All Time Stock Highs & Liquidity Addiction

McAlvany Weekly Commentary

Inflation (Devaluation) Chosen As Best Political Answer Gold Purchases (Bar & Coin) Up 250% In Germany, 91% In China What Is A "Crack-Up-Boom"? "If you have too little money in credit and growth does not as easily materialize, you risk economic implosion. And that's if there's even a hiccup, a small little disruption within the economy. Too much money in credit, and you over-stimulate to the point of tempting fates with economic explosion. And at its extreme, it's a Von Misean crack-up boom, where the value of your currency is dropping, the price of everything is going higher. That could be the value of stocks, the value of bonds, the value of real estate, the value of commodities—everything is being repriced higher in an extraordinary and rare crack-up boom." —David McAlvany * * * Kevin: Welcome to the McAlvany Weekly Commentary. I'm Kevin Orrick, along with David McAlvany. David, I was just thinking of when our family used to go to Lake Powell. The first day was a little stressful, getting the boat launched, getting everything ready, but by day three, you really only saw three colors. You saw the blue of the sky, the green of the water, and the red. And when we drove away it was like, wow, is life that simple? Is life that simple? David: This weekend, similarly, I'm sitting by the lake. First time I've been to the lake all summer, I should be there swimming more often, but went for a swim and just sat in the sun and enjoyed the blue sky, enjoyed the breeze. And I thought, I have too many inputs. I'm reading too much. I'm sorting too many details, too many data points, and there's a certain point at which they just don't matter anymore. Is it this outcome? Is it that outcome? Is it any outcome? And it's really helpful just to calm down and be quiet. Kevin: It's sometimes really important just to figure out what are the few things that are absolutely important, and then everything else can be sorted out after that. Do you remember when we were training about nine years ago? Now, you kept up with the triathlons. I didn't. But as far as fitness goes, we were actually paying our dues to be fit. And it's a lot of time, but it is something that you do to really be fit. You can't actually race 70-plus miles in the water and on a bike and on foot without doing a little bit of training. But I look back right now and I probably could not do that. And I think about how many young athletes these days spend all that time training, and yet we still see sudden heart attack sometimes with these guys. And I wonder if it was worth it at all. I mean, will it keep you alive longer? David: I'm registered for a race in September. I think I've told you that. Kevin: Have you been training? David: I haven't been training. So, back of mind, there's consideration, could I do it off the couch? And then that thought of, no, it's probably not a good idea. Kevin: No, I don't think so. David: I mean, there are a lot of people across the country with ailments related to the condition of their body, inadequate care given to maintenance and diet. We have an obesity epidemic. It feeds a host of medical issues, and it's unsurprising when heart conditions emerge, other chronic problems persist, and that's in the context of junk food and excess sugar and very little exercise. And of course if you're a smoker or you drink excessively, those are compounding factors, force multipliers for bad health. Kevin: But those are sort of predictable if you're doing that. What about the guy who's not doing that? David: Yeah, more surprisingly is the fit athlete, well-conditioned, carefully obsessive. You might describe them as an exercise fanatic. This is admittedly rare, but they do on occasion keel over from a heart attack. Kevin: Well, and you had a friend that that happened actually. David: Yeah. Now, he didn't keel over, didn't die. But quite often the silent killer is some pre-existing coronary condition within that sort of athletic type, and they're typically under the age of 35. It's one in 40,000 to one in 80,000. It's a pretty small number, but it's a sudden cardiac issue. Those kinds of heart attacks, 65% of the people that drop never get back up. It's death on the spot. Frankly, it sounds like a good reason to skip the next marathon. Kevin: Well, I'm sure, Dave, we'll probably get some comments too. It's not just the genetics. Sometimes people took the vaccine. David: Well, and it's not the young athlete that poses a problem to our health system. It's the aging and infirm. One in four deaths in the US are due to heart disease. Kevin: Wow. David: It's a big number. And the incidence of heart attack increases with age. So males over the age of 50—I should be paying more attention now—but particularly over the age of 65, that accounts for the vast majority of cardiac events. Kevin: One in four. That's the whole statistic. David: Arteries harden, plaque builds, and over time you're setting the stage for crisis. Kevin: And this brings in your friend. David: Yeah, one of my good friends, age 50, just had a heart attack, but that's not really the reason for the lead-in on health. Rather it's age and the type of wear you put on the body that ratchets up the probability of crisis events. So, too, I think when you look at the age of a business cycle and the degree of mistreatment within the economy, I think you're talking about a compounding effect. Kevin: Well, why don't we look at 2008, Dave, when we started this podcast, basically. We were in the midst of the global financial crisis, beginning stages of it. And then what we saw after that was the possibility of a depression. And the central bankers came out basically saying they'd do whatever it takes. And now here we are, 2008 to 2025, that's 17 years, and we really have sort of delayed the hammer. But how much longer? David: Well, how healthy is the ticker? If the heart is like the economy, the deceiving looks good, feels great. It's kind of: the investor gloss on the US economy is problematic, and you may not have a comprehensive read on the true condition of the engine. Like you mentioned, 2008, we were in crisis, 2007, things had never looked better. I think it was actually late 2007 you had the Citigroup CEO said, if the music's playing, you got to get up and dance. I mean, so there's this expectation of, hey, looks good, music's playing, get with it. Kevin: Yet we saw a signal, there was Bear Stearns in the background. It's like, wait a second. They can't sell any of their bad debt. David: So you get simple vitals, and it's just not the same as a comprehensive set of panels. A basic assessment of vitals. It's helpful, but it may not tell you all that you need to know. When you want a thorough assessment, you have blood panels done, urine samples. Think of how much data an insurance company collects and how many tests they run to determine their probability of loss from an insured person dying. Kevin: So what would a comprehensive panel for our economy do right now? I mean, if we really looked and assessed, taking politics out of it. David: Well, I think that's where you look at the amount of liquidity in the system, and it's one of those things that feeds this view that all is well. If there's lots of liquidity, everything seems to be functioning in a normal fashion. You change the liquidity dynamics and all of a sudden the system functions very differently. Kevin: So there's the heart attack metaphor. There's a liquidity dynamic with a heart attack. David: Well, for sure. When you think about data and you think about the need for good data, we've got a president who was up in arms last week about bad data. Lets the lead at the Bureau of Labor Statistics— Fires them. Data's bad. Kevin: "I don't like your numbers." David: And I'm not sure what the president is looking for. Is he looking for true and accurate data or does he want data to confirm his policies? Just like he wants interest rates to support his policy trajectories. This week, Trump is in a rage. He fires the head of the BLS for what he says is bad data. I would argue that everyone knows the data from the BLS has informational deficiencies. Kevin: I think you've eliminated the L out of that many times in the past and just said it was BS. David: That's been the case across multiple administrations. Kevin: Sure. David: Can the BLS play politics? We talked about this on the Tac Short call this last week. One of the questions was about whether or not the Fed was still independent. And I think they can certainly play politics. They have played politics for sure, but I think there are two reasons to care about the data. One, because you're trying as an investor to assess risk and avoid cardiac events. And two, because, and this is perhaps less ideal, you're selling policies to the public. So you care about data because you care about what it says, what it reveals, and you may be leveraging that data to build a case for preferred legislation. Again, leveraging data to prove a point. Kevin: But when you guys meet, you really need the best data possible. So when Morgan's there or Doug or Philip, Robert, you guys need the very best data that you can. David: On a daily basis, we look at 125 data points that are constantly shifting, and try to get a picture, a mosaic of things that are shifting within the financial markets. Kevin: You try to project. It's not political. You're not trying to convince anybody of anything. David: No. Data integrity is fundamental to us. Kevin: Exactly. David: Data, I think, to Trump, is political, as it is for all politicians. You can go back to the '70s, and that's certainly the case. Arthur Burns, he bent the knee to the Nixon administration in an effort to gin up economic activity and improve the economic vitals. Kevin: Then we got high inflation after that.