Clay Finck (01:43):

Now Matthew, there’s a saying that, “having a forest fire every once in a while is healthy for the overall forest as it removes the excess waste and makes room for new life to arise out of that.” Can you explain why a quote/unquote “forest fire,” so to speak, is so badly needed in our economy today?

Matthew Piepenburg (02:03):

Yeah, it’s good analogies there, a forest fire. The Austrian economists call that constructive destruction. It’s a healthy part of capitalism, and in a COVID kind of backdrop, it’s like if every time your children got sick you gave them antibiotics, you wouldn’t let their natural immune system fix itself. And if every time a market or a bond market or a stock market starts to get sick, you just pump more liquidity, print more money, you can keep it alive, but you’re actually hurting its natural immune system. And in the forest fire example on Von Mises and Schumpeter, these were Austrian economists who said, look, if your balance sheet is terrible, if you’re surviving on debt, if you’re not making profits, if you have no cash flow, if your financial statements are in the red, maybe you shouldn’t be trading it 30 times P multiples, maybe you shouldn’t be in a bubble scenario.

Matthew Piepenburg (02:45):

Maybe you shouldn’t be supported by more debt rollovers. So in other words, and there’s a lot of what we call zombie companies that literally borrow this month to pay last month’s interest and borrow tomorrow to pay today’s interest, and just roll over their debt at a low interest rate environment to keep alive. When in fact they’re literally dead. They’re zombies. And yet, because a lot of reasons, they’re being kept alive. I call it a Frankenstein market. They’re alive. They’re not really alive. And as long as interest rates are low and debt is cheap, these otherwise profitless balance sheet challenge companies that trade on the S&P, the NASDAQ and the Dow, and are held together by ETFs, stay alive. And what Von Mises and Schumpeter and others, constructive destruction, forest fire thinkers are saying is, look at some point, you need a cleansing.

Matthew Piepenburg (03:23):

You need to clear out the sick from the healthy, and you need to let a natural destruction, natural forest fire grow, so the new shoots, new companies can reset. And it is a healthy part. Obviously it’s not healthy for the employees or the CEOs or the boards of those companies that have lived beyond their means for decades. But what we’ve done since 2008 and the fed, and I think politicians to stay elected, they don’t want to see a recession. They don’t want to report bad news. So they keep injecting, basically money created out of thin air to create liquidity or money, new money, into the bond market and indirectly to the stock market to keep this zombie, Frankenstein bond and stock market live much longer than its natural expiration date. Normal cycles correct every five to six years, we’ve gone almost 15, 16 years without a real dip that wasn’t recovered by a money printer.

Matthew Piepenburg (04:08):

And that’s simply not capitalism. It’s fun while it lasts. And I think the last analogy I’ll use, because we’ll probably use it a lot is for millennials, it’s something we all remember. I remember being in college or being younger, it’s like a keg party. If you want to keep the party going, if you want to keep the party going, that hangover feeling’s coming, just have another Bloody Mary, bring in a new, fresh keg and postpone that hangover, and you can do it. But at some point you’re destroying your liver. And at some point it’s a question of how long you can keep that party going, a week, a month, et cetera, but you can’t avoid a hangover. And what we’ve tried to do since 2008, in particular, to stay elected, to stay in office, to stay popular, is avoid the hangover.

Matthew Piepenburg (04:45):

And we’ve just done it by effectively creating the largest risk asset bubble I’ve ever seen. And it’s again, not gloom and doom. We’ll get into this. It is the worst macro environment that I’ve ever seen. And the forest fire that we’re going to have is going to scorch a lot of things. There’s no way around it, other than printing more money and destroying the currency. It’s either a major market implosion or massively destructive inflation, which is the tax on the poor in every way. And so that’s tragic.

Clay Finck (05:11):

Another analogy that comes to mind, is just continuing to kick the can down the road, is what they say with our political system and our economic system. And you’ve recently wrote a book called Gold Matters. You talk about all the issues in the economy, all the issues with our currency. To help paint a picture for where we are at today, talk to us a little bit about where the US is at, and what’s to come in your mind.

Matthew Piepenburg (05:35):

Yeah, I think the book is about obviously about gold, but the first half of the book, 150 pages, is really just about markets and risk in history and central bank policy. So before you can understand the importance of currency insurance, before you understand the reason there’s a risk, you have to understand the reason why there’s a problem. And to see the problem, I use a lot of history. I look at the US in cycles since the Great Depression. It’s boom and bust, boom and bust, boom and bust. And then of course, in 2008, with the great financial crisis, Guyton and Paulson, and others, got into a room with a bunch of failed banks and said, I’ve got a solution. Let’s solve a debt problem with more debt. And then let’s pay for that debt with money created out of nothing or mouse click money.

Matthew Piepenburg (06:13):

And if that sounds too good to be true, whether you’re an economist, a trader, an investor or new to the markets, if it sounds too good to be true, it probably is. And that’s very destructive. Look, if you have an account at Citibank, Wells Fargo, and you have $10 in your account, but you have thousands of dollars of responsibilities. And if you could go into your laptops, just add a few zeros to your $10 account. So now it’s 10,000 or a hundred thousand or a million. It’d be very tempting to do that. If you could do it legally, you’d just keep adding zeros, and that would solve your debt problem. But of course, if you do that at a global or national level, that’s simply currency debasement. In Gold Matters, there’s a chapter on France, which is very, very similar to where we are historically.

Matthew Piepenburg (06:49):

It’s just a metaphor. It’s an example. And in 1789, in France, like in 2008, in America, France was the world’s greatest empire at the time, but it had a problem. It had a debt problem. It had wars overseas it couldn’t afford, it had stress at home. It had a banking crisis, and the national assembly said, Hey, I’ve got a great idea. Let’s start printing money out of nowhere and let’s solve our problem. And they were called [foreign language 00:07:11] but it was basically QE one. And there was a finance minister. His name was Necker, Jacques Necker, who just like Bernanke, said, don’t worry, this will be very temporary. We’re not going to get addicted to this. This is going to be a short term solution. And we’ll be fine. It’s a temporary measure. It’s just like Bernanke said. And then of course the French did that in 1789, 1790, 1791.

Matthew Piepenburg (07:29):

And they kept printing more and more money every time the market needed liquidity. And there was a blooming, just busting, ripping stock market. Everyone thought this is the solution to all our problems. And there was this basically the equivalent of MMT. Let’s just keep printing. There’s no risk. This went on for years, and long story short, it ends very badly for France. It ends with Napoleon, the guillotine, everything. And I was trying to say, look, France in 1789 isn’t America in 2008. America’s the world reserve currency. The fed is more powerful, but it’s the same analogy. We can make that party last longer. But the trajectory and the end result is always the same. A debt crisis leads to a market bubble, which leads to a market implosion, which leads to social unrest. Like we saw the storming of the capitol, which leads to wealth disparity.

Matthew Piepenburg (08:09):

Eventually it leads to more centralized control, autocracy, tyranny from the left or the right. It just leads to more desperate political measures. And it ultimately leads to the death of the currency, which is where I see the US going. And we see it in Europe. Now, again, very gloom and doom, hard to imagine, but it’s as old as history itself. And you can use examples in Yugoslavia, in the nineties, you can go back to the Greeks. You can go back to Weimar, you can go back to other areas or Venezuela. You say, but that just can’t happen to the world reserve currency. The fed is too smart. The ECB is too smart, but unfortunately it can, and it will. It’s just a question of when, which of course nobody knows. And it’s just a question of how long this can go on. There’s certain signs you can look at, but it’s a very dangerous trend.

Clay Finck (08:49):

It seems like the macroeconomic environment is all many people want to talk about. Everyone knows there’s a giant problem that needs to be addressed. And there’s almost this assumption in the markets that the fed’s just going to come in, and step in, and save the day once things start to fall apart. So is that true in your mind? And what is the point where that injection just doesn’t work anymore and the market isn’t buying it?

Matthew Piepenburg (09:15):

It’s a really important theme. And the macros do matter now, more than ever. And I think rather than get into sexy, Wall Street jargon about yield spreads and QE/QT tapering, bond yields, bond taper… There’s some basic things we have to understand. What creates a bubble, and what creates a macro problem, and what creates a fantasy solution, and how you can BS detect that solution that we’ve been fed since 2008? The key thing to understand, without getting into all the numbers and all the different bond yield curves and all the different bond classes, is debt. If there’s just too much debt, whether you’re a family, an individual, a company or a nation, if there’s three times more debt than there is income, well, that’s a real problem. If you have a Ferrari appetite and a bus boy salary, that’s a real problem.

Matthew Piepenburg (09:56):

That’s common sense. What happened in the US, we had a federal deficit of less than a trillion. Now it’s 30 trillion in a matter of just a short period of time. Our debt levels have gotten too high. And the US, like many developed countries, survives on IOUs. Well, we’re broke. Our income is flat lining. We’re spending more than we earn. So let’s just keep issuing IOUs to the next sucker who’ll buy that IOU. And that IOU is called a treasury bond. And for years we’ve been issuing IOUs. The problem was, nobody was buying them. Nobody wanted them. And so we had to print money to buy them. Why would we print money to buy those bonds? Why do bonds matter? The key that listeners need to understand is, well, first debt is a problem and bonds are a part of that debt story.

Matthew Piepenburg (10:36):

You pay for your debt with bonds, but if nobody’s buying your bonds, you can’t really sustain your debt. So if you have a central bank that prints money to buy your bonds, that solves the problem, but it creates more problems. But the reason the central bank, like the fed, spends trillions of dollars every year to buy unwanted IOUs or unwanted bonds, because nobody else trusts Uncle Sam anymore. His bar tab is too big. The fed wants to buy bonds, not just because it’s fun. They need it because the interest rates are so important. When you’re in debt, the cost of your debt is really important. If it’s 2% or 1% or free, that’s a lot better than 15% or 20%. So you want to control those interest rates. People say, well, how do you control interest rates? The fed just says low rates. No, it’s more complicated than that.

Matthew Piepenburg (11:18):

And it’s real sexy, little thing, people need to understand. Simple, but it sounds complicated. As bond prices go up, bond yields go down. It’s just an inverse relationship. Well, bond yields go down. Bond yields are the same thing as interest rates, simply put. So if the fed prints a lot of money to buy a lot of bonds, it keeps interest rates down. So as long as there’s printing money and buying Uncle Sam’s IOUs, interest rates are down, or yields are down, and therefore you can keep borrowing and borrowing, rolling over debt, seemingly ad infinitum. And so you solve the problem. Look as long as debt is nearly free, our interest rates are nearly free. Our bond yields are repressed, because the fed buys bonds, and we keep this party going, this keg party going, ad infinitum. Sounds wonderful. The problem is well, okay, the only way to keep yields and rates down is to spend a lot of money.

Matthew Piepenburg (12:01):

But if you don’t have the money from GDP or tax receipts or income, well then you’re printing money. And if you’re printing money, that’s like taking a glass of wine and adding buckets of water. You’re diluting the currency. So you can keep the bond market alive, the zombie Frankenstein bond market and a Frankenstein stock market. To do that, you’re killing the currency. And then we talk about currencies. So it’s all related, debt and currencies, purchasing power and ultimately gold and markets. They’re all tied together. It’s all connected in what’s seemingly complex way. But again, too much debt destroys companies, it destroys families, then it destroys markets every time, without exception. It’s just a question of how long they can keep this fairy tale going.

Clay Finck (12:39):

I think looking at Japan can be a good comparison because they seem to run into many of these issues in decades prior to, say, the US. And when talking about central bank intervention, I oftentimes hear comparisons to Japan. They hit many of these roadblocks. I came across an article that said the bank of Japan owns more stocks than the entire government pension investment fund. And they started buying stocks for their balance sheet in 2010. Now, as far as the federal reserve for the US, they’ve been very active in the treasury market, as you mentioned. And I’m curious if they’re going to be forced to have to purchase stocks as well, at some point, to keep that market propped up too.

Matthew Piepenburg (13:21):

Yeah, well it’s an interesting comparison. Of course the Japanese yen, people may or may not know, its currency just hit a 50 year low. And the reason it hit a 50 year low is, like I was explaining, no one wanted JGBs, Japanese IOUs, no one wants them. And so the central bank of Japan, the bank of Japan, much like the fed, is printing now over a hundred billion a month of money created out of thin air, yen, to buy its unloved bonds. And of course that’s killing the yen, and that’s adding that bucket of water to your glass of wine. It’s diluting the yen. So that’s why the yen has hit a 50 year low in May. And so people say, well, that’s just Japan and the yen, it’s not the dollar and the fed. And you’re right, the yen is not the world reserve currency and the dollar is, and there’s a lot of reasons why that doesn’t change anything.

Matthew Piepenburg (14:04):

It just postpones it. It’s still the physics and the law of nature here. It’s just because we’re the world reserve currency, we can do this longer. We can drink more before the hangover, but the hangover is still inevitable. And Japan, yes, it’s on steroids, when it comes to it’s central bank buying, not just JGBs or IOUs or bonds, it buys directly into equities and ETFs. We saw in May of 2020, during COVID, the fed, it didn’t make the headlines, but the fed was making direct purchases of ETFs. It’s small levels, including junk bonds and makings. So that was the first tow dip into direct support. So the fed went from being the spender of last resort to the buyer of the last resort.

Matthew Piepenburg (14:40):

And that was an interesting move. It was a watershed move. It was a tow dip into what will inevitably be happening. And that will. If the markets have a 60, 70% correction, the fed will, in the name of an emergency measure, print money, and start probably supporting stocks and bonds. But again, to do that, it’s a Pyrrhic victory, because if they do that, you’re still creating so much money that’s inflationary, that’s monetary debasement. So the dollar in your wallet will get diluted. So you’ll think you’re surviving, but you’re actually getting poorer. It’s a very subtle way to solve a market problem by inflating away your debt, but debasing your currency. There’s no free ride.

Clay Finck (15:16):

Today, CPI inflation sits at just over 8%, and you’ve mentioned how the CPI metric isn’t an accurate representation of the true inflation rate. I’m curious, if CPI inflation is something you keep your eye on and how do you maybe measure the true inflation rate?

Matthew Piepenburg (15:34):

Yeah, I’ve always joked that the CPI scale is this bogus as a 42nd street Rolex. It’s a complete fiction. It’s an open secret on Wall Street. The fed doesn’t want to report actual inflation, honestly, because if they did, it would be an embarrassment to the treasury and to the currency. In other words… Let’s just, for simple math, inflation’s 8% and the yield on a 10 year bond is 3%. And since a 10 year bond is Uncle Sam’s IOU. He wants people to buy them. He’s giving you 3%, but if inflation is 8%, then you’re actually losing 5%. It’s negative. Inflation is higher than your yield. So you’re losing money the moment you buy that bond. Sophisticated investors know that it’s a negative returning bond, so nobody wants it.

Matthew Piepenburg (16:18):

And if it’s really high inflation, it’s even more negative. That’s embarrassing IOU. It’s a no return bond. And for years, the fed didn’t want that embarrassing CPI inflation rate to be accurately reported. And so they created this thing at the bureau labor statistics that measures inflation without getting the nuances of it. It’s like a fat camp that two plus two equals two. In other words, we will check your weight every day, but we promise not to measure the calories from beer or pizza or chocolate. So even as you’re getting fatter, the scale says you’re getting smaller or thinner. And the bureau of labor statistics, it’s open fraud. It’s open fiction. Everyone on Wall Street knows this. And so the BLS will tweak the scale, but if they use the same scale that they use in a more honest period, say in the 1980s, in a vulgar period, real inflation using the exact same scale today would be closer to 17%, which is already appalling.

Matthew Piepenburg (17:08):

It’s already appalling. So we’re saying year over year at 8%, even as bad as that is, it’s much, much worse in reality. But our scale still tells you the two plus two equals two. So that’s frankly open fraud, it’s dishonesty. That’s not left or right. That’s not me being anarchic, like an anarchist or a gloom and doomer. It’s just an open secret. So you’re being lied to about inflation. Nevertheless, if you take the GW bridge or you go fill your gas tank, or you go to pay your tuition, or you drive across town, have dinner with your friends, you already know inflation. So you can feel it, regardless of what the bureau of labor statistics says or the CPI scale says, you know it. So it is bogus. To your other question, do I still watch? Of course I still have to watch it. It’s still an indicator.

Matthew Piepenburg (17:43):

Inflation is still an indicator, even though it’s a dishonest inflation indicator, it still matters because the rate of inflation, if it’s higher than your interest rate or your bond yield, means you have a negative interest rate environment. We never had one in 5,000 years. That’s how bogus this world is, because we’ve been artificially pushing up bond prices artificially. No one wants them. Yields are so low and an inflation is much higher than the yield. So we have a negative returning bond market, and without getting all the nuances, that’s deliberate. The fed says they’re fighting inflation. That too is a lie. They actually want inflation because they can’t get out of debt. So they debase the currency and they inflate away their debt to make our balance sheet look better. So what they’re doing is they’re suckering you, telling you they’re fighting inflation while they’re pushing for more.

Matthew Piepenburg (18:25):

And again, that’s not left or right. That’s just Wall Street, honest. And we are seeing a world of negative, real rates and negative returning bonds. And so that’s the oldest trick in the book, going back centuries, to try and get a debt cornered nation out of debt. Just debase the currency, inflate away your debt. It helps the balance sheet, helps the politicos. It destroys the middle class. It destroys main street. That creates wealth inequality. That creates social unrest, that creates political measures to control you. And that is always a trajectory. You go from debt drunk to market crisis, to financial crisis, to centralized controls. And some of them are very subtle. Some of them are very overt. But we have centralized controls in our capitalism right now. Capitalism doesn’t exist. If the fed is printing trillions a year to create artificial demand, that’s not capitalism, sadly. And I’m a capitalist.

Clay Finck (19:13):

To try and simplify investing for some people. I often say that over the longer run, the dollar is going to decline in value as the federal reserve prints more and more dollars. But there are times where the dollar actually strengthens against financial assets as markets never move in a straight line. So stocks, gold, real estate, whatever asset you want to look at, will go up over time against the dollar. But it’s just going to be a bumpy ride just due to the nature of how our debt based system works, and the expansion, and the contraction in the economy. Would you agree with that sentiment?

Matthew Piepenburg (19:46):

Yeah. Look, a couple things. The dollar is very important. It’s world reserve currency. It’s the key currency that everyone and up until the sanctions, FX reserves, everyone had to transfer money. Anyone had to buy oil in dollars. There was a way that the dollars price mattered, whether you lived in Argentina or whether you lived in Turkey or whether you lived in Russia, the dollar mattered. It was critically important. And there’s a lot of good and bad that comes to that. When you talk about the strength of the dollar, let me, again, this is a gold bug statistic, but it’s critical. Since we’re using the analogies of keg parties, and I think it’s an important maybe crude analogy. Up until 1971, the dollar, to your question, the dollar was backed by gold. Not because I’m a gold… But gold was like a chaperone at a party to the dollar.

Matthew Piepenburg (20:31):

Even though you didn’t have gold in your wallet or in your currency or in your bank account, your dollar was backed by gold. And because it was backed by gold, that meant that Uncle Sam or president Nixon or the central banks, they couldn’t just print dollars out of thin air, unless they had enough gold in their accounts to back those dollars. So there’s the limit to how much money they could create out of nothing. In other words, they couldn’t, if they didn’t have the gold. And the problem was, with Nixon, when he was in political trouble and he was trying to get reelected, he was facing a recession. He wanted to print some free money. Right? It’s addictive. But he couldn’t, as long as that chaperone was there, he kept him from getting drunk, and getting the economy drunk and stimulating the economy. So what did he do?

Matthew Piepenburg (21:05):

He removed the gold standard. He got rid of the chaperone. And the last thing debt drunk presidents or politicians wanted to see is a chaperone to their dollar. So Nixon got rid of the gold standard in 71. Then we could create dollars out of nothing. That bought him a little bit of time. The dollar was the world reserve currency. Well, it welched on every other country that relied on us to control our currency. So our inflation became the world’s problem. We exported our inflation. If you’re in Argentina and you’re taking a loan from America, you have to pay it back in dollars. If Nixon’s just inflated the dollar and debased it. Well, now your currencies debased too. So it’s a viral spread of a broken currency. And that’s lasted for 50 years. The problem, when you talk about the strong dollar right now, you’re only talking about relative strength.

Matthew Piepenburg (21:44):

In other words, you’re the best horse in the glue factory, or you’re the best patient in the ICU, but you’re still very, very sick. So relative strength, you can puff your chest and brag about, but if the key metrics since 1971, when Nixon took away the chaperone, a dollar, when compared to a milligram of gold, has lost 95% of its inherent purchasing power. So its actual musculature, its actual lungs, its actual power has lost by 95%, even though it’s stronger, relatively, than other currencies. So you’re really talking about a bogus comparison. Relatively the dollar stronger. Its inherent purchasing power is much, much weaker than it was 50 years ago. And the dollar is stronger because bond prices are sinking, rates are going up, yields are higher, it’s a minimal amount, and it’s extremely temporary.

Clay Finck (22:30):

Let’s talk more about gold. Why does gold matter in this currency crisis? And what role do you believe it plays in the coming years?

Matthew Piepenburg (22:39):

Yeah, look I started in the late 1990s in the .com bubble, doing pre IPOs and arbitrage, tech stocks. And then it was all equity and bond spreads and yields. And look who wants to talk about gold, when you can talk about sexy things like [inaudible 00:22:53] today, or you can talk about the latest growth, or you can look at broken balance sheet’s ripping to the north, like Tesla, other things, which is so sexy, and the returns in the S&P, that is what people think is real investing. It’s momentum, it’s moving day averages. It’s what you think and dream is the Gordon Gecko America. The last thing you want to talk about is that boring piece of gold that sits in the ground and stares at you from 5,000 years ago. It’s not sexy. And believe me, I was one of those guys too, until I had made enough money where I actually cared about my money.

Matthew Piepenburg (23:19):

And it wasn’t about what I was talking about at a party. But man, I got all this responsibility now. And you think about, rather than trying to impress people with your latest trade, or your latest spread or your latest, great idea, your latest IPO access, or your latest advice from Goldman Sachs. You’re just realizing that the power of your currency is getting weaker, regardless of how you make it. And you’re realizing that yes, I can make 50, 60% in this market, or I can lose 70% in this market. The only reason that gold is sexy is not because it rips up like Bitcoin or other cryptos, or like Tesla stock, or like Amazon or Google, which again, if your momentum trader go for it all day long. All markets revert to their mean. No one can time when. That’s fine, if you want to take that risk, I have nothing against it.

Matthew Piepenburg (23:57):

I’m totally fine with that. If you can afford the risk. But for investors who aren’t traders, why gold is so important, it’s very simple, regardless of the price of gold, it’s always stronger than your currency. Always. It may go up and down and we can talk about how they manipulate the gold price in the over the counter market, and the forward contracts part of the OTC. And that’s why we manage lots of money that just buys boring gold and sticks it in the ground in Switzerland. And we stare at it for a fee, but you’d be amazed how many very sophisticated investors, who’ve made money in other areas, always buy a large chunk of gold. Not because they care whether gold goes from 1300 to 1800 to 2,500, but because gold is currency insurance for dollars that are already burning to the ground. It’s that simple.

Matthew Piepenburg (24:36):

And people want to say, yeah, that’s just an apology. Why isn’t gold to 2,500? Why isn’t it 3000? It’s boring. I can make twice as much in an afternoon with crypto. True, but you can lose all of it in the next week. Gold will never go to zero. Crypto could go to a million or go to zero. I’m not going to get into a crypto gold debate. It’s fine. I’ve written ad infinitum about it, but for very sophisticated investors, who even make money in the markets, I can’t tell you how many hedge fund managers I know, who run spreads, and run arbitrage trades, and run an event driven, and do credit, and do multi-strat, who still own most of their money in gold.

Matthew Piepenburg (25:05):

It’s not in their portfolio. It’s not bragged about at parties, but they own a lot of gold, because they understand more than anyone, that this bond market’s a bubble, the stock market’s a bubble. When it blows the currency is going to be destroyed, not destroyed like the end of the world, but they’re purchasing power is neutered. And so they need gold as a currency hedge. It’s that simple. It’s not sexy. And then people still want to know about the price. And that’s important if you’re a trader, if you’re an investor, whether you buy gold at 1800 or 2,400, long term, it’s irrelevant, because it will always be more powerful than the currency in your wallet or your checking account or your portfolio.

Clay Finck (25:38):

Yeah. I liked sort of analogy you brought in how you’re more focused on preservation of your capital. Whereas I’m more on the flip side. I’m in my late twenties, focused more on growth in my capital. So it brings the question to the role that gold plays in a millennial’s portfolio as a currency hedge. For a lot of people, maybe like a 5% type position, five or 10%, or what do you think?

Matthew Piepenburg (26:05):

Yeah, no, look, first of all, that’s a very fair question because look, and my daughter’s 27, my son’s 25 and they’re both in markets and they’re both in finance, and my daughter’s at Goldman and my son’s doing hedge fund admin. So they see really interesting things all the time. And all I tell them is what I would tell you. And I’ve told in the past, and it’s not what they want to hear, what you want to hear at your age. The first thing is, and this is grandpa Matt, and I grew up in a .com bubble. And I grew up in an IPO lottery tickets. So it’s not because I’m so smart. I was incredibly lucky. This is not genius here. This is pure luck, but honest luck. And I’ll say this, and I wouldn’t have listened to it either when I was 27, trading Qualcomm and Commerce One and Juniper and these absurdly overvalued stocks, but it’s something my grandfather would say and your grandfather would say, and I’ll say 50 years from now, never buy high, buy low, never buy high, buy low.

Matthew Piepenburg (26:56):

Don’t sell at the bottom, sell at the top. Well, the problem is what’s the top and what’s the bottom? You don’t know, but you darn well know when you’re close to a top, we’ve been near a top for a long time. And so I tell my daughter and my son, look, every market reverts to its mean, whether it’s postponed like this one, or whether it’s natural. Think of it as a rubber band. If you pull it up, it comes back to your knuckle. If you pull it down, it comes back up. Right now, this rubber band has been stretched to the ceiling and it will revert to its mean. I have no idea when, and we can talk about what triggers will be. But if you’re 27, you can afford to wait five years or five minutes or five weeks when this market drops by 50 or 60%.

Matthew Piepenburg (27:32):

And you say, well, Matt, what if it never does? What if they just keep printing money? Fair enough. If they do that, then all you have is worthless currencies. You can’t have both. You can’t have a topping market forever and a strong currency. If you’re printing money to keep that market alive, this is an absolute fantasy. So my opinion is at some point, this corrupt market and it is corrupt. It’s rigged to fail. That was my first book. It’s proven to be. You can see the evidence of it. At some point, this market will do what the Nikkei did in 89, what the NASDAQ did in 2001 through 2002, what the S&P did in 2008, it will do what the S&P did in 2000 in March. It’ll do what it did in 2018, before they print more money. Every market will crash. Just some will crash more.

Matthew Piepenburg (28:08):

The people who put us here, the fed and the commercial banks and the central banks, will blame this on an extraneous event like Lehman brothers or bad mortgage loaners, lenders. They won’t blame it on the S&P or the rating agencies, or themselves, or Bernanke, or Greenspan, for keeping rates low. They’ll blame it on COVID. They’ll blame it on big, bad wolves, like Putin. They’ll never blame it on their money printers, their greed and their self interest. But when this market reverts to a mean, that’s when I would get back in and buy. So my first advice is, this market’s at a top. It’s already starting to puke. It could go back up again. It’s not a sustainable market. If I’m 27, I would get out. I would wait. I would wait and go golfing. I’d watch TV. I’d write the great American novel.

Matthew Piepenburg (28:47):

I’d learn how to teach my dog to fetch a stick, but I wouldn’t be chasing these tops. Everyone thinks that’s cool because when you’re at a party, Hey man, I made 20% this week on stock X. And man, I got in at the dip. That was great. That’s like looking at the menu on the Titanic and saying, I got a great crème brûlée. I got a great black forest cake, but you’re missing the iceberg off the bow. So you’re enjoying the tuxedo on the A deck, and you’re bragging with your friends, and you’re chasing these stocks, and old boring guys like me are telling you to worry about the iceberg. It’ll never happen, that guy’s just made money in the .com bubble. He goes, no, look, I get it. I get it. I was once young, I wouldn’t have listened to me then, but it’s actually true.

Matthew Piepenburg (29:20):

And I cannot and will not tell you when this market bends and tanks, but it will. It will. And in some ways it already has. It did already in March of 2020. It’s already starting to, now, by every metric. My advice is, get the heck out of the way. Get the heck out of the way of this. In 1989, in Tokyo, they were saying, well, how can we get hurt if we’re all crossing the street at the same time? But they all got killed. And that was 30 years ago. That market has not recovered its highs. That’s so hard for your generation to understand, because you’ve never suffered inflation. You’ve never seen a market crash. You’ve seen nothing but every dip being buyable, you came of age in a very hard time, because you’re trying to compete with my generation that got lucky and didn’t have the kind of debt yours did.

Matthew Piepenburg (29:59):

And you’re inheriting our exigence, our debt, our can kicking, so that you and your generation have to pay the bill. I don’t blame you for being furious. And this sounds condescending, but you’re also angry. You’re trying to catch up with a bus you can’t catch up with. Not because I was smarter. I was just born 30 years earlier. And it’s harder for you. But you guys, I think, you don’t know how painful it can be. And I don’t think that, that sounds really condescending, but now is not the time to try and make it your fortune in a [inaudible 00:30:25] market. It’s not the time. You wait, like Rothschild said, wait till there’s blood in the streets, be in cash.

Matthew Piepenburg (30:30):

And you’ll say, Matt, but inflation’s eating away at cash. What should I be in cash for? Even with Dalio, cash is trash. Well, even inflation is better than losing 30, 40, 50, 60% of your money in a market crash. I’ve seen markets drop by 60, 70, 80%. Your generation hasn’t. A lot of people think that’s just gloom and doom, old man talk. But the problem is, I don’t know when, I don’t know when. I know this is not a sustainable market and it’s well past its expiration date. That forest fire’s long overdue. Sadly, that’s boring advice.

Clay Finck (30:58):

I’d like to talk a bit about gold’s performance over the past decade. You mentioned a lot of investors chasing everything, but gold. It topped out in 2011, around $1,800. And that was around after a massive run up over the last, call it, 11 years, it was $300 around 2000. Today we’re back above $1,800 announced. So it’s almost been like a… Maybe not a lost decade for gold, because it had a blow off top in 2011 and bottomed out and then came back. What are your general thoughts on the price action over the last decade, despite all the QE we’ve seen during that timeframe?

Matthew Piepenburg (31:35):

A lot of things to talk about there. The first thing is, I started really looking at gold, maybe four or five years ago. I started recommending gold to my clients when it was under 1350. Whether it went to 1800 or went to 2060 since, when I saw unlimited QE, basically, the money printing, I knew that wasn’t sustainable. So that’s why I started looking at gold more, I think, strategically and tactically. And nobody I recommended that to cared whether it’s at 2000 or 1800 or 1750 that got in at 1300, and frankly I really don’t care where gold is in the next three months, three weeks. I never look at the gold price anymore, and people think that’s disingenuous. I just don’t. Because again, my point is it’s always going to be stronger than the purchasing power of the dollar, or the yen, or the Euro, or the pound, or the peso.

Matthew Piepenburg (32:15):

But to your question, what explains this gold price? Because frankly there’s never been a more perfect environment for gold. You’ve got high inflation, you’ve got lack of faith in the central banks. You’ve got effectively a recession right off the bow. You’ve got printed dollars. You’ve got a fed that’s printed, trillions of dollars since 2008 in general or 2009. You’ve got fear in the markets. You’ve got war in Europe, you’ve got negative, real interest rates. And really, I can’t really think of much better scenarios. And yet there’s a bunch of reasons why gold hasn’t reached its price target. And I’ll talk about them in simple days. First of all, I think all of last year people were told that inflation was only temporary or transitory. We said that was a complete lie. That’s another classic lie. Like the CPI scale. When Jerome Powell gets up there and knowingly says that something we told you, two years ago, was not transitory, and he’s a fed chairman.

Matthew Piepenburg (33:03):

He’s just lying because he has to, he has to keep the markets calm. Of course, now we know that fed transitory inflation was bogus. Now it’s real. So that’s not why gold isn’t rising. Inflation is here. So then why isn’t it rising? The second reason is, because the dollar’s getting stronger, even though it’s a pathetic dollar, it’s still stronger than other dollars. Even though it’s a pathetic yield of the 10 year, it’s still some yield. And even though rates are just mouse clicking up to the minor amount, it’s still rates are going up. So that’s another headwind for gold. But the very most important reason, for now, that gold isn’t at 2,400, which by the way, Jeff Guthrie over at Goldman Sachs, that’s not a known pro gold bank. Their price target for gold is 2,400. That will get there and then some.

Matthew Piepenburg (33:40):

I’m no doubt of it. When? It’s six weeks, six months, I don’t know. But the main reason gold isn’t at 3000, the second, is something called the futures market or the forward contracts market. And again, that’s another whole report and I won’t get into it, but basically you’ve got to understand that for broken governments like the US fed, and the US government, and Uncle Sam, and the White House, left, right or center, when they’re this broke and their currency is this discredited, the biggest middle finger to a broken currency is rising gold. That means your system, your central bank system, your monetary system is too drunk. No one trusts you. Demand for gold is rising demand for your dollar and your treasury is falling. That’s their biggest fear. It was Volker’s biggest fear. Bernanke’s biggest fear, Greenspan’s biggest fear, Yellen’s biggest fear, Powell’s biggest fear.

Matthew Piepenburg (34:24):

And the way they control the gold price is even though there are thousands of long contracts for gold every day on the OTC market. On the forward contract market, a few over levered banks using leverage of a hundred to 200 to one, every day, have a permanent short on the paper price of gold. That may sound like an apology from a gold bug or a conspiracy theory. But if you look into OTC market, in the forward contracts market, it’s an open secret. Well, you could say, fine, if that’s true, then why buy gold? They’re always going to force the price down.

Matthew Piepenburg (34:49):

And the reason that’s not a sustainable, legalized, price fixing, act of fraud. In a violation of everything that has to do with natural supply and demand. The reason even that OTC market price fixing will fail, in my opinion is, at some point, even if you’re not into the future’s market or forward contracts and swaps and all these things, and you don’t need to be, at some point, you’re going to lose faith in your dollar, and you’re going to lose faith in your central banks, because it’s going to cost you so much money to buy a hotdog or to pay your rent.

Matthew Piepenburg (35:15):

That you’re not going to care anymore what the gold price is officially. You’re going to know there’s something wrong. And when inflation, even if we have deflation, if the markets tank, when inflation becomes so obvious, when faith in the dollar, and in your system becomes so undeniable, that’s when systems catch on fire, burn to the ground and restart again, that’s when you have a disorderly reset. And I think that’s how this will end. And that’s just my opinion. And measuring faith is much harder to do than measuring balance sheets, momentum lines, moving day averages, Bollinger bands, Keltner bands, technical fundamentals, measuring faith seems like a vague kind of wishy washy, Sunday school explanation. But that’s the hardest thing. That’s the hardest thing. And the biggest way to lose faith is when inflation becomes too obvious for even Powell to pretend doesn’t exist.

Clay Finck (36:01):

This may almost be a silly question, but what’s stopping any government in the world from simply printing money and buying as much gold as they can?

Matthew Piepenburg (36:12):

First of all, it’s a very limited supply of gold. And that’s a really interesting question, because who really has the most gold? Who is preparing for the next shift, the seismic shift in the global world order? Since world war II, America was the strongest varsity player in the room. For a lot of reasons. We just saved Europe from a terrible war. We were the world’s greatest manufacturer, the world’s [inaudible 00:36:32] creditor. We had the flag on Iwojima. We had just saved Europe from fascism. That’s the romantic version, legitimate romantic version of America in the forties and fifties. Well that America’s gone. Now we’re the world’s greatest debtor. We don’t manufacture anything, we’ve outsourced everything to any place else, but America. And ironically, we outsourced most of it to China. That’s not the fault of just president Clinton and everyone after him. It’s the fault of every CEO who’s living in Nantucket, or out here in the south of France, or in Switzerland and Zurich, having dinner with my colleagues, because those CEOs made bigger salaries by paying a dollar an hour of labor instead of $12 or $15 in America.

Matthew Piepenburg (37:08):

So they got bigger margins, bigger profits, by outsourcing the labor force. Millions of Americans in Nebraska, Michigan, Ohio lost their jobs, because in China or Nicaragua, El Salvador, it could be done cheaper. So part of the reasons we can blame ourselves for that. But the point is, I was just saying, I don’t know how I got off on that chain, but we don’t have a lot of productivity. We don’t have a lot of income. And we also don’t have a lot of gold. And the question is who really has the most gold and who really has the most income? And that’s my point, is that I think we say we have X amount of tons, 8,000 tons. China has 2000 tons. But America isn’t a leader anymore, and I’m not pro China and I’m not pro Russian. Believe me. Don’t get me wrong for a second.

Matthew Piepenburg (37:46):

Because for the last 15 years, and up until the invasion in Ukraine, China and Russia have been wanting to de dollarize. They don’t want to be tied to a empty, full faith in credit, useless US dollar that has no gold backing. They know that America’s in debt, that their labor’s been outsourced, that they have no GDP, that their market is a bubble that is sustained by an artificial money printer. They’ve known this for a long time, and China and Russia are used to suffering and they’re not the same mentality. We see them all the time. Chinese and Russian investors are very different than American investors. Better or worse in some ways. But they’re used to suffering in ways that even Americans aren’t always used to. These countries have slowly been acquiring gold. We watch the physical transfer. So Chinese gold is significantly, significantly more physical gold than they report.

Matthew Piepenburg (38:29):

And that again, I can get into more details in just a while. I’ll talk about that Frankfurt, this weekend, not a conspiracy theory, not an anti-American rant, not pro Chinese, by any means. It’s appalling. America on its worst day is better than China, and American citizens, on their worst day, are better than any other country I’ve ever lived in. So an American middle class is more heroic than any society I’ve ever lived in. But what I’m saying is, you’re being duped, because China and Russia are slowly acquiring more physical gold, because they see an inevitable collapse of the dollar as the world reserve currency, as the dollar, as the Petro dollar, because after America punished Putin, by taking him off the SDR, by taking him off the SWIFT, and by freezing his assets, three other countries, we don’t trust American anymore. We don’t trust this treasury.

Matthew Piepenburg (39:10):

We don’t trust its SDR. We don’t trust its reserves. And so eventually other countries are going to de dollarize. And since they’re trying to punish Putin, by taking them off these things, Putin is now selling oil and gas to Europe in rubles, not dollars. And Arab states are talking to China and India and France about selling oil in other currencies, not dollars. And so eventually, again, not overnight, this is a very slow process. Eventually the dollar will be as weak as the economy and as weak as our leadership. And at that point countries, unfortunately, like China and Russia, are going to have their own currencies, backed by some linkage to gold. And the US will have, what’s called, a central bank digital currency level, a big reset, and they’ll have some type of gold linkage and it’ll be a central bank redeemable currency. Again, this could be years away, but when you’re still young, and that too will be a tailwind for gold, ultimately, because gold is the only neutral currency.

Matthew Piepenburg (39:58):

It’s the chaperone. It won’t be Bitcoin, even if you’re pro crypto, because the government doesn’t want to see Bitcoin get stronger. Anyway, Bitcoin’s a threat to the government, just as much as gold, in some cases more. So even if you love Bitcoin and love the fiat, I love the philosophy about it. Bitcoin is a threat to the US dollar in a lot of ways. And so when currencies fall apart, when the dollar loses its hegemony, again, not by tomorrow morning, gold and gold backed versions of a link to a currency are inevitable, in my opinion.

Clay Finck (40:23):

Do you have a way of coming to some sort of valuation for gold? What sort of measurements can you use outside of maybe increasing the money supply or something to that effect?

Matthew Piepenburg (40:36):

Yeah. Look, it’s certainly not the paper price of gold on the OTC market. It’s simply not. I look at it, really, just in terms of purchasing power. I look at what a basket of goods cost in dollars, or euros, or pesos, or [inaudible 00:40:49] or even rubles, and what it costs in terms of milligrams of gold. I measure gold by the ounce and the gram, not the dollar, or the pound, or the krona, or the peso. In terms of a simple measure, no. Again, that’s why I’m trying… I’m not trying to be flippant or arrogant as Zurich in with the Swiss account saying, yeah. Who cares? Price of gold. I know for people that are trading, it matters, but again, I personally don’t trade gold. I invest in it, and I don’t look at it as a capital gain issue or as an appreciated asset.

Matthew Piepenburg (41:16):

Although I know it’s going to go up in price. I simply know that it’s going to be the life jacket I need when the ship sinks, whether my life jacket costs me a thousand dollars or 50 cents, as long as it keeps my head above the iceberg, I don’t care. And again, so for your generation, that just wants to double its money. Well, I’m saying you’re doubling your money and say, let’s just pick a simple stock. Let’s say you doubled your money in Tesla over two years, long and short. But if the money itself that you’ve made is getting weaker and weaker and weaker, what have you really doubled? For a while, it’s certainly good.

Matthew Piepenburg (41:45):

And it’ll certainly make more money than gold, in terms of price doubling. I actually think gold easily could hit 4,000, 5,000 in the next four years. It could also go to 900 in the next four years. It’ll always be stronger than the currency. I don’t think gold is the best investment for a 27 year old looking to get rich quick. I don’t think it’s a good investment for anyone looking to get rich quick. I’ll just say it. And maybe you’re saying, well great. It’s just for people that are already rich. Well, no, you still need a life vest.

Clay Finck (42:10):

Matt. I know it’s getting pretty late where you’re at in Switzerland. I really appreciate you taking the time to spread your message to our audience today. Before we close out the episode, I wanted to give you the handoff to where the audience can get connected with you, as well as talk about your new book, Gold Matters.

Matthew Piepenburg (42:27):

Yeah. Well look, I’ve written two books. One’s called Rigged to Fail, which was pre COVID. And it came out in 2020, right before the market’s tanked by 36%. Again, not market timing. Then COVID came and saved the markets. And now we have a Gold Matters book out. I think whether you believe in my views on macros, or whether you believe in physical gold, which I totally respect, I really think it’s important to know the enemy or know the other arguments, know the other side. I think these books are good education on market cycles, not just gold. We’re not just particular asset classes. I think that’s a good history lesson on markets. Rigged to Fail is a lot more about markets themselves and risk classes. Gold Matters, of course, is more about gold. But for those of you who are weary, or concerned about these markets, if you’re not into gold, which I understand, at your age, you’re probably not, signalsmatter.com is where my really good friend and colleague, who’s an exceptional trader, the true hedge fund legend.

Matthew Piepenburg (43:19):

That’s where we trade for you or show you how to trade on the back end for subscribers. It’s pretty affordable. And that’s our way of helping people who aren’t professional traders create portfolios and mirror our portfolios. And very soon we’ll be trading them for you, but it’s really for people who can’t afford an account at Goldman Sachs or Prime Brokerage account, and they want to see what we’re looking at, what signals we’re looking at to get in and out of trades. It’s a great way to see behind the curtain, what we’re doing. We’re not going to make you rich overnight either, but we’re definitely going to make sure you don’t lose 30, 40, 50%. Because the way to make money is not to lose money. And that sounds like a Pollyanish cliche, but that’s the lesson you learn. You’ve got to avoid losses, got to avoid losses. And they can happen far, far apart, but when they do, they destroy all the wealth. And so you’ve got to always think about risk first and that’s at signalsmatter.com.

Clay Finck (44:04):

Awesome. I’ll be sure to get all those linked in the show notes for those that are interested in the audience. Thanks a lot, Matt.

Matthew Piepenburg (44:10):

Thank you, Clay, I hope it was helpful.

Clay Finck (44:12):

All right. I hope you enjoyed today’s episode. Please go ahead and follow us on your favorite podcast app, so you can get these episodes delivered automatically. If you’ve been enjoying the podcast, we would really appreciate it. If you left us a rating or review on the podcast app you’re on, this will really help us in the search algorithm, so others can discover the show as well. And if you haven’t already done so, be sure to check out our website, theinvestorspodcast.com. There you’ll find all of our episodes, some educational resources, as well as our TIP finance tool that Robert and I use to manage our own stock portfolios. And with that, we’ll see you again next time.

Outro (44:48):

Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires, by the Investor’s Podcast Network. Every Wednesday, we teach you about Bitcoin, and every Saturday we study billionaires and the financial markets. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by the Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.