Bubble Warning for Stocks, Bitcoin & Gold w/ Jim Grant (RWH062)
Summary
AI: Sweeping analysis of AI-driven capex, with concerns about overbuilding data centers, weak willingness to pay, and echoes of past fiber/railroad bubbles.
Key Companies: Big Tech spenders cited include NVDA (context), AMZN, MSFT, GOOGL, META, and ORCL as capex leaders fueling the AI race and market euphoria.
Bitcoin: Deep skepticism toward crypto’s utility and safety, criticism of policy and ETF adoption, and argument that the most efficient price could be zero.
Private Equity/Credit: Extensive warnings on democratization, stale marks, higher-rate stress, rising defaults, and secondaries pressure after years of easy money.
US Equities: CAPE near historic extremes and classic late-cycle signals (euphoria, promotion, leverage), prompting caution on a potential major market top.
Gold: Long-form discussion of gold’s cycle, recent surge, macro drivers (fiscal/monetary strain), and the psychological risks of chasing a hot tape.
Government Debt: Alarming growth in global and U.S. deficits and potential shifts in demand for Treasuries, with scenarios of a steeper curve and a weaker dollar.
Transcript
(00:00) People say we're always bearish. That's not actually true. But we are almost invariably skeptical. What doubting Thomas's this is a market of credul and conformity. Actually, you know, people nothing succeeds like success anywhere, but especially on Wall Street. I think it was George Soros himself said we will see a bubble just jump on it. (00:21) Get there early. And uh you look at it in time. No, just I'll tell you when you'll know. But there are so many ways to make money off Wall Street. I happen to have cultivated a following that is innately skeptical. [Music] Before we dive into the video, if you've been enjoying the show, be sure to click the subscribe button below so you never miss an episode. (00:46) It's a free and easy way to support us and we'd really appreciate it. Thank you so much. >> Hi everyone. I'm delighted to be back with you again on the Rich Hope Wise Happier podcast. Today's episode is an important, timely, and extremely thought-provoking conversation with Jim Grant. Jim, who's a cult figure in elite investment circles, is the renowned founder and editor of Grant's Interest Rate Observer, a bi-weekly publication that he's edited since 1983. (01:16) These days, it costs the best part of $2,000 a year for a subscription. So, it's not cheap, but it's widely recognized as an invaluable source of unconventional insights for sophisticated investors. Nasim Taleb, who's not an easy man to impress, has written that Jim Grant thinks outside the box. Please read him, listen to him. (01:37) David Swenson, who ran Yale University's endowment with huge success for decades, once remarked that Grant's interest rate observer is on the must-read list of every serious student of markets. One reason for Jim's stellar reputation is that he draws deeply on his knowledge of financial history to issue early warnings about brewing storms that many investors fail to recognize until it's too late. (02:04) He's never been afraid to point out the wretched excesses of Wall Street. Those moments when speculative fads get out of hand and when unscrupulous investment firms are selling dross that's dangerous to the financial health of careless or credulous investors. In 1999, for example, at the height of the dotcom bubble, Jim warned that it was one of the most perilous periods in investment history and that America was dangling by a thread, financially speaking. (02:33) A few years later, he was one of the first people to warn about the dangerous mortgage securities that led to catastrophe in the global financial crisis of 2008-9. In the years after the financial crisis, he preciently warned that the Federal Reserve's monetary policies would inevitably spark runaway inflation. (02:52) So, what's Jim saying today? Well, as you're about to hear, he argues quite forcefully that prudent investors would be wise to exercise considerable caution at the moment given the heightened risks and speculative behavior that he's observing. As Jim sees it at this point in October 2025, there are many unsettling symptoms of euphoria, recklessness, folly, and corruption in financial markets these days. (03:19) All of which he sees as potential warning signs of what he calls a major market top. Now, the reality is I have no idea if Jim's right, and he's not sure either. After all, markets are inherently unpredictable, and it's also more or less impossible to get the timing right, even if you're smart enough or lucky enough to predict a major shift in market sentiment. (03:42) This reminds me of a discussion I had with Howard Marx in chapter 3 of my book, Richer, Wiser, Happier. Howard told me, I don't even think about the timing. In the investment business, it's very hard to do the right thing, he said, and it's impossible to do the right thing at the right time. That said, I think it's well worth listening when someone as shrewd and seasoned as Jim Grant warns that we should be treading with extra care. (04:06) At the very least, it's worth asking yourself if you're overexposed to risks that you can't afford to be taking. As Howard Mark said to me, "It's not about selling everything and suddenly going to cash. It's more about preparing for an uncertain future by asking yourself if you're pushing the envelope too far. (04:24) For example, if you have too much debt or leverage, or if too much of your money is tied up in speculative assets that might be dangerously overvalued. For battleh hardened survivors like Jim Manhower, I think one of the great lessons of financial history is that reckless excess and overconfidence is eventually punished. (04:46) So, it's important not to get too carried away during outbreaks of what seem to be irrational exuberance. On an entirely different note, I also wanted to take this opportunity to let you know that I'm launching a new richer, wiser, happier master class on November 21st. This is a chance to study directly with me over the course of a year as part of a very small group that's capped at a maximum of 20 people. (05:09) We'll meet once a month over Zoom and also at a couple of unique in-person events. Last year, the Mosclass drew an incredibly accomplished group of 20 people from, I think, seven different countries, including some very successful hedge fund managers, wealth advisers, asset allocators, managers of single family offices, CEOs, and entrepreneurs. (05:31) The people who signed up for the new masterass are equally impressive, and we only have a few spots left. So, if you are interested, please do email my friend and fellow podcast host Kyle Greve as soon as possible and he can send you more details. His email address is Kyle, that's ky l at the investorspodcast.com. The masterclass is designed specifically for people who are serious investors and passionate learners and who are really looking to build lives that are truly richer, wiser, and happier. (06:03) So, if that sounds like you, I'd love to hear from you and would be thrilled to have the opportunity to study with you over the coming year. And now, back to the show. Hi, folks. I'm absolutely thrilled to welcome back the great Jim Grant to the Richer Wiser Happier podcast. Jim, as you all know, is a brilliant financial historian and a wonderful writer and speaker and also the editor of Grant's Interest Rate Observer, which he founded 42 or so years ago. (06:32) And it's a must-read publication for the most sophisticated and well-healed professional investors. Partly because it's so expensive, but also because it's so >> cheap with the price. >> Cheap at the price. Exactly. Every time I think about getting my subscription, you put up the price again and I blanch again. (06:50) But I'm finally going to >> That's the That's the business plan. >> It's very wise. But it's a wonderful publication. >> You're an aspirational subscriber. We have many of them. >> Thank you so much for joining us again, Jim. It's a real pleasure to see you. >> But it's a delight to be here. >> Thank you. (07:05) And um well, as Charlie Manga would say, he said, "It's a delight to be anywhere." He was just glad still to be around for as long as he was. So anyway, I'm happy to be with you and I attended your wonderful annual full conference yesterday. >> I know. I was so very pleased to see your familiar and shining and welcoming and emerging face of the audience. (07:23) >> Oh, it was great. And for people who don't know, this is a very glamorous affair at the Plaza Hotel in New York City. And it attracts many of the smartest and wisest people in the investment world, not only as speakers, but actually as audience members. And you said just before we started that you wanted to tell a story about something that came up >> at the end of the conference. Tell us. (07:42) I have no idea what this is about. >> I hope I'm about being indiscreet. Although what is journalism for accept indiscretion with me? >> Exactly. Yeah. And this comes from David Rosenthal who was a speaker of economics and David is number four hireer in Nvidia. How is that for a credential life? He's an extraordinarily he's a gifted computer scientist. (08:10) I can't imagine what computer science is not gifted in many departments of metal acuity. But David is stand out even in that rather formidable crowd. Anyway, this this story has to do with a kind of reunion of founding employees of Nvidia and I guess it was fairly recently and it takes place at a an ethnic restaurant. (08:33) I call it a Salvadorian cooking and there tables full of Nvidia employees then and now. And uh Jen Sen Huang, the story CEO gets up and says announces to the crowd, you know, I'm pretty good at fundraising and what I want you to do, ladies and gentlemen, is empty your wallets and give me your cash. They complied. He's well present. (09:00) Made CEO and his colleagues CEO Jensen collects all this money. Interestingly for a Silicon Valley crowd, there people carrying a lot of cash and so he has a big wad of bills and he walks over the proprietor of this not fourstar restaurant and we here know a little bit about how difficult it was to start. I want you to take this delightful. (09:24) >> Wow. >> Isn't that something? >> That's really nice. >> Yeah. Shouldn't we all do that once in our lives? >> We should. We should. I thought for me the moment you mentioned David Rosenal, what comes to mind to me is he gave a presentation that I think I only understood about one in five words cuz it was deeply technical. (09:44) But what did you make of it that he was he seemed to be dismantling the idea that Bitcoin was as safe and private as people imagine. And he's obviously a very gifted computer scientist who has many patents. And as he put it, not only was he the fourth employee at Nvidia, but actually given that there were three co-founders, he was actually the first hireer. (10:07) So this is a very smart guy. And he was saying that basically, as I understand it, that once we get further along with quantum computing, I think he said there about 20% of the bitcoins out there are sort of lost or unclaimed that people have lost their keys or they're in trash piles or whatever. (10:23) and that a quantum computer might be able to actually relatively quickly figure out how to claim for oneself that missing crypto. What did you make of that? This is way above my pay grade. >> Yeah, that's exactly the message. I think as you say it was deeply technical certainly over my head many places but he was attacking the pretensions of the technologically sophisticated who contended that uh Bitcoin was useful and safe and uh somehow endured from infiltration by the likes of the coming quer computers try to expold that which (11:00) I gather he did >> and I think there's a link to this on his blog which I'll try to remember to include on the show notes something that David Rosenthal gave to a class at Stanford University. I think it's electrical engineering in in 2021. He was just he was filling in for a professor. (11:31) It's the most lucid attack on Facebook. I read it. I thought to myself, why isn't this fraud trading at zero? >> It did not go to zero. So maybe people know something that and even David doesn't know about Bitcoin, but I thought he made a very good set of close arguments. He winds up and says rarely if ever in the annals of technology have the champions of a breakthrough technology gone to such pains to not use it. (12:03) So he was questioning the utility of it. So you kind of had to be there for that one. And not only did you have to be there you had to understand much more of the technical issues than I do and your summer got most. This is a very familiar feeling to me in the financial and technology world that I'm with people who are much smarter than I am and I I'm picking up crumbs as they fall from the table. (12:25) >> Don't think smart is I think familiar or trained or something but no doubt every field has its vocabulary. We are all humbled in the presence of astronomers for example. >> Yeah. >> Yeah. While we're at it, we should close this subject of cryptocurrencies because this wasn't in any way where I was intending to go at the start of our conversation, but since we're here, I'll ride this horse that we're on. (12:48) But you spoke at the conference of the pretense of things that are not money posing as such. It's fair to say if people listen to our last interview on podcast 3 years ago, we talked about crypto in some depth. And Bitcoin now, I think, is is around $116,000 per coin as we speak, despite a recent selloff. (13:08) You've written quite a lot about, as you call it, a cryptobesotted Wall Street that's driven up valuations so that there's now, I think, more than $4 trillion in aggregate value of all cryptocurrencies. And I I read on Bloomberg the other day that Bitcoin ETFs now manage more than $142 billion and that even Vanguard is now weighing the possibility of allowing its 50 million or so clients to trade crypto ETFs, whether it's Bitcoin or Ether or whatever. (13:36) Jack Bogle, the founder of Vanguard, had famously warned investors to avoid Bitcoin like the plague. And so I'm just wondering what you make of what we're seeing here. Is this just standard top of the cycle recklessness and folly or is this you've been following this world of finance for quite a long time? When you look at this phenomenon, what does it mean? >> Well, one is is forever humbled by the markets, the ways the ws of the market. (14:03) I still don't understand what people see in it. Maybe it's a divide of some kind. A limbic system divided. People say, "Oh, yes. Bitcoin. What? I want some of that." The price of a house. You want What is it? Can you see it? No. No. You can't see it. Now, what are you going to use it for? What's its functionality? Well, I'm not so sure about that. (14:26) But I It has done well, hasn't it? Yeah. So I am no longer on certain cable TV stations that I used to be out regularly. I humor myself or I I try to comfort myself by saying it's it's not age. It's not the overfamiliarity with the arguments that fall from my lips. No, it is my anti-maga country club republican line that grants and it is also the last words that I spoke of this particular cable channel when asked about Bitcoin. (14:59) I said the most efficient price is zero. And um my god, this administration is all in on crypto. It's a it's the scammiest thing, the connection between Bitcoin and the Bitcoin promoters and the president and the and his family and these coins and it began before his inauguration. you know, had issues in Trumpcoin and was kind of a rug pole thing and I and it's shocking and contemptable, but these cryptos are being heavily promoted by the administration both overtly and indirectly by the regulatory approach it has taken toward them. Now, (15:39) as to Wall Street, it's monkey seeing monkey do, especially when that monkey is moving upward and to the right a stock chart. You know, Bitcoin's genesis was in synonymous, right? Not enough. Yes. So, you could go and procure whatever you wanted to, whether there's drugs and surface to air missiles or if you were living in a united country that allow you to take money out, you can take your money out through Bitcoin and Wilson. (16:06) But any case, it was off the grid and outside the pale of conventional Wall Street. Now look, Vanguard for peace sake, you know, it's it's right down the middle of the fairway. So the establishment which could not abide it could be bit. Ah god, now it's Yeah, Bitcoin it's a thing. Let's start the next ETF. So I still think the most efficient price of twice is zero. (16:31) >> Well, that's good. So now that we've very efficiently offended half our audience in the first 10 minutes, either politically or financially, we can be much >> Let's get the other half. >> Let's get the other half. >> The other half. >> By the time we come around to talking about your book in an hour or so, nobody will be left except for my mother. (16:49) >> Well, they should buy the book. They should buy the book, right? >> I I bought the book and I very much enjoyed it. Although I have to say it's 400 and something pages long and I'm still and I'm about 20 pages from the end. So, I'm ashamed that I didn't quite finish it last night. >> I'm not going to tell you how it wound up. (17:07) >> Did it all end happily like most of history. So, anyway, we'll get to the book later. But the thing that I wanted to start talking to you about except for the fact that both of us digressed for 15 minutes to insult half the country is I found yesterday the conference, your conference, it was a fascinating day and also a slightly unsettling day. (17:27) And what struck me I think was the divergence between the current mood of euphoria in the markets and the acute skepticism and weariness in the room among your speakers who are a savvy battled hardened bunch. And so for example there was a credit investor named Victor Kosler who manages something like $22 billion who said markets are very bubbly and there are lots of problems under the surface. (17:53) So for example, he said there are entire areas of private equity that are in deep trouble and lots of companies within private equity that are defaulting on their debt and going bankrupt. Can you give us a sense for people who weren't at the conference of the mood there and what it reflects about the financial environment today because >> yeah I'll be happy for the listener you have to understand that you know it was a self- selected group of people and grants made its living was only two odd uses were yes but people in a g whiz world people say we're always bearish (18:26) that's that's not actually true but we are almost invar variably skeptical what doubting Thomas's this is a market of credul conformity actually you know people nothing succeeds like success anywhere but especially on Wall Street I think George Soros himself said we'll see a bubble just jump on it get there early and uh you'll look at in time you'll just I'll tell you when you'll know but there are so many ways to make money on Wall Street I happen to have cultivated a following that is innately skeptical And so that just so bear that in mind (19:03) and we take away people walk out of these conversations. Oh my god, how could I get tomorrow morning? >> Yeah, I felt I should go in fetal position in the bathroom at lunch time. >> It was a good fair mix of people. For example, even within credit you mentioned Victor Kler and guy name was Jonathan Lewinsson of diameter ke rather said u well things aren't so bad. (19:25) Look at this things are much better than you'd think by looking at a few soft spots. So there was there was disagreement and John Hughes talked about investing in great companies and not selling it as it's a fair. So that speaks to the the variety of ways in which people of different sets of buildings and different intellectual turns or different terms of mind can find a place under the big tent of investing. (19:50) It's nice in that way, isn't it? And we had a innate copakar. We had the pure specimen of the bear. To me, it's a very fetching buy in the set. He's a perfect example of an avatar of the sell first, buy later approach to securious trading, you know, investment. He exhibited the rofal humor of someone who was prepared to be wrong about 90% of the time in anticipation of being magnificently and all by himself magnificently right six or eight or 10% of the time. (20:27) Yeah, he said something lovely about how you asked him impertinently in the way that only a journalist can. Why do you do this? You know, sort of an existential question about being a short seller. And he said, "Well, for the 15 minutes when you're right, it's so delicious." It just made me think some people really, they're so smart and they make life very, very difficult for themselves by picking a particularly hard way to play the game of investing. (20:53) Yeah, he's chosen the highest degree of difficulty and there are many left. These markets run over the skeptical mind. You said, well, have you read the documents? What the what's the valuation? It's going up. That's the valuation. So, um they his talk had to do with private equity and with AI and all the privates, private credit, you think be a sergeant or a corporal or this mix. No, it's all privates. (21:23) And he pointed out it was a magnificent tour to force a tour of the horizon. Uh was wrong in finance having to do with the structure of things with the underlying fragility of debt and with the consequences of all those years of suppressed rates of interest which of course interests me as I'm still sore that uh interest rates were not a thing for so many years. (21:48) Publication ladies, it's called grass interest rate observer. If you can't see them, it's not good for business. So, I'm still nursing a grudge against the Fed for that. >> But now you have your 15 minutes. So, all is well for you. And Nate, he also pointed out, I mean, I think it was in his talk, one of the most striking things that was a recurring theme that I think is relevant to a fair number of our listeners is that we should be deeply skeptical of the world of private equity as they try to democratize it. (22:21) And I think it was Nate Kobak said that in finance whenever you hear the word democratizing, hide your wallet. And he said it's like Chanel marketing itself to Walmart. Can you talk about that because that seems like a really beautiful example of this imbalant time where Wall Street is dreaming up new and better ways to separate us from our money. (22:43) >> Well, the hypocrisy is delicious as Nate to put it. You know, private equity people at first did everything they could to distance themselves from the common man. Their shoes were bespoke suits magnificent. uh their club memberships extensive, you know, and they would deal with the institutional world and not all of that. (23:05) And lo and behold, interest rates did not remain at near zero after 2021. And the valuations that were acceptable in a regime of like nothing interest rates suddenly became very precarious. Indeed, those valuations went away in a time when British kind of began to normalize. So these companies, these private equity companies 20 something thousands over the world were capitalized for prosperity and more meaningfully capitalized for a regime of very very easy money. (23:42) So suddenly instead of paying I don't know say 3% interest and I'm going to get him they were now paying 8% or 10 or 12 makes a difference. So what to do? Well, the investors and they're not just wellto-do endowments. Well, the endowments were among the elite institutions to which the private equity people sold. (24:02) So they would go around to mimicking the famous Yale University model of >> David Swinsson. Yeah. >> Yeah. David. And they go around to these endowments, colleges, what have you, and say Yale did this. And what it did was to carve out a very big niche in his portfolio for venture capital and private equity. and you won't be susceptible to adverse marks that reflect the unreason volatility of public markets. (24:29) Rather, the the marks that we give you are virtually correct and marks meaning mark to market or not. So not >> not marks as in the sense of a Ponzi scheme where you've identified marks. >> Yes. Right. Yes. I did ask Nate about Ponzi schemes and he said that the term seemed a little bit seemed unnecessarily brutal for this sophisticated audit. (24:57) So um private equity sold overwhelmingly to such institutions and now such institutions having budgeted for return of their capital are finding that it's not being returned. Nor are the dividends or the interim payments they'd expected quite up to snuff. So they are being pressed by the presidents of colleges and maserary institutions museums had to where exactly is the uh money we need for the draw this year draw the development funds and they're hardressed to come up with the money. (25:30) So they're some of them are turning to the sec the secondary market for shares and these private equity companies. They're being peeled off and sold to like you sell a used car and it's not what they not what the buyers originally counted on. So private equity, I think that may demonstrated, is in trouble. (25:51) And it's in trouble because it has neglected to honestly value its assets as interest rates began. And now it's stuck with assets that are being carried at unreasonably high prices and the assets are not returning the cash that the investors need. So what to do? I know we well the dear public oh the dear public and the I took a long time to get to this. (26:19) So this is where democratization comes in. Shouldn't the little guy have a piece of this marvelous asset class, private credit, private equity? Credit, by the way, has none of the overtones of debt. >> It's kind of the same thing. Private debt, meaning not publicly traded, so not publicly marketed. And you can see it in the unwavering line of capital appreciation that these funds and these assets have delivered to investors supposedly anyways being marketed to the public as a safe and nonuler inducing alternative to sometimes tumultuous public markets. (26:58) Nate correctly says I think that this is not a sign of benevolence of the promoters but rather a sign of their increasing desperation. I think it was also interesting that he said that they have this reputation for being super sophisticated and obviously in some cases they really are super sophisticated but he said when you look at the record of many private equity firms they've shown as he put it maximum aggression at periods of maximum risk. (27:29) And so he said really they have a tremendous record of momentum chasing. And so for me it was kind of a reminder that often we fall for the illusion that the smart money is incredibly smart and way smarter than us and is going to protect us from turmoil that can come. >> Yes. Well um in the audience was my friend Emanuel German. (27:55) Michael German as a Bell Labs caliber physicist who made a career change to Wall Street became a renowned practitioner of quantitative fast you know he was a we call them quats of course and he worked at Goldman Sachs for a time and other such high ranked institutions on the Wall Street tables he wrote a book called my life as a quad a great memoir never mind my book uh by David Emanuel Dur's books published in 2003 or four left is caught. (28:31) Anyway, at one point Emanuel harks back to the long-term capital management affair 1997 I think there it was the now fable then frightening collapse of a hedge fund that was run literally by Nobel laureates and u in his memoir Emanuel Dur says he was on a call with other Goldman Sachs people talking with the principles after the blow occurred and he said he was startled and deeply impressed by the depth of sophistication on the part of these authors, the failure of long-term capital management. (29:09) And they knew much more and asked much better questions about valuation and the composition of the assets and the hedge technique than did the Goldman Sachs traders who were trying to value this stuff. And Emanuel takes away from this that sheer metal power, sheer metal accurity. It's not invariably the road to riches you have. (29:30) It's not necessarily the the equipment that gets you where you want to go. I don't think you use the word humbling, but it gave him pause for thought, you know, and a lot of times I think a lot of times on Wall Street, the simple common sense, I don't get it. Tell me again. So you're telling me that you put all these subinvestment grade mortgage structures together, slap them together, and the ones that the 40th percentile have been transmogrified into AAA securities. (30:02) Is that where is that? Can you again this time more slowly? But anyway, so the population of intelligent people on Wall Street is a quite a large proportion of the practitioners. And so at the Fed, the thousand or so, more than a thousand or whatever, the PhDs in economics who who fail to foreseeing 20120 and 21 that if you infuse the wallet of the population with thousands of dollars of stimulus and open the stigance of the central bank and promise through the central bank that interest rates, what you will generate is a great investment bubble (30:38) and the spending spree by people who have been given all of this might result in inflation. And the Fed with all of its hundreds of PhDs didn't happen to come to that kind of common sensical conclusion. So all this is by way of windy way of affirming that um brains aren't everything. >> No, absolutely. (31:00) And you've written a lot about artificial intelligence in grants. Obviously, this is one of the things that's been driving the euphoria in the market, and you've talked about the insatiable enthusiasm for anything related to AI. I was looking at one of the daily newsletters that you send out from grants the other day. >> Almost daily grants. (31:18) >> Almost daily grants. Yeah. It was talking about how Amazon, Microsoft, Alphabet, Google, Meta, Oracle, and Coreweave will splash out $382 billion in capital expenditures this year by city groups count, up more than 50% from 2024 and triple that seen in 2023. And you said that the Magnificent 7 now accounts for 31% of the S&P 500's total capital spending from 19% at the end of 2019. (31:46) And you point out that there are these firms like OpenAI and Anthropic that have raised billions of dollars every few months and are now valued at hundreds of billions. And so you wrote this piece in July about the check writing contest within the world of AI where everyone is basically racing to invest as much as quickly as possible. And I just was wondering as a battleh hardardened investor, an observer of craziness as you are, when you look at this excitement, how reminiscent is it of previous booms, whether it's the railroad bubble that ended in disaster (32:20) in 1873 or the.com bubble that ended in disaster in 2001 or or is this really different this time? Can you put in some context what we're seeing here? I think what we are seeing is the promise of a marvelous technology with human characteristics and those human characteristics have to do with uh falling out line and doing what others do and if possible doing more of it higher, faster and louder. (32:49) This reminds me a lot of the fiber optics check writing contest of the late 1990s. How much of the stuff you put in the ground? Is there demand for it? rather there will be or the as you say late 1800s the railroad building contests as it were the check market contest war track parallel track to your competitor but still the contest is worth it we'll beat that so there's a lot of redundant capital investment then and these things end invariably with a panic and a crash I think that's the model for now another point that David (33:22) Rosenthal made was the problem with the capital investment may not be so much in its size but rather in the demonstrated gap so far that people are not willing to pay for the product of that congestion with extraordinary sums being laid out for data centers these buildings that in the case I think meta building something the size of Manhattan Island well and good except are you going to get paid for it if college students go away in the late spring and don't come back until the fall and will they go away. The demand for AI goes way (33:59) down because who else has such a deep and persistent need for plagiarism. They have to plagiarize papers to get through anywhere. So the demand for AI falls off marketkedly and measurably come the springtime. I hear myself saying I saying I get a horse in 1903. You know, it's cars. They stink. (34:23) They look at the tires that blow up all the time where steamboats, steamboats explode and kill hundreds every fiscal quarter in 1840s. I'm not even talking so much about the technology as the very human response to great technologies and the promise thereof. And don't forget, this is still a promise. (34:42) The question, what comes next? Is it the realization of the promise with the payday? Or is it the crash that precedes the realization and the payday? I perfectly see this stuff is going to do wonders for somebody. But for the time being, people seem not to be willing to pay for what the producers of these large language marvels are laying out to achieve them and to compete with others achieving them. (35:11) So I'm all in on comparisons to the bus of yesterday Europe. I think this is that's the model for now. >> There was a lovely quote that I I don't know if I had heard before that your friend Pierre Lassand who's a very successful gold bug quoted from Voltater where he said history never repeats itself. Man always does. (35:30) I thought that was quite revealing about what happens with these deals, right? Like the tendency at certain times in cycles for people to get carried away. And you had someone I think um at your other conference, the credit conference earlier in the year who was saying exactly the same sort of thing that basically at times like this there's just this sort of fear of missing out. (35:50) I think it was Michael Gatau who's head of direct lending at Silverpoint Capital. He said when there's a lot of capital and the emotion is greed and there's fear of missing out, bad deals get done. And similarly, when there is a lack of capital and the emotion is fear, great deals get done. (36:07) And so I think this is one of those areas where it's not like we can say what's going to happen with AI and all of this spending, but there's a sort of familiarity to the pattern of human behavior here. Is that fair to say? >> I think yes, I think it is. When Pier said history doesn't repeat, he's not going to say, but it rhymes. (36:25) Don't say that. Not again. >> So Pier and Voltater's twist on this. I guess no, maybe Mark Twain had the twist on maybe Mark Twain never said it. I don't know. I suspect Balta didn't say it either. Whenever you are writing a book, you look back and you check the origin of these quotes and you discover very inconveniently that nobody said what we claim they said. (36:43) >> He should he should have said it. Yes. >> If Volater had been smarter, this is what he would have said. >> And more cynical. >> Exactly. >> Possible. >> Exactly. So assuming that AI has been driving a lot of the euphoria in the current US stock market, there is ample reason to be a little wary of what we're seeing in the US market. (37:05) And you've reported recently in your newsletter that the S&P 500 is priced at more than 40 times its cycllically adjusted price to earnings ratio. And that back in the fall of 2021, it was at 38.6 times. And you said that that means it's the richest reading in history after the dotcom bubble when it was 44.2 back in 1999. (37:31) Can you put in context when you look at the market at the moment when you look at US stocks? Like this isn't a prediction of what we think is going to happen, but can you give us a sense of why it's wiser to proceed with caution than with our foot as heavily on the gas pedal as possible? >> Yeah. Well, everyone has to be in and valuations show that. (37:56) But appropo of there are many ways to make money. We heard from John Humes who is a now compounder of capital and we concentrate portfolio and companies that embody the virtues he thinks are that dispositively define a great investment and they have to do with barriers to entry and with capital allocation and with management quality and the like and he holds them through thick and thin and he's done marvelously through all manner of thins. Right. (38:27) That's about broad Buffett's counsel is too with respect to people who are listening perhaps a lot of this has to do with their age and with their risk tolerance and if you are starting out and you have a reasonably diversified portfolio and being in your 20s and I think it's it's entirely prudent not to pay attention to what I am now saying or to talk about these macro things come and go if the long-term America's gray is going to be great that I am this but say you hypothetically you were a general of a certain age and you will (38:59) own a lot of stocks and you might want to pay a little more attention to the signs of excess and they are at every hand. Valuation sentiment, the incidence of unmistakable corrupt promotion, uh the swaggering of newly empowered through wealth people who know know only one thing which is that markets only go up. It's all here. (39:26) The whole theater of uh the major financial markets top is on the stage. The theater is opened and the pageant of top making um scenery and actors and script all that is in play. Now the question of timing, does it have to end now? Nope. Does it have to end in two years? No, it does not. But it will. lot of legends of people who got out in timing. (39:58) 1929 I wrote a book about one of them. Bernard M. Duke who's a great spectator. He's the subject of my first book way back when I died like 40 more of legends come down through the years that Bernard sold on the eve of the crash 1925. No, he did not. I have the stock market. I had the his records to prove it. (40:18) But what he did do was take the measure of things in 1930 and get out salvaging like 60% or 70% of his capital in a cycle that would denude the buy and hold investor by up to 95% or so of his capital. And that took 20 years to wear off. That cycles down made a high in 1929 and we captured its high in 1954. Put that in context. (40:45) That was the year the Giants were in the World Series and it was the most extraordinary year. Now it was dividends are counted market came back before then. If you just look at the Dow I guess that's 25 years right and my mentor and boss at Barrens Robert M. Bleberg he was a depression child and quite vivid memories of the crash and its aftermath and was very very cautious of 1954. (41:11) But what he did not say 1954 is although there was a great markets man very instincts and I went back and read his stuff 1954 58 what he did not say was we are on one of the greatest errands of prosperity and investment success that you won't be able to it's all in front of us there will be bumps in the road but consider that put away those memories of the bad old days they are not humane but yes I think that this is a major top in motivation. (41:42) I'm with Nate Copakar with others and with myself. I don't need anybody else to help me along with this. Nate did such a good job in exposing the underside of things of credit in private markets. It will come unstuck and you'll have me on the show >> and I am not going to gloat at all. You know why? >> Because I have been around the block. (42:07) And the the important thing is to recall at moments like those were able to spend themselves that just recall how full of beans you were in the runup to the moment of crowning success. Just remember that >> it's a very difficult game, right? I was listening to an interview that David Ter, who I've never interviewed before, but who's obviously very smart, very successful guy, he had done on CNBC when he said, "We're having a really good year, and I'm so miserable because I still own the market, and I can't stand (42:38) that I own the market." But he said, "I'm not ever fighting this Fed with all these expectations of interest rate cuts coming before the end of the year." And he said, "You've got to stay for some of the party because the punch bowl is still there. They haven't taken it away yet. (42:53) " He is a constantly successful speculator. I remember watching him on CNBC at 2010 when Ben Esperant from PhD wrote the piece in Washington Post saying we are going to institute QE and this will infuse the net worth of the people who have equities and America will be growing again because the stock market will be rising again. (43:14) That was essentially the argument. I remember David Terry I remember he was sitting on set in the CBC and it was a chair. respond like this and nervous to go back and forth like this and he's exactly explaining how this was going to happen and it happened exactly as he said it would. He's someone to pay attention to. If you were listening to it probably say don't follow me. (43:36) I'm miserable because I know full well all the odds are against much more of this except he's also in the business of not getting off the train prematurely. that FOMO because he's rather too sophisticated with that. Although I dare say he's as a human being, he's not immune entirely from it. But he knows also that things go on so much longer than you would think they would or if you're a moralist should. (44:01) >> Yeah. Happen to be a moralist should is getting on the Fed as I often bet against the Fed. I can't stand this adage. I don't fight the Fed. I've made my life throwing left hard jabs and left hooks. the Fed and occasional overhang right at the Fed and they never hit back except sometimes I feel the blow. (44:21) So >> yeah, people will be shocked if I don't ask you very briefly about the Fed. We talked at great length about it last time on the podcast, your lack of tremendous enthusiasm for the way the Fed is run, but if you could just give us a sense of how you expect the Fed to handle what's really a very challenging economic situation at a really important juncture with I I think Chairman Jay Powell's term expires in May 2026. (44:49) You interviewed Kevin Walsh yesterday who served on the board of governors of the Fed until 2011 and who a lot of people are saying could be J. Pal's replacement. Obviously, there are a lot of demands for the Fed to lower interest rates and the like. And when you look at this institution and its position at this very interesting juncture, what do you see? What should we be thinking about? I think we ought to be looking at the uh administration's attempt to conquer to uh subjugate it and to institute its own regime of ultra low interest rates at (45:30) the Fed having conquered it. I think the Steven I Moran was the advanced kind of the Ptorian guard of MAGA of the Fed. He came under a questioning by Elizabeth War of the Senate Banking Committee bing his fitness for the unique position of chairman of the council of economic advisors and governor in she said to him tell me Mr. (45:57) Wood did Donald Trump lose the 2020 election he answered the Senate confirmed Joe Biden as winner of the election I know that Mr. Then Donald Trump moves the election, the Senate confirmed. So, um, it's, uh, the robotic response to me is a little bit concerning. You know, I the people around Trump were some saying, "Mr. (46:24) President, you had your golf carts sized bottom kicked in 2020. May we please move on?" I dare say no one at all saying that to him. Now, they also, Mr. Morantum the Bureau of Labor Statistics. Did they fake these numbers to make the president look bad? The quality. The quality of the federal economic data has been declining for some Yes. Yes. Yes. (46:50) Did they intentionally the quality of f like that? It would not be a shock to me that the president's views on interest rates which everyone knows lower the better in in 2000 whatever it was 2018 this late 18th his line was the Swiss have negative the Japanese have negative nomine why can't we have negative why are we paying any what's wrong with less than zero he still thinks that if he does subjugate the fed if he manages to bring his own people in for a bay I think we can look for much lower money market interest rates and a much weaker (47:29) dollar and a much steeper yield curve. Meaning that high that longerdated interest rates, longer term yields, bonds, mortgages will be higher, much higher than short dated money market instruments like T bills. So what MAGA believes they might be right? Who knows? I gave up seritude a long time ago but although it may not sound like that some but there's great hope for AI great hope for transformation of American productivity not after the crash that has typical occurred with excess exuberance and investment but before so (48:07) next year after revolution no there's going to be a crash first you'll be sorry you ever heard the phrase AI is how bad can it be that there's hopes for a productivity revolution such that this country can handle much lower interest rates, a much more dynamic as they use the word uh credit when people can access the credit market and find affordable mortgages. (48:32) The housing market's going to pick up after this long so people can't afford to move. That'll change. They paint a wonderful picture of what life might be like after the president finds his people and plast them at the Fed. as Donald Trump himself often says, "We'll see, you know, or we don't we'll know more in four years. (48:51) " >> So, while we're busy worrying everyone that we haven't already alienated, let's talk about government debt, which also was a major recurring theme at the conference yesterday. Pierre Lasson, the gold investor we mentioned before, pointed out that the world is drowning in debt, as he put it, and he talked about the fact that there's this overstretched fiscal situation, not only in the US, but China, the UK, France, and elsewhere. (49:15) and he had some amazing statistics. He said that the total global debt has risen from $16 trillion in 1980 to $314 trillion in 2024. And likewise, he said that US federal debt has risen from $1 trillion in 1980 to 37 trillion in 2024. You've also pointed out in grants you said uh nothing puts the fiat money era in starker relief than the fact that it took the US 222 years to borrow what the efforts of presidents Biden and Trump achieved in not quite 8 years. (49:50) So we can be equal opportunity in blaming different parties for the history of recklessness here. But can you talk about, you know, give us a very practical economics lesson for people like me who don't understand this stuff? Like you've argued for a while that the fiscal deficit's unsustainable. Can you give us a sense of what's causing the problem, what's likely to happen, and and most important perhaps what the implications are for long-term investors like our listeners and viewers here. (50:16) >> Let's take the contrary argument first, which I have to deal with. There was a a time when the contrary argument was upper in the minds upper most minds in that argument held basically that yes debt is a thing but so is the income that the debt produces and for every debtor who may be worried about overindulgence there is a creder who is more than happy to buy those IO and in the case of a country such as the United States whose currency is sought after and accepted worldwide there's no limit to what you can borrow and that (50:55) particular line of reasoning has held up until this function to this very moment I mean so recently speaking the government I guess is still shut down was supposed to be shut down the world still seems kind of okay with our shenanigans and our debt and it's because they like the dollar still it's the world's reserve currency meaning the currency that enjoys the kind of the Coca-Cola quality brand name and people accept it as good money even though they're not sure what is what's behind it you know is it just the promise of (51:27) government or is it something okay so that's the argument against concern against anxiety in the world right so the argument for concern is that the burden of interest and the weight of issuance will exhaust even the friends of this country and the friends of its power. Later this year, I'm going to be launching a richer, wiser, happier master class for a very small, select group of people who'd like to study with me over the course of a year. (52:00) We're going to meet once a month over Zoom, typically for about 2 hours per session, to discuss the themes in my book, Richer, Wiser, Happier. We'll also meet in person at a couple of really special events. I'm going to cap the group at a maximum of 20 people. So, this is an unusual opportunity to study very directly with me in a small group. (52:22) What sort of people am I looking for to join the master class? Well, really anyone who's deeply interested in exploring how to live a life that's truly richer, wiser, and happier. This is the second time that I've taught a richer wiser happier masterclass and I'm planning to do this again because it's really been a totally joyful experience for me over the last year. (52:44) The group has included an amazing array of 20 people from six different countries and I can tell you that the current members are an incredibly interesting, accomplished and really delightful array of people. They include some extremely successful fund managers, some investment analysts, wealth advisers, heads of family offices, CEOs, entrepreneurs, a management consultant, really renowned physicist turned quant investor, and a friend of mine who's a highly successful professional gambler. (53:13) The common denominator here, I think, is that they're all united in this desire to live a truly abundant life, and they're also all great learners. One of the most joyful things for me personally has been to see the friendships form between these remarkable people as they learn from each other and support each other. In any case, if this sounds like something that might appeal to you, please email my friend and fellow podcast host Kyle Grievy, which is kyle e attheinvespodcast.com. (53:48) Are you looking to connect with highquality people in the value investing world? Beyond hosting this podcast, I also help run our tip mastermind community, a private group designed for serious investors. Inside, you'll meet vetted members who are entrepreneurs, private investors, and asset managers. (54:07) People who understand your journey and can help you grow. Each week, we host live calls where members share insights, strategies, and experiences. Our members are often surprised to learn that our community is not just about finding the next stockpick, but also sharing lessons on how to live a good life. We certainly do not have all the answers, but many members have likely face similar challenges to yours. (54:30) And our community does not just live online. Each year, we gather in Omaha and New York City, giving you the chance to build deeper, more meaningful relationships in person. One member told me that being a part of this group has helped him not just as an investor, but as a person looking for a thoughtful approach to balancing wealth and happiness. (54:51) We're capping the group at 150 members, and we're looking to fill just five spots this month. So, if this sounds interesting to you, you can learn more and sign up for the weight list at thevesspodcast.com/mastermind. That's the investorspodcast.commastermind or feel free to email me directly at claytheinvestorspodcast.com. If you enjoy excellent breakdowns on individual stocks, then you need to check out the intrinsic value podcast hosted by Shaun Ali and Daniel Mona. (55:25) Each week, Shawn and Daniel do in-depth analysis on a company's business model and competitive advantages. And in real time, they build out the intrinsic value portfolio for you to follow along as they search for value in the market. So far, they've done analysis on great businesses like John Deere, Ulta Beauty, AutoZone, and Airbnb. (55:46) And I recommend starting with the episode on Nintendo, the global powerhouse in gaming. It's rare to find a show that consistently publishes highquality, comprehensive deep dives that cover all the aspects of a business from an investment perspective. Go follow the intrinsic value podcast on your favorite podcasting app and discover the next stock to add to your portfolio or watch list. (56:11) My most friend both domestic and foreign and you have seen signs of this already. You've seen in 2019 and 20 saw little anti-bubble eruptions concerning the markets willingness to accept uh what you saw in 2019 and 20 was discontinuity in the supposed deepest of all world security markets. (56:38) 2019 it's concerned the money market shortens the money market shorted interest rates because suddenly there was a a crisis in the funding market for our debt meaning access to shortdated loans with which to buy bonds that was in the fall 19 2019 and in 2020 there was a fright scare in around March and April concerning the world's tolerance for buying more of our longerdated securities like the 10year and 20 and the 30-year bond. (57:12) And that happened with the pandemic and with the Treasury's evident plans to borrow a lot of money. And the Fed's expressed intention to buy a lot of bonds with money that didn't exist until it was ready to print it. So those were amber lights. So the question really is what is the ultimate demand for US securities at these rates of interest you know a question will they are they marketable at any rate so if the United States was today was going to sell treasuries a 10year note not at 4 something not at 418 4.1% but rather (57:55) at 10%. Wow, that'll be a little bit of all. Right. Right. Or 12%. Also, that's not that's not that this is not isolated to the sovereign debt. Consider also the private debts that have been accumulated. And to be sure, private bonds that receive the interest on those debts, right? There's a two-sided argument pro and con, but the US economy, as resilient as it famously is, has been rendered much less so, rather vulnerable by the years of near 0% interest rates that precipitated and encouraged the deal making in private (58:36) equity and elsewhere. these aforementioned 20 odd thousand more than 20,000 companies that are now trying to find their footing at a time of interest rates they can't quite handle and so what happens if the world loses its taste for American securities owing to the shambolic nature of the administration how they so characterize it and if inflation for example comes back in unscripted fellowship the Fed can't lower rates in good faith but rather must consider raising ing them. (59:09) How would higher rate interest rates play in this world of financial fragility, at least as some of us see it? That's a kind of a an attempt at an overview of what's wrong with too much debt. It's part of it is is the uh American brand in dollars and debt being corroded and debased by overdoing it by overach is humans. (59:34) And then there's the question of whether in the event of say unexpected inflation whether the private sector is going to be badly damaged by the need of the Fed to post higher interest rates you know. So the reason that people like clean balance sheets is it affords the borrower or the wouldbe borrower the future borrower with flexibility that's why companies with clean balance sheets get primature AAA or double A very true but the well that's clean balance sheet that's good it's good because that company can opportunistically in (1:00:10) advance when the times are difficult but when the times are difficult in this country the government famously its construct of the welfare state must borrow much much more. We are borrowing heavily in a time of a 4% plus rate of unemployment long thought to be full employment and we are borrowing at a time of roaring markets and of a GDP that is rising according to the Atlanta rate close to 4% annualized. (1:00:38) Wow, we need a six or 7% deficit to make things work. That doesn't sound like a well-managed public finance operation. So these are latent problems now. As I say, look at the screen. Are the bond markets kind of okay? Credit spreads meaning the premium of private borrowing costs over public ones is near an all-time modern all-time low, meaning no anxiety about private debts. (1:01:05) So the arguments against heavy borrowing must be made rather defensively for the time being. I listen this thing. I'm pretty confident. I think that the too much debt argument will prevail that really will rule much of our mismanagement of the public credit and uh of so much private credit. >> I wanted to talk a bit more about inflation. (1:01:28) I was reading a back issue of Grants from earlier in 2024 where you connected inflation basically to flaws in human nature and use this as an argument for why we can expect a future of more inflation in what you've described as inflation nation America that is and you quoted a German economist called Vilhelm Rupki if I'm called Rupka if I'm pronouncing it right. (1:01:50) >> Yeah, it's exactly right. Yeah. I wanted to read a little bit of what he wrote in the 1950s because you've said you wrote has anyone said it better and and so I'm going to read a few sentences him that maybe >> anthem here. Yes, please. Yes. Uh so he wrote this in the '50s about inflation as the way a national economy reacts to quote a tendency towards excess in every sphere and all circles to a presumptuous overconfidence in oneself to a frivolous attempt always to draw bigger checks on the national economy than it can honor. (1:02:22) And then he said people want to invest more than savings permit. They demand wages higher than the growth of productivity justifies. They want more imports than exports can earn. And above all, the government, which should know better, raises its claims on this overstretched economy higher and higher. Thus, there is a riot of claims and an insufficiency of goods produced to meet them. (1:02:47) And then he talks about the impact that this tendency and human nature has on money. And he writes this very elegantly. He says, "Just as there are organs in the human body in which, if consistently abused, ailments slowly but surely accumulate, eventually taking their revenge, so the national economy has its own equally sensitive organ. That organ is money. (1:03:08) It becomes feeble and ceases to resist. And it is this infeeblement which we call inflation, a dilation of money, so to speak, a managerial disease of the national economy." Can you unpack that a little bit because it seems >> No, I can I cannot unpack because it's like a Can you unpack the Declaration of Independence or or Lincoln's second inaugural address? All I can say is a man. (1:03:33) I mean, it's just it's an overstraining of things. You know, it's an overstraining what you can read to impute in his writing is that some of what he was saying is this is the way things worked out at the gold standard when there was this over money would leave the country. gold being money country and um because paper money was unacceptable in the world acceptable within the boundaries of the nation that could print it. (1:03:59) The departure of gold was a deflating force. You know you were losing the monetary things. You were losing the capacity to issue credit loans credit debt and that was how the body politic began to protest. Now in this age you have a reserve currency country America meaning it's the kingpin monetary kingpin and there is to date no real hard limit on how much it can do. (1:04:33) There are some softer limits than the ones to which Ripkar I think was referring. One is there's domestic protests against too high rate of inflation, but the Fed is capable of uh finding that away. It's got this this press to digitation, this magician stuff. So now they're saying that 2.8% is got a little bit of all that's fine vigilant. (1:04:56) So you watch 3% is going to be a little bit less fine, but we've got this. And certainly Donald Trump is going to say I'm not sure he's going to use the word transient, but I think he might say it's going to be go away. AI will wipe it from the slate. But what a beautiful succession of sentences you wrote describing what I think is exactly the almost exactly this dynamics of inflation. (1:05:20) And notice as well inflation under a paper money system that the dollar never regains the purchasing power. It loses to inflation. Now we met Chesley Martin a longest serving Fed chairman said that the dollar never regains the person loses to inflation. In times past it there would be prices would go up then go down business the war. (1:05:43) One of the things that I think helped Donald Trump get elected in 2024 was that people saw inflation even when the rate of inflation declined. Well they should because the prices they saw not the prices they knew in 2019 and 20. Since the economists have been saying confusing the rate of inflation with what people saw to their very eyes in the supermarket, I don't care what they're saying. Look at this. (1:06:07) Look at the price of eggs for a time. >> Eggs are no problem for me, but I drink a lot of coffee and I had a cappuccino, a large skimmed cappuccino to neutralize the effect of the blueberry scone that I had with it the other day here in in Westchester, New York. $21. That's just stunning, isn't it? >> One of the interesting features about the present day and the shed's concern or lack of knowledge is the price of gold, which is kind of knocking on the door of $4,000 an ounce. It was $20. (1:06:41) 67 67 cents from basically Alexander Hamilton. It's just upside down until 1933 and it was $35 notes approximately again with some wiggles until 1971. Then it was cut loose cut off the gold standard. What remained in the gold standard and it was free to float. it did float, but now it's kind of gone bonkers and people who are just as worried as our friend David about his stocks, you know, is it what's driving it? Is it priced as it is only to disappoint its many somewhat bruised and calloused followers by collapsing as it did in 2011? 2011 the price got to (1:07:27) $1,900 and something dollars an ounce. And what fell in the next three or four or five years was a return to like $1,200 now and the collapse in gold mining shares upwards of 90% in some of them. 95% everything's kind of out of whack, right? The credit spreads are out of whack. (1:07:52) Uh gold seems even for the gold people who love it seems and love it is unfortunate the word for many of us today. It's a seductive asset. It's not just any old asset. You know, it's not boom handles. You fall in love with it or not. It was like Bitcoin. Some people fall in love with it or not. >> And you you've had a long love affair with this. (1:08:09) I mean, you you bought it in January 1980, I think. Your first Krueger for what, 850? >> I don't mean to brag, William, but I happen to live in it. >> Nice job. So, you're few thousand years old. Good job. >> It looks to see if he was I think 2300 or something. I wear that, should we say, not pinpoint time purchase as a badge of honor or at least of constructive humiliation to I don't need to remind myself others who might mistakenly in their ignorance fasten the guru titan as a gold price here. (1:08:50) other side of the conference show this very well. your gold moves in cycles and that can go sideways are down for 15 years and then he puts it down to an overissuance the public debt and the questions about the public and then it just takes off like a stuck pig you know it startles everyone as it is towards now I think fans it's a curious kind of bull market public participation is still rather muted there are signs of it growing but there isn't the frenzy you saw Bitcoin in 2020 between 20 and 24 for example were common stocks today. (1:09:26) >> You've been pushing gold for many years, right? In this sort of very contrarian way and now that it's seems an awfully crit commission just touting, hawking, advocating, >> peddling. Now, now that it's it's hit 3,900 an ounce this week and is up what a good 40% this year, it must be very uncomfortable for you as someone who is always a skeptic. (1:09:50) Now you're looking at and thinking we have a speculative bubble in gold or is the runup justified given the backdrop of all time? >> I look uh I happen to be in the presence of one of the uh the great speculators of our age and with springtime and I said this is what it was like because of the closing in on 3000. (1:10:09) I've lost track of one but it just hurdle cleared some high hurdle and I said you think gold's a bubble he said of course it's a bubble. I said, Paul, is it justified by what we on Wall Street are pleased to call the fundamentals? And this is where you've instruct you build these this narrative for yourself about what's causing it. (1:10:36) I remember it very well in 2011 that the S&P had downgraded the treasury from AAA to double A plus. And by the way, live to rule there for the next 10 or 15 years because the authorities went after them big time for having done the tarity to do that. And the precious gold had been in the mid 1,500 years for a while. I thought so. I saw it. (1:10:59) Well, now the world is catching on to the joke and the world will demand of this country a reform in the finances which will entail some role for gold in the monetary system and gold will find its place at a higher price. I'm not sure we actually use the phrase permanent high plateau, but that's what a a gold standard is. (1:11:20) is literally a permanent plateau. Is that a high or low? But $20.67 for 135 years is a high plateau or it's a plateau. $35 for decades was a plateau. So that was some of the thinking among the thought leaders of the gold world. It turns out that there was not any such thing as a worldwide permanent condemnation of our messy fisk. (1:11:46) Nor was there any intention the part of the authorities of bringing gold back into the world of America's monetary system. America has read out gold from its monetary shares starting in 1976 under Treasury Secretary Bill S. turn our back on it. No, no more gold period in the IMF or in Treasury. Gold is it might as well be scrap metal that is housed under guard to be sure in Fort Mox and elsewhere. But no more gold. (1:12:16) So you can build these air castles of narrative. My current castle, if I were to have built one, will consist of administration that seems a term unlikely will prove to be successful in taking over the central bank and opposing its interesting theories of money interest rates on the dollar and on the world. (1:12:42) It uses the dollar. That's one plank of this castle and another would be proclivity of the Treasury to borrow much more than it takes in and the Congress to allow that and for the fiscal dilemma to be talked about but never act upon it to one. So that would be enough to convince me of the upside still in front of us. (1:13:03) But mine, you can't be sure and if you have too much of this stuff and you have a restless night's sleep, but you want you don't want as David, you don't want to miss all the upside, you know. So it's it's that's what makes this this line of work so interesting. There's no firm ass there's no certitude. There can't be. (1:13:22) People think they have it. One thing about them or two things about you know they're not very old and know they have not really had the invaluable education experience of having their face ripped off during a bare market. >> There's two things you know about or one of the two. >> I I always remember Bill Miller many many years ago saying to me there is no certainty. (1:13:44) It's all probabilities >> and it's very unsettling. And so, you know, in terms of just being a prudent investor to position ourselves, and this is before we turn to your book, which I want to talk about next, to position ourselves sort of prudently given the backdrop. >> You don't much like bonds. You said basically in 2021, we entered a 40-year well after a 40-year bull market, we've entered a long period of bare market. (1:14:08) >> I own some bonds personally, my wife and I do, because no one's getting any younger and I dearly love gold. But you'll notice that that it is sufficient in one thing only. It pays no interest, which is also one of its great virtues. It's money. It's simple. It's money. The world regards that with bonds. (1:14:27) So, um, I own some. It's a fund that invests in special situations that yield rather more than the ones that trade in public markets. And it's risky, but risk is well managed. So, that's part of our lives in these this time. I intend to work my whole life. I don't have any intention of retiring, but prudence would dictate that there's some reasonably assured income outside social security. So that's that. (1:14:54) So that's my cautel to in my anti-bond stance. I own some of them. >> I saw yesterday at the conference and talked to briefly the great Paul Isaac who we talked about last time you were on the podcast who you'd invested with many years. So I'm assuming you still have some exposure to the stock market through people like Paul. (1:15:11) >> Oh yes, I do. I do when he's coming into his own all these stocks that stood still or seeped lower and lower of course in the past five or 10 years coming into the roy seems to be a well is a by way of preface is a deic value with nested they look for special situations that he feels are downside and this would have to do with quality of the balance sheet of the earning stream of course of the price afford some protection it's been beaten down and ignored sufficient by Wall Street there's some protection it's (1:15:43) and it's very obscurity who's not going to be a part of the kind of portfolios that will be liquidated. It will pay a price during the liquidation because it's traded somewhere and this has to do with company so banks in for example in Europe and it has to do with medical device companies in this country that are kind of on the have been neglected because they once failed at something. (1:16:05) I'm not sure special situations is a better description of his some of his investing style than valuing, but he looks for opportunities that will not necessarily be borne a loss by a great rush into mag seven and they have been left behind. So he has suffered by comparison with that. But these things they say, "Wow, what >> unless unless what is happening now is every last dog is finding its adopter from the pound. (1:16:36) " It's like every the pandemic dogs, even the uh most improbable beasts get led out of the pound. >> Let's hope that he's not listening to this and thinking you're describing him as a three-legged pandemic hound is finally having his day. But I think the point is that it's not like you're going to cash and crawling up in fetal position in the corner. (1:16:57) It's about taking intelligent risk whether it's with gold and commodities or bonds or diversifying beyond the US market and beyond the So this isn't you advising everyone to panic and cash out. It's just saying be more conscious of the risks that you're mindlessly taking >> or take them thoughtfully. Even though it's well and good to anticipate your peace of mind come the liquidation, but everyone's got a plan until it gets hit with Tyson like Tyson line. Yeah. (1:17:31) Never under never underestimate how sweaty your palms are going to be. These liquidations can seem upending. They typically don't. It's also about at this I was listening to Grant's current yield podcast and you were talking about how we're in the age of decadent finance. And so part of it is about being wary of having stuff sold to you that's kind of marginal and speculative at a time when we should be being more prudent. (1:17:59) And there was a lovely line you said we at Grants take a rather moralistic view sometimes. Instead of credit being man's confidence in man in this day and age of decadent finance, it now demands man's confidence in the sagacastity of his lawyer because the ingenuity of the strong and the cunning. (1:18:15) I'm misstating that, but you get my point that what you were saying is you can't just be trusting at a point like this where all of the most rapacious cunning people come out to try to sell you stuff that is not >> and all of the rapacious cunning people have done very well by their rapacity and by their guile. (1:18:32) You know, it's a markets when allowed to function properly go down as well as up and the down portion serves any number of functions. One of which is to skim the bad actors off the stage, you know, just to flick them away. But what happens when the Fed with every good intention I'm sure lends its force its arm and strength to prolonging cycles and for stalling bare markets and to pumping up the GDP so that we never have to endure this uh experience again so bad conduct goes uncorrected unchastised Mr. (1:19:10) market is the best disciplinarian. Never mind all these only lessons that you can read down reflect on Warren Buffy. He is a great coiner of phrases. But Charlie Bunker, but nothing succeeds like having your head handed to you as a learning tool. disbarment in the case of for the bar or delicensing in the case of financial advisors and just to get some of these people out where they ought to be which is like I don't know working for the Fed I don't know whether they go after this get them out of the markets where they have lingered too long and (1:19:40) they're going to get too many people in troubles and that's my moral argument. Let's turn to your lovely book, Friends Until the End, which is a double biography of these two magnificent 18th century orators, Edmund Burke and Charles James Fox. And it's set against the backdrop of three great events, I guess. (1:19:59) So, Britain's loss of the American colonies, the rapacious exploitation of India by the East India Company, the great dominant monopoly of its time, and also the French Revolution. And it would be great if we could chat for half an hour about the book and the lessons therein. Early in the book, at the end of the preface in writing about Burke and Fox, you say, "I love them for what they said and the way they said it, for what they believed and for what they did. (1:20:27) " Can you give us a sense of why you so greatly admire these two figures who were in many ways giants, but also have been widely forgotten by many people, although Burke obviously is an important figure in the world of conservatism. For me at least a great oratory is like music. I read it as I listen to the third moment of Browns's third symphony which I happen to love. (1:20:51) >> I'm going to May I read you a little something from >> I would love that. Yeah. This is works of panag to his friend Fox in the preface to this is that to bring British East India Company to heal to curtail the most abusive practices of its agents in India. Edinburgh internal stocks together drafted a bill to revise the governance of this monopoly is the biggest company that won. (1:21:18) Box who was the front man for this in the House of Commons of Great Britain bore a lot of abuse because if the bill went through he would command a great deal of power in nominating functionaries to serve on the new governance commission you know so he had all this power awaiting him if only the bill will get through. (1:21:38) Oh, this is Borsy. So they question his M. But he has put to hazard his ease, his security. His interest is out even as darling popular of the people who has never seen. This is the low that all heroes have be heed and used for loss. You will remember that obviously as a necessary ingredient in the composition of all true glory. (1:22:07) You will remember that it was not boldly in the Roman customs, but as in nature that constitution of things, but calibly and abuse are essential parts of triumph. Now, is that not a wonderful read? That speaks to the first part I tried to make the what they said, how they said it. A book is so well seasoned with quotations from both Burke and Fox. (1:22:33) They're both magnificent speakers and they both came into their prime after stenographers were at least semi-legally allowed with the House of Commons take close notes. They couldn't get all of it. These things like capturing a bird on the wing and they were writing scribbling on a short head of world creation, but witnesses to Foxes and Brook's eloquence contender was was much better than what you read in the page. (1:22:55) Oh my goodness, it was pretty good on the page. So that was what they said and how they said it. There was an amazing line from Boswell in your book, the biographer of the great Dr. Johnson, where he said, watching book, if I get this right, it was something like being in this orchard where he could just pluck these apples at will, like so fast. (1:23:15) And I think one of the amazing things about their oretry was both of them, they were so brilliant and so quick speaking and quick thinking that they could be quoting Virgil and Horus and they would be quoting in Latin from memory. And the same with people like William Pit who became prime minister at 24 who you quote I mean I think there's a bit in the book where Pit suddenly quotes Scipio in Latin from memory about some old guy who's insulted him. (1:23:45) I think that's part of what's so amazing about the rhetoric the oretry that they use. Ah yes they at one point uh I'm not sure if how much is this is documented but supposedly B Norris who was the prime minister during much of the time was in the House of Commons as was Burke and Durk was lacing into the government when Lord North and North happened to be sleeping during and Burke then quoted something about but North heard him misquote something about and he awakened corrupted him and then figned and return sleep. (1:24:21) >> I had an amazing history teacher, a legendary history teacher at Eaton, which is where Charles Fox went and pit this guy called Michael Kiddson, who now if he was still alive, would be banned from teaching because he would say such incredibly inappropriate things, but he was wonderfully articulate and he would always say they were giants in those days. (1:24:44) And you get that sense not only from the quality of the rhetoric of the actual use of language and hyperbole and just all from memory and a lot of it off the cuff anyway. They wouldn't dain to look at their notes and Burke could speak for 11 hours. >> It was very bad. It was very bad form to speak for the script. >> Yeah. So amazing. (1:25:01) But then also and I think this is probably what you were about to get to. It's not just that. It's the moral courage that they demonstrated. And I mean if you could talk a bit about that because that certainly comes through particularly with Burke like this sense of his humanity and his moral courage and his compassion and there's a point where he says that he has one rule for himself which is to act as the representative of the people who had no power. (1:25:27) Can you talk about that because I think that's the other thing where you feel not only that you're uplifted by reading the quality of their language but also the quality of books morality and decency. He was a difficult person for so many occasions, you know, but he was also most of the times incredibly generous and courageous in the causes he would take out. (1:25:52) For example, two guys were caught making him love and of course crime, serious crime. They're called before the bar of baleiff and sentenced to a time in the stocks and put your head and your arms and wrists and would stand before all the worst people around and they would toss stuff at your head. Sometimes merely vegetables and other times rocks and these two male lovers suffering rocks. (1:26:21) One of them was killed in the stalks. One of was named on Masharif and he died didn't die either. But Burke took up their cause in the House of Commons. Of course, you can imagine a ridicule came down his head for this and all the knowing who lear is one member to another on the other side of the house of Congress, the government less and this man who must have had both curious motives for taking up the cause of these two reprobates, these two offenders against the laws of God in nature. (1:26:55) But Burke persisted a newspaper liable him and he sued the newspaper and he won a modest symbolic settlement which he gave away as a gift or something. That's one example. There was a wonderful example too where I think you write about this poet crab who's at the end of his tether and he comes as a total stranger to Burke and Burk's Burke not only reads his poetry but helps him revise it gets it published totally transforms this guy's life this total stranger >> crab is is literally hungry and destitute you know sleeping on the embbackment as it were and show and (1:27:32) pulls himself together enough to knock on door of Edmund Burke and Burke takes him in just as you say it's I came to view Burke as a kind of a nextdoor neighbor to a saint my friend and neighbor Ay Schllays who read the book said you know Burk's crazy and not crazy >> as he aged and history became if not more not floored exactly but more complex and more heavily decorated with Shakespeare and Milton and the Latin poets the younger crowd, younger people came in and he became rather an old number in Edinburgh and and he would be greeted by (1:28:13) coughs, organized coughing by the young folk and he came to be known as the dinner bell because when he rose they left and went to the House of Commons, I guess cafeteria was not quite right, but they went to get themselves a dinner. One of my favorite things from him is that there's a I mean you were talking about his willingness to take unpopular positions and there's a beautiful thing similarly where he he was often accused of being Catholic because he was a great defender of the Catholics and there's something where he responds and the (1:28:44) Catholics are obviously tremendously persecuted at the time and it says and if Burke went on account of such sentiments people call me a Roman Catholic it will give me not the smallest degree of disturbance they do me too much honor who aggregate me as a member to any one of those respectable societies which compose the body of Christianity wherever they choose to place me I am sure to be found in extraordinary good company it's beautiful right >> that brings tears to my eyes it does that was Burken's best and his best was (1:29:16) fantastic so what do they believe so they were these guys were Burken Fox were in the opposition whole careers basically each one had a short time in government in the ministry which meant they drew no money from the House of Commons or unpaid. So they scrambled around for money sometimes rather gaming speculations and Caribbean land deals of course unsuccessful. (1:29:40) So as members of parliament as members of the opposition what did they believe they believed that the king was overstepping his balance the king was going too far to become news rather a tyrant and they do what they could to sty the king the king of stying nib. So the two of them believed in the following episodes of their careers together believed the following. (1:30:02) So in the American Revolution, they were both allied with George Washington and his feeble rag tag army and the ideals of revolution against the heavy hand of Lord Martha and King George III. Now Edenburgg was welcomed the affection of the American people but would squash them if they had presumed to achieve power over England. (1:30:26) He was not a friend of a risen and powerful American state. But he believed the colors were in the right and their dismiss over taxation. But Fox as was his kind of unchained want. He wore George Washington's colors around London his carousings and gambling at Brookson's club buff and blue and what you know what some people took his enthusiasm with the cause with treachery against and uh so that was that was America they both were quite stalwart members and would say after George Washington's route of the battle of Long (1:31:02) Island let us stand by our friends and their advers as well as the prosperity never abandoning people who stand for the principles of the glorious revolution of 168 in this country but always support them in those ideals. So that was one episode. The second had to do with overbearing corrupt and a quite cruel regime at times quite cruel regime of the East India Company in India. (1:31:30) And this shows Burke Adam and his dogmatic and semi crazy side involved a trial of Warren Hastings who was a leader of the Houston company. And I'm not sure whether Warren Hastings was quite as guilty as everything as I thought he would. But the trial lasted for eight years and by the end of it only Edwin Burke was interested in pursuing the case against and again my friend Abby face calls this law affair. (1:32:03) So that shows a dogmatism of Burke and how he could seemingly be unself-aware. >> It's worth dwelling for a moment on the East India Company because as you write in the book it was as well hated and well envied as any modern-day technology giant. And so this was the world's largest business. So Hastings who you mentioned was the governor general who got impeached. (1:32:25) Can you talk a little bit about the misdeeds and the wars and the cruelties and the scandals and the plundering of money from India that it's kind of amazing because we talk about business now and the nefarious things that we've been saying Wall Street has done. There's a level of brutality and corruption to what they were doing that's quite astounding. (1:32:45) Well, all you have to know about u see behind you William the portraits of Charlie Maver and I guess Warren Buffett. Yeah. Yeah. And Charlie Maver is fond of saying Shelby and Sen show you the outcome. The East India Company would send to India as employees of the firm lads of 16, 17, 18 scarcely shaving and they would be very illpaid. (1:33:12) They were to make their way in the company by setting up shop for themselves and by conducting their own business as a sideline. Actually the side hustle became their focus and their main day job. So instead of enriching their employer they enriched themselves. That's one thing to know about incentives. The other was that the East India Company was itself a sovereign. (1:33:36) It had his own army and it had his own merchant fleet and its own navy. And what would a prophet sitting in company do with its own military power in search of prophets? It would wage wars, right? >> Well, maybe the equivalent is Musk having Star Link and maybe he's the uh the person with the power that they had. (1:34:01) >> Yeah, maybe that's coming. But knowing those two things, you can imagine what liberties the servants of East India Company took on their own behalf as opposed to that interest of their stockholders and indeed the interest of the sovereign that gave them the monopoly. So they ravaged the country and uh you probably have a favorite episode of their misgovernance, but it was pretty steady and pretty heavy-handed. (1:34:27) >> Well, Clive was amazing. Clive of India and I used to when I was living in Belgravary in London I would pass this gorgeous house that would say Clive of India lived here and you'd think oh this must have been some noble guy and it's like then you read your book and you realize no they were just pillaging left right and center and then would having plunder jewels and stuff they would come home with just millions and millions of dollars and buy themselves respectability >> not respectability they would buy themselves seats of parliament (1:34:56) >> yeah power >> social respectability was I'm not sure anyone had enough of that for them. But Clive of India was the avatar of the internal mobile. >> Yeah. >> They turned their bloopers I guess into jewelry. >> Yeah. My favorite bit that you write, well actually this is Burke that you quote on the East India Company talks about these young men, boys almost govern without society and without sympathy with the natives. (1:35:25) They have no more social habits with the people than if they still resided in England, nor indeed any species of intercourse but that which is necessary to making a sudden fortune with a view to a remote settlement animated with all the avarice of age and all the impetuosity of youth. They roll in one after another, wave after wave, and there is nothing before the natives, but an endless hopeless prospect of new flights of birds of prey and passage with appetite continually renewing for a food that is continually wasting. And just that image of these (1:36:01) new flights of birds of prey coming in to rip off these poor natives plundering their wealth. It's just an amazing piece of writing and rhetoric. >> Ah, well you see why I wrote the book. >> Yeah. I think the book in some ways it almost tells me as much about you as it tells me about Burke and Fox because it seems like it's just infused with your love of language and writing and scholarship. (1:36:27) is that there comes the trial and Hastings to close that at war Hastings the governor general of India as she noted impeached was tried off and on mostly off I guess but still over the course of eight years and this is a impeachment in the House of Lords and he finally gets off and uh it's most remarkable display okay but there's more of that side of Burke in their death scene and we're coming up to that now with the French Revolution This is where these two friends parted company. (1:37:03) It was quite irreparable to Fox. The French Revolution was that's the greatest thing that ever happened in history world. Tossing off and throwing off the chains of the tyranny of the French crown and of the miserable system of aristocracy and the suppression of lives of the people. He thought it was was marvelous. (1:37:27) Okay, there was Fox and Burke saw in this. He saw chaos. He saw the destruction of civil society. He saw the structure of things that the uh order of society by social rank. Very important to have family, privilege, all this stuff which to him was the fabric of a functional and prosperous societ. All this would be destroyed. (1:37:50) The church would be destroyed. Religion itself would be trampled under a flood. And much of that indeed did come to pass with a terror and Fox was raised grinned by the terror you could imagine and put in Wall Street terms. He said I'm really bullish on this and then most terrible things that happen become it goes broken and everyone's revealed to be a not only offender against the laws of the country of the rules of the SEC but also criminals of most horrible sort you know. (1:38:18) That's the kind of the Wall Street analog to the call that he made after the fall of best deal. But still Fox clung to his view that this was a glorious moment in history of man. And of course he had many comparisons in this romantic generation them coming up cheered them on and he cheered them on and okay so that's that. But Burke was equally unmovable in his view about not only the net evil of this but also the gross evil that you didn't see much that would come out of it except the end of France I guess. (1:38:52) So what about the friendship it came to a tearful end in the House of Commons and it was a debate over something having nothing to do with France and Burke went on about the French Revolution. Fox said, "This is not germaine." And Fox quoted back to Burke some of his thoughts in the American Revolution. And Burke went incandescent over the incivility of having his own words quoted back to him. (1:39:19) That to him was a heinous crime against the unwritten rules of the house and more especially against the unwritten rules of friendship. And he said, "Our friendship is at an end." And Fox now breaking into tears said, "No, it's no it's not. So that was that time passed and Burke's son tragically precedes him and that predescases him and Burke falls ill and falls broke. (1:39:46) They're all both of them are broke. Both their whole lives they you know Fox lives for bankruptcy and Burke is broke at the end and that does nothing to lift his spirits. And as Brooke lay they die, Fox reaches out to his wife Mary and Branch. May I come and see my friend? And she consults with her husband and she writes back to Fox that word for word certainly the spirit of his reply. (1:40:12) A stiff reply that Mr. Burke must adhere to the views that the public knows so well and that if he were to fear from them, it would be a great hurt to the community and to couldn't do it. So three eyes Burke does and u Fox lives a long time afterwards many years in declining health himself and declining health well earned by the way he so lived something comes around to ask Fox if he would not like to contribute to a fund in collection to raise a monument to late Ed Fox says no I can't pretend to a spirit of forgiveness such that I could do this (1:40:57) without being a wanker. I I can't. So that was that. And the book closes in with the fox having finally succeeded in putting over a law outlawing the slave trade in Britain knows what he wanted most of all. This is a statue of a fox in Westminster Abbey depicting a freed slave or something freed slaves lying on his lap and gratitude. (1:41:27) So I said that that Fox is a enduring monument and marble and that Burke's collected items are a marble of another find. >> One of the things, Jim, that was so striking to me is both Fog and Burke were incredibly admirable and gifted in so many ways and yet they were both absurdly bad with money. Both of them lived in debt. Both of them died broke. (1:41:51) But I think Fox was kind of extraordinary. Can you talk a little bit about his gambling? I mean the recklessness of it is quite staggering and his father was absurdly rich. So it was quite impressive what he managed to achieve. >> He comes for a interesting line financially speaking. His grandfather, Sir Steven Fox, was a payoff from the forces, which meant very briefly that you got to invest the money that was entrusted to you for the payment of the troops until that money was needed by the king to discharge those debts. So, (1:42:25) you could do anything with it and you got to keep the profits whether it was interest on investing government securities or or profits from dealing with college stocks. So that was Sir Steven Fox and Fox's own father who came to know as Lord Holland got the same gig and he became fabulous and rich. People couldn't believe what he did with those with that money. (1:42:53) He just he fed the profits to his addicted gambler. Fox would play night and day at his club, Brooks's club. He played dice games of dice and cards and um he's a horse player rather better at that than cards and dice. He lost quite literally fortunes at gambling. >> He lost £900 on a single game of billiards. (1:43:17) You right at a time when that was real money. I think you write that in 1776 he had £140,000 of gambling debts. That's many millions in today's money. Right. >> Yes. and what did not speak well of his moral character didn't seem to bother him people would say how can you sleep at night all I want you to do is father said well the question is how could my cred sleep at night and it's so amazing he would go out sort of drinking all night sleeping with prostitutes sleeping with his mistress and then he would come into the house of parliament and give an (1:43:49) amazing speech and I think there's a wonderful bit where Horus Walpole >> listens to a speech that he's just given after basically being out drinking and carousing all night And he's like, "This is just total genius what he could do." >> Yeah. Yeah. People were astounded by it. But also they recognized that he was basically just a big sponge. (1:44:08) He borrow from his friends, borrow from everybody from whose father died desparing the debts that he had accumulated and what it did to his estate. But he still kept feeding on money. Burke was different entirely. He bought lovely estate beacons field. It was, as so many lovely estates are, it was a money pit. You didn't make any more money at farming than most people do today. (1:44:32) He was a student of scientific agriculture. But think of the productivity that he had or didn't have. Now, this place lost money. He could by hitching some oxen ahead of horses and plowing that he could plow one acre a day. Now today a mechanized farmer at a not so very accommodating hilly New York farm can do 21 acres a day mechanized plowing. (1:45:02) So 20fold appreciation in plowing had two jobs as a parliamentary a devil. He was a gentleman farmer, but actually more than Joe. He was a hands-on farmer, a scientific one at that, who with the right equipment, ox as well as horses, could plow all of one acre a day. Upstate New York who can do 21 acres a day with machinery. (1:45:23) Not much productivity growth there. And so the place never paid for itself. It was mortgage. So he was perennially in debt to his friends and to his political mentor, Lord Rockingham. and with all the insecurity that entails. So, uh, at length, Burke became a member of Brooks's club as well and Socks was towards the end of his life. (1:45:48) And one of the documents that my quite terrific research assistant and length intellectual partner Janice managed to fish out of archives was a letter from Brooks's Club to Mrs. Edmund Burke about eight years after his death dunning her for unpaid dues as Brookton's. Huh. Oh god. So that was the state of his exjecker. (1:46:12) I think that Brooke never suffered in his lifetime the indignity of bankruptcy more than once. Fox's uh his furnish was out on the sidewalk. The debt collectors came just took his stuff. Once he was u after a night approaches after immense losses one of his friends came to him concerned about what this might do to would he take matters into his own hands with a pistol alone and dead at night no so he came and there was Fox reading some great Latin to his friend said what are you doing and Fox said well what do you think I ought to do I've lost every (1:46:47) shilling there was a serenity in the face of ruin that will amaze the readers of I hope we want to share one last story about Fox's death. So he he fell in love with a cortisol. This is what I'm missing. Not ever sure whether was a Mr. said, but they had a genuine love affair and at length during one of the breaks in the Napoleonic horse, Fox takes his then wifely at length takes her to France and they sit down with a taland French diplomat and Talan too had married a cortisan and the two ladies sat next to each other on (1:47:28) the back and they shared very interesting observations about people they had known. Oh, marvelous. >> Before I let you go, Jim, one last question. You spent so much of your time studying history. I wondered if if it gives you a sense that life has improved, that we've survived these terrible periods in the past, whether it's the French Revolution or Civil Wars and the like. (1:47:56) Does it give you a sense that even in our strange and difficult moment now, that we sort of muddle through after all? Like does your study of history give you optimism or pessimism about the future? >> A little bit of both as to the material side of life it is onward and upward. Nothing like it's ever been seeing and we would not be having this discussion except for advances in medicine. (1:48:19) I wouldn't be interlocatory and captain somebody else. The marbles with which we live are just astounding. this little thing I have in my pocket which I forgot to put to airplane mode has the entire Canada world knowledge it does and so people think I say yeah what about the next edition of the Apple whatever it is you know get jaded about these things get jaded about I find myself hear myself complaining about the pills I have to take to ward off the next round of uh disease in rank in gratitude so in so many ways things never been better (1:48:53) and we should thank our lucky stars live when we do. In other respects, we live it's back to living in in rags in the forest with respect to public oratory going back to grunting and groaning wherever where have they conducted business before the perfection of writing and the arts of of literacy. Can you compare what comes out of today's House of Commons as well as of course truth social or the House of Representatives from the all dignified Senate? you want to lay your head down and uh not watch television, do (1:49:28) something else. It's mixed, you know. So the so all of the intellectual energy of Murk and Fox's time for a certain class of people was in literary pursuit as a great American chancier called Albert Gallatin. He was the treasury secretary, a near successor to Alexander Hamilton. I think there was one or two between the two of them, but Hamilton was a treasury secretary under Jefferson and Madison and then he was a diplomat who helped to settle the war of 1812 when he came back was a banker and he retired and the (1:50:03) gravestone talks about so he retired to pursue academic studies and literary pursuits. Gallatin did and went down to the grave universally honored. I go over to the churchyard from time to time and read his gravestone gallons and think about him. It's marvelous. And so if you're a lover of the oratory language, you'll be uh disappointed to not to have lived in some other time. (1:50:31) Otherwise, never mind the commonplace diseases of late life. Just go a trip to the dentist. Just thank your lucky star as you know. >> Yeah. >> Uh but it's pretty great on balance. Pretty great. I'm glad to be here. >> On on that note, Jim, it's been such a delight and I'm so happy to have got to spend this time with you. (1:50:51) It's one of the great pleasures of having a podcast is it gives me an excuse to hang out with you and um >> awfully uh kind and what a pleasure it is to be in your company. I wrote my written my biographies mainly about people whose company I wanted just to have to be in. >> Huh. >> So, uh I like your company too, William. (1:51:09) >> Ah, thank you. That's lovely to hear. and I loved coming to the conference yesterday. So now I'm planning to become a regular. I'm looking forward to it. >> Thanks so much. Lovely chatting with you. >> Okay, William. Happy days. >> Thank you. >> Most people are only as happy as they make up their minds to be. (1:51:29) So what this teaches me is that whatever happens in your life irrespective of unbelievable experiences your control of your mind determines how you end up how you survive and how you deal with it. And that's what people need to learn. We think about we have some problems in this life and we have disappointments, depression and experience and so forth and so on. (1:51:58) And to think that under these conditions, you can still be happy if you learn how to think and use your mind, that's pretty amazing.
Bubble Warning for Stocks, Bitcoin & Gold w/ Jim Grant (RWH062)
Summary
Transcript
(00:00) People say we're always bearish. That's not actually true. But we are almost invariably skeptical. What doubting Thomas's this is a market of credul and conformity. Actually, you know, people nothing succeeds like success anywhere, but especially on Wall Street. I think it was George Soros himself said we will see a bubble just jump on it. (00:21) Get there early. And uh you look at it in time. No, just I'll tell you when you'll know. But there are so many ways to make money off Wall Street. I happen to have cultivated a following that is innately skeptical. [Music] Before we dive into the video, if you've been enjoying the show, be sure to click the subscribe button below so you never miss an episode. (00:46) It's a free and easy way to support us and we'd really appreciate it. Thank you so much. >> Hi everyone. I'm delighted to be back with you again on the Rich Hope Wise Happier podcast. Today's episode is an important, timely, and extremely thought-provoking conversation with Jim Grant. Jim, who's a cult figure in elite investment circles, is the renowned founder and editor of Grant's Interest Rate Observer, a bi-weekly publication that he's edited since 1983. (01:16) These days, it costs the best part of $2,000 a year for a subscription. So, it's not cheap, but it's widely recognized as an invaluable source of unconventional insights for sophisticated investors. Nasim Taleb, who's not an easy man to impress, has written that Jim Grant thinks outside the box. Please read him, listen to him. (01:37) David Swenson, who ran Yale University's endowment with huge success for decades, once remarked that Grant's interest rate observer is on the must-read list of every serious student of markets. One reason for Jim's stellar reputation is that he draws deeply on his knowledge of financial history to issue early warnings about brewing storms that many investors fail to recognize until it's too late. (02:04) He's never been afraid to point out the wretched excesses of Wall Street. Those moments when speculative fads get out of hand and when unscrupulous investment firms are selling dross that's dangerous to the financial health of careless or credulous investors. In 1999, for example, at the height of the dotcom bubble, Jim warned that it was one of the most perilous periods in investment history and that America was dangling by a thread, financially speaking. (02:33) A few years later, he was one of the first people to warn about the dangerous mortgage securities that led to catastrophe in the global financial crisis of 2008-9. In the years after the financial crisis, he preciently warned that the Federal Reserve's monetary policies would inevitably spark runaway inflation. (02:52) So, what's Jim saying today? Well, as you're about to hear, he argues quite forcefully that prudent investors would be wise to exercise considerable caution at the moment given the heightened risks and speculative behavior that he's observing. As Jim sees it at this point in October 2025, there are many unsettling symptoms of euphoria, recklessness, folly, and corruption in financial markets these days. (03:19) All of which he sees as potential warning signs of what he calls a major market top. Now, the reality is I have no idea if Jim's right, and he's not sure either. After all, markets are inherently unpredictable, and it's also more or less impossible to get the timing right, even if you're smart enough or lucky enough to predict a major shift in market sentiment. (03:42) This reminds me of a discussion I had with Howard Marx in chapter 3 of my book, Richer, Wiser, Happier. Howard told me, I don't even think about the timing. In the investment business, it's very hard to do the right thing, he said, and it's impossible to do the right thing at the right time. That said, I think it's well worth listening when someone as shrewd and seasoned as Jim Grant warns that we should be treading with extra care. (04:06) At the very least, it's worth asking yourself if you're overexposed to risks that you can't afford to be taking. As Howard Mark said to me, "It's not about selling everything and suddenly going to cash. It's more about preparing for an uncertain future by asking yourself if you're pushing the envelope too far. (04:24) For example, if you have too much debt or leverage, or if too much of your money is tied up in speculative assets that might be dangerously overvalued. For battleh hardened survivors like Jim Manhower, I think one of the great lessons of financial history is that reckless excess and overconfidence is eventually punished. (04:46) So, it's important not to get too carried away during outbreaks of what seem to be irrational exuberance. On an entirely different note, I also wanted to take this opportunity to let you know that I'm launching a new richer, wiser, happier master class on November 21st. This is a chance to study directly with me over the course of a year as part of a very small group that's capped at a maximum of 20 people. (05:09) We'll meet once a month over Zoom and also at a couple of unique in-person events. Last year, the Mosclass drew an incredibly accomplished group of 20 people from, I think, seven different countries, including some very successful hedge fund managers, wealth advisers, asset allocators, managers of single family offices, CEOs, and entrepreneurs. (05:31) The people who signed up for the new masterass are equally impressive, and we only have a few spots left. So, if you are interested, please do email my friend and fellow podcast host Kyle Greve as soon as possible and he can send you more details. His email address is Kyle, that's ky l at the investorspodcast.com. The masterclass is designed specifically for people who are serious investors and passionate learners and who are really looking to build lives that are truly richer, wiser, and happier. (06:03) So, if that sounds like you, I'd love to hear from you and would be thrilled to have the opportunity to study with you over the coming year. And now, back to the show. Hi, folks. I'm absolutely thrilled to welcome back the great Jim Grant to the Richer Wiser Happier podcast. Jim, as you all know, is a brilliant financial historian and a wonderful writer and speaker and also the editor of Grant's Interest Rate Observer, which he founded 42 or so years ago. (06:32) And it's a must-read publication for the most sophisticated and well-healed professional investors. Partly because it's so expensive, but also because it's so >> cheap with the price. >> Cheap at the price. Exactly. Every time I think about getting my subscription, you put up the price again and I blanch again. (06:50) But I'm finally going to >> That's the That's the business plan. >> It's very wise. But it's a wonderful publication. >> You're an aspirational subscriber. We have many of them. >> Thank you so much for joining us again, Jim. It's a real pleasure to see you. >> But it's a delight to be here. >> Thank you. (07:05) And um well, as Charlie Manga would say, he said, "It's a delight to be anywhere." He was just glad still to be around for as long as he was. So anyway, I'm happy to be with you and I attended your wonderful annual full conference yesterday. >> I know. I was so very pleased to see your familiar and shining and welcoming and emerging face of the audience. (07:23) >> Oh, it was great. And for people who don't know, this is a very glamorous affair at the Plaza Hotel in New York City. And it attracts many of the smartest and wisest people in the investment world, not only as speakers, but actually as audience members. And you said just before we started that you wanted to tell a story about something that came up >> at the end of the conference. Tell us. (07:42) I have no idea what this is about. >> I hope I'm about being indiscreet. Although what is journalism for accept indiscretion with me? >> Exactly. Yeah. And this comes from David Rosenthal who was a speaker of economics and David is number four hireer in Nvidia. How is that for a credential life? He's an extraordinarily he's a gifted computer scientist. (08:10) I can't imagine what computer science is not gifted in many departments of metal acuity. But David is stand out even in that rather formidable crowd. Anyway, this this story has to do with a kind of reunion of founding employees of Nvidia and I guess it was fairly recently and it takes place at a an ethnic restaurant. (08:33) I call it a Salvadorian cooking and there tables full of Nvidia employees then and now. And uh Jen Sen Huang, the story CEO gets up and says announces to the crowd, you know, I'm pretty good at fundraising and what I want you to do, ladies and gentlemen, is empty your wallets and give me your cash. They complied. He's well present. (09:00) Made CEO and his colleagues CEO Jensen collects all this money. Interestingly for a Silicon Valley crowd, there people carrying a lot of cash and so he has a big wad of bills and he walks over the proprietor of this not fourstar restaurant and we here know a little bit about how difficult it was to start. I want you to take this delightful. (09:24) >> Wow. >> Isn't that something? >> That's really nice. >> Yeah. Shouldn't we all do that once in our lives? >> We should. We should. I thought for me the moment you mentioned David Rosenal, what comes to mind to me is he gave a presentation that I think I only understood about one in five words cuz it was deeply technical. (09:44) But what did you make of it that he was he seemed to be dismantling the idea that Bitcoin was as safe and private as people imagine. And he's obviously a very gifted computer scientist who has many patents. And as he put it, not only was he the fourth employee at Nvidia, but actually given that there were three co-founders, he was actually the first hireer. (10:07) So this is a very smart guy. And he was saying that basically, as I understand it, that once we get further along with quantum computing, I think he said there about 20% of the bitcoins out there are sort of lost or unclaimed that people have lost their keys or they're in trash piles or whatever. (10:23) and that a quantum computer might be able to actually relatively quickly figure out how to claim for oneself that missing crypto. What did you make of that? This is way above my pay grade. >> Yeah, that's exactly the message. I think as you say it was deeply technical certainly over my head many places but he was attacking the pretensions of the technologically sophisticated who contended that uh Bitcoin was useful and safe and uh somehow endured from infiltration by the likes of the coming quer computers try to expold that which (11:00) I gather he did >> and I think there's a link to this on his blog which I'll try to remember to include on the show notes something that David Rosenthal gave to a class at Stanford University. I think it's electrical engineering in in 2021. He was just he was filling in for a professor. (11:31) It's the most lucid attack on Facebook. I read it. I thought to myself, why isn't this fraud trading at zero? >> It did not go to zero. So maybe people know something that and even David doesn't know about Bitcoin, but I thought he made a very good set of close arguments. He winds up and says rarely if ever in the annals of technology have the champions of a breakthrough technology gone to such pains to not use it. (12:03) So he was questioning the utility of it. So you kind of had to be there for that one. And not only did you have to be there you had to understand much more of the technical issues than I do and your summer got most. This is a very familiar feeling to me in the financial and technology world that I'm with people who are much smarter than I am and I I'm picking up crumbs as they fall from the table. (12:25) >> Don't think smart is I think familiar or trained or something but no doubt every field has its vocabulary. We are all humbled in the presence of astronomers for example. >> Yeah. >> Yeah. While we're at it, we should close this subject of cryptocurrencies because this wasn't in any way where I was intending to go at the start of our conversation, but since we're here, I'll ride this horse that we're on. (12:48) But you spoke at the conference of the pretense of things that are not money posing as such. It's fair to say if people listen to our last interview on podcast 3 years ago, we talked about crypto in some depth. And Bitcoin now, I think, is is around $116,000 per coin as we speak, despite a recent selloff. (13:08) You've written quite a lot about, as you call it, a cryptobesotted Wall Street that's driven up valuations so that there's now, I think, more than $4 trillion in aggregate value of all cryptocurrencies. And I I read on Bloomberg the other day that Bitcoin ETFs now manage more than $142 billion and that even Vanguard is now weighing the possibility of allowing its 50 million or so clients to trade crypto ETFs, whether it's Bitcoin or Ether or whatever. (13:36) Jack Bogle, the founder of Vanguard, had famously warned investors to avoid Bitcoin like the plague. And so I'm just wondering what you make of what we're seeing here. Is this just standard top of the cycle recklessness and folly or is this you've been following this world of finance for quite a long time? When you look at this phenomenon, what does it mean? >> Well, one is is forever humbled by the markets, the ways the ws of the market. (14:03) I still don't understand what people see in it. Maybe it's a divide of some kind. A limbic system divided. People say, "Oh, yes. Bitcoin. What? I want some of that." The price of a house. You want What is it? Can you see it? No. No. You can't see it. Now, what are you going to use it for? What's its functionality? Well, I'm not so sure about that. (14:26) But I It has done well, hasn't it? Yeah. So I am no longer on certain cable TV stations that I used to be out regularly. I humor myself or I I try to comfort myself by saying it's it's not age. It's not the overfamiliarity with the arguments that fall from my lips. No, it is my anti-maga country club republican line that grants and it is also the last words that I spoke of this particular cable channel when asked about Bitcoin. (14:59) I said the most efficient price is zero. And um my god, this administration is all in on crypto. It's a it's the scammiest thing, the connection between Bitcoin and the Bitcoin promoters and the president and the and his family and these coins and it began before his inauguration. you know, had issues in Trumpcoin and was kind of a rug pole thing and I and it's shocking and contemptable, but these cryptos are being heavily promoted by the administration both overtly and indirectly by the regulatory approach it has taken toward them. Now, (15:39) as to Wall Street, it's monkey seeing monkey do, especially when that monkey is moving upward and to the right a stock chart. You know, Bitcoin's genesis was in synonymous, right? Not enough. Yes. So, you could go and procure whatever you wanted to, whether there's drugs and surface to air missiles or if you were living in a united country that allow you to take money out, you can take your money out through Bitcoin and Wilson. (16:06) But any case, it was off the grid and outside the pale of conventional Wall Street. Now look, Vanguard for peace sake, you know, it's it's right down the middle of the fairway. So the establishment which could not abide it could be bit. Ah god, now it's Yeah, Bitcoin it's a thing. Let's start the next ETF. So I still think the most efficient price of twice is zero. (16:31) >> Well, that's good. So now that we've very efficiently offended half our audience in the first 10 minutes, either politically or financially, we can be much >> Let's get the other half. >> Let's get the other half. >> The other half. >> By the time we come around to talking about your book in an hour or so, nobody will be left except for my mother. (16:49) >> Well, they should buy the book. They should buy the book, right? >> I I bought the book and I very much enjoyed it. Although I have to say it's 400 and something pages long and I'm still and I'm about 20 pages from the end. So, I'm ashamed that I didn't quite finish it last night. >> I'm not going to tell you how it wound up. (17:07) >> Did it all end happily like most of history. So, anyway, we'll get to the book later. But the thing that I wanted to start talking to you about except for the fact that both of us digressed for 15 minutes to insult half the country is I found yesterday the conference, your conference, it was a fascinating day and also a slightly unsettling day. (17:27) And what struck me I think was the divergence between the current mood of euphoria in the markets and the acute skepticism and weariness in the room among your speakers who are a savvy battled hardened bunch. And so for example there was a credit investor named Victor Kosler who manages something like $22 billion who said markets are very bubbly and there are lots of problems under the surface. (17:53) So for example, he said there are entire areas of private equity that are in deep trouble and lots of companies within private equity that are defaulting on their debt and going bankrupt. Can you give us a sense for people who weren't at the conference of the mood there and what it reflects about the financial environment today because >> yeah I'll be happy for the listener you have to understand that you know it was a self- selected group of people and grants made its living was only two odd uses were yes but people in a g whiz world people say we're always bearish (18:26) that's that's not actually true but we are almost invar variably skeptical what doubting Thomas's this is a market of credul conformity actually you know people nothing succeeds like success anywhere but especially on Wall Street I think George Soros himself said we'll see a bubble just jump on it get there early and uh you'll look at in time you'll just I'll tell you when you'll know but there are so many ways to make money on Wall Street I happen to have cultivated a following that is innately skeptical And so that just so bear that in mind (19:03) and we take away people walk out of these conversations. Oh my god, how could I get tomorrow morning? >> Yeah, I felt I should go in fetal position in the bathroom at lunch time. >> It was a good fair mix of people. For example, even within credit you mentioned Victor Kler and guy name was Jonathan Lewinsson of diameter ke rather said u well things aren't so bad. (19:25) Look at this things are much better than you'd think by looking at a few soft spots. So there was there was disagreement and John Hughes talked about investing in great companies and not selling it as it's a fair. So that speaks to the the variety of ways in which people of different sets of buildings and different intellectual turns or different terms of mind can find a place under the big tent of investing. (19:50) It's nice in that way, isn't it? And we had a innate copakar. We had the pure specimen of the bear. To me, it's a very fetching buy in the set. He's a perfect example of an avatar of the sell first, buy later approach to securious trading, you know, investment. He exhibited the rofal humor of someone who was prepared to be wrong about 90% of the time in anticipation of being magnificently and all by himself magnificently right six or eight or 10% of the time. (20:27) Yeah, he said something lovely about how you asked him impertinently in the way that only a journalist can. Why do you do this? You know, sort of an existential question about being a short seller. And he said, "Well, for the 15 minutes when you're right, it's so delicious." It just made me think some people really, they're so smart and they make life very, very difficult for themselves by picking a particularly hard way to play the game of investing. (20:53) Yeah, he's chosen the highest degree of difficulty and there are many left. These markets run over the skeptical mind. You said, well, have you read the documents? What the what's the valuation? It's going up. That's the valuation. So, um they his talk had to do with private equity and with AI and all the privates, private credit, you think be a sergeant or a corporal or this mix. No, it's all privates. (21:23) And he pointed out it was a magnificent tour to force a tour of the horizon. Uh was wrong in finance having to do with the structure of things with the underlying fragility of debt and with the consequences of all those years of suppressed rates of interest which of course interests me as I'm still sore that uh interest rates were not a thing for so many years. (21:48) Publication ladies, it's called grass interest rate observer. If you can't see them, it's not good for business. So, I'm still nursing a grudge against the Fed for that. >> But now you have your 15 minutes. So, all is well for you. And Nate, he also pointed out, I mean, I think it was in his talk, one of the most striking things that was a recurring theme that I think is relevant to a fair number of our listeners is that we should be deeply skeptical of the world of private equity as they try to democratize it. (22:21) And I think it was Nate Kobak said that in finance whenever you hear the word democratizing, hide your wallet. And he said it's like Chanel marketing itself to Walmart. Can you talk about that because that seems like a really beautiful example of this imbalant time where Wall Street is dreaming up new and better ways to separate us from our money. (22:43) >> Well, the hypocrisy is delicious as Nate to put it. You know, private equity people at first did everything they could to distance themselves from the common man. Their shoes were bespoke suits magnificent. uh their club memberships extensive, you know, and they would deal with the institutional world and not all of that. (23:05) And lo and behold, interest rates did not remain at near zero after 2021. And the valuations that were acceptable in a regime of like nothing interest rates suddenly became very precarious. Indeed, those valuations went away in a time when British kind of began to normalize. So these companies, these private equity companies 20 something thousands over the world were capitalized for prosperity and more meaningfully capitalized for a regime of very very easy money. (23:42) So suddenly instead of paying I don't know say 3% interest and I'm going to get him they were now paying 8% or 10 or 12 makes a difference. So what to do? Well, the investors and they're not just wellto-do endowments. Well, the endowments were among the elite institutions to which the private equity people sold. (24:02) So they would go around to mimicking the famous Yale University model of >> David Swinsson. Yeah. >> Yeah. David. And they go around to these endowments, colleges, what have you, and say Yale did this. And what it did was to carve out a very big niche in his portfolio for venture capital and private equity. and you won't be susceptible to adverse marks that reflect the unreason volatility of public markets. (24:29) Rather, the the marks that we give you are virtually correct and marks meaning mark to market or not. So not >> not marks as in the sense of a Ponzi scheme where you've identified marks. >> Yes. Right. Yes. I did ask Nate about Ponzi schemes and he said that the term seemed a little bit seemed unnecessarily brutal for this sophisticated audit. (24:57) So um private equity sold overwhelmingly to such institutions and now such institutions having budgeted for return of their capital are finding that it's not being returned. Nor are the dividends or the interim payments they'd expected quite up to snuff. So they are being pressed by the presidents of colleges and maserary institutions museums had to where exactly is the uh money we need for the draw this year draw the development funds and they're hardressed to come up with the money. (25:30) So they're some of them are turning to the sec the secondary market for shares and these private equity companies. They're being peeled off and sold to like you sell a used car and it's not what they not what the buyers originally counted on. So private equity, I think that may demonstrated, is in trouble. (25:51) And it's in trouble because it has neglected to honestly value its assets as interest rates began. And now it's stuck with assets that are being carried at unreasonably high prices and the assets are not returning the cash that the investors need. So what to do? I know we well the dear public oh the dear public and the I took a long time to get to this. (26:19) So this is where democratization comes in. Shouldn't the little guy have a piece of this marvelous asset class, private credit, private equity? Credit, by the way, has none of the overtones of debt. >> It's kind of the same thing. Private debt, meaning not publicly traded, so not publicly marketed. And you can see it in the unwavering line of capital appreciation that these funds and these assets have delivered to investors supposedly anyways being marketed to the public as a safe and nonuler inducing alternative to sometimes tumultuous public markets. (26:58) Nate correctly says I think that this is not a sign of benevolence of the promoters but rather a sign of their increasing desperation. I think it was also interesting that he said that they have this reputation for being super sophisticated and obviously in some cases they really are super sophisticated but he said when you look at the record of many private equity firms they've shown as he put it maximum aggression at periods of maximum risk. (27:29) And so he said really they have a tremendous record of momentum chasing. And so for me it was kind of a reminder that often we fall for the illusion that the smart money is incredibly smart and way smarter than us and is going to protect us from turmoil that can come. >> Yes. Well um in the audience was my friend Emanuel German. (27:55) Michael German as a Bell Labs caliber physicist who made a career change to Wall Street became a renowned practitioner of quantitative fast you know he was a we call them quats of course and he worked at Goldman Sachs for a time and other such high ranked institutions on the Wall Street tables he wrote a book called my life as a quad a great memoir never mind my book uh by David Emanuel Dur's books published in 2003 or four left is caught. (28:31) Anyway, at one point Emanuel harks back to the long-term capital management affair 1997 I think there it was the now fable then frightening collapse of a hedge fund that was run literally by Nobel laureates and u in his memoir Emanuel Dur says he was on a call with other Goldman Sachs people talking with the principles after the blow occurred and he said he was startled and deeply impressed by the depth of sophistication on the part of these authors, the failure of long-term capital management. (29:09) And they knew much more and asked much better questions about valuation and the composition of the assets and the hedge technique than did the Goldman Sachs traders who were trying to value this stuff. And Emanuel takes away from this that sheer metal power, sheer metal accurity. It's not invariably the road to riches you have. (29:30) It's not necessarily the the equipment that gets you where you want to go. I don't think you use the word humbling, but it gave him pause for thought, you know, and a lot of times I think a lot of times on Wall Street, the simple common sense, I don't get it. Tell me again. So you're telling me that you put all these subinvestment grade mortgage structures together, slap them together, and the ones that the 40th percentile have been transmogrified into AAA securities. (30:02) Is that where is that? Can you again this time more slowly? But anyway, so the population of intelligent people on Wall Street is a quite a large proportion of the practitioners. And so at the Fed, the thousand or so, more than a thousand or whatever, the PhDs in economics who who fail to foreseeing 20120 and 21 that if you infuse the wallet of the population with thousands of dollars of stimulus and open the stigance of the central bank and promise through the central bank that interest rates, what you will generate is a great investment bubble (30:38) and the spending spree by people who have been given all of this might result in inflation. And the Fed with all of its hundreds of PhDs didn't happen to come to that kind of common sensical conclusion. So all this is by way of windy way of affirming that um brains aren't everything. >> No, absolutely. (31:00) And you've written a lot about artificial intelligence in grants. Obviously, this is one of the things that's been driving the euphoria in the market, and you've talked about the insatiable enthusiasm for anything related to AI. I was looking at one of the daily newsletters that you send out from grants the other day. >> Almost daily grants. (31:18) >> Almost daily grants. Yeah. It was talking about how Amazon, Microsoft, Alphabet, Google, Meta, Oracle, and Coreweave will splash out $382 billion in capital expenditures this year by city groups count, up more than 50% from 2024 and triple that seen in 2023. And you said that the Magnificent 7 now accounts for 31% of the S&P 500's total capital spending from 19% at the end of 2019. (31:46) And you point out that there are these firms like OpenAI and Anthropic that have raised billions of dollars every few months and are now valued at hundreds of billions. And so you wrote this piece in July about the check writing contest within the world of AI where everyone is basically racing to invest as much as quickly as possible. And I just was wondering as a battleh hardardened investor, an observer of craziness as you are, when you look at this excitement, how reminiscent is it of previous booms, whether it's the railroad bubble that ended in disaster (32:20) in 1873 or the.com bubble that ended in disaster in 2001 or or is this really different this time? Can you put in some context what we're seeing here? I think what we are seeing is the promise of a marvelous technology with human characteristics and those human characteristics have to do with uh falling out line and doing what others do and if possible doing more of it higher, faster and louder. (32:49) This reminds me a lot of the fiber optics check writing contest of the late 1990s. How much of the stuff you put in the ground? Is there demand for it? rather there will be or the as you say late 1800s the railroad building contests as it were the check market contest war track parallel track to your competitor but still the contest is worth it we'll beat that so there's a lot of redundant capital investment then and these things end invariably with a panic and a crash I think that's the model for now another point that David (33:22) Rosenthal made was the problem with the capital investment may not be so much in its size but rather in the demonstrated gap so far that people are not willing to pay for the product of that congestion with extraordinary sums being laid out for data centers these buildings that in the case I think meta building something the size of Manhattan Island well and good except are you going to get paid for it if college students go away in the late spring and don't come back until the fall and will they go away. The demand for AI goes way (33:59) down because who else has such a deep and persistent need for plagiarism. They have to plagiarize papers to get through anywhere. So the demand for AI falls off marketkedly and measurably come the springtime. I hear myself saying I saying I get a horse in 1903. You know, it's cars. They stink. (34:23) They look at the tires that blow up all the time where steamboats, steamboats explode and kill hundreds every fiscal quarter in 1840s. I'm not even talking so much about the technology as the very human response to great technologies and the promise thereof. And don't forget, this is still a promise. (34:42) The question, what comes next? Is it the realization of the promise with the payday? Or is it the crash that precedes the realization and the payday? I perfectly see this stuff is going to do wonders for somebody. But for the time being, people seem not to be willing to pay for what the producers of these large language marvels are laying out to achieve them and to compete with others achieving them. (35:11) So I'm all in on comparisons to the bus of yesterday Europe. I think this is that's the model for now. >> There was a lovely quote that I I don't know if I had heard before that your friend Pierre Lassand who's a very successful gold bug quoted from Voltater where he said history never repeats itself. Man always does. (35:30) I thought that was quite revealing about what happens with these deals, right? Like the tendency at certain times in cycles for people to get carried away. And you had someone I think um at your other conference, the credit conference earlier in the year who was saying exactly the same sort of thing that basically at times like this there's just this sort of fear of missing out. (35:50) I think it was Michael Gatau who's head of direct lending at Silverpoint Capital. He said when there's a lot of capital and the emotion is greed and there's fear of missing out, bad deals get done. And similarly, when there is a lack of capital and the emotion is fear, great deals get done. (36:07) And so I think this is one of those areas where it's not like we can say what's going to happen with AI and all of this spending, but there's a sort of familiarity to the pattern of human behavior here. Is that fair to say? >> I think yes, I think it is. When Pier said history doesn't repeat, he's not going to say, but it rhymes. (36:25) Don't say that. Not again. >> So Pier and Voltater's twist on this. I guess no, maybe Mark Twain had the twist on maybe Mark Twain never said it. I don't know. I suspect Balta didn't say it either. Whenever you are writing a book, you look back and you check the origin of these quotes and you discover very inconveniently that nobody said what we claim they said. (36:43) >> He should he should have said it. Yes. >> If Volater had been smarter, this is what he would have said. >> And more cynical. >> Exactly. >> Possible. >> Exactly. So assuming that AI has been driving a lot of the euphoria in the current US stock market, there is ample reason to be a little wary of what we're seeing in the US market. (37:05) And you've reported recently in your newsletter that the S&P 500 is priced at more than 40 times its cycllically adjusted price to earnings ratio. And that back in the fall of 2021, it was at 38.6 times. And you said that that means it's the richest reading in history after the dotcom bubble when it was 44.2 back in 1999. (37:31) Can you put in context when you look at the market at the moment when you look at US stocks? Like this isn't a prediction of what we think is going to happen, but can you give us a sense of why it's wiser to proceed with caution than with our foot as heavily on the gas pedal as possible? >> Yeah. Well, everyone has to be in and valuations show that. (37:56) But appropo of there are many ways to make money. We heard from John Humes who is a now compounder of capital and we concentrate portfolio and companies that embody the virtues he thinks are that dispositively define a great investment and they have to do with barriers to entry and with capital allocation and with management quality and the like and he holds them through thick and thin and he's done marvelously through all manner of thins. Right. (38:27) That's about broad Buffett's counsel is too with respect to people who are listening perhaps a lot of this has to do with their age and with their risk tolerance and if you are starting out and you have a reasonably diversified portfolio and being in your 20s and I think it's it's entirely prudent not to pay attention to what I am now saying or to talk about these macro things come and go if the long-term America's gray is going to be great that I am this but say you hypothetically you were a general of a certain age and you will (38:59) own a lot of stocks and you might want to pay a little more attention to the signs of excess and they are at every hand. Valuation sentiment, the incidence of unmistakable corrupt promotion, uh the swaggering of newly empowered through wealth people who know know only one thing which is that markets only go up. It's all here. (39:26) The whole theater of uh the major financial markets top is on the stage. The theater is opened and the pageant of top making um scenery and actors and script all that is in play. Now the question of timing, does it have to end now? Nope. Does it have to end in two years? No, it does not. But it will. lot of legends of people who got out in timing. (39:58) 1929 I wrote a book about one of them. Bernard M. Duke who's a great spectator. He's the subject of my first book way back when I died like 40 more of legends come down through the years that Bernard sold on the eve of the crash 1925. No, he did not. I have the stock market. I had the his records to prove it. (40:18) But what he did do was take the measure of things in 1930 and get out salvaging like 60% or 70% of his capital in a cycle that would denude the buy and hold investor by up to 95% or so of his capital. And that took 20 years to wear off. That cycles down made a high in 1929 and we captured its high in 1954. Put that in context. (40:45) That was the year the Giants were in the World Series and it was the most extraordinary year. Now it was dividends are counted market came back before then. If you just look at the Dow I guess that's 25 years right and my mentor and boss at Barrens Robert M. Bleberg he was a depression child and quite vivid memories of the crash and its aftermath and was very very cautious of 1954. (41:11) But what he did not say 1954 is although there was a great markets man very instincts and I went back and read his stuff 1954 58 what he did not say was we are on one of the greatest errands of prosperity and investment success that you won't be able to it's all in front of us there will be bumps in the road but consider that put away those memories of the bad old days they are not humane but yes I think that this is a major top in motivation. (41:42) I'm with Nate Copakar with others and with myself. I don't need anybody else to help me along with this. Nate did such a good job in exposing the underside of things of credit in private markets. It will come unstuck and you'll have me on the show >> and I am not going to gloat at all. You know why? >> Because I have been around the block. (42:07) And the the important thing is to recall at moments like those were able to spend themselves that just recall how full of beans you were in the runup to the moment of crowning success. Just remember that >> it's a very difficult game, right? I was listening to an interview that David Ter, who I've never interviewed before, but who's obviously very smart, very successful guy, he had done on CNBC when he said, "We're having a really good year, and I'm so miserable because I still own the market, and I can't stand (42:38) that I own the market." But he said, "I'm not ever fighting this Fed with all these expectations of interest rate cuts coming before the end of the year." And he said, "You've got to stay for some of the party because the punch bowl is still there. They haven't taken it away yet. (42:53) " He is a constantly successful speculator. I remember watching him on CNBC at 2010 when Ben Esperant from PhD wrote the piece in Washington Post saying we are going to institute QE and this will infuse the net worth of the people who have equities and America will be growing again because the stock market will be rising again. (43:14) That was essentially the argument. I remember David Terry I remember he was sitting on set in the CBC and it was a chair. respond like this and nervous to go back and forth like this and he's exactly explaining how this was going to happen and it happened exactly as he said it would. He's someone to pay attention to. If you were listening to it probably say don't follow me. (43:36) I'm miserable because I know full well all the odds are against much more of this except he's also in the business of not getting off the train prematurely. that FOMO because he's rather too sophisticated with that. Although I dare say he's as a human being, he's not immune entirely from it. But he knows also that things go on so much longer than you would think they would or if you're a moralist should. (44:01) >> Yeah. Happen to be a moralist should is getting on the Fed as I often bet against the Fed. I can't stand this adage. I don't fight the Fed. I've made my life throwing left hard jabs and left hooks. the Fed and occasional overhang right at the Fed and they never hit back except sometimes I feel the blow. (44:21) So >> yeah, people will be shocked if I don't ask you very briefly about the Fed. We talked at great length about it last time on the podcast, your lack of tremendous enthusiasm for the way the Fed is run, but if you could just give us a sense of how you expect the Fed to handle what's really a very challenging economic situation at a really important juncture with I I think Chairman Jay Powell's term expires in May 2026. (44:49) You interviewed Kevin Walsh yesterday who served on the board of governors of the Fed until 2011 and who a lot of people are saying could be J. Pal's replacement. Obviously, there are a lot of demands for the Fed to lower interest rates and the like. And when you look at this institution and its position at this very interesting juncture, what do you see? What should we be thinking about? I think we ought to be looking at the uh administration's attempt to conquer to uh subjugate it and to institute its own regime of ultra low interest rates at (45:30) the Fed having conquered it. I think the Steven I Moran was the advanced kind of the Ptorian guard of MAGA of the Fed. He came under a questioning by Elizabeth War of the Senate Banking Committee bing his fitness for the unique position of chairman of the council of economic advisors and governor in she said to him tell me Mr. (45:57) Wood did Donald Trump lose the 2020 election he answered the Senate confirmed Joe Biden as winner of the election I know that Mr. Then Donald Trump moves the election, the Senate confirmed. So, um, it's, uh, the robotic response to me is a little bit concerning. You know, I the people around Trump were some saying, "Mr. (46:24) President, you had your golf carts sized bottom kicked in 2020. May we please move on?" I dare say no one at all saying that to him. Now, they also, Mr. Morantum the Bureau of Labor Statistics. Did they fake these numbers to make the president look bad? The quality. The quality of the federal economic data has been declining for some Yes. Yes. Yes. (46:50) Did they intentionally the quality of f like that? It would not be a shock to me that the president's views on interest rates which everyone knows lower the better in in 2000 whatever it was 2018 this late 18th his line was the Swiss have negative the Japanese have negative nomine why can't we have negative why are we paying any what's wrong with less than zero he still thinks that if he does subjugate the fed if he manages to bring his own people in for a bay I think we can look for much lower money market interest rates and a much weaker (47:29) dollar and a much steeper yield curve. Meaning that high that longerdated interest rates, longer term yields, bonds, mortgages will be higher, much higher than short dated money market instruments like T bills. So what MAGA believes they might be right? Who knows? I gave up seritude a long time ago but although it may not sound like that some but there's great hope for AI great hope for transformation of American productivity not after the crash that has typical occurred with excess exuberance and investment but before so (48:07) next year after revolution no there's going to be a crash first you'll be sorry you ever heard the phrase AI is how bad can it be that there's hopes for a productivity revolution such that this country can handle much lower interest rates, a much more dynamic as they use the word uh credit when people can access the credit market and find affordable mortgages. (48:32) The housing market's going to pick up after this long so people can't afford to move. That'll change. They paint a wonderful picture of what life might be like after the president finds his people and plast them at the Fed. as Donald Trump himself often says, "We'll see, you know, or we don't we'll know more in four years. (48:51) " >> So, while we're busy worrying everyone that we haven't already alienated, let's talk about government debt, which also was a major recurring theme at the conference yesterday. Pierre Lasson, the gold investor we mentioned before, pointed out that the world is drowning in debt, as he put it, and he talked about the fact that there's this overstretched fiscal situation, not only in the US, but China, the UK, France, and elsewhere. (49:15) and he had some amazing statistics. He said that the total global debt has risen from $16 trillion in 1980 to $314 trillion in 2024. And likewise, he said that US federal debt has risen from $1 trillion in 1980 to 37 trillion in 2024. You've also pointed out in grants you said uh nothing puts the fiat money era in starker relief than the fact that it took the US 222 years to borrow what the efforts of presidents Biden and Trump achieved in not quite 8 years. (49:50) So we can be equal opportunity in blaming different parties for the history of recklessness here. But can you talk about, you know, give us a very practical economics lesson for people like me who don't understand this stuff? Like you've argued for a while that the fiscal deficit's unsustainable. Can you give us a sense of what's causing the problem, what's likely to happen, and and most important perhaps what the implications are for long-term investors like our listeners and viewers here. (50:16) >> Let's take the contrary argument first, which I have to deal with. There was a a time when the contrary argument was upper in the minds upper most minds in that argument held basically that yes debt is a thing but so is the income that the debt produces and for every debtor who may be worried about overindulgence there is a creder who is more than happy to buy those IO and in the case of a country such as the United States whose currency is sought after and accepted worldwide there's no limit to what you can borrow and that (50:55) particular line of reasoning has held up until this function to this very moment I mean so recently speaking the government I guess is still shut down was supposed to be shut down the world still seems kind of okay with our shenanigans and our debt and it's because they like the dollar still it's the world's reserve currency meaning the currency that enjoys the kind of the Coca-Cola quality brand name and people accept it as good money even though they're not sure what is what's behind it you know is it just the promise of (51:27) government or is it something okay so that's the argument against concern against anxiety in the world right so the argument for concern is that the burden of interest and the weight of issuance will exhaust even the friends of this country and the friends of its power. Later this year, I'm going to be launching a richer, wiser, happier master class for a very small, select group of people who'd like to study with me over the course of a year. (52:00) We're going to meet once a month over Zoom, typically for about 2 hours per session, to discuss the themes in my book, Richer, Wiser, Happier. We'll also meet in person at a couple of really special events. I'm going to cap the group at a maximum of 20 people. So, this is an unusual opportunity to study very directly with me in a small group. (52:22) What sort of people am I looking for to join the master class? Well, really anyone who's deeply interested in exploring how to live a life that's truly richer, wiser, and happier. This is the second time that I've taught a richer wiser happier masterclass and I'm planning to do this again because it's really been a totally joyful experience for me over the last year. (52:44) The group has included an amazing array of 20 people from six different countries and I can tell you that the current members are an incredibly interesting, accomplished and really delightful array of people. They include some extremely successful fund managers, some investment analysts, wealth advisers, heads of family offices, CEOs, entrepreneurs, a management consultant, really renowned physicist turned quant investor, and a friend of mine who's a highly successful professional gambler. (53:13) The common denominator here, I think, is that they're all united in this desire to live a truly abundant life, and they're also all great learners. One of the most joyful things for me personally has been to see the friendships form between these remarkable people as they learn from each other and support each other. In any case, if this sounds like something that might appeal to you, please email my friend and fellow podcast host Kyle Grievy, which is kyle e attheinvespodcast.com. (53:48) Are you looking to connect with highquality people in the value investing world? Beyond hosting this podcast, I also help run our tip mastermind community, a private group designed for serious investors. Inside, you'll meet vetted members who are entrepreneurs, private investors, and asset managers. (54:07) People who understand your journey and can help you grow. Each week, we host live calls where members share insights, strategies, and experiences. Our members are often surprised to learn that our community is not just about finding the next stockpick, but also sharing lessons on how to live a good life. We certainly do not have all the answers, but many members have likely face similar challenges to yours. (54:30) And our community does not just live online. Each year, we gather in Omaha and New York City, giving you the chance to build deeper, more meaningful relationships in person. One member told me that being a part of this group has helped him not just as an investor, but as a person looking for a thoughtful approach to balancing wealth and happiness. (54:51) We're capping the group at 150 members, and we're looking to fill just five spots this month. So, if this sounds interesting to you, you can learn more and sign up for the weight list at thevesspodcast.com/mastermind. That's the investorspodcast.commastermind or feel free to email me directly at claytheinvestorspodcast.com. If you enjoy excellent breakdowns on individual stocks, then you need to check out the intrinsic value podcast hosted by Shaun Ali and Daniel Mona. (55:25) Each week, Shawn and Daniel do in-depth analysis on a company's business model and competitive advantages. And in real time, they build out the intrinsic value portfolio for you to follow along as they search for value in the market. So far, they've done analysis on great businesses like John Deere, Ulta Beauty, AutoZone, and Airbnb. (55:46) And I recommend starting with the episode on Nintendo, the global powerhouse in gaming. It's rare to find a show that consistently publishes highquality, comprehensive deep dives that cover all the aspects of a business from an investment perspective. Go follow the intrinsic value podcast on your favorite podcasting app and discover the next stock to add to your portfolio or watch list. (56:11) My most friend both domestic and foreign and you have seen signs of this already. You've seen in 2019 and 20 saw little anti-bubble eruptions concerning the markets willingness to accept uh what you saw in 2019 and 20 was discontinuity in the supposed deepest of all world security markets. (56:38) 2019 it's concerned the money market shortens the money market shorted interest rates because suddenly there was a a crisis in the funding market for our debt meaning access to shortdated loans with which to buy bonds that was in the fall 19 2019 and in 2020 there was a fright scare in around March and April concerning the world's tolerance for buying more of our longerdated securities like the 10year and 20 and the 30-year bond. (57:12) And that happened with the pandemic and with the Treasury's evident plans to borrow a lot of money. And the Fed's expressed intention to buy a lot of bonds with money that didn't exist until it was ready to print it. So those were amber lights. So the question really is what is the ultimate demand for US securities at these rates of interest you know a question will they are they marketable at any rate so if the United States was today was going to sell treasuries a 10year note not at 4 something not at 418 4.1% but rather (57:55) at 10%. Wow, that'll be a little bit of all. Right. Right. Or 12%. Also, that's not that's not that this is not isolated to the sovereign debt. Consider also the private debts that have been accumulated. And to be sure, private bonds that receive the interest on those debts, right? There's a two-sided argument pro and con, but the US economy, as resilient as it famously is, has been rendered much less so, rather vulnerable by the years of near 0% interest rates that precipitated and encouraged the deal making in private (58:36) equity and elsewhere. these aforementioned 20 odd thousand more than 20,000 companies that are now trying to find their footing at a time of interest rates they can't quite handle and so what happens if the world loses its taste for American securities owing to the shambolic nature of the administration how they so characterize it and if inflation for example comes back in unscripted fellowship the Fed can't lower rates in good faith but rather must consider raising ing them. (59:09) How would higher rate interest rates play in this world of financial fragility, at least as some of us see it? That's a kind of a an attempt at an overview of what's wrong with too much debt. It's part of it is is the uh American brand in dollars and debt being corroded and debased by overdoing it by overach is humans. (59:34) And then there's the question of whether in the event of say unexpected inflation whether the private sector is going to be badly damaged by the need of the Fed to post higher interest rates you know. So the reason that people like clean balance sheets is it affords the borrower or the wouldbe borrower the future borrower with flexibility that's why companies with clean balance sheets get primature AAA or double A very true but the well that's clean balance sheet that's good it's good because that company can opportunistically in (1:00:10) advance when the times are difficult but when the times are difficult in this country the government famously its construct of the welfare state must borrow much much more. We are borrowing heavily in a time of a 4% plus rate of unemployment long thought to be full employment and we are borrowing at a time of roaring markets and of a GDP that is rising according to the Atlanta rate close to 4% annualized. (1:00:38) Wow, we need a six or 7% deficit to make things work. That doesn't sound like a well-managed public finance operation. So these are latent problems now. As I say, look at the screen. Are the bond markets kind of okay? Credit spreads meaning the premium of private borrowing costs over public ones is near an all-time modern all-time low, meaning no anxiety about private debts. (1:01:05) So the arguments against heavy borrowing must be made rather defensively for the time being. I listen this thing. I'm pretty confident. I think that the too much debt argument will prevail that really will rule much of our mismanagement of the public credit and uh of so much private credit. >> I wanted to talk a bit more about inflation. (1:01:28) I was reading a back issue of Grants from earlier in 2024 where you connected inflation basically to flaws in human nature and use this as an argument for why we can expect a future of more inflation in what you've described as inflation nation America that is and you quoted a German economist called Vilhelm Rupki if I'm called Rupka if I'm pronouncing it right. (1:01:50) >> Yeah, it's exactly right. Yeah. I wanted to read a little bit of what he wrote in the 1950s because you've said you wrote has anyone said it better and and so I'm going to read a few sentences him that maybe >> anthem here. Yes, please. Yes. Uh so he wrote this in the '50s about inflation as the way a national economy reacts to quote a tendency towards excess in every sphere and all circles to a presumptuous overconfidence in oneself to a frivolous attempt always to draw bigger checks on the national economy than it can honor. (1:02:22) And then he said people want to invest more than savings permit. They demand wages higher than the growth of productivity justifies. They want more imports than exports can earn. And above all, the government, which should know better, raises its claims on this overstretched economy higher and higher. Thus, there is a riot of claims and an insufficiency of goods produced to meet them. (1:02:47) And then he talks about the impact that this tendency and human nature has on money. And he writes this very elegantly. He says, "Just as there are organs in the human body in which, if consistently abused, ailments slowly but surely accumulate, eventually taking their revenge, so the national economy has its own equally sensitive organ. That organ is money. (1:03:08) It becomes feeble and ceases to resist. And it is this infeeblement which we call inflation, a dilation of money, so to speak, a managerial disease of the national economy." Can you unpack that a little bit because it seems >> No, I can I cannot unpack because it's like a Can you unpack the Declaration of Independence or or Lincoln's second inaugural address? All I can say is a man. (1:03:33) I mean, it's just it's an overstraining of things. You know, it's an overstraining what you can read to impute in his writing is that some of what he was saying is this is the way things worked out at the gold standard when there was this over money would leave the country. gold being money country and um because paper money was unacceptable in the world acceptable within the boundaries of the nation that could print it. (1:03:59) The departure of gold was a deflating force. You know you were losing the monetary things. You were losing the capacity to issue credit loans credit debt and that was how the body politic began to protest. Now in this age you have a reserve currency country America meaning it's the kingpin monetary kingpin and there is to date no real hard limit on how much it can do. (1:04:33) There are some softer limits than the ones to which Ripkar I think was referring. One is there's domestic protests against too high rate of inflation, but the Fed is capable of uh finding that away. It's got this this press to digitation, this magician stuff. So now they're saying that 2.8% is got a little bit of all that's fine vigilant. (1:04:56) So you watch 3% is going to be a little bit less fine, but we've got this. And certainly Donald Trump is going to say I'm not sure he's going to use the word transient, but I think he might say it's going to be go away. AI will wipe it from the slate. But what a beautiful succession of sentences you wrote describing what I think is exactly the almost exactly this dynamics of inflation. (1:05:20) And notice as well inflation under a paper money system that the dollar never regains the purchasing power. It loses to inflation. Now we met Chesley Martin a longest serving Fed chairman said that the dollar never regains the person loses to inflation. In times past it there would be prices would go up then go down business the war. (1:05:43) One of the things that I think helped Donald Trump get elected in 2024 was that people saw inflation even when the rate of inflation declined. Well they should because the prices they saw not the prices they knew in 2019 and 20. Since the economists have been saying confusing the rate of inflation with what people saw to their very eyes in the supermarket, I don't care what they're saying. Look at this. (1:06:07) Look at the price of eggs for a time. >> Eggs are no problem for me, but I drink a lot of coffee and I had a cappuccino, a large skimmed cappuccino to neutralize the effect of the blueberry scone that I had with it the other day here in in Westchester, New York. $21. That's just stunning, isn't it? >> One of the interesting features about the present day and the shed's concern or lack of knowledge is the price of gold, which is kind of knocking on the door of $4,000 an ounce. It was $20. (1:06:41) 67 67 cents from basically Alexander Hamilton. It's just upside down until 1933 and it was $35 notes approximately again with some wiggles until 1971. Then it was cut loose cut off the gold standard. What remained in the gold standard and it was free to float. it did float, but now it's kind of gone bonkers and people who are just as worried as our friend David about his stocks, you know, is it what's driving it? Is it priced as it is only to disappoint its many somewhat bruised and calloused followers by collapsing as it did in 2011? 2011 the price got to (1:07:27) $1,900 and something dollars an ounce. And what fell in the next three or four or five years was a return to like $1,200 now and the collapse in gold mining shares upwards of 90% in some of them. 95% everything's kind of out of whack, right? The credit spreads are out of whack. (1:07:52) Uh gold seems even for the gold people who love it seems and love it is unfortunate the word for many of us today. It's a seductive asset. It's not just any old asset. You know, it's not boom handles. You fall in love with it or not. It was like Bitcoin. Some people fall in love with it or not. >> And you you've had a long love affair with this. (1:08:09) I mean, you you bought it in January 1980, I think. Your first Krueger for what, 850? >> I don't mean to brag, William, but I happen to live in it. >> Nice job. So, you're few thousand years old. Good job. >> It looks to see if he was I think 2300 or something. I wear that, should we say, not pinpoint time purchase as a badge of honor or at least of constructive humiliation to I don't need to remind myself others who might mistakenly in their ignorance fasten the guru titan as a gold price here. (1:08:50) other side of the conference show this very well. your gold moves in cycles and that can go sideways are down for 15 years and then he puts it down to an overissuance the public debt and the questions about the public and then it just takes off like a stuck pig you know it startles everyone as it is towards now I think fans it's a curious kind of bull market public participation is still rather muted there are signs of it growing but there isn't the frenzy you saw Bitcoin in 2020 between 20 and 24 for example were common stocks today. (1:09:26) >> You've been pushing gold for many years, right? In this sort of very contrarian way and now that it's seems an awfully crit commission just touting, hawking, advocating, >> peddling. Now, now that it's it's hit 3,900 an ounce this week and is up what a good 40% this year, it must be very uncomfortable for you as someone who is always a skeptic. (1:09:50) Now you're looking at and thinking we have a speculative bubble in gold or is the runup justified given the backdrop of all time? >> I look uh I happen to be in the presence of one of the uh the great speculators of our age and with springtime and I said this is what it was like because of the closing in on 3000. (1:10:09) I've lost track of one but it just hurdle cleared some high hurdle and I said you think gold's a bubble he said of course it's a bubble. I said, Paul, is it justified by what we on Wall Street are pleased to call the fundamentals? And this is where you've instruct you build these this narrative for yourself about what's causing it. (1:10:36) I remember it very well in 2011 that the S&P had downgraded the treasury from AAA to double A plus. And by the way, live to rule there for the next 10 or 15 years because the authorities went after them big time for having done the tarity to do that. And the precious gold had been in the mid 1,500 years for a while. I thought so. I saw it. (1:10:59) Well, now the world is catching on to the joke and the world will demand of this country a reform in the finances which will entail some role for gold in the monetary system and gold will find its place at a higher price. I'm not sure we actually use the phrase permanent high plateau, but that's what a a gold standard is. (1:11:20) is literally a permanent plateau. Is that a high or low? But $20.67 for 135 years is a high plateau or it's a plateau. $35 for decades was a plateau. So that was some of the thinking among the thought leaders of the gold world. It turns out that there was not any such thing as a worldwide permanent condemnation of our messy fisk. (1:11:46) Nor was there any intention the part of the authorities of bringing gold back into the world of America's monetary system. America has read out gold from its monetary shares starting in 1976 under Treasury Secretary Bill S. turn our back on it. No, no more gold period in the IMF or in Treasury. Gold is it might as well be scrap metal that is housed under guard to be sure in Fort Mox and elsewhere. But no more gold. (1:12:16) So you can build these air castles of narrative. My current castle, if I were to have built one, will consist of administration that seems a term unlikely will prove to be successful in taking over the central bank and opposing its interesting theories of money interest rates on the dollar and on the world. (1:12:42) It uses the dollar. That's one plank of this castle and another would be proclivity of the Treasury to borrow much more than it takes in and the Congress to allow that and for the fiscal dilemma to be talked about but never act upon it to one. So that would be enough to convince me of the upside still in front of us. (1:13:03) But mine, you can't be sure and if you have too much of this stuff and you have a restless night's sleep, but you want you don't want as David, you don't want to miss all the upside, you know. So it's it's that's what makes this this line of work so interesting. There's no firm ass there's no certitude. There can't be. (1:13:22) People think they have it. One thing about them or two things about you know they're not very old and know they have not really had the invaluable education experience of having their face ripped off during a bare market. >> There's two things you know about or one of the two. >> I I always remember Bill Miller many many years ago saying to me there is no certainty. (1:13:44) It's all probabilities >> and it's very unsettling. And so, you know, in terms of just being a prudent investor to position ourselves, and this is before we turn to your book, which I want to talk about next, to position ourselves sort of prudently given the backdrop. >> You don't much like bonds. You said basically in 2021, we entered a 40-year well after a 40-year bull market, we've entered a long period of bare market. (1:14:08) >> I own some bonds personally, my wife and I do, because no one's getting any younger and I dearly love gold. But you'll notice that that it is sufficient in one thing only. It pays no interest, which is also one of its great virtues. It's money. It's simple. It's money. The world regards that with bonds. (1:14:27) So, um, I own some. It's a fund that invests in special situations that yield rather more than the ones that trade in public markets. And it's risky, but risk is well managed. So, that's part of our lives in these this time. I intend to work my whole life. I don't have any intention of retiring, but prudence would dictate that there's some reasonably assured income outside social security. So that's that. (1:14:54) So that's my cautel to in my anti-bond stance. I own some of them. >> I saw yesterday at the conference and talked to briefly the great Paul Isaac who we talked about last time you were on the podcast who you'd invested with many years. So I'm assuming you still have some exposure to the stock market through people like Paul. (1:15:11) >> Oh yes, I do. I do when he's coming into his own all these stocks that stood still or seeped lower and lower of course in the past five or 10 years coming into the roy seems to be a well is a by way of preface is a deic value with nested they look for special situations that he feels are downside and this would have to do with quality of the balance sheet of the earning stream of course of the price afford some protection it's been beaten down and ignored sufficient by Wall Street there's some protection it's (1:15:43) and it's very obscurity who's not going to be a part of the kind of portfolios that will be liquidated. It will pay a price during the liquidation because it's traded somewhere and this has to do with company so banks in for example in Europe and it has to do with medical device companies in this country that are kind of on the have been neglected because they once failed at something. (1:16:05) I'm not sure special situations is a better description of his some of his investing style than valuing, but he looks for opportunities that will not necessarily be borne a loss by a great rush into mag seven and they have been left behind. So he has suffered by comparison with that. But these things they say, "Wow, what >> unless unless what is happening now is every last dog is finding its adopter from the pound. (1:16:36) " It's like every the pandemic dogs, even the uh most improbable beasts get led out of the pound. >> Let's hope that he's not listening to this and thinking you're describing him as a three-legged pandemic hound is finally having his day. But I think the point is that it's not like you're going to cash and crawling up in fetal position in the corner. (1:16:57) It's about taking intelligent risk whether it's with gold and commodities or bonds or diversifying beyond the US market and beyond the So this isn't you advising everyone to panic and cash out. It's just saying be more conscious of the risks that you're mindlessly taking >> or take them thoughtfully. Even though it's well and good to anticipate your peace of mind come the liquidation, but everyone's got a plan until it gets hit with Tyson like Tyson line. Yeah. (1:17:31) Never under never underestimate how sweaty your palms are going to be. These liquidations can seem upending. They typically don't. It's also about at this I was listening to Grant's current yield podcast and you were talking about how we're in the age of decadent finance. And so part of it is about being wary of having stuff sold to you that's kind of marginal and speculative at a time when we should be being more prudent. (1:17:59) And there was a lovely line you said we at Grants take a rather moralistic view sometimes. Instead of credit being man's confidence in man in this day and age of decadent finance, it now demands man's confidence in the sagacastity of his lawyer because the ingenuity of the strong and the cunning. (1:18:15) I'm misstating that, but you get my point that what you were saying is you can't just be trusting at a point like this where all of the most rapacious cunning people come out to try to sell you stuff that is not >> and all of the rapacious cunning people have done very well by their rapacity and by their guile. (1:18:32) You know, it's a markets when allowed to function properly go down as well as up and the down portion serves any number of functions. One of which is to skim the bad actors off the stage, you know, just to flick them away. But what happens when the Fed with every good intention I'm sure lends its force its arm and strength to prolonging cycles and for stalling bare markets and to pumping up the GDP so that we never have to endure this uh experience again so bad conduct goes uncorrected unchastised Mr. (1:19:10) market is the best disciplinarian. Never mind all these only lessons that you can read down reflect on Warren Buffy. He is a great coiner of phrases. But Charlie Bunker, but nothing succeeds like having your head handed to you as a learning tool. disbarment in the case of for the bar or delicensing in the case of financial advisors and just to get some of these people out where they ought to be which is like I don't know working for the Fed I don't know whether they go after this get them out of the markets where they have lingered too long and (1:19:40) they're going to get too many people in troubles and that's my moral argument. Let's turn to your lovely book, Friends Until the End, which is a double biography of these two magnificent 18th century orators, Edmund Burke and Charles James Fox. And it's set against the backdrop of three great events, I guess. (1:19:59) So, Britain's loss of the American colonies, the rapacious exploitation of India by the East India Company, the great dominant monopoly of its time, and also the French Revolution. And it would be great if we could chat for half an hour about the book and the lessons therein. Early in the book, at the end of the preface in writing about Burke and Fox, you say, "I love them for what they said and the way they said it, for what they believed and for what they did. (1:20:27) " Can you give us a sense of why you so greatly admire these two figures who were in many ways giants, but also have been widely forgotten by many people, although Burke obviously is an important figure in the world of conservatism. For me at least a great oratory is like music. I read it as I listen to the third moment of Browns's third symphony which I happen to love. (1:20:51) >> I'm going to May I read you a little something from >> I would love that. Yeah. This is works of panag to his friend Fox in the preface to this is that to bring British East India Company to heal to curtail the most abusive practices of its agents in India. Edinburgh internal stocks together drafted a bill to revise the governance of this monopoly is the biggest company that won. (1:21:18) Box who was the front man for this in the House of Commons of Great Britain bore a lot of abuse because if the bill went through he would command a great deal of power in nominating functionaries to serve on the new governance commission you know so he had all this power awaiting him if only the bill will get through. (1:21:38) Oh, this is Borsy. So they question his M. But he has put to hazard his ease, his security. His interest is out even as darling popular of the people who has never seen. This is the low that all heroes have be heed and used for loss. You will remember that obviously as a necessary ingredient in the composition of all true glory. (1:22:07) You will remember that it was not boldly in the Roman customs, but as in nature that constitution of things, but calibly and abuse are essential parts of triumph. Now, is that not a wonderful read? That speaks to the first part I tried to make the what they said, how they said it. A book is so well seasoned with quotations from both Burke and Fox. (1:22:33) They're both magnificent speakers and they both came into their prime after stenographers were at least semi-legally allowed with the House of Commons take close notes. They couldn't get all of it. These things like capturing a bird on the wing and they were writing scribbling on a short head of world creation, but witnesses to Foxes and Brook's eloquence contender was was much better than what you read in the page. (1:22:55) Oh my goodness, it was pretty good on the page. So that was what they said and how they said it. There was an amazing line from Boswell in your book, the biographer of the great Dr. Johnson, where he said, watching book, if I get this right, it was something like being in this orchard where he could just pluck these apples at will, like so fast. (1:23:15) And I think one of the amazing things about their oretry was both of them, they were so brilliant and so quick speaking and quick thinking that they could be quoting Virgil and Horus and they would be quoting in Latin from memory. And the same with people like William Pit who became prime minister at 24 who you quote I mean I think there's a bit in the book where Pit suddenly quotes Scipio in Latin from memory about some old guy who's insulted him. (1:23:45) I think that's part of what's so amazing about the rhetoric the oretry that they use. Ah yes they at one point uh I'm not sure if how much is this is documented but supposedly B Norris who was the prime minister during much of the time was in the House of Commons as was Burke and Durk was lacing into the government when Lord North and North happened to be sleeping during and Burke then quoted something about but North heard him misquote something about and he awakened corrupted him and then figned and return sleep. (1:24:21) >> I had an amazing history teacher, a legendary history teacher at Eaton, which is where Charles Fox went and pit this guy called Michael Kiddson, who now if he was still alive, would be banned from teaching because he would say such incredibly inappropriate things, but he was wonderfully articulate and he would always say they were giants in those days. (1:24:44) And you get that sense not only from the quality of the rhetoric of the actual use of language and hyperbole and just all from memory and a lot of it off the cuff anyway. They wouldn't dain to look at their notes and Burke could speak for 11 hours. >> It was very bad. It was very bad form to speak for the script. >> Yeah. So amazing. (1:25:01) But then also and I think this is probably what you were about to get to. It's not just that. It's the moral courage that they demonstrated. And I mean if you could talk a bit about that because that certainly comes through particularly with Burke like this sense of his humanity and his moral courage and his compassion and there's a point where he says that he has one rule for himself which is to act as the representative of the people who had no power. (1:25:27) Can you talk about that because I think that's the other thing where you feel not only that you're uplifted by reading the quality of their language but also the quality of books morality and decency. He was a difficult person for so many occasions, you know, but he was also most of the times incredibly generous and courageous in the causes he would take out. (1:25:52) For example, two guys were caught making him love and of course crime, serious crime. They're called before the bar of baleiff and sentenced to a time in the stocks and put your head and your arms and wrists and would stand before all the worst people around and they would toss stuff at your head. Sometimes merely vegetables and other times rocks and these two male lovers suffering rocks. (1:26:21) One of them was killed in the stalks. One of was named on Masharif and he died didn't die either. But Burke took up their cause in the House of Commons. Of course, you can imagine a ridicule came down his head for this and all the knowing who lear is one member to another on the other side of the house of Congress, the government less and this man who must have had both curious motives for taking up the cause of these two reprobates, these two offenders against the laws of God in nature. (1:26:55) But Burke persisted a newspaper liable him and he sued the newspaper and he won a modest symbolic settlement which he gave away as a gift or something. That's one example. There was a wonderful example too where I think you write about this poet crab who's at the end of his tether and he comes as a total stranger to Burke and Burk's Burke not only reads his poetry but helps him revise it gets it published totally transforms this guy's life this total stranger >> crab is is literally hungry and destitute you know sleeping on the embbackment as it were and show and (1:27:32) pulls himself together enough to knock on door of Edmund Burke and Burke takes him in just as you say it's I came to view Burke as a kind of a nextdoor neighbor to a saint my friend and neighbor Ay Schllays who read the book said you know Burk's crazy and not crazy >> as he aged and history became if not more not floored exactly but more complex and more heavily decorated with Shakespeare and Milton and the Latin poets the younger crowd, younger people came in and he became rather an old number in Edinburgh and and he would be greeted by (1:28:13) coughs, organized coughing by the young folk and he came to be known as the dinner bell because when he rose they left and went to the House of Commons, I guess cafeteria was not quite right, but they went to get themselves a dinner. One of my favorite things from him is that there's a I mean you were talking about his willingness to take unpopular positions and there's a beautiful thing similarly where he he was often accused of being Catholic because he was a great defender of the Catholics and there's something where he responds and the (1:28:44) Catholics are obviously tremendously persecuted at the time and it says and if Burke went on account of such sentiments people call me a Roman Catholic it will give me not the smallest degree of disturbance they do me too much honor who aggregate me as a member to any one of those respectable societies which compose the body of Christianity wherever they choose to place me I am sure to be found in extraordinary good company it's beautiful right >> that brings tears to my eyes it does that was Burken's best and his best was (1:29:16) fantastic so what do they believe so they were these guys were Burken Fox were in the opposition whole careers basically each one had a short time in government in the ministry which meant they drew no money from the House of Commons or unpaid. So they scrambled around for money sometimes rather gaming speculations and Caribbean land deals of course unsuccessful. (1:29:40) So as members of parliament as members of the opposition what did they believe they believed that the king was overstepping his balance the king was going too far to become news rather a tyrant and they do what they could to sty the king the king of stying nib. So the two of them believed in the following episodes of their careers together believed the following. (1:30:02) So in the American Revolution, they were both allied with George Washington and his feeble rag tag army and the ideals of revolution against the heavy hand of Lord Martha and King George III. Now Edenburgg was welcomed the affection of the American people but would squash them if they had presumed to achieve power over England. (1:30:26) He was not a friend of a risen and powerful American state. But he believed the colors were in the right and their dismiss over taxation. But Fox as was his kind of unchained want. He wore George Washington's colors around London his carousings and gambling at Brookson's club buff and blue and what you know what some people took his enthusiasm with the cause with treachery against and uh so that was that was America they both were quite stalwart members and would say after George Washington's route of the battle of Long (1:31:02) Island let us stand by our friends and their advers as well as the prosperity never abandoning people who stand for the principles of the glorious revolution of 168 in this country but always support them in those ideals. So that was one episode. The second had to do with overbearing corrupt and a quite cruel regime at times quite cruel regime of the East India Company in India. (1:31:30) And this shows Burke Adam and his dogmatic and semi crazy side involved a trial of Warren Hastings who was a leader of the Houston company. And I'm not sure whether Warren Hastings was quite as guilty as everything as I thought he would. But the trial lasted for eight years and by the end of it only Edwin Burke was interested in pursuing the case against and again my friend Abby face calls this law affair. (1:32:03) So that shows a dogmatism of Burke and how he could seemingly be unself-aware. >> It's worth dwelling for a moment on the East India Company because as you write in the book it was as well hated and well envied as any modern-day technology giant. And so this was the world's largest business. So Hastings who you mentioned was the governor general who got impeached. (1:32:25) Can you talk a little bit about the misdeeds and the wars and the cruelties and the scandals and the plundering of money from India that it's kind of amazing because we talk about business now and the nefarious things that we've been saying Wall Street has done. There's a level of brutality and corruption to what they were doing that's quite astounding. (1:32:45) Well, all you have to know about u see behind you William the portraits of Charlie Maver and I guess Warren Buffett. Yeah. Yeah. And Charlie Maver is fond of saying Shelby and Sen show you the outcome. The East India Company would send to India as employees of the firm lads of 16, 17, 18 scarcely shaving and they would be very illpaid. (1:33:12) They were to make their way in the company by setting up shop for themselves and by conducting their own business as a sideline. Actually the side hustle became their focus and their main day job. So instead of enriching their employer they enriched themselves. That's one thing to know about incentives. The other was that the East India Company was itself a sovereign. (1:33:36) It had his own army and it had his own merchant fleet and its own navy. And what would a prophet sitting in company do with its own military power in search of prophets? It would wage wars, right? >> Well, maybe the equivalent is Musk having Star Link and maybe he's the uh the person with the power that they had. (1:34:01) >> Yeah, maybe that's coming. But knowing those two things, you can imagine what liberties the servants of East India Company took on their own behalf as opposed to that interest of their stockholders and indeed the interest of the sovereign that gave them the monopoly. So they ravaged the country and uh you probably have a favorite episode of their misgovernance, but it was pretty steady and pretty heavy-handed. (1:34:27) >> Well, Clive was amazing. Clive of India and I used to when I was living in Belgravary in London I would pass this gorgeous house that would say Clive of India lived here and you'd think oh this must have been some noble guy and it's like then you read your book and you realize no they were just pillaging left right and center and then would having plunder jewels and stuff they would come home with just millions and millions of dollars and buy themselves respectability >> not respectability they would buy themselves seats of parliament (1:34:56) >> yeah power >> social respectability was I'm not sure anyone had enough of that for them. But Clive of India was the avatar of the internal mobile. >> Yeah. >> They turned their bloopers I guess into jewelry. >> Yeah. My favorite bit that you write, well actually this is Burke that you quote on the East India Company talks about these young men, boys almost govern without society and without sympathy with the natives. (1:35:25) They have no more social habits with the people than if they still resided in England, nor indeed any species of intercourse but that which is necessary to making a sudden fortune with a view to a remote settlement animated with all the avarice of age and all the impetuosity of youth. They roll in one after another, wave after wave, and there is nothing before the natives, but an endless hopeless prospect of new flights of birds of prey and passage with appetite continually renewing for a food that is continually wasting. And just that image of these (1:36:01) new flights of birds of prey coming in to rip off these poor natives plundering their wealth. It's just an amazing piece of writing and rhetoric. >> Ah, well you see why I wrote the book. >> Yeah. I think the book in some ways it almost tells me as much about you as it tells me about Burke and Fox because it seems like it's just infused with your love of language and writing and scholarship. (1:36:27) is that there comes the trial and Hastings to close that at war Hastings the governor general of India as she noted impeached was tried off and on mostly off I guess but still over the course of eight years and this is a impeachment in the House of Lords and he finally gets off and uh it's most remarkable display okay but there's more of that side of Burke in their death scene and we're coming up to that now with the French Revolution This is where these two friends parted company. (1:37:03) It was quite irreparable to Fox. The French Revolution was that's the greatest thing that ever happened in history world. Tossing off and throwing off the chains of the tyranny of the French crown and of the miserable system of aristocracy and the suppression of lives of the people. He thought it was was marvelous. (1:37:27) Okay, there was Fox and Burke saw in this. He saw chaos. He saw the destruction of civil society. He saw the structure of things that the uh order of society by social rank. Very important to have family, privilege, all this stuff which to him was the fabric of a functional and prosperous societ. All this would be destroyed. (1:37:50) The church would be destroyed. Religion itself would be trampled under a flood. And much of that indeed did come to pass with a terror and Fox was raised grinned by the terror you could imagine and put in Wall Street terms. He said I'm really bullish on this and then most terrible things that happen become it goes broken and everyone's revealed to be a not only offender against the laws of the country of the rules of the SEC but also criminals of most horrible sort you know. (1:38:18) That's the kind of the Wall Street analog to the call that he made after the fall of best deal. But still Fox clung to his view that this was a glorious moment in history of man. And of course he had many comparisons in this romantic generation them coming up cheered them on and he cheered them on and okay so that's that. But Burke was equally unmovable in his view about not only the net evil of this but also the gross evil that you didn't see much that would come out of it except the end of France I guess. (1:38:52) So what about the friendship it came to a tearful end in the House of Commons and it was a debate over something having nothing to do with France and Burke went on about the French Revolution. Fox said, "This is not germaine." And Fox quoted back to Burke some of his thoughts in the American Revolution. And Burke went incandescent over the incivility of having his own words quoted back to him. (1:39:19) That to him was a heinous crime against the unwritten rules of the house and more especially against the unwritten rules of friendship. And he said, "Our friendship is at an end." And Fox now breaking into tears said, "No, it's no it's not. So that was that time passed and Burke's son tragically precedes him and that predescases him and Burke falls ill and falls broke. (1:39:46) They're all both of them are broke. Both their whole lives they you know Fox lives for bankruptcy and Burke is broke at the end and that does nothing to lift his spirits. And as Brooke lay they die, Fox reaches out to his wife Mary and Branch. May I come and see my friend? And she consults with her husband and she writes back to Fox that word for word certainly the spirit of his reply. (1:40:12) A stiff reply that Mr. Burke must adhere to the views that the public knows so well and that if he were to fear from them, it would be a great hurt to the community and to couldn't do it. So three eyes Burke does and u Fox lives a long time afterwards many years in declining health himself and declining health well earned by the way he so lived something comes around to ask Fox if he would not like to contribute to a fund in collection to raise a monument to late Ed Fox says no I can't pretend to a spirit of forgiveness such that I could do this (1:40:57) without being a wanker. I I can't. So that was that. And the book closes in with the fox having finally succeeded in putting over a law outlawing the slave trade in Britain knows what he wanted most of all. This is a statue of a fox in Westminster Abbey depicting a freed slave or something freed slaves lying on his lap and gratitude. (1:41:27) So I said that that Fox is a enduring monument and marble and that Burke's collected items are a marble of another find. >> One of the things, Jim, that was so striking to me is both Fog and Burke were incredibly admirable and gifted in so many ways and yet they were both absurdly bad with money. Both of them lived in debt. Both of them died broke. (1:41:51) But I think Fox was kind of extraordinary. Can you talk a little bit about his gambling? I mean the recklessness of it is quite staggering and his father was absurdly rich. So it was quite impressive what he managed to achieve. >> He comes for a interesting line financially speaking. His grandfather, Sir Steven Fox, was a payoff from the forces, which meant very briefly that you got to invest the money that was entrusted to you for the payment of the troops until that money was needed by the king to discharge those debts. So, (1:42:25) you could do anything with it and you got to keep the profits whether it was interest on investing government securities or or profits from dealing with college stocks. So that was Sir Steven Fox and Fox's own father who came to know as Lord Holland got the same gig and he became fabulous and rich. People couldn't believe what he did with those with that money. (1:42:53) He just he fed the profits to his addicted gambler. Fox would play night and day at his club, Brooks's club. He played dice games of dice and cards and um he's a horse player rather better at that than cards and dice. He lost quite literally fortunes at gambling. >> He lost £900 on a single game of billiards. (1:43:17) You right at a time when that was real money. I think you write that in 1776 he had £140,000 of gambling debts. That's many millions in today's money. Right. >> Yes. and what did not speak well of his moral character didn't seem to bother him people would say how can you sleep at night all I want you to do is father said well the question is how could my cred sleep at night and it's so amazing he would go out sort of drinking all night sleeping with prostitutes sleeping with his mistress and then he would come into the house of parliament and give an (1:43:49) amazing speech and I think there's a wonderful bit where Horus Walpole >> listens to a speech that he's just given after basically being out drinking and carousing all night And he's like, "This is just total genius what he could do." >> Yeah. Yeah. People were astounded by it. But also they recognized that he was basically just a big sponge. (1:44:08) He borrow from his friends, borrow from everybody from whose father died desparing the debts that he had accumulated and what it did to his estate. But he still kept feeding on money. Burke was different entirely. He bought lovely estate beacons field. It was, as so many lovely estates are, it was a money pit. You didn't make any more money at farming than most people do today. (1:44:32) He was a student of scientific agriculture. But think of the productivity that he had or didn't have. Now, this place lost money. He could by hitching some oxen ahead of horses and plowing that he could plow one acre a day. Now today a mechanized farmer at a not so very accommodating hilly New York farm can do 21 acres a day mechanized plowing. (1:45:02) So 20fold appreciation in plowing had two jobs as a parliamentary a devil. He was a gentleman farmer, but actually more than Joe. He was a hands-on farmer, a scientific one at that, who with the right equipment, ox as well as horses, could plow all of one acre a day. Upstate New York who can do 21 acres a day with machinery. (1:45:23) Not much productivity growth there. And so the place never paid for itself. It was mortgage. So he was perennially in debt to his friends and to his political mentor, Lord Rockingham. and with all the insecurity that entails. So, uh, at length, Burke became a member of Brooks's club as well and Socks was towards the end of his life. (1:45:48) And one of the documents that my quite terrific research assistant and length intellectual partner Janice managed to fish out of archives was a letter from Brooks's Club to Mrs. Edmund Burke about eight years after his death dunning her for unpaid dues as Brookton's. Huh. Oh god. So that was the state of his exjecker. (1:46:12) I think that Brooke never suffered in his lifetime the indignity of bankruptcy more than once. Fox's uh his furnish was out on the sidewalk. The debt collectors came just took his stuff. Once he was u after a night approaches after immense losses one of his friends came to him concerned about what this might do to would he take matters into his own hands with a pistol alone and dead at night no so he came and there was Fox reading some great Latin to his friend said what are you doing and Fox said well what do you think I ought to do I've lost every (1:46:47) shilling there was a serenity in the face of ruin that will amaze the readers of I hope we want to share one last story about Fox's death. So he he fell in love with a cortisol. This is what I'm missing. Not ever sure whether was a Mr. said, but they had a genuine love affair and at length during one of the breaks in the Napoleonic horse, Fox takes his then wifely at length takes her to France and they sit down with a taland French diplomat and Talan too had married a cortisan and the two ladies sat next to each other on (1:47:28) the back and they shared very interesting observations about people they had known. Oh, marvelous. >> Before I let you go, Jim, one last question. You spent so much of your time studying history. I wondered if if it gives you a sense that life has improved, that we've survived these terrible periods in the past, whether it's the French Revolution or Civil Wars and the like. (1:47:56) Does it give you a sense that even in our strange and difficult moment now, that we sort of muddle through after all? Like does your study of history give you optimism or pessimism about the future? >> A little bit of both as to the material side of life it is onward and upward. Nothing like it's ever been seeing and we would not be having this discussion except for advances in medicine. (1:48:19) I wouldn't be interlocatory and captain somebody else. The marbles with which we live are just astounding. this little thing I have in my pocket which I forgot to put to airplane mode has the entire Canada world knowledge it does and so people think I say yeah what about the next edition of the Apple whatever it is you know get jaded about these things get jaded about I find myself hear myself complaining about the pills I have to take to ward off the next round of uh disease in rank in gratitude so in so many ways things never been better (1:48:53) and we should thank our lucky stars live when we do. In other respects, we live it's back to living in in rags in the forest with respect to public oratory going back to grunting and groaning wherever where have they conducted business before the perfection of writing and the arts of of literacy. Can you compare what comes out of today's House of Commons as well as of course truth social or the House of Representatives from the all dignified Senate? you want to lay your head down and uh not watch television, do (1:49:28) something else. It's mixed, you know. So the so all of the intellectual energy of Murk and Fox's time for a certain class of people was in literary pursuit as a great American chancier called Albert Gallatin. He was the treasury secretary, a near successor to Alexander Hamilton. I think there was one or two between the two of them, but Hamilton was a treasury secretary under Jefferson and Madison and then he was a diplomat who helped to settle the war of 1812 when he came back was a banker and he retired and the (1:50:03) gravestone talks about so he retired to pursue academic studies and literary pursuits. Gallatin did and went down to the grave universally honored. I go over to the churchyard from time to time and read his gravestone gallons and think about him. It's marvelous. And so if you're a lover of the oratory language, you'll be uh disappointed to not to have lived in some other time. (1:50:31) Otherwise, never mind the commonplace diseases of late life. Just go a trip to the dentist. Just thank your lucky star as you know. >> Yeah. >> Uh but it's pretty great on balance. Pretty great. I'm glad to be here. >> On on that note, Jim, it's been such a delight and I'm so happy to have got to spend this time with you. (1:50:51) It's one of the great pleasures of having a podcast is it gives me an excuse to hang out with you and um >> awfully uh kind and what a pleasure it is to be in your company. I wrote my written my biographies mainly about people whose company I wanted just to have to be in. >> Huh. >> So, uh I like your company too, William. (1:51:09) >> Ah, thank you. That's lovely to hear. and I loved coming to the conference yesterday. So now I'm planning to become a regular. I'm looking forward to it. >> Thanks so much. Lovely chatting with you. >> Okay, William. Happy days. >> Thank you. >> Most people are only as happy as they make up their minds to be. (1:51:29) So what this teaches me is that whatever happens in your life irrespective of unbelievable experiences your control of your mind determines how you end up how you survive and how you deal with it. And that's what people need to learn. We think about we have some problems in this life and we have disappointments, depression and experience and so forth and so on. (1:51:58) And to think that under these conditions, you can still be happy if you learn how to think and use your mind, that's pretty amazing.