Who’s Gonna Bail Out Bundesbank?

Weekly Commentary • Jun 27 2023
Who’s Gonna Bail Out Bundesbank?
David McAlvany Posted on June 27, 2023
  • Financial Times Writes That Bundesbank Is Down To Its Last 2.5 Billion
  • Russian Coup: Real, Fake, & Who Stands To Gain?
  • Gold At 276,000 Yen, Up From 27,000 Yen In Year 2000

Who’s Gonna Bail Out Bundesbank?
June 28, 2023

“The currency conversation reflects on the policies that have been in play for a long time, and those policies are being reflected in the currency markets, but because fiat currencies trade in terms of a relative relationship, a relative relationship of weakness to each other, this is the importance of gold. It provides a cleaner insight. Are you a big winner in gold priced in yen or does it just define how stupid things have gotten in Japan? I guess we’re talking about stupidity by degrees when you compare it to the European Central Bank, the People’s Bank of China, the Federal Reserve. We’re doing the same things. The implications are slightly different only in terms of the timeframes.” — David McAlvany

Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick along with David McAlvany. 

I love our Monday nights, Dave. I love the Talisker, love the talk. You had just gotten back. You rode your motorcycle, a new Ducati, over 1,000 miles coming back from the family reunion.

David: That’s right, yes, a new one, which means I’ve got to get rid of the old ones. There was no negotiating there. There’s no such thing as a quiver in our garage.

Kevin: You’re wife is not going to let you keep—

David: No.

Kevin: —three motor motorcycles.

David: It was a two-for-one exchange, two go in exchange for one coming in.

Kevin: We were talking, though, because the events of the weekend while you were traveling, over in Russia, were just so strange. We’ve done our best. We read that book on Russia. We had our guest in to talk about his expertise on Russia. We’ve looked at Russian history, tried to figure out Putin, and now, let me make sure I say this right, Yevgeny Prigozhin. He’s of the Wagner group. So we were talking, actually, we can’t understand the Russian thing, but we can go back to Shakespeare. We talked about Harold Bloom and his analysis of Coriolanus, and Coriolanus being one of Shakespeare’s last tragedies, and what makes it so tragic is there’s really not a lot going on other than just warfare and anger and angst in his character there in Coriolanus. It’s similar to what we’re seeing in Russia.

David: Well, the world’s a stage, and we play our parts. The narrative in Russia, that’s what we talked about with our guest when we looked at the story of Russia. Everyone has their view of legitimacy, what makes them legitimate, where do they come from, what is their lineage.

Kevin: Orlando Figes.

David: That’s right. So it’s a fascinating mix-up, and it’ll take some time to figure out who wrote the script and what parts were being played.

Kevin: Well, and I want to talk about that a little later in the program because you wonder who wins in this situation. Does everybody lose or is there something behind the scenes? Going back to the staged coup—and we found out later that it was a staged coup when Gorbachev, remember the coup with Gorbachev? Turned out that that really wasn’t anything like what the news was printing. 

But what I’d like to do, let’s start out with what we can look at and we can analyze because we may not be able to figure out personalities in Russia. We may have to look at Shakespeare characters to try to figure it out, but currencies, currencies speak loudly about the strength of an economy, about the strength of politics going on in that economy, and the monetary policy that plays into that.

David: Of course the ruble is a currency that has been on a rollercoaster given the incursion into Ukraine, and even on a day-by-day basis. Coming out of this weekend you can see volatility in the currency, and it tells you a lot. Currencies continue to offer, I think, more insight than many other data points. You’ve got the yen, you’ve got the RMB. Both are at levels that require official attention, getting to breakpoints, and probably, therefore, at inflection points.

Kevin: Well, and the Japanese have purposely really altered their monetary value. What is that called? Yield curve control. They’ve done this so long, they’ve just ruined the yen.

David: They’ve been in the vanguard of monetary policy experimentation. The yen is the weakest today relative to the Swiss Franc, going all the way back to 1979. This is decades and decades of decline relative to the Swissy. Japanese officials are trying the verbal intervention gambit. You get the Bank of Japan members who are concerned enough at this point to be speaking out of both sides of their mouth and suggesting that perhaps the time for yield curve control is over. Yield curve control, as you recall, is essentially buying bonds sufficient to cap rates at a desired level, and it’s a manipulation of price. It’s an obscuring of the true cost of capital, and there’s a consequence to that, promoting loose financial conditions, massive misallocation of capital elsewhere within the financial ecosystem. Japan has been ground zero for this monetary misallocation, misappropriation, mismanagement.

Kevin: Well, and they’ve been used as the example because if you think about it, 2011, when the Europeans came out and said, “We’ll do whatever it takes,” well, that was another form of yield curve control, and then we were doing quantitative easing at the same time. It’s all just printing money and buying your own debt.

David: You’re right that Japan has been held out as this example of, look, the world didn’t come to an end. They have these policies in place, and did the world blow up at that point? No, no. So we have more latitude to do what the Japanese have done. That’s been the storyline. That’s been the example provided, that the Bank of Japan is actually a reason to consider Modern Monetary Theory and all of these other experimental approaches to fiscal and monetary policy. Yet if you back away, you get a different perspective. 

We talked about this a few weeks ago. You need a snapshot, and a snapshot certainly using gold as this indicator I think gives you that. Japan has struck with its price manipulation scheme long after the world of monetary and treasury officials concluded that it was ineffective, this idea of buying bonds and suppressing interest rates. Very few will admit that it was a bad idea, but they do admit that it wasn’t really what they hoped it would be. 

So you’ve got the Financial Times reporting this week. In fact, this, I think, a riveting story. Financial Times reports that the Bundesbank may need to be recapitalized. They’ve got losses accruing. They bought a lot of European debt, and now with interest rates on the rise, it’s wiping out the equity capital at a pace that will leave the institution broke.

Kevin: So recapitalization of Bundesbank, that sounds a little bit like what we’re doing here in America with Silicon Valley Bank and some of these banks.

David: Yeah, but we’re talking about the central bank of the country.

Kevin: This is the last gasp. These are the last guys.

David: Imagine if that headline ran, “The Fed is broke and needs to be recapitalized by the Treasury.” You’d be like, “Whoa, what does that suggest about our currency?” Of course, they’ve got the currency Frankenstein, this mismatch, the EMU, European Monetary Unit, which is all of the member countries. They don’t have the old German mark, but if they did just have the German mark and the folks who are responsible for the currency were saying, “Hey, we only have two and a half billion euros left before we’re out of money,” it’s consequential.

Kevin: That’s a central bank, but it’s our central bank as well and the European central banks. You’re talking about Bundesbank, but we’re also talking about Japan. It seems to me like this is all the same thing. This is just printing money and calling it good. Going and buying your debt until you can’t.

David: QE in the US and Europe, that’s what we called it, yield curve control in Japan. A rose is a rose by any other name. The implications of buying rates down and bloating a balance sheet with mispriced fixed income assets is that eventually those prices will reflect a changing financial landscape. The difference between the cost basis and the current value at the market on a large enough scale can indeed be consequential. The difference between solvency and insolvency, that’s what the Bundesbank faces right now.

Kevin: That’s why we had— Remember, for 5,000 years of recorded history we had no zero interest rates, but they printed so much money in Europe that we were negative. What was that? 2015? For the first time in world history, we had negative interest rates.

David: Then all of a sudden, just a few years later, we had upwards of 22 trillion dollars in government debt that traded at a negative nominal yield. So the ECB purchases of European government debt—again, this is at or near the zero interest rate level—counted to roughly 2.7 trillion euros. The Bundesbank, they too did their part to manage interest rates below the natural level, participating in the same purchase program. They bought 666 billion euros worth of German government debt.

Kevin: 666, that’s an interesting number. That sounds like you’re stuck with something you don’t really want.

David: Maybe, but they’re up to their eyeballs in German debt at these lower numbers.

Kevin: But interest rates are rising.

David: I should say, at these higher numbers in terms of their cost basis. So in 2020—this is not that long ago—in 2020, the German 10-year bund, equivalent of our bond, traded—again, this is with the help of those artificial purchases—at a nominal yield of negative 86 basis points, so about 1% underwater. Like the beach ball held beneath the waterline and released, the last submerged nominal rate in Germany was negative five basis points in January of 2022, so just two years later. Retested that in March of 2022 before the journey to current levels closer to 2.5%.

Kevin: That’s painful for Bundesbank.

David: With consequences for the Bundesbank. Again, 2.33% is the number today. The high tick was 2.72 in the first quarter of this year. Off of a negative 86 basis points to a positive 2.72, that’s a big swing. Now, reality is, these seem like small numbers. We’re not talking about 5%, 10%. Look, we had the Turkish Central Bank just last week raise interest rates by 6.5% in one day to 15%.

Kevin: You want any Turkish bonds?

David: Yeah, that hurt too, but these seemingly small numbers, these negative real returns, are painful when the hundreds of billions in purchases, literally hundreds of billions in purchases—2.7 trillion for the ECB, 666 billion for the Bundesbank—were made at considerably higher prices. And they now show portfolio losses in the billions, with only a sliver of capital remaining—2.5 billion euros to be exact.

Kevin: Wait a second. They’re down to their last two and a half billion?

David: Yup. They’ve got about a 19 billion euro buffer, which they’ve factored in, and then beyond that, two and a half billion in spare change. That is it. Once the buffer is burned through and the last two and a half billion is at risk, the accountants are going to be called in like an emergency medical team.

Kevin: Well, how do you hide that, though? How do you fix that?

David: Well, let’s see. Enron did a great job with that. You just create entities and buy time, and it’s theatrics. An accounting trick used in the ’70s—actually, the German bank did this back in the ’70s—an accounting trick used back then will likely be back on the table. Throw your losses into a time capsule. Let’s say they’ve got 10, 20, 30 billion dollars in losses, a hundred billion dollars in losses. Throw your losses into a time capsule and carry them forward to be used against future gains. So ignore them for the time being and tap them when it’s convenient for you to do so. 

An alternative would be to tap your foreign exchange reserves, sell off your currency holdings, sell off your gold reserves, but those options have consequences maybe even more grave than tinkering with the accounting rules. You’re risking reputation. You’re potentially taking the titan of treasury responsibility in Europe into a different time warp, a time capsule carried backwards to Havenstein in the road to monetary hell.

Kevin: —In the early 1920s. 

But I can’t help but just think about it being, like this year, the microcosm of what’s going on with the banks here in the United States. We talked about Weiss Research having 1200 banks on the imminent failure list. Well, that’s a profit and loss problem. These guys are at a loss. They don’t want to have to show that they have a loss. That was the problem with Silicon Valley Bank—and on and on.

David: Well, the audit that revealed this balance sheet weakness was particularly sharp in its criticism of the Bundesbank for not considering the implications of the losses on the German budget.

Kevin: That’s your losses problem.

David: So you have a P&L problem, losses on a huge government bond portfolio. Then you also have those IOUs that mature and either need to be repaid or rolled over. Money borrowed by the state at negative numbers is easy to get used to. Think about what you would have to pay, Kevin, if you took a trillion dollar loan out but had only interest to pay—but the interest was zero. How convenient.

Kevin: Free money.

David: It’s free money. But rising rates, just like in the US, threatens to throw the budget out of whack, with a significant line item going to interest only, and that competes with social programs. And when it competes with social programs, it causes social and political anxiety.

Kevin: Well, and you talked about that recently. How much are we paying right now as a percentage of our revenues in just interest?

David: The moonshot over the last 24 months has been from roughly 5% to nearly 20% of US tax revenue going to interest. The story is similar, even if the particulars now vary. If you go to these different geographies, there’s budgetary pressures, it’s solvency concerns, it’s a hit to credibility, and you see the market sentiment as it relates to this. It shows up in the fixed income markets, but they often show up in the currency markets first.

Kevin: I wonder if there’s a sequence. Do we first see the currency speak, and then we see the fixed income markets speak, and then ultimately, way down the road, we see the equity markets speak?

David: Well, I think certainly if you wanted to see dominoes fall, you could make the case that you measure intelligence in these three categories, and there’s pretty high IQ in the currency trading markets. There’s very high IQ in the fixed income markets, and there’s reasonably moderate to low IQ in the equity markets.

Kevin: So I would just say there’s a fourth market, and it’s very, very high IQ, and I would call it the gold market.

David: Well, so the RMB and the yen trading lower—and I think these are really key currencies—may force change in policies or result in a change of market perceptions about the credibility of the Japanese and Chinese monetary regimes. We’re talking about the Bank of Japan and the People’s Bank of China all of a sudden losing their credibility graces. A shift away from yield curve control, this would be the alternative course, would help establish a floor under the yen. It would stabilize the yen—much needed, as right now we’re trading within a few points of its 2022 lows: 150 to one versus the dollar. We mentioned 40-plus year lows relative to the Swiss Franc.

Kevin: What if you had gold, though, in those currencies?

David: Well, for the Japanese saver, gold ounces are trading beautifully relative to a weak yen. As I said last week, gold tells you a tremendous amount about a currency.

Kevin: High IQ.

David: It acts as an indictment to policymakers the world over when they get something wrong. So we’re in a new millennium. Gold made the Y2K transit from 1999 to the year 2000, and it was priced in yen at that point in time at 28,000 yen per ounce. An ounce of gold, 28,000 yen for that one ounce.

Kevin: So this is the year 2000, 28,000 yen for an ounce. How much is it today?

David: Today’s price is 276,000 yen.

Kevin: Huh.

David: It shows the embarrassing cost of extreme monetary intervention by the Bank of Japan over the past 23 years. If you’re tempted to think that the Bank of Japan policy is acceptable, and maybe we could do the same things here in the United States, gold tells a different story.

Kevin: I remember that, $252 an ounce back in the year 2000.

David: So in US dollar terms, that same millennial transit took place with gold in the 250s. The yen price of gold has exceeded the US dollar price of gold in terms of performance since the year 2000 by 268%.

Kevin: So we have a fivefold return here in America, but it’s exceeded eightfold.

David: In yen. You see a similar story with the RMB, a difference of about 355%. Arguably, you don’t have a free-trading currency with the RMB. It’s a pegged currency versus your other fiats, which float accurately on a day-to-day, reflect relative weakness amongst themselves. So the US dollar and RMB gold price, I think you could argue, have some catching up to do—or, closer to the truth, if you flipped that around, the US dollar and the RMB may have some catching down over the next few years. The yen has been the currency leader on the downside, and thus, priced in gold, it’s been the leader on the upside.

Kevin: So maybe we’ve been in the wrong business, Dave. We’ve been selling gold for US dollars for 51 years here at this company. Maybe we should have been trying to take rupee and real and rand and rubles because the people who bought from us back 23 years ago, they’re up fivefold, but if you were from Russia or you were from India, we would’ve made them even more currency money.

David: Right. Well, again, if you think of gold being that which is stable in value, and those currencies as being the asset which is losing, you’re really talking about a difference in losses if you had your savings in the currency of that country.

Kevin: So that gold still buys the same amount of bread worldwide.

David: Exactly. Egyptian inflation today is about 40% on an annualized basis, just over 40%. The Turkish lira is still in freefall. The Argentinian peso is being flushed as we speak. It’s a disaster. I think the inflation rate passed 114% on an annualized basis for Argentina this month. So the yen is actually not the worst. It’s just the worst of the G7. It’s the worst of the G7. Actually, the yen price has moved quite modestly since 2000 when you compare it to the Indian rupee, the Brazilian real, the South African rand, the Russian ruble. All these currencies have been an unmitigated disaster. So only by degrees are they different. If the gold price in yen terms is up 830 something percent, we’re talking about the rupee, real, rand, and ruble being up closer to 2,000%. What we’re really talking about is preservation of wealth in spite of wild and reckless policies. Owners of gold the world over are grateful.

Kevin: Well, and these are policies that haven’t involved war. We’re just talking about ruining your currency during peacetime. You had mentioned that we’re starting to see in the ruble the political effects of what we saw this weekend.

David: This is complicated. We don’t know that we’ve got the perfect read on this, but Putin backs his defense ministry several months ago in an effort to shift the reporting structure of the Wagner Group away from a direct line to Putin to under Sergei Shoigu, essentially stripping Yevgeny Prigozhin—this is the Wagner paramilitary mercenary leader—stripping him of power. Creating some accountability. 

There is no doubt tensions that exist between the defense ministry and the hired guns, including the Wagner Group, that have operated effectively, some would argue, but very autonomously in Ukraine and in other geographies. These are hired guns. They’re doing work in Mali, they’re doing work in Libya, they’re doing work in Venezuela. They’re doing work all over the place, and they have their revenue streams from all of those places. Shoigu has been defense minister since 2012. He’s entrenched. Prigozhin sees him as a useless bureaucratic bobblehead, not a competent military strategist. He can’t get things done. So what happened over the weekend, frankly, is anyone’s guess. But I think, very intriguing to me, is the lack of consequence for those involved in “treason”.

Kevin: That was strange, wasn’t it?

David: “You’re forgiven. It’s okay.” It suggests either that first we have theatrics with a less than clear view to directorial intent—I don’t know who’s calling the shots, but theatrics in play—or the Wagner Group has a goal which is different than taking Moscow. Perhaps the capture of the Voronezh-45 nuclear storage facility, which would certainly raise the stakes with Putin and provide Prigozhin with significant negotiating power. There is a degree of 1960s-era Bond villainy with Prigozhin taking the Voronezh-45 nuclear storage facility.

Kevin: It does sound like a Bond film, doesn’t it?

David: Yeah, a diabolical plan, the world held hostage, but at this point, I think the complexity involved in the last 72 hours is beyond our informational resources.

Kevin: Well, yes, maybe it is beyond our informational resources, but go back to the languages you speak, Dave, currencies, fixed income. Some of the markets sometimes are speaking, and I’ll give you an example of this. You remember when Gorbachev, the coup with Gorbachev, he was on vacation. He wasn’t even there. At that time, we had a lot of our clients’ assets in German marks. They had an exchange rate mechanism back then. They were keeping those bonds within a certain range. When that coup occurred, the deutschemark fell, and we were wondering what we needed to do. So we called the money manager that we had up in New York, Klaus Bucher, and he said, “Don’t worry about it. This is all going to go away in 24 hours.”

David: He had gotten the call before George Bush got the call.

Kevin: It was staged. He got the call 20 minutes before George Bush, and it’s like, “Don’t worry about this.” You’re talking about theatrics. You can’t rule that out in Russia even right now.

David: Well, a surface level appraisal of the march on Moscow, and a reasonable assessment of Prigozhin, the man, it brings Shakespeare’s Coriolanus to mind.

Kevin: You brought that up to me last night. What a great read.

David: The protagonist is a fighter. He’s a general without peer, and he then turns on Rome and fights with the Volscians against Rome, but he’s only a fighter, and he may show valor in the fight, but he’s devoid of virtue. There’s a hollowness to him. This is one of Shakespeare’s final tragedies. It’s the exception to the rule. We learn almost nothing about the inner human landscape. That’s one of the things that Shakespeare does with all of his protagonists is he has something to say about the human condition. Harold Bloom describes him as barren inwardly, almost empty. His humanity is deformed or malformed by an overbearing mother. He remains a boy in a warrior’s body his whole life. All he knows is the fight.

Kevin: You came back from the family reunion with a master find. We’ve talked about Harold Bloom before. He wrote a beautiful book called Shakespeare: The Invention of the Human, but I think I paid full retail for mine. You came up with a deal.

David: As an aside, so the family reunions in Tennessee last week, and we were looking at a few more schools for my eldest son to consider. There’s a sizable used bookstore in Nashville. So all six of us disappear into it, into its many aisles for a couple hours.

Kevin: Of course, they’re McAlvanys. They’re going to disappear into a bookstore.

David: It’s fantastic. To me, this illustrates value investing. So Harold Bloom is one of the finest Shakespeare scholars alive. I found an unscathed hardback copy—hardback copy, 743 pages of Shakespearean insight—from Dr. Bloom for 75 cents.

Kevin: I had to ask you. When you were showing it off last night, you were like, “Look at what I got,” and I wasn’t sure whether you were appreciating the book itself or the deal that you got.

David: Oh, I do like a deal, but a list price of $32 is a bargain when considering the distillation process he went through in the decades of teaching literature at NYU and Harvard. So the book is a course worth thousands of dollars. I own it for 75 cents. It’s a 97% discount from the publisher’s price. It’s like walking beside a creek, reaching down to pick up a baseball sized gold nugget. What a day. Actually, that wasn’t the only amazing find.

Kevin: Yeah, but you’re also the guy who for how many years rode your bike in shoes that were one or two sizes too small, continually blistering. Why? Because you bought the shoes cheap, and you were really, really happy with that.

David: I did get a really good deal on the shoes. I started to enjoy cycling a lot more when I wore shoes that fit. It was a remarkable thing.

Kevin: So back to theater, though. So the Gorbachev coup, that was theatrical. It was designed.

David: The regime changed, although the ism never died. Perhaps it just migrated across the pond.

Kevin: So I have to ask, who wins in this again? Is it Putin? Is it Prigozhin? Is it somebody we don’t even know? Because I was thinking of this concept, Dave. When you have a coup and then everybody’s just left off, it’s like, “Hey, don’t worry about it. We know that you’ve really served well in the past. So as long as you go to Belarus, we’re fine,” but what does that do for the guy who the coup was staged against?

David: It’s more complicated than we know. So we have limited information, and we don’t necessarily know the meaning of the information that we have. There are real elements and real risks related to Prigozhin. There’s been a significant shift in support to him. What does this mean exactly? You’ve got several Spetsnaz units which were supportive of him, communications units, total of 8, 10, 12 different units who were all joining in the ranks with Prigozhin. Was this mutiny or was it theatric?

Kevin: Why didn’t the Air Force take him out?

David: Don’t know.

Kevin: They were sitting ducks.

David: If he was a real threat. So perhaps Putin has more involvement in this, or perhaps the military has more interest in Prigozhin than it does Putin. I don’t know. Is Putin the winner? Did he have revealed for him the true loyalists within the military? Prigozhin is a potential replacement for the existing defense minister. Is that a part of the story here, this infighting in the pecking order? Who’s climbing the ladder for influence?

Kevin: Well, how about Putin’s friends. Xi has really embraced Putin.

David: Right. So maybe the big loser here is Xi Jinping. He’s relying on not just Russia, but Putin for greater collective strength and a stronger global presence. Does Xi have to consider that a partnership with Russia looks different in the absence of who he’s referred to as his best and most intimate friend? Only time will reveal the elements of Russian theatrics, who played what part, and at who’s behest. I might recommend a refresh on the Bard. Those are theatrics that are timeless and do tell us some things that have universal importance in terms of our humanity.

Kevin: Well, and our listeners know that we get together on the night before we record, and we have a Talisker, and we just talk things through. We had talked about Harold Bloom, and I had not read Coriolanus. I’ve read an awful lot of Shakespeare. So last night I did. I read Harold Bloom’s analysis of it. It was great, and then I actually prime-movied the movie that was made in 2011, and I’d recommend it. I think it was a really well done movie. 

Dave, I want to bring up something that— Going back to Putin being the winner, there’s a Persian word that was adapted from Persia to the Hebrews. We use the word Satan all the time, and we think that that’s a Hebrew word, but it’s not. It was a Persian word. The Satan was HaShatan, and that’s the Persian word. What that person played in politics was this. The king in Persia would have people who were loyal to him that were HaShatans that would go out into the community and they would say negative things about the king. When people would rise up against the king, agreeing with the HaShatan, that was evidence and that was information. You think about it. If Putin stays in power, what are these guys who rose up and were taking sides on the other side, what’s going to happen down the road?

David: Sure, the reveal of the loyal and the disloyal. You’re right. That may be the takeaway, is that the theatrics, that the creation of this particular narrative— You’ve got Putin, who’s not in the best position.

Kevin: Are we seeing this in US politics now though? Because Biden’s been Teflon with the mainstream media. Things seem to be changing. It’s almost like there’s a coup right now in the United States.

David: I know. Very interesting sideshow. So US political theater, very, very curious. The mainstream media, they have provided a lot of protection, a lot of blockage, and so that Teflon coating, that protection for the president, that disappearing is a noteworthy development. It’s suggestive of a stillborn second term for Biden. When CNN starts to cover the whistleblower claims of the Department of Justice covering up for Hunter and family, that’s telling. CNN. This is the left’s media outlet. That has been impermissible conversation, a media blackout till now.

Kevin: Until now.

David: The New York Times, not the New York Post, mind you, but the New York Times is reporting on the multimillion dollar bribes to Joe Biden from foreign nationals, previously blackout material. His health and mental condition is in clear decay, and that was of no concern for the puppeteers—actually, probably, a useful aspect to his role as president. Neither was it a concern, these myriad scandals, which had been known about for years. This is not new information, but now a shift in tone from CNN, from the New York Times. I don’t think this willingness to engage the topics is an indication the mainstream media being converted to being interested in the truth.

Kevin: Of course not.

David: It is power politics, baby. Our own version of a coup may be in motion in the DNC, moving closer to washing its hands of the Biden crime family. Joe needs a Reader’s Digest version, I think, of da Silva’s new memoir. I’m kidding. He hasn’t written it, but I think he should write it, Life Lessons from Lula: From Pinstripes to Pinstripes and Back Again. If you’re not recalling, this is the president of Brazil, who was the president and then thrown in jail, and then is now the president again.

Kevin: Well, but speaking of Brazil or any kind of South American banana republic kind of politics, Joe Biden has weaponized the Department of Justice, the FBI, maybe the CIA, who knows, but I’m looking at Putin’s government, and you’ve got the Spetsnaz moving over to the other side. We’ve seen the Department of Justice and the FBI. Who are they now? Are they really for my protection or are they for Joe’s?

David: That is not clear any longer. So you’ve got the Department of Justice and the FBI publicly outed for corruption and chicanery in connection with the president and his son. What we’re facing is an institutional tragedy, loss of faith—more than that, a growing distrust in governmental apparatus, weaponized and ready for whether it’s the defensive services or the offensive takedowns because the whistleblowers and the hard evidence of the most corrupt president in American history, a mountain of evidence showing political preference and corruption in these governmental organizations. This is not a Netflix series.

Kevin: This isn’t something that happened in the 1970s, “I am not a crook.” You’re right. The most corrupt president in American history is the one that’s sitting right now.

David: When the media shifts allegiance, it’s a meaningful reflection of the powers that be changing strategy, and it’s happening.

Kevin: Who do you think they want now, the Democrats? They don’t want Biden.

David: I would guess Newsom in 2024, and that’s in spite of his appalling California record. It’s in spite of San Francisco being turned into a cesspool on his watch. He rides the Pelosi coattails of power. He has access to Silicon Valley money. He’s a pretty boy. There’s these aspects that he checks the boxes and he’s well-spoken, and he owns a winery.

Kevin: Dave, as I sit here and listen to this, we have seen an awful lot of chaos, you and I, since we got to know each other. I first got to know you when you were 12 years old, but your dad’s here right now. This week, they’re here right in Durango, Don and Molly are, and as we had our meeting this morning, I just thought about it, 51 years of consistency. God’s hand has been on this company, and we really feel very blessed, but I think about the clients that we have who bought gold back in the 1970s, back in the 1980s, the ’90s, the 2000s, the 2010s. Now we’re in the 2020s. They haven’t lost any buying power as we watch these currencies completely crumble, we watch politics completely crumble. There is a consistency here. You wrote the book Legacy about thinking that way. Find the things that last, right?

David: Right. Obviously, that’s more than just gold. There’s values and things that we find far greater value in terms of the culture that we create. Thank you. This is better than ending on a depressing note of American political corruption and politics as usual in DC.

Kevin: Of course.

David: There is gold. We often refer to it as stupidity insurance, and the currency conversation earlier was an apt reflection of this process that we’ve been going through for decades. Sometimes it’s so slow as to be ignorable, and yet it cannot be ignored at certain inflection points. The currency conversation reflects on the policies that have been in play for a long time, and those policies are being reflected in the currency markets, but because fiat currencies trade in terms of a relative relationship, a relative relationship of weakness to each other, this is the importance of gold. It provides a cleaner insight. It provides a cleaner insight, from 28,000 yen to 278,000 yen. Are you a big winner in gold priced in yen or does it just define how stupid things have gotten in Japan? Yet it’s no more or less stupid— I guess we’re talking about stupidity by degrees when you compare it to the European Central Bank, the People’s Bank of China, the Federal Reserve. We’re doing the same things. The implications are slightly different only in terms of the timeframes. So this notion that gold is in the process of catching up, or these currencies which have performed better relative to each other—

Kevin: Like you said, catching down.

David: Catching down, that’s the story of the euro over the next few years because that’s the story of the Bundesbank and the ECB. That’s the story of the US dollar because that’s the story of the delegitimizing of the Fed on our monetary system.

Kevin: The moral to the story, Dave, still goes back to legacy. You as a family, deliberately— It takes a lot to come in from the Philippines, and your brother and your sister, the people who are coming in to be together, there’s a deliberate action that actually is worth more than gold. 

We sell gold here. That’s a nice metaphor for consistency, but none of us are going to take that with us. But the family, the legacy— I was thinking this morning while we were in the meeting, and your dad’s here, you’re the next generation. When I was hired here, my son was born two years later, and he was delivering the marketing information in the meeting today. Yet there was a younger generation. There were three gals here in our office that are pregnant at the same time. That’s the next generation down from there. See, that’s the real goal, Dave, and that’s what we have when we get to meet on Monday nights, when you go on your family reunion, when we do the Commentary for— What are we on now? 15 years?

David: Over 15, in the 16th. So all of these measures change relative to each other. The point of Legacy was to say that you should understand and prioritize the things that do not change.

Kevin: You’ve been listening to the McAlvany Weekly Commentary. I’m Kevin Orrick along with David McAlvany. You can find us at mcalvany.com, M-C-A-L-V-A-N-Y dot com, and you can call us at 800-525-9556.

This has been the McAlvany Weekly Commentary. The views expressed should not be considered to be a solicitation or a recommendation for your investment portfolio. You should consult a professional financial advisor to assess your suitability for risk and investment. Join us again next week for a new edition of the McAlvany Weekly Commentary.

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