxes on that, so it is not the full benefit, which is also one of the things that we see with their buy-back program, putting that into suspension.
Before we go any further, though, Kevin, it is important to remember that this was a common practice by banks, in terms of selling off assets and using that as income for the quarter, during the savings and loan crisis in the 1980s. It lowered the bank’s regulatory profile. There was less for regulators to swing a bat at. The banks appeared to still be earning enough dough to get a free pass, and the regulators didn’t come down on them like a ton of bricks. You just had to prove that something was happening at the bank, because if it is only a 2-billion dollar whoops, then why did you just cancel a 15 billion-dollar share buy-back program? How big is the whoops that we are not talking about?
This is where a derivatives portfolio can go crazy. What was a 1-billion, 2-billion, 3-billion, 5-billion, 7-billion – like Bankia – is this a 4-billion dollar problem? Is this a 9-billion dollar problem? Is this a 19-billion dollar problem? Is this close to a 24-billion dollar problem? By the way, the Spanish government only has 5 billion dollars set aside to solve the entire banking community’s problems – in aggregate! Now they are dealing with one institution which will take more than a multiple of that money.
Kevin: They are talking even up to 23 at this point, and that is just today.
David: Right. I am wondering if Dimon, the head of J.P. Morgan, is practicing the old trader’s wisdom of, “The first loss is the best loss.” In other words, close it out quickly. If he has a loss, close it out. We suspect that hubris, or pride, has colored the decision-making of some of these financial institutions, and perhaps, good old Jamie, himself.
Kevin: We were talking about derivatives before, and recalled that Dimon is the same guy who described the derivatives debacle in late April, as just a tempest in a teapot. He obviously didn’t see it as that much of a problem, but he wasn’t seeing many problems, was he?
David: No, he wasn’t, which is either an admission that he doesn’t know enough about derivatives to be concerned, or he spent too much time staring into the mirror, repeating something like, “Mirror, mirror on the wall, who’s the brightest man of them all?” Again, it’s an issue of pride. At some point, do these masters of the universe figure out that the bets that they have made are too much for the system, and walk away, because they really don’t have skin in the game?
This comes back to the difference between a publicly traded, broadly diversified risk portfolio, where somebody can own some J.P. Morgan, but they are not the only ones on the hook, there are other people that share, as equity investors, in both the risk and the upside, although it is limited in risk, just to your investment amount.
To contrast that publicly-traded model, look at a company like Brown Brothers Harriman. The principles in that company have complete risk, personal risk. If they lose the company, they are still on the hook, personally, for anything that happens thereafter. Do they care about the bets that the company is making? Absolutely! Do they manage the portfolio of investments, of loans, of syndicated projects, very conservatively? Absolutely! Do they over-estimate? No, they try to underestimate and over-deliver. That’s the nature of a differently constructed business.
So again, we think there is more than a tempest in a teapot on the J.P. Morgan balance sheet. We think there is more than a tempest in a teapot on the Morgan Stanley balance sheet. There are a number of these institutions, Kevin, where we are seeing a systemic problem, something that everyone in the financial community has accepted as normal – the derivatives market – as a means of diversifying and reducing risk, and in fact, no financial institution will go unhurt by what will unfold over the next couple of years.
Morgan Stanley, again, has little to announce right now, but has been rapidly wasting away. I don’t know if anybody has watched, but since the end of March, shares have slid from $21 to $13. This is a 35% decline in a matter of weeks. Why? Wouldn’t you like to know? Someone does. Thus, there is this quiet liquidation of shares.
Kevin: David, it is amazing me, as I am sitting here listening to this program, myself, as we do it, I am thinking that all we have been doing is talking about the weaknesses in paper, and paper is just something that man can create, and then he can create more, and he can create more and more and more. While we are talking about J.P. Morgan, and while we are talking about Morgan Stanley and Spanish bonds, Greek bonds, talking about euro paper, which has no gold backing. We’re talking about the dollar, which has no gold backing. At the same time that is occurring, we have India and China buying over 80% of all of the newly-produced gold. Now, what do they know that we don’t know? This paper – it doesn’t even exist.
David: Kevin, there is a revolution afoot, and only if you know what is happening. The revolution afoot is away from fiat currency and it’s away from paper assets in general, toward real things. This is a revolution which is very subtle at this point, because everyone still has general acceptance and confidence in the structures of finance that are in place today.
We look at the Treasury market, we look at the German bund market, and we look at this as an area where there is risk-free reward. It is our benchmark for a riskless asset, and as Jim Grant has aptly put out there, this is actually going to be seen as a reward-free risk, where there is nothing on the table, you are getting nothing for owning it. In fact, all you have is risk, sitting in the U.S. Treasury market, sitting even in the German bund market.
And that is not the kind of risk which is indicated by the purchasing behaviors of those in the marketplace today. People want Treasuries, people want bunds. They have driven these yields to nothing, and are likely to continue to drive those yields to nothing. But again, what does India and China see? As you mentioned, Kevin, this last year physical gold coming from mines, 83% of it went to these two places, the Indian subcontinent and China.
What is changing is a shift in power. What is changing is something as epic as what you described earlier – a move away from Spain to Great Britain, only it is not the Spanish and the Brits that we are talking about here. We are talking about the West as we know it, centered on New York and London finance, moving toward something new. It may take years for this to occur, it may take decades to occur, but we see a revolution that is going to reshape the way we operate and the way we finance things.
Kevin: Dave, I just continue to think back to something your dad used to say every time he would give a talk. He would say, “Just remember the golden rule is, he who owns the gold makes the rules.” I think we had better be aware of, and cautious of, who we are allowing to be the future rule-maker.
David: Kevin, I think that when you see this quiet liquidation of shares, and again, we have mentioned a few companies, but it is only fair to say, as we have in past commentaries, that this is a broad issue. It is a broad issue that the folks at Crosscurrents have brought out in terms of the number of shares liquidated versus purchased, and I can’t say enough about Alan Newman’s Stock Market Crosscurrents. It is a great magazine, and something that is worth referencing from time to time.
This quiet liquidation of shares by insiders, and by insiders I am talking about CEOs, CFOs, COOs – the folks who are running the biggest companies in this country and around the world are liquidating shares at more than 100-to-1 in terms of what they are purchasing. What do they see? What do the Chinese see? What do the Indians see? What do people see in terms of the drumbeat of war, whether it is of an economic nature, or any other nature?
People see an instability growing, and what we would suggest is going back to what we called our DVD, this first segment that we released two weeks ago. The fuse is lit. The fuse is European debt issues. The bomb is the U.S. Treasury market. Is that this year? Is it next year? Is it circa 2015? We don’t know, but we know that the Chinese have a 5-year plan, and that 5-year plan includes undoing the relationship they have had to the U.S. market since 1979.
This is a revolution. This is a revolution which will cost us dearly as we move toward being unable to finance our current liabilities, and in that period of time, Kevin, really the next five years, the potential for a collapse in the dollar, and a collapse in the U.S. bond market, on an overnight basis, exists. How must you be allocated? This is a question we should be, perhaps, asking the Chinese and Indians, who perhaps know something more about this than we do.
