Jason Hartman starts the show by talking about political speech and censorship. He also shares a story about misappropriation and misleading and reminds everyone of his commandment number three: to maintain control. Afterward, Jason interviews Jim Richards, author of The New Great Depression. Jim shares his discoveries about the lockdown and the relation of the real economy to the stock market.
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in 1000s of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day, you really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 0:53
Welcome to Episode 1636 1636. And I’ve got to say that I miss all of you, I really do miss you. You know this three day a week thing? I’m not sure how long I can handle it. Maybe you’re having withdrawal symptoms. I know I am. Anyway, we had a close relationship with five days a week. And now we’re only three days a week, Monday, Wednesday and Friday. And with so much going on in the world, it feels like just too long. Since we have talked for there is a lot going on. We are leading up to a major, a major situation in Washington DC, who knows what the situation is? I don’t know. You don’t know. But we’ve got censorship that is so blatantly obvious and frankly, arrogant. By the Communist Party of Silicon Valley, the Communist Party of Silicon Valley is literally deleting and rewriting history before our very eyes. We all know, we should know. Maybe we don’t know. We should know that throughout history. We should know that censorship is tyranny. One of my stupid friends. Yeah, I’ve got a few. You’ve probably got a few too. You know who they are. There’s the people that make idiotic comments on Facebook and make you think, why exactly? Am I friends with this person? Suddenly, when they talk about politics, their IQ dropped like 35 points? I don’t know. Anyway, he says, will Jason, do you think it’s okay to yo fire in a movie theater? And that’s such a stupid comparison. Seriously, it is so stupid. It’s really dumb. Why is that? Because, ladies and gentlemen, people. This is political speech. This is dramatically different than any other type of speech. political speech is the most protected type of speech under the First Amendment. That’s what it was designed for. No, you should not be able to say anything you want. You should not be able to defame another person. You should not be able to yell fire in a theater and cause a massive Stampede and get people hurt in the stampede. No, you should not be able to do that. But should you be able to speak out against your government? Yes, you should.
That is called political speech. It is what our brilliant founding fathers had in mind when they created the First Amendment to the United States Constitution, the most liberating document the human race has ever known. Ever. And guess what they did after that? They created the second amendment to make sure the first amendment would stick. That’s exactly what they did. And if you’re listening from one of the 188 other countries, not the US, just think about the power of these incredible people back in the 1700s. Who thought of all these ideas, who believed in the idea that government is from the consent of the governed, okay. And when George Washington was president, and he could have been the king of the universe, he could have been the ruler, the Emperor, but he stepped down voluntarily. Okay, now, granted. He did not have a fraudulent election. So that’s a whole nother issue. Don’t start sending me emails about this whole Trump thing because this election, and in you know, I just want to be clear about this. The election was certainly a cluster bleep of fraud. There’s no question there was massive fraud in the election. And elections always have fraud. There’s some degree of fraud in every election, whether or not the fraud would have amounted to a change in the result is unknown. I’m not saying it would have, we might still have seen the the old man with dementia, who doesn’t believe in anything, who, by the way, came into politics in this anniversary year. Okay. We are in the anniversary year, I think it’s August, right? Was the exact month that Nixon took us off the gold standard. And right after that, Joe Biden showed up in the political game, and the whole thing went downhill.
I got some interesting stuff coming up on that, from our prior guest and speaker at our last live, meet the Masters conference, none other than the brilliant George Gilder I’m going to share some good stuff with you about that. But But yeah, you know, I also interviewed last week sayfudine, almost, who wrote the Bitcoin standard, which is a fascinating book. And he ties in the decline in morality, and the time preference concept, and how it plays into our psychology as people into fiat money. And his new book is called the Fiat standard, which I don’t think is out yet or it’s going to be out momentarily. Fascinating premise, and we talked to him about that. So we’ll have that interview next week. But today, we have none other than Jim Rickards, Jim Rickards, is our guest today. And on Wednesday, he will be back. Because we have a lot to talk about with Jim Rickards. He’s written a lot of really interesting books on monetary policy on the future of what is going to happen with money and gold and so forth. He’s He’s definitely a bit of a gold bug. Not a Bitcoin fan, not a crypto fan. So that’s just kind of where he stands. Just so you know, going into the interview. And I decided to do this interview today, because last week, we announced our contest winners, and one of them was Ashley. And she said, she just got Jim Rickards book and was starting to read it, I believe yesterday. So I thought, Hey, we might as well put Jim Rickards up for this week, and he’ll be here with us in a moment. Now, I’ve talked to you a lot over the years, about of course, my 10 commandments, of successful investing. And the most resonant of all of the commandments, the most resonant to everybody is none other than commandment number. You know what I’m going to say? Number 123. commandment number three has been the most compelling I think for people. And it is of course, thou shalt maintain control. Remember, your money, you’ve earned it, you worked hard for it.
Or maybe if you’re in politics, you just cheated people for it or, you know, in some other cheating profession, but whatever, you cheated hard. I hope you like my jabs that I constantly putting into these discussions. So you know, you work your way to the top, or you can be like Kamala Harris, you sleep your way to the top, or you cheat your way to the top. However, you got it. We know it was hard for you to get the money, right? What Willie Brown camela Paris’s boyfriend who got her into politics, right? I met him by the way, the former Speaker of the House in the Socialist Republic of California. I remember I met him many years ago, because my uncle knew him. My uncle was a famous restaurant tour in San Francisco. Back in the day, my uncle jack, he knew everybody in that city. And I remember once I was with my uncle, and we were in San Francisco, and he was shopping at the super high end men’s clothing store. Wilkes Bashford and in walks Willie Brown. Yeah. And none other than Willie Brown, the man who slept with Kamala Harris to launch her political career. Anyway, so he was there and he was very much hated by the right side of the political aisle. He was a disaster of course and the whole state of California is a disaster. Even Bill Maher agrees with that, okay, and Bill Maher is pretty darn liberal but he thinks California is an epic disaster and he’s right. So, you know, Willie Brown, I met him and my uncle started talking to him and he introduced me to him and and then he went out and had a drink with us for I don’t know, did we have something to eat? I can’t remember we went to a little cafe with Willie Brown, my uncle myself, Willie Brown. There you go. I could have met Kamala Harris. What was he like? 40 years older than her when she got together with him. Hey, you know, whatever. So political career, you got to do what you got to do. Kamala? Okay.
Well, anyway, she will be President of the United States probably pretty soon, because I cannot imagine the good old sleepy Joe is gonna last for years. But we’ll see. Anyway, back to commandment number three, I don’t know how we got off on that tangent. commandment number three, thou shalt maintain control. When you relinquish control of your money, you leave yourself susceptible to three major problems. Number one, you might be investing with a crook. And I’ve got a story about that. Number two, you might be investing with an idiot. And number three, assuming they’re honest, assuming they’re competent, they take a huge management fee off the top for managing the deal. Well, let’s talk about number one. Remember, you want to be a direct investor, take your money, and buy your own stuff that you control by your own properties that you control. You decide what to buy, where to buy, when to buy, how to finance, who to rent it to how much to rent it for when to sell it, when to refinance it, when to do a 1031 exchange, it’s your deal. That’s your deal. You’re not relying on someone else and leaving yourself susceptible to those three major problems. So here’s a story about a real estate fund manager who is charged with misappropriating funds. Imagine that. Imagine that, and charged with misleading investors? Oh, come on. That never happens. It doesn’t happen with any syndicators, any fund managers, any wall street people, any any of the C class or the boards of directors of publicly traded companies or companies that you might do a private placement memorandum in and invest in privately now. People are all honest. You know, I tell you folks, I am no longer a, you know, a doe wide business person. You know, I’ve been through the wringer. I’ve been ripped off so many times, I can’t even count that high. But you know, I do more stuff, right? I’m willing to do more things and try more things or at least I was a much less willing than I used to be. And so you know, you try more stuff, you do more stuff and you’re gonna get ripped off more often things are just gonna go go badly more often when you when you try stuff harder. So when you when you try more things, right, you take more risks, you’re going to have more chaos, and I’ve certainly done my share of those things. Right? But you know that when it’s when it’s a pooled money asset, you know, pools are for fools, right? You get into that type of situation.
So, the SEC securities exchange commission, you could call it the scoundrels encouragement commission. The scoundrels encouragement commission, announced Tuesday that a real estate fund manager named Eric Malley of MG capital has been charged with defrauding investors and misappropriating funds. He’s a licensed real estate broker, and allegedly misappropriated over 7 million bucks. 7 million bucks. That’s a lot of money, isn’t it? 7 million, it’s 1 million more than 6 million and 1 million less than a million. Either way. It’s a lot. Yes, it is. Okay, so 7 million bucks while lying to investors about his management experience and their risk exposure. And not only that, his firm’s capabilities. So yeah, apparently his firm, they started deceiving people back in 2014. And they blatantly misrepresented things. They raised a total of 58 million bucks and promised people their capital was 100% protected from loss. And, you know, this guy solicited investors manage two different real estate funds with a portfolio over $1 billion, see using leverage, and I bet I bet the creditors are gonna get burned too, or the lenders for probably got burned too, and asserted that the fund was able to significantly outpaced the s&p 500. And, you know, of course, that’s a common common comparison for investors. Bernie Madoff, who made off with billions of dollars, did that too. And he also said that The capital was secured by a via balance sheet valued at over $250 million. And six years after this began, the SEC alleges that none of these claims were true. none, none. Nothing’s true. So this is how it is, folks. People can just lie, lie lie. Liar, liar pants on fire. Yep. So hopefully, that guy will be in the slammer. And, you know, as investors, I’m sure lost a bunch of money. Because what happens, they can never recover all the money, whether it be made off or any of these crooks, they can never recover at all.
Because, you know, they spent it mostly, and I just want you to understand something, I want you to realize that these, these folks that do this, like, if you ever watched that great show, CNBC show American greed, which is excellent. It’s always a fund manager. And the common thread is that these people are always super well liked. Because they’re throwing money around. They’re really generous. Everybody likes them. And they’re always donating a lot of money to charity. And they’re always a pillar of the community. And, you know, that’s what they do. They might be raising money for a Broadway play, or a syndication on a development deal or whatever. But I and I will guarantee you that hundreds, if not 1000s. Well, I can’t guarantee this so I shouldn’t say I’ll guarantee you but I’ll bet Yeah. How’s that? I’ll bet you that hundreds, if not 1000s of these current fund managers, syndicators, etc, out there are crooks and they just haven’t been figured out yet. Okay. So let the buyer beware. Let the buyer beware. buyer beware. Okay. What else we have? Oh, I got to play you a little quick clip from some of our other contest entrants. Our producer, Josh, who’s fantastic, by the way, made a quick little montage, and then we’ll come back and we’ll get to Jim Rickards.
Hello, Jason. My name is Ashley Marie Slater. I am from rural upstate New York. I’m an opera singer. And for the past few years, I’ve been working on cruise ships bringing great classical music people on board. It’s been really devastating not to be able to sing, and share music with people. And recently, I started trading my time for money working at a local warehouse. But the silver lining in all of this is that while working, I was able to listen to audiobooks and the like. And that’s when I discovered you and your podcast. And Jason, you have been educating me, you have been inspiring me.
I had a mentor in college who told me to always be thinking about the next step and to never be complacent or satisfied where you are. I’m the kind of guy who’s always thinking about the future. I love thinking about the what ifs when it comes to what I could do or accomplish. And if one quote could sum up my life’s mantra, which happens to be from my all time favorite movie, it is busy living.
After college, I was a sponge for seeking wisdom, and I subscribed to a ton of random podcasts. Luckily, one of those was Jason’s and I fell in love with the idea of my financial independence day. I live in California, San Francisco, California. And I’m entering the Jason Hartman contest. Number one, I want to by the end of the year have six properties under management that I own. My fourth goal is to help at least three people with their inner well being this year. Hey, everyone, my name is Mr. Gupta, and I’m making this video for Jason Hartman real estate contest. My goal for the year 2021 is to actually buy my first real estate property. I have a long term goal where I want to start my with my first property this year, and then I want to buy one property a year. So nine properties in nine years.
I look up to Jason and I learned a lot from him. Good evening. This is my video entry for the Jason Hartman goals 2021 contest. I’m also currently in the process of trying to set up my own rental income business and LLC. The slightly unfortunate thing about this is that I come from a blue collar society. nobody in my family or network has known anything really about really investing how to leverage their money, how to really use debt as a tool. My goal really for the next five years is to build my network. So that way, I could have my own $500 that I’m generating. Give a man $500 and he’ll eat for a day teach a man how to make $500 they’ll never be hungry again. So December is a great time to talk about goals. And about two years ago, I set the biggest goal in my life. And that was to become financially free to be able to do what I want with my time not to worry about the bills, etc. And that was to get into real estate and become a better and healthier person. Friday 13 March 2020, the stock market is crushing. The global pandemic has been announced. People are freaking out everybody’s scared. Interest Rate drop, too. And we took advantage of it. And we got into our first real estate deal.
Jason Hartman 20:37
All right. Now let’s go to Jim Rickards. And he’ll be here today and on Wednesday, talking about all of the issues going on in the markets and with money and monetary and fiscal policy. So let’s take a listen to my interview with Jim Rickards. It is my great pleasure to welcome someone who I’ve been following for many, many years, and that is none other than Jim Rickards. I’m sure you have seen his work out there. Maybe you’ve read his books, I’ve read several of them. He is the editor of the strategic intelligence newsletter, the best selling author of several books including Aftermath seven secrets of wealth preservation in the coming chaos, currency wars, the making of the next global crisis, the death of money, the coming collapse of the International Monetary System, the new case for gold, the roads ruin the global elites secret plan for the next financial crisis, and the new books, the new Great Depression winners and losers in a post pandemic world and the Ravens how to prepare for and profit from the turbulent times ahead. And he co authored that one with Robert Kiyosaki who’s been on the show a couple of times. Jim Rickards welcome. How are you?
Jim Rickards 21:56
I’m fine. Jason, thank you. Great to be with you.
Jason Hartman 21:58
It’s good to have you on. You know, by the way, I’m curious. I don’t know where you’re based. Where are you located?
Jim Rickards 22:03
I live in Portsmouth, New Hampshire. So that’s our motto here is Live Free or Die.
Jason Hartman 22:08
Excellent. Well, that’s that’s a good libertarian motto. I like it a lot. And you know, when I see your interview, sometimes you’re in a different environment. Do you have like a cabin somewhere or something where I
Jim Rickards 22:18
have a farm in the mountains? We go back and forth.
Jason Hartman 22:21
Excellent. Good stuff. Well, I just give us your overall kind of macro view, if you would, Jim, as to what is going on in the world? It is certainly a turbulent time, no one would deny that. Yeah, you know, every crisis is it leaves leaves open many opportunities. At the same time, we’ll take a deep dive into that today, I hope
Jim Rickards 22:40
show that’s exactly what the books about the new Great Depression. And when I was first discussing with my publisher, my editor last April, and the idea came up. And of course, by then we were in the lockdown The Economist collapsing the stock market, and just dropped 30%. So Jim, we want a book on this, there’ll be huge lot of interest in it, you know, the economy, you know, markets, you know, capital Ma, you’re just the guy to do it. And I so thank you, and we got going on that. And they said, but you know, keep away from the pandemic, and and the epidemiology because you’re not, you know, doctor, and I said, No, I said, that’s what gets me to write about property damage in New Orleans in 2005. And not mentioned Hurricane Katrina, I said, you cannot understand the economy, you cannot dive into the great new Great Depression. Without looking at the pandemic and what causes today they agree that that makes sense. I know, I’m not a doctor. But I said kind of jokingly, I did, I did go to Johns Hopkins. So not not intimidated by natural science. And I was able to read, I did read over 100, peer reviewed academic papers on the immunology, the epidemiology and the biology. That doesn’t make me a doctor, but the sciences are accessible. You know, when I started, I thought to myself, well, you know, there’s going to be a whole bunch of like conspiracy theories and fringe theories, everything over here. And there’s going to be good science over here. So all I need to do is keep away from this and focus on the science. The first part was easy, you can discard the fringe theories. But when I got into science, what I discovered is that the scientists don’t agree with each other. And that’s a much bigger challenge. Because, you know, you hear certain politicians and it’s a shame the way this has all been politicized. That’s really unfortunate. But politicians will say, you know, believe the scientists well, anyone who says that doesn’t know anything about science. I mean, scientists argue with each other all the time, they debate they challenge each other’s assumptions, new research comes along, and the, the the science as such evolves, but it’s never settled.
Jason Hartman 24:36
So by By the way, just to comment on that you’re so right, Jim, because if we believed that science in the old days, we would still think that everything revolves around the Earth, you know, I mean, that was the science of the day. Exactly.
Jim Rickards 24:49
The sun the sun revolves around the earth and took it even when Copernicus said that wasn’t true that the Earth revolves around the sun that took Kepler and, and top tech abraha and others 100 years To change the consensus, so yeah, even bad science and there’s a lot of it around doesn’t change overnight. So that’s exactly the issue is confronting. And I can show you PhD peer reviewed articles to say, you know, you have to wear a mask, you’re a fool. If you go out without a mask, it’s the only way we’re going to stop the disease, etc. I can show you other PhDs who say, no mess don’t work. If you understand the virus, the virus particle, the virus itself is smaller than the wave and the mass mass are not well constructed. People don’t wear them correctly. They’re mostly for show. So take a pic, I learned a little bit too, you know, like I wear a mask. I’m not gonna fight with the greeter at Walmart. If he says you got to wear a mask, I’ll put a mask on. But I think we are right to be skeptical that they do very much good at all washing your hands how social distancing helps, but so so I spent several chapters on that including the origin of the virus and the effect of the lockdown. But the lockdown was the segue into the economy. Because this the evidence is very clear that lockdowns don’t work. I know that may not be a popular view, but that’s been true. That’s the scientific consensus around that has been true for a long time. Lock downs of what politicians do when they don’t know what else to do. I know a lot of time for him. He’s a he’s an over the hill, bureaucrat, you know, the old saying, if your hammer, everything looks like a nail, right? Well, if you’re an immunologist, everything looks like a lockdown. But the fact is, lockdowns don’t work. If you have an island someplace, and you can only get there by boat, you close it off, and nobody can come and nobody and
Jason Hartman 26:27
then then a lockdown work.
Jim Rickards 26:29
That’ll work. But try the United States of America, North America, Europe, 300 million people or 400 million people in the case you are, it simply doesn’t work.
Jason Hartman 26:36
One thing I want to say though, on this is, you know, if we try to put this video on YouTube, there is a high likelihood it will be taken down having this blasphemous conversation. I just, you know, want to win. No, you’re
Jim Rickards 26:49
right about that. I always hope you can fly under the radar screen a little bit. It’s one of the reasons I like reading books. I think books are the last thing that are not being censored. YouTube will take it down, Twitter will take it down. Facebook will take it down. I applaud my publisher, and and my publisher may have other authors who disagree and they’ll publish them also. And that’s the way it should be.
Jason Hartman 27:11
But, Jim, Jim, we should be outraged at this. This is insane. I mean, yesterday, the President of the United States was banned from social media gets this is, I mean, I can’t believe we’re living in these times, it will be a nightmare.
Jim Rickards 27:31
Imagine, imagine you in the Soviet Union in the 1960s it was the same thing. But there we are that in some ways and that and but they survived they had some result, which were the kind of handwritten manuscripts and they will secretly copy them on a Xerox machine and pass them around and envelopes and cafes, whatever they you know, Boris Pasternak got Dr. Zhivago out and turned into a pretty good movie. So but you have to fight back and I agree with you. The censorship is impressive. It’s it’s not scientific base and has nothing to do a civil liberties or First Amendment. It’s just Silicon Valley trying to control the dialogue. And you know, when they ban somebody in this kind of high profile question, you shut down one voice. But that’s not that’s not the worst part of it. The worst part of it is millions of other people who are intimidated, say, oh, gee, I better say the right thing, or I better not spam. Because they’ll do
Jason Hartman 28:20
I’m going to get sent to a reeducation camp, which means I banned from Facebook.
Jim Rickards 28:25
Yeah. And by the way, in China, they’re doing that they have concentration camps in China. And they’re, they’re removing organs from political dissidents without anesthetic and then cremate the body. So we’re seeing that only work. So but we’re, you know, we’re not that far from China, I agree that we’re heading in the wrong direction. As far as what we don’t want to Washington, it’s interesting. I absolutely, unconditionally, condemn the violence. I don’t think there’s a place for violence, your property damage, you know, etc. But having said that, the behavior just as an analyst, leaving aside the politics, that is very much the kind of behavior to be expected as a result of the lockdown. And I would say the same thing about the rise last summer you know, a lot of people condemning the attack on Capitol Hill and they should i don’t disagree with that. But they were pretty silent all summer when people were burning down Kenosha, Portland, Seattle, parts of New York Brooklyn senator, if you’re going to be against violence be against all the violence, not just the ones you agree with or disagree with. But the point I make and this is in chapter five of the book, he has been enough talk and some science and publicity has said around the physical effects of the virus and the pandemic. But I don’t underestimate the mental health aspects of this and this is by the way, this is another reason lockdowns network lockdowns kill more people than they save. You could probably find somebody who got locked down and say, well, gee, she she’d be dead today if she wasn’t locked down. I mean, that person probably exists. But what about the fact that the suicide rate has tripled, the murder rate has doubled drug abuse, domestic abuse, people who skipped cancer treatments and heart treatments died of heart attacks because of the lockdown. So the evidence is that and this is not just speculation, the lot of data is out there. We didn’t necessarily I didn’t have the data or not all of it anyway, last April in May, when I started writing the book, but over the course of the summer, the data came in and it bears out what I’m saying. So the lockdowns have killed more people than they’ve saved, they have not stopped the spread of the virus and what you do you lock lock the place down, maybe for a very short period of time, you you contain the spread a little bit, but then when you do you have martial law, you’re gonna be locked down the rest of your life. So then they they ease up, and all of a sudden, there’s just a huge outburst and explosion of the virus in your back where you started from probably worse than when you lock it down again, you know, like wash, you know, rinse and repeat. So,
Jason Hartman 30:50
and you didn’t mention that people’s immune systems become weaker, too. That’s another. That’s
Jim Rickards 30:54
right. I mentioned in the book. You’re right, you’re right. I haven’t mentioned that yet. But you know, we, there’s more than one virus and bacteria floating around. And by just going outside and interacting, going to a bar or whatever. We get exposed to those other viruses and bacteria. And then of course, they’re not as lethal as Coronavirus, but they can make you sick and and you build up immunities to those. Well, when you’re locked down. Maybe you’re avoiding the Coronavirus, but you’re you’re weakening your immune system relative to all those other pathogens. And so that’s another problem coming out of the so called lockdown, which is you probably get sick of something else. So look, it just doesn’t work. And in the book and chapter two, I go through the history of where this lockdown idea come from? Well, it was on it was in a paper in a study and the Centers for Disease Control where that come from? I traced it all the way back to 2005. During the the avian flu when george bush was president, he read a book on the Spanish Flu a very good book, by the way called great influenza by john Berry. But bush kind of freaked out a little bit. He said we need a plan. Well, they came up with a plan that was devised by a guy who was a modeler at the Sandia National Laboratory in New Mexico who didn’t know anything about disease, and a toy model that his 14 year old daughter come up with him on a high school science junior high school science project price great. But that then morphed into this study was carried on through the Bush administration, the Obama administration. And then when the Trump administration needed it, they pulled it off the shelf, what was it and returned to the Middle Ages. There’s a very prominent scholar da Henderson, he passed away a few years ago, but he was credited with leading the movement to eradicate smallpox, and we did eradicate smallpox in the 1970s. And da Henderson is given most of the credit for that a one day national sort of the Medal of Freedom, which is the highest civilian honor, you know, kind of equivalent to the Medal of Honor, and was dean of the Bloomberg School of Public Health at Johns Hopkins. So you sort of can’t get any more credential or accomplished than that. And he said, lockdowns don’t work. And I quote his study in the book. So so that’s clear, but they have, they’re not going to stop in the spread of the virus, but they’re very good at destroying the economy. And that’s what we did. But they cause all these other even if you don’t have the disease, even if you are immunized, you had it, you recover and you got the antibodies, the lockout still affects you mentally, it causes depression, anger, anxiety, and ultimately violence. So I trace some of the it’s not all not the sole cause but some of the violence we saw last summer, in all these anti fur riots and the violence we saw yesterday on Capitol Hill, in part because people’s anger levels so high because of the lockdown.
Jason Hartman 33:33
Sure. One thought about it. I don’t know if you’ve thought about this, or really, anybody has much. I’ve never heard anybody say it. But if you look back to the spark that ignited this, you look back to George Floyd, just think of his situation. So he was arrested for counterfeiting. And he lost his job, because the place he worked as a bouncer was closed. Okay, that business was closed. Right. So he had to have money. And that was before any of the stimulus. I think I could be wrong on that. But I think it was right. And so he was counterfeiting. And there we go. That led to that whole thing. Right. It may have never happened if he had been able to keep his job. Right. So
Jim Rickards 34:22
the police officers are were arrested and they’ve been charged with a second one of them charges second degree murder, they’re going to learn trial some you know, you’re best until proven guilty and let justice take its course but but these riots many of them were justified in the name of Jewish boy. Well, I could see a peaceful protest. You want to call your congressman, you want a peaceful march? That’s fine. That’s the American way that’s the first amendment not smashing windows and burning downs to it. I don’t care what the first time Yeah,
Jason Hartman 34:50
and billions of dollars worth of damage, nothing compared to
Jim Rickards 34:54
the time it was had a direct economic impact because you go back to Okay, so March March, April, May was the first lockdown the Jewish boy death was the end of May. And the rise broke out in June, July and August. So what else was happening in July? Well, that was right around the time when the mayors and governors are saying Okay, now we can reopen you know, the worst is over that looks like we got the virus contained. So we can reopen. Well, no sooner did the you know, the bodegas and the coffee shops and the restaurants and the bars reopened. Here come the riots, and they’re getting the windows smashed, and they’re burned out and they’re, you know, policing the streets and they boarded up. So imagine you’re a small business person you’ve just gone through my half of them are bankrupt. Okay, but the but they have to kind of survived and try to reopen. Now you got a crowbar, smash the window. And then now today, you got a second way which is worse than the first way we got more evidence that lockdowns don’t work. And there, you get into this difference between perception reality within the stock market. So the stock market indices are at all time highs in the s&p and the new all time high today, the Dow Jones and NASDAQ. They’re all close to their all time highs. And so people still already went down 30% in March, but it’s come back 70% and said new all time high. For one case we store. What’s the problem? It looks so good? Well, the answer is that the stock market no longer bears any relation to the real economy. The s&p 500 is the s&p seven. And the reason is, that’s a cap weighted index, meaning your influence on the index is a function of your market capitalization, whether seven stars, we know what they are Miss Apple, Amazon, Netflix, Google, Facebook, Microsoft and Tesla. Okay, those seven stocks are 40% of the market cap of the entire s&p, right. So it’s best it’s best understood as the s&p seven. And by the way, those companies are also the least affected by the pandemic. They’re not bricks and mortar, telecommunications, they’re digital. They’re advertising, their online shopping, etc. So seven companies or 40% of the s&p market cap, they’re least affected by the pandemic. And yes, their stocks are going up and they’re taking their earnings are going up as well. But that doesn’t that makes sense. Let me see. s&p doesn’t reflect the economy because that’s not the real economy. How are the other 493 stocks doing? Well, the answer is they’re not doing very well. They’re flat to down. And what about the real economy when I say real economy, I mean, restaurants, bars, nail salons, gyms, dry cleaners, bodegas, boutique retailers, etc.
Jason Hartman 37:32
It’s interesting, it’s interesting that you, you’re calling that the real economy. And I’m not disagreeing with you about this at all. But just one of the terrible I think side effects of this whole pandemic, is the massive consolidation that is occurring toward the top, the bigger getting bigger, and everybody else is going to need UBI universal basic income to survive. Because this may well be very engineered, or it’s just a massive, we helpful coincidence to the central planners who like this idea.
Jim Rickards 38:08
Now, that’s exactly what Mark Zuckerberg wants to mark. So Zuckerberg gave, I think, a commencement address at Harvard, he never graduated, but he got an honorary degree as a guest speaker. And he talked about UBI. But that’s what they want. They want a world where you know, 10, or 20, or maybe a couple 100, people control everything. And the rest of us are used to getting welfare checks. And they say, Hey, stay on watch football, play video games. Here’s
Jason Hartman 38:29
your bread and circuses.
Jim Rickards 38:32
Correct. Except maybe you get to see I guess, you get bread and circuses if you count the NFL. So the point being, yeah, that is what they want. And, you know, rahm emanuel famously said, Never let a good crisis go to waste. Well, this is a good crisis. And they’re not letting it go to waste. But But getting back to the if people look down their noses at small and medium sized enterprises, they say well, your restaurant with 20 employees big deal you’re not Boeing, you’re not Apple Computer. Well, I’m issue that those small medium sized enterprises make up 50% of all jobs, and 45% of GDP. So individually, they may be small, but in the aggregate, they are half the economy, and you’ve just crushed that the economy. Okay, so, Jim, see that again, if you would, I just want to make sure people really get those numbers in those ratios, small and medium sized enterprises. Again, your bars, restaurants, salons, etc. are 50% of all jobs and 45% of GDP. Okay, so that’s half that’s half of all jobs, and almost half of the entire country’s GDP correct. And we just crushed it. And then you got people like Larry Kudlow running around, you know, last spring locos a nice guy, decent person, but worse forecasting record of anyone I can think of other than the Federal Reserve, and he’s saying a pent up demand pent up demand, the economy’s gonna come roaring back in July, etc. Well, there’s no pent up demand. I mean, my, my wife and I were We were locked down just like everybody else in March, April, and may And usually we go out to dinner on a Friday night and we didn’t join that time period, the restaurants are closed and you don’t want to go out anyway. By July, you know, restaurants reopened, so we went out to dinner. Well, we didn’t. We’re nine dinners. I just ordered one like I usually did, right. And there was no, there was no pent up demand. I didn’t get nine, I got one. So that was the other nine dinners. That’s a permanent loss. That’s not a temporary loss.
Jason Hartman 40:23
I mean, people are thinking maybe you go out to dinner a little more often because it’s like the roaring 20s. You know, you’ve been locked up and now you, you’re out more, you know, but it’s never gonna be the equivalent.
Jim Rickards 40:35
First of all, that’s not I know, people. Some people may suggest that Larry Kudlow did, but that’s not true. Number one, number two, by the way, even if the restaurant is open, and you feel like going out, a lot of people are not going out, right, say the restaurant. But you know, hey, then people are still afraid. I’m pretty well, and I’m not criticizing anyone’s behavior. I’m just describing it for purposes of economic analysis. So and that, by the way, I said the restaurant reopen some of them did. A lot of them are permanently closed. It’s not First of all, they will never reopen him. Correct. Now, these businesses I got started with all the data is in the book that they have got word that that is how much working capital when they have one bit varies by sector, but the answer is 10 weeks, 20 weeks, most people don’t have $5 million in the bank. They’ve got you know, they have gross revenues, they pay their payroll and their suppliers and their taxes, and they make a little profit. That’s it, they don’t have work yet still. But if you’re locked down, you still have to pay the rent, you still have to pay the utilities, you know, you must have benefits, etc. And so you’re running negative cash flow, and a lot of them are just going bankrupt. So you go up and down. I don’t care where you live up and down the streets, you’ll see every fourth or fifth store, you know, for lease clothes, they’re not coming back, there’s jobs and not coming back. The equipment’s upgrade fire sale prices. And by the way, they’re not paying the rent because they broke the lease. That’s the first thing you do when you file for bankruptcy. Well, and then, but a lot of a lot of places New York City’s mom is not the only one. They have rent abatement. They’ve told people you don’t have to pay the rent. And they’ve got anti eviction laws to say. And by the way, if you don’t pay the rent, you can’t evict the person until further notice. Well, that seems like you know, guess the accommodation to the economic distress. What about the landlord? Yeah, landlords,
Jason Hartman 42:17
then the commercial mortgage backed securities, they’re defaulting on all those
Jim Rickards 42:21
people. Yeah. And who else? And well, your listeners should mention plans as well. Yeah, pension plan could be your pension plan that you personally but your listeners should look in their 401k. Do you want a high yield commercial real estate fund that was dumped on you by Morgan Stanley, or Goldman Sachs, maybe? Or maybe you have an index fund that’s in the index, and you don’t even know, the point is, there are ripple effects of this. And they’re going to go from tenant to landlord to lender to security holder, and it’s going to take a year to play out. So we’re nowhere near the bottom of this.
Jason Hartman 42:52
Yep. I agree. I think that’s a that’s a huge thing. So the government and the central banks all around the world have created an unprecedented absolutely mind boggling amount of new currency. Jim, what does that mean to us? You know, it’s like money printer Gober, as the saying goes, right?
Jim Rickards 43:13
Sure. It actually means nothing. And let me explain what I mean by that. And by the way, your your Austrians and your mattress and your New Keynesian, they’re gonna say inflation rate of inflation. Well, they’ve been wrong for 13 years. That’s how long has it been going on? In 2008, the Federal Reserve balance sheet was 800 billion. Today, it’s about 7.5 trillion. So they point they printed over almost $7 trillion of new money. Where’s inflation?
Jason Hartman 43:42
This will be continued on the next episode.
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