Systemic Risk: The discussion highlights bail-in mechanisms and the “Great Taking,” warning that broker-dealer failures and derivatives exposures could imperil client assets.
AI Infrastructure: Larry Fink’s call for trillions to fund data centers and electrification is criticized, noting potential forced funding via pensions, savings, and insurance pools, and uncertain cash-flow payoffs.
SpaceX IPO Dynamics: Concern over rule changes enabling immediate index inclusion, creating forced passive buying and potential “exit liquidity” for Wall Street.
Speculation & Leverage: Evidence of euphoria includes 0DTE options, extreme momentum vs. low-volatility spreads, and record-low put skew, increasing crash vulnerability.
Protecting Brokerage Assets: Emphasis on Type 1 (non-margin) accounts to avoid rehypothecation and maximizing SIPC coverage across account types; caution that 401(k) plans have limited SIPC at the plan level.
Physical Gold: Advocated as portfolio insurance against both inflationary and deflationary shocks, with a suggested modest allocation as a long-term purchasing-power hedge outside the financial system.
US Treasuries: Near-term safe parking for capital (prefer shorter maturities), with guidance to use TreasuryDirect or hold in Type 1 accounts to avoid FDIC concentration risk.
Transcript
Nothing in this program should be considered investment advice. It is for educational purposes only. Please hit pause and read this disclaimer in full. It's the perfect backdrop. Wall Street has waited for the perfect euphoric moment [music] to get their exit liquidity. Hello everyone and a very special welcome to this episode of Finance You. I am your host Chris Martinson and today I'm back with Paul Ker of Kiker Wealth Management and we have so much to talk about. Welcome Paul. >> Welcome. Welcome. Good to see you Chris. I was thinking about all the stuff we have to talk about. >> I think this is probably going to be one of the most important segments of an episode we've ever done and this is something everybody needs to know about. And I know not everybody wants to know about this, but I think we have to consider it given the excesses we see going on right now and the possibility of some sort of a systemic crisis coming. Whether that's going to come to us out of yen, you know, related breaching the 160 barrier out of Japan and the unwinding of the carry trade or maybe it's the the massive oil price spike that comes anyway, you know, despite Trump's claims. But I think it's actually going to come out of somewhere else. So, we got to talk about this and I think we have to talk about Larry Frink. We're gonna have to protect ourselves from Larry. Okay. And uh so you know who Larry Frink is, right? You know, the CEO of Black Rockck. >> Absolutely. >> Yep. >> Absolutely. >> I think Larry should be personally I think he should always be wearing a t-shirt that says born to steal because this is kind of how he rolls up. This is I can't believe like this statement when you listen to this for what he's actually saying. Paul, I think this should be leading to literal pitchforks and torches in the streets right now. And here he is waxing on about AI. >> But if if we can get more and more Americans to think about growing with the United States, uh we will have far than enough money to invest in this infrastructure. But as as the governor was talking about, the [clears throat] need for electrons is growing every day. some of these ve, you know, if we're going to be the leader in technology, which we are, if we are going to be the leader in AI, which we presently are, it's just going to require trillions of dollars of investments. And if we don't invest in it, China will be the global leader in this. And so to me, it's not weather. It this is a must. And if you think about how that translates, it translates into a more of dynamic economy. We need the United States economy to grow at over over 2%. We need the US economy to grow at 3%. Especially with the growing deficits the federal government has. And so much of this money, not just the project, is going to be coming from the private sector, from savings accounts, from pension accounts, from insurance companies, and on and on and on. Whoa. You know, Paul, if you feel like something's really important, like on your farm, you invest in it. You don't say, "You know what? My neighbors are going to have to pony up for this thing I want on my farm because I've decided it's that important." Listen to him. He's like, "We're going to have to invest trillions and it's going to have to come from, this is crazy." He said, "Pension accounts from also insurance companies and their their pools of resources, right? My insurance costs go up every year because they some get sucked into crappy investments like the ones Larry's talking about. And then savings accounts, right? How do you tap into savings accounts to help fund the AI infrastructure? Well, you make electricity costs be born by people who have to pay for it out of their savings costs. Savings accounts. You create inflation to you print money to spend on this project. And sorry, that comes out of people's savings accounts. Larry Frink just told us straight to our faces, we're going to invest trillions. We might blow them, you know, and our only excuse for this is because China might get there first, whatever theirs is, right? >> Well, dude, if you think it's that important, put your money into it, right? Go ahead. >> Put your company's money into it. You're managing a company with, I think, 11 trillion in assets or whatever it is now. Go for it. >> You fund it. >> Nope. He said, "We have a plan. >> We're going to make your savings accounts and your pensions and honestly your 401ks." So, we have to talk about this, right? Right now, as we're as we're doing this on June 3rd, there's a number of really massive IPOs coming out into the marketplace, okay? An initial public offering. And one of them is for SpaceX. And whatever you think about it, I think, you know, it's amazing watching the rockets get caught by tweezers. I'm not a pining on that. This is neither for or against anything that Elon is doing or for or against the company or the shares that are coming out. But did you notice that all of the big um market indices changed the rules for the SpaceX IPO, allowing it to be immediately incorporated into the indexes without going through this normal curing period. You know, IPO, let's give it 6 months, 12 months to make sure it actually makes money or something. Stuck sticking it straight away into all the major indexes. And and so what that means is that Paul, everybody who's passively invested, right, you have a 401k, it's with Fidelity 6040. The 60 that's in stocks is parked in in, you know, basically maybe a S&P and a and a NASDAQ index. You are now an automatic purchaser of SpaceX right from the get-go, whether you want it to be or not. And and so that actually is the dynamic I think he's talking about. >> It sure seems to be. And look, they've kept these things private for a long, long time, right? I mean, this is the perfect opportunity to provide exit liquidity in a passive world, right? Change the rules, get me into the index, force buying, market it like crazy. And look, I think it's SpaceX is absolutely phenomenal. Starlink, all of these, like you said, this is not talking against that. I'm just talking about the backdrop of what Wall Street has continued to do to the average American to stack the odds in their favor and the euphoria around this SpaceX IPO is like nothing I've never seen ever seen in 28 years. I mean, it's absolutely mindboggling. Yes. I mean, I've had I've had high school friends that that have never bought a stock before that I've not talked to in five or six. I mean, you know, we stay in touch, but once every four or five years that I've probably had 15, 20, you know, calls personally, it's like, "Hey, I've never bought a stock before, but I want to get this SpaceX." I mean, that the euphoria out there is pretty amazing in the demand, right? I mean, it's the perfect backdrop. Wall Street has waited for the perfect euphoric moment to get their exit liquidity. Well, and then Larry here is talking about, you know, but if we could get >> what happens when when when we get to um these data centers, right? And we're going to need electrons and we're going to have to do all these data centers and you know, we need this we need this infrastructure. It's going to be trillions of dollars. Trillions. Trillions. Okay. [clears throat] So, again, without opining on on this, although I I have opined with you in the past that nobody's given me the business model for these things yet. You know, you notice Larry didn't say, "By the way, we've run the numbers and these data centers are just going to be cash machines. Here's why. And it's going to be a good thing for everybody invest in it." Excuse me. He's saying we got to get there before China and we're so certain about this, we're going to make you pay for it, which is kind of a odd moment there, right? Um, obviously it's it's bunch of junk. Again, he should have that t-shirt. Born to steal. If Larry says it's a good idea, I'm instantly leaning on the side that maybe it's not a good idea. But that's me after watching this guy operate long enough. Um, so we have the situation, Paul, where where there's this huge hysteria. We're going to pour trillions and trillions into this whole thing, but if what if it doesn't work out, right? Just sake of argument doesn't work out. China gets there first, whatever that means. Or it just turns out there was no there to get to. And it's kind of a cool tool and it has some things but then we finally figure out it's maybe good for this not for that. Makes companies more efficient but doesn't actually create more generative cash flows because it giveth and it taketh away. Companies are more efficient but there's fewer people with jobs who can buy the stuff the company makes. Right? It's got it's got a complexity to it. We hadn't quite thought through. Well, in that case, what we're going to find is that all those trillions basically just evaporate into thin air as is typical. Not my first bubble. You got the history of bubbles behind you there. Y >> bubbles too giveth and taketh away >> in equal measure, right? Um so what happens if if it just turns into a great takeaway and and so that's why we got to talk about this great taking thing. And by the way, this morning at Peak Prosperity at the website, there were two comments down there. I'll go to the bottom one first. Somebody said, "Hey, I'm relying on Paul Ker's team and their expertise to manage my retirement funds." And this was we were talking about this concept of what happens if these things don't quite work out. And then a guy I will only publicly call out by his first initial T said, "Oh, I need to talk to Paul's team. I hope they have exit strategies if everything goes to S. Uh, I sure would like to have the cash rather than have it turned into some sort of government bailin, >> right? >> Um, we need all the help we can get to get through this. The good thing is we have strategies in place." Now, as far as talking about exit strategy, we do have exit strategies. You have to, and I've said this time and time again, I can be bearish, but I can also play the game by the rules that are forced upon us. >> Yep. >> And I can build the argument right now that the market's going to ignore everything. And if we get through by some miracle without this energy shock, that the market just runs all the way into year end. That's one thing if you're participating in the market already and you're doing it cautiously and you're selling into that strength a little bit. It's a prudent thing to do by all historical measures that comes along. But one thing that I can tell you the one benefit with this market rally taking place is our exits are continuing to rise. So the one thing that that that we will do, one part of our strategy is I know exactly when and why we will sell to convert to cash. Okay. To protect that capital from a breakdown. I also know what environment and what indicators will tell us that if we move into this hyperinflationary holocaust that everybody's worried about, right? I don't think your S&P 500 index, you know, all those stocks are going to be the best place to be. some will be. But there are other asset classes that that history has shown when you study all of Germany's collapse, all of the hyperinflation from Wymer to Argentina to others that there are other asset classes that are better than just general stocks to protect you. So we do have strategies in place and we will move quickly and without hesitation when the weight of the evidence and and our strategy tells us to. Markets [music] are facing heightened uncertainty and thoughtful portfolio management has never been more important. If your current strategy relies solely [music] on passive investing or diversification without active oversight, it may be time to consider a different approach. At Peak Financial [music] Investing, we connect you with experienced wealth managers who actively manage [music] portfolios using disciplined, research-driven strategies designed to adapt to evolving market conditions. Our focus is on helping clients navigate volatility with clarity and confidence. While no investment strategy [music] can guarantee results or eliminate risk, we believe that preparation and active management can make a meaningful difference over time. Visit peakfinaniallinvesting.com [music] to schedule a complimentary consultation and explore whether our approach aligns with your goals. I'm Dr. Chris Martinson and I am proud [music] to support Peak Financial Investing. This is not a guarantee of future performance, but [music] a call to take your financial planning seriously. Again, that's peak financial.com. [music] Investing, of course, involves risk, including the potential loss of principle. [music] past performance is not indicative of future results. Please consult with a qualified adviser before making investment [music] decisions. Well, I I just want to move into to sort of the other sort of larger existential risk around this whole thing, which is, you know, we had the great financial crisis and as a consequence of that, you know, Wall Street really got scared. They saw the light at the end of the tunnel and it was a train, you know, and and so they passed all these new rules that most people are unfamiliar with. And thankfully a man named David Rogers Webb looked at those rules very carefully and he was of course a deep financial he ran you know ran money for people for a long time retired now so he had the time and he looked at this and he's like these are some really strange rules because when you when you add them up it's basically Wall Street saying you know if we get in that kind of trouble again we're just going to take your money just like Larry Frink said we're going to make you pay for this thing right so I just want to take a quick detour through this concept called the great taking which is the title of Fid Rogers web book. This is just a very quick overview. People, I did a whole nine-part series on this. It's it's a couple hours of material. It's worth the dive. If you have wealth, you really need to know about it. If only to say, "Nah, that doesn't worry me for X, Y, and Z." But I will tell you that everybody who has looked at this carefully has come away a little bit worried and maybe a little bit more horrified that they they in the story would even dare put this stuff in black and white. >> Okay. So to get there, I I always start with this F Frederick Bastiot quote uh because I think it applies. It says, "When plunder becomes a way of life for a group of men in a society, over the course of time, they create for themselves a legal system that authorizes it and a moral code that glorifies it." End quote. Yeah. So, we're going to talk about this authorized legal code. it it is now legally permissible to take your stocks and bonds under certain circumstances and and that's that's the important part because this isn't just like oh no we're all screwed. Uh there is a way to avoid all of this stuff but first you have to know what the rules are. So what I did, I went to the sources, right? I'm reading the US titles, right? So I'm actually in US titles 11, 11 A, and 12, which is bankruptcy, bankruptcy rules, banking. This is federal co, federal law, right? Um, hanging out in places like the uniform commercial code, which applies across all the states, articles 8 and nine pertaining to investment, securities, and transactions. Um, looking at case precedents, legal precedents. So this is the dive I did. I this is how I I roll. I just go down in there and say, "Okay, what do we got?" And here we find um in the uniform commercial code, which applies to all the states, section 8-501. Um it says here that that you if you have an if you own stocks in say a Fidelity or Schwab account or any other broker, I'm not picking on anybody. This is how it applies across the whole industry. Yeah. If you have securities in an account, you actually what you have is you don't own a stock anymore in that account. What you have is you have you have a person then acquires when you open up an account and you have a a share of a stock in there. You now have a security entitlement. What's a securities entitlement? Well, it's a legal definition. Okay. If I have a security entitlement, does anybody else have access to that? And it turns out, well, depending on the type of account you have, absolutely, you are no longer the senior claimant in in this. You are now a claimant, one of many. Depending on the type of account, this is the important part. Paul will explain all this to you in just a second. Um, so what does it actually look like? Well, you know, let's say a company, SpaceX or whoever, GM, uh, it doesn't matter. They issue a share of stock. The legal owner becomes seed in company, which is this obscure little holding company that Wall Street created. And then, oh, the DTCC becomes a security entitlement in the chain of custody of of who owns this share of whatever company we're talking about. And then your broker might be another intermediary. But then there's you, the beneficial owner. You, there you are. And depending on the type of account, you might be at the bottom of that chain or the top closer to the top. This makes it very simple. Stock is issued. We can trace where it belongs. It's actually a lot more complicated than that. This is what this this is actually not even remotely a a a complicated diagram of what Wall Street actually looks like now. And it's amazing, Paul. Like, nobody actually gets a physical share like a like a piece of paper anymore, Paul, with a cusip number on some really fancy engraving. They have a an an identification within a a database table that goes through all each one of those squares, boxes, circles, triangles is a is is another database. And somewhere through that whole chain, your share of whatever stock we're talking about is represented in there somehow, right? So just so you understand, a lot of complexity. Um, and it turns out that under certain, so this actually comes from the EU clearing and settlement legal certainty group. Um, I think it was back in 2005. They were asking questions like how does this work? because they're trying to harmonize across the US and Europe and you know sometimes people own shares and euro clear system and here too and we diversify. So the European regulators had a question and so they asked this question directly of the New York Federal Reserve right and they said where securities are held in poolled form which is what happens most case you have a poolled they they like you don't have a share with your name on it of company X held in here in your broker your broker has a pool of company X a big giant pool maybe a million shares of company X and you have a claim on a part of that pool and so They asked here when securities are held in poolled form eg a collective securities position rather than a segregated individual position per person does the investor have rights attaching to particular securities in the pool. Answer no [laughter] I love simple simple answers. The security entitlement holder does not have rights attaching to particular securities in the pool. He or she has a pratada share of the interests in the financial asset held by its securities intermediary to the amount needed to satisfy the aggregate claims. Legal ease Paul as soon as I hear this much legal ease trying to explain do I own my the things in my 401k? Do I own the things in my portfolio or no? And they have to use this many words to say no. It's more complicated than that. uh uh that that should send up some yellow flags if not red flags right away. It's like, wow, it shouldn't be that complicated, should it? You know, but this is what it's become. All right. >> Right. >> So, it that's that's the thing. Now, here's where it gets really really specific and then we can we can talk about how you can be either more exposed or less exposed to the risks that are inherent in the system should there be another financial crisis. So now section 8-511 again in the UCCC universal uniform commercial code priority among security interests and entitlement holders except as otherwise provided in B and C below. It turns out that the claims of entitlement holders other than the creditor have priority over the claims of the creditor. Oh, good. I have I have priority. Well, except except as noted in sections B and C. You got to start with the this is this is good legal language. Except Except for here and here. You own them. Don't worry, Paul. Except you have them. Except for B and C. Well, what's B and C? Well, a claim of a creditor of a securities intermediary who has a security interest in a financial asset held by a securities intermediary has priority over the claims [laughter] if blah blah blah blah blah blah blah. Okay. And so this is actually what they're saying here if I can decode this for people very quickly is there's two types of accounts out there. This is where you come in Paul and you can tell people about those. But it turns out that they're really parsing with a lot of legal language here that there are certain types of accounts if you have them expose you to this idea that your your assets now become co-mingled in this larger intermediary which is the broker you operate with and also the other intermediaries the broker has arrangements with which I guarantee you have no insight into. Right. And if anybody in that chain gets in a huge amount of trouble, your stuff gets all encumbered in that fiasco, however that unfolds. Okay. >> So, type one, type two, there's different accounts, right? >> Yeah. Different accounts. And this is ridiculously important. So, just just to kind of summarize a couple of things. one, if I remember correctly, David Rogers Webb got it wrong because in one thing because he said that all account types were able to be rehypothecated. Rehypothecated as part of relending those securities out. So after doing some research and and kind of you know first panic, second going back through the emotions we went through with that can prove this wrong. No, you can't prove it wrong. Okay, what the heck can we do? Right? and still run a riskmanaged uh strategy. You know, one thing that we originally thought was, hey, you can just get certificates in form, but I think it's only 10 or 12% of the stocks out there you can still get certificates for. And that that has its own set of problems, right? But coming back to the type one and type two account, the first thing that you need to do and you need to make sure of is that you're in a type one account. Okay? Okay, so a type one account. And one thing about Fidelity that I love is they were able to through my attorney demonstrate that they do not rehypothecate securities in a type one account because the law still does not allow broker dealers to rehypothecate securities in a type one. Now, and an important point, um, we ran this past your lawyer. I ran this past other lawyers. We ran it up and down the flag pole. I actually got involved in deep conversations with people in law inside the in interior council for large banks and also firms and they're like no this isn't absolutely it's not true and then they'd come back a few days later like okay it is true you know so we were doing some guy on the internet with a comcast connection was was helping to educate you know because of what David Rogers web had kicked off and and you're right he he I think he tangled up that one thing about those type one accounts and we did chase that down so everything we're saying here >> has been vetted uh as far as we and maybe it's changed in the last 8 minutes and we'll keep up on it. Um but you know this is how we understand it today. >> This is so embedded in the system it didn't change in 8 minutes you know from that standpoint. But >> um you know and I will say it was like a nine months it was like uh doing four-year degree in nine months while working full-time. Like I have never studied that hard since I got I mean it was insane. But going back to type one account so the simplest way to explain it so type one is a non-m margin account. Now what that means is you cannot borrow against your securities in a type one account and your broker dealer cannot rehypothecate or lend out those securities to short sellers with option market or however that is. A type two account is completely different. So back when I first got started in the industry, the broker dealer that I was with wanted everybody in a type two account. You get rewarded for special trips and things like that. the more time two accounts that you had, even if people weren't using them, they would pitch it like, "Hey, you know, you want to have these because if you want to borrow against your securities, you can." Now, to borrow against your securities, you have to change the type of account that you're in to a type two account. So, a type two account is a margin account. Okay? Now, you don't have to use margin in that account, but you have the ability to use margin in that account. The moment that you move it into a type two account, your broker dealer has the ability to rehypothecate those shares or lend them out to short sellers. So you're and you don't know whether they do or not. So you can have a, you know, a thousand shares of XYZ stock and let's say it's worth $500,000. In your mind, that's a line of credit that you might need at some point in the future and it's convenient because you don't have to sign any paper at the time. that gives your broker dealer the ability to lend those out there into that derivatives market for other traders and speculators and they're going to make money on that uh and relending it. So they t they do have some incentive to put that out there to increase revenues. And one of the things that we've seen in the broker dealer world, they had a competition to drive transaction fees down to nothing, thinking that they would get a monopoly, I think, and be able to raise them, but that's not happening. So they're getting creative in different ways where they structure accounts to pay you less on money market here. The things we're having to do are harder. But the point is, you know, that gives them that ability. So the first thing if you want to protect yourself against great taking is make sure that you're in a type one and not a type two account. The second thing that you have to rely upon and try to maximize is SIPC insurance. So that's security investor protection corporation. Now, it is not like FDIC insurance in the banking industry. So, let's go back and just kind of think about how this cycled through. Prior to the Great Depression, there was nothing uh there was no FDIC. Okay? So, when the crisis hit, the banks failed and people lost absolutely everything. [snorts] So on the aftermath of that for the government to put into regulations to try to keep that from happening again, banking regulations changed and FDIC insurance was introduced. So if you have a CD at the bank and the bank fails, you are protected up to $250,000 and FDIC insurance. That's against a failure in the bank. SIPC is different. So if you go buy XYZ stock and that stock goes bankrupt, that's on you. you didn't do your research, you're carrying the risk from that. SIPC does not protect you from that. What it does protect you from is if that broker dealer fails and your securities are rehypothecated, then you've got $500,000 of SIPC coverage against that security. Okay? So, that's the minimum thing that you can do is have it in a type one account and then maximize your SIPC coverage. So, what's an example of how you do that? It's really easy in one circumstance. So, let's say you're a married couple. You've got $1.5 million in stock in a joint account. In that joint account, you have $500,000 of SIPC coverage. So, if the great taking were to occur, if your broker dealer were to fail and those securities are are rehypothecated, you only have $500,000 of SIPC coverage. [gasps] What you can do, there's other planning issues that go with it, right? But what you can do from a simple standpoint is that $500,000 is two is per account type. So a married couple with one a.5 million could have a joint account, open a single account for the wife and a single account for the husband and move 500,000, leave 500,000 in joint, move 500,000 into the wife's account, 500,000 into the husband's account. You got three account types and now you've increased your SIPC coverage up to 1.5 million. So by staying in a type one account and maximizing your SIPC coverage strategically through the different account types, you can protect yourself as much as possible. Now if somebody has 3 million for example in a joint account then you might do that same account structure joint individual individual at one broker dealer and then joint individual individual at another broker dealer. So that's how we have utilized it for some of our clients. I just tell them say look you're going to have more statements okay and that's going to be a pain in the rear end to keep up with. That's more 1099s that you're going to get on these non-retirement accounts. But this is how you do a little extra work to be diligent to protect yourself as best you can against the risk of the great taking and maximize your SIPC coverage. So there are all kinds of strategies that we take people through to implement to maximize. I mean, you know, and I will say if I'm over at any broker dealer, right, then I feel comfortable being over at Fidelity because they actually demonstrated for us that they do not rehypotheate securities in a type one account where other broker dealers wouldn't even engage in conversation. Now, that doesn't mean that they're doing anything wrong. It just means that they're one not taking it serious enough or two just don't want to give you a chance to look in uh under the you know behind closed doors to verify that's the case. So you can still use them but there are certain broker dealers that I will not be over 500,000 unless a client just tells me look I don't care. I want to protect myself a little bit. Um but those are things that you can do. Now here's another interesting fact. Hold on to that fact. Remember that. But um a lawyer who was helping me through through all of this um sent me a an an article last year that showed that there was a broker dealer that even though they were type one accounts had coingled them, right? >> Oh, and took some losses and got super spanked and all that. So, um I just want to say that that uh there are a lot of broker dealers out there and I'm not saying anything for or against any of them. This was a much smaller one, right? But if anybody has you, you should if you can't go to your broker dealer and have them confidently answer this. We absolutely do not ever co-mingle type one account funds, right? >> Um that would be important, but you know, we all heard about that like um I I know these weren't type one, type two, these are futures accounts, but remember that this was horrifying that even happened. That case back with um um MF Global, right? >> Oh yeah. Yeah. >> Yep. And that guy who was super well connected with the Democrats gotten almost no trouble, but he had he had basically taken money out of client accounts to cover shortfalls in some crazy bond trades or something he'd been doing. I don't know. I can't remember the exact details, right? >> But that was wild. >> Absolutely. You know, >> and so >> and so that's why, you know, even if you are like I feel very comfortable in type one accounts with a major company like a Fidelity that says, "Hey, we here here's how we operate. It's a matter of who we are. That's fine because because in a to lose money to even have SIPC have to come in and cover you that that those those securities in your account have to evaporate somehow. They have to go away, right? >> Well, so let's imagine you have a big broker dealer and they're they they've lent out you have 50,000 shares of something in a type two account. I have 50,000 in type one account and they've loaned 50,000 of these shares to some who made a really bad bet on on uh Japan's, you know, trade balance or something or whatever. Anyway, that short seller goes bust, bad due diligence. They can't pay any of this back. Now, that broker dealer can't cover those 50. Their capital accounts wiped out. They are gone. SIPC will try and cover you as best it can under this scenario over here. But these other 50,000 in the in the type one account didn't go anywhere. They're still there. You don't even need any SIPC coverage. It's like, ah, here you go. Here's your $500,000 of of shares back, you know, because they weren't caught up in this whole thing. They're over here. They're they're segregated and parked on the side. So, I just want to sometimes I've had people say they think that, you know, oh, if I I I'm guaranter goes out of business or something happens, I'm going to lose all this and I'm going to have to um you know, be covered. But by doing it your way, we have double safety built in. Probably it's safe already. But if there are somehow other losses that come in cuz there's a little float, there was things that was happening. You had some money in a money market account that was midstream at the time of the disaster, like it'll top you up on that on that side of things, right? Is how I understand it currently, >> right? And look, I have clients that are like at Fidelity, they're like, "Hey, I want to maximize SIPC as much as I can, but I got an account that's going to be $2 million or a million or whatever, and I'm okay as long as we're in a type one account." That's fine. My job is to to give you the options and let you make a decision that you're comfortable with because that's what I'm supposed to do as an adviser and a fiduciary. Now, before I go to that interesting fact, let's kind of go back. So, I talked about FDIC being developed after the banks uh collapsing during the Great Depression. I can't remember the data um but somewhere in the 50s and 60s you had a couple of broker dealers that went bankrupt caused an issue that was the introduction of SIPC coverage. Okay, so that's kind of goes back to the 70s I believe when that was put in somewhere around there. I can't remember the specific time but let's roll forward to today. The market environment has changed especially with speculators. So the derivatives market which is derivatives are options. Okay, Warren Buffett called them weapons of mass financial destruction. And one of the things I shared in the the webinar that you did was, you know, around 20134, I developed some option strategies to implement in our portfolios because they are sexy. I mean, they really are. But the problem is, you know, as I was praying and kind of looking and developing, I was kind of really disappointed at the time, Buffett came out with that quote that says derivatives are weapons of mass financial destruction. And I'm like, "Hey, Buffett knows the market far better than I ever could during his time. If he believes that those are dangerous products, then I'm not going to implement them on our strategies for clients that are in retirement." Right? It's one thing if you're 25, 30 and you get wiped out. It's a different thing if you're 65, 70, 75, or 60. So, uh, just remember, you've got this whole complex out there that's more popular now than it ever has been. You know, zero uh, day uh, options. The average retail individual is all into options right now. I mean, the amount of options trading, which you have to have a type two account for 90% of the options that you trade, are the sexy thing that the average individual is caught into. And if you go back to Warren Buffett's wisdom of weapons of mass financial destruction, that's where I'm concerned that the great taking risk could come from is if those derivative counterparty risks start failing. And it's not only that, it's your structured products, right? So, if you've got a unit investment uh trust that says, "Hey, we're going to protect you against, you know, the first 20% decline in the market, they do that with derivatives. They do that with options, right? And these are very popular products out there right now that still happen to pay commissions to uh to the commissionable advisors. Fee feebased guys like us don't get that commission on that. But those are products that are wrapped around derivatives that on the other side of a blowup there'll be some type of check and balance like FDIC or SIPC put in place. So that's [snorts] my concern there. Now the interesting fact 401k plans are interesting. A lot of times people become complacent with their 401k uh 401k. They retire, they change jobs, they leave it at that old 401k, okay, because it happens to be doing good. It's passive, whatever. or they don't want to deal with it. 401k plans have $500,000 worth of SIPC at that broker dealer on the whole plan, right? That's not for your account at the 401k. That's on the whole plan. So, if there's $10 million worth of security, you know, and and $100 million worth of investments inside of that 401k plan, there's only 500,000. Now, most of your 401ks are not going to be in a situation where they can rehypothecate those securities, but I have not found any thing that that guarantees that that cannot happen. So, I always tell people, you know, it's it's a good idea to not leave those 401ks out there where they're sitting there. One, you have a little bit restricted restriction on your investments inside of most typical 401ks. The second thing is if you're concerned about the great taking, you don't have that extra protection as a certainty that you do if you roll it over to an IRA that you can have an, you know, designate a type one account and have that extra SIPC coverage that you know you have for you on that particular account type. So that's something else for people to take into consideration. And and here's why I think the concern is growing again because you know basically all of this machinery was put in place. Um and we saw the same thing happen in the aftermath of 089. By 2010 there was already this idea that oh we're going to go from bailouts of banks to bailins you know and then everybody had to struggle with learning much to our surprise and chagrin that I don't have money at the bank. I'm an unsecured creditor of the bank. And in 2010, they elevated and restructured that that um bailout ladder, right? So, so who who um you know during the redempt period like who's at the top, right? Who do we pay first, right? Um and so when you're in that that bankruptcy workout, it turned out that the bank account holders are at the bottom of that ladder. They're like, >> "Yeah, >> they're just rumaging around down there with a janitorial service that has an unpaid bill, you know, to the bank when it goes belly up." Right. Right. you know, but at the very top they they elevated the derivative bets the banks make with each other to the very top of the list. Now, why they do that? Because they're like, well, gosh, there's so much leverage in these derivative products. If bank A can't pay bank B when they go belly up, then bank C might have to go down because they're they're all anyway, derivatives are that important. We're going to make sure that we can, you know, pay for those, but we wouldn't want to use public money. >> Oh, we'll use bank accounts, right? Right. >> And that's called the bailin, you know, and they softened it a little. Said, "Paul, we know it looks like you used to have a million dollars with this big bank that went under, but don't worry, >> we gave you a million dollars worth of shares in that bank, which is now worthless, >> right? >> You know, or whatever, right?" And then they extended that to this, it crept along to the point where they're like, "Well, if we really had a giant hiccup in the functioning of the overall market, right? >> And yes, they focus on a broker dealer might go under and they have to sort of recapitalize that. what do we do? But really, it's that there's all this piping and plumbing connecting everything across the whole thing. And they can't allow they can't allow the piping to get frozen up. >> So big banks and and big broker dealers aren't going to do business with each other if they aren't confident, this is the argument goes, if they aren't confident that in a pinch that piping stays open. Because if I'm a uh let's say I'm a big prime you're a hedge fund prime broker I'm not going to lend you money unless I'm really confident that there's a way really a mechanism pre-identified for that to come back to me right >> if it's not there interest rates are going to be higher I'm going to do less lending we're going to be more cautious we'll do less activity so the idea was well convenience privacy security you know what we're going to default to max activity in the financial system [laughter] and and we're going to make you capitalize it under certain circumstances. That's what people are concerned about. All right. >> The machinery has been put in place. The trigger has been installed >> such that if it has to be pulled, it's there. Right. Right. >> Okay. It hasn't been pulled, but it's there. So, we know now we know that the trigger is in the system. So, now you and I have been talking about like, oh, look, the carry trade is unwinding in Japan and the yen's about to bust through 160 and their bonds are blowing out and maybe they have to just like shut that system down. And I personally could see how that could start to freeze the plumbing and piping up. >> Yeah. Yeah. >> And that could lead to a condition where people go, "Time to pull the trigger." >> Yeah. You know, and it and it could be something that that not they don't necessarily I mean, pull the trigger because of the market reaction, but it's something that the market forces upon it. I mean, you know, you look at you look at the speculation that's out there. Let me see if I can pull up a couple of I think I've got a couple of things here. I want to look at uh Okay, so speculation in the market. I mean, we're essentially gambling at this point. This is this is not investing. That the the investor is speculating with no no fundamental reality, no historical market experience. Whether it's stated or not, they fully believe that it's different this time. And there are a lot of things that are very different this time. Okay? But but one thing that we can see throughout history with all of these bubbles is that speculation gets to the point where it collapses upon itself. So I mean we've got an environment here and let me see there's one this is quite fascinating. You know you take where the market is right now. So Zero Hedge put out this pretty good article that says outside of recession rebounds the S&P hasn't done this since right before 1987's uh Black Monday. Okay. So after the first oil crisis, you had this massive uh uh spike in the market, but right before Black Monday, you had this massive speculative frenzy. Uh I've got an uncle, first time that he ever bought a stock was about 60 days before the 19 Black Monday 1987, and we were talking about it a couple of months ago. He's like, "That scarred me for quite some time." But everybody I knew was in the market, and it and and it felt like it was never going to go down, so I just kind of joined the party. We're seeing a lot of that right now. I can't quite read that. Um, is that is that the two-month u market advance? What is that? >> Uh, this >> what's it measuring? >> It's it's measuring hopefully I'm showing the right screen. It's measuring uh yeah, the the market advance over a 90-day period of time if I remember correctly. I have have to go into the article, but yeah, the veracity of the rally essentially. So, instead of pulling up the article, I'm just kind of showing the picture here. Um, now if you go after the great financial crisis, it makes sense when you're at the bottom of the market, the market's been washed out, and then something triggers a reversal. That doesn't bother me that much. You go back to after COVID, right? After they printed all this money after the market had dropped that much, that was liftoff. But here we are today, we're back up to that level. Not quite as high as we were before Black Monday. But that's completely different from what we have seen from a historical standpoint. It's a completely different environment. It's one thing if you're coming off the bottom and you get this massive rally, okay? Because the market swung way too far below and it just got oversold. Everybody's throwing the baby out with the bathwater. All the people that piled in at the top. Fear to they let greed take over. Fear of missing out. Fear of losing everything causes them to they can't help it. I've been in this business 28 years. It's a virus that takes people over. They can't help it at the extremes. Okay. Now, when you get a market that's already extremes, overvalued, and then you get this poof, that's what what really results in a blowoff top, okay? And you don't know how it's how long it's going to last. You can break every historical record. The Great Depression broke all of the prior historical records because that speculative bit just kept going until it collapsed upon itself. I think it was Charlie Blo that stated that the AI bubble right now is the greatest that we've seen outside of the railroad bubble. Now, you take that into consideration. And just because there's so much uh such a lack of fear, let me see if I can find that real quick. There's two things I'm looking for. Bear with me. Um, okay. Yeah, this is what I wanted to get. So, let me move them over. Bear with me. I wasn't organized. [sighs] So, let's talk about leveraged bets. The only way that you can get leveraged in here is really to use these derivatives. So if we go back to this zero hedge post on here again the panic investors buying outofthe-oney call options on three times levered ETFs I mean look at this spike that's occurred I mean people are going allin essentially okay now let's add to that so uh Ed Dow puts in here five sigma this is pretty interesting for those that don't don't really uh know the sigma uh ratio of five sigma represents the chance of your child eventually reaching a height of 72. I only know a couple of people that are 72 uh bizarro finance world. So momentum stocks versus low volatility stocks a five sigma deviation. Okay, so if we go back and take a look at this, look what happened. If I can bring this up, we had a huge spike in March of 2000 right before the market reverted. Okay, we had what a 80% NASDAQ decline from there. So this was emotion took over, fear of missing out. June of 2008, okay, you had this huge spike. February of 2021, now for those that you know, there was forces that kind of bled the market out on the other side of that, but in February of 2021 was right before stocks and bonds went down 20%. And now we're look at this. I mean, this is the most extreme that we've seen in quite some time. Add to that. This is uh Jay there to help. S S&P average single stock one month put call skew ratio. Basically people buying insurance has now collapsed to the lowest level in Goldman Sachs entire data set. This just goes back to 2017. >> But look at this. Okay. So what do we see here in this uh put call skew ratio? Uh let's see. This is 2020 right at you know when COVID unfolded people wanted insurance like crazy. Okay. Um, look where we are now. There's no fear. All this basically represents is there's no fear in this market at all right now. So, >> as a contrarian, Paul makes me want to buy puts. >> I know it does. It does. You know, and the interesting thing is the only reason that I'm that that I'm not buying a few puts on the portfolio right now is because they're subject to the risk of the great taking if everything kind of comes apart. >> So, my argument is I don't believe that this is an environment where number one, you can short the market. Okay? Because it could it could blow off another 12 months on a tweet or I mean this is one of those times where where you just have to you just have to keep your emotions in check, sit back and be patient. And it makes me think of Redard Kiplings if if you can keep your wits about you when everybody else is losing theirs then you'll be successful. You know, you'll be a man my son is what it says. So my concern is is we're at the perfect environment right now where people the government has been able to print, government's been able to print, Trump's been able to put a tweet. Wall Street, the average investor has felt some fear. They've kind of stood on the sidelines. This is really wearing on people right now. I don't I think I was telling you or a client or somebody earlier in my 28 years of doing this, I remember the fear that people missed in the year 2000. that fear of missing out that I didn't have the experience back then to really understand how unique that was but it's still imprints summer of 2008 you know Bernanke subprime is contained you know oil prices are moving people were at least in our area were just all in real estate right before things got bad and then we've had issues they printed they printed but you got inflation coming in you've got tweets that are out there you've got zeroday options the markets turned into, you know, you can bet on anything right now. This is max betting speculative environment. The problem is most people think they're investing, but they don't understand the mathematics and and cash flow and time value of money and and all of that, but they're all in right now on this narrative with the backdrop of the greatest risk of the great taking unfolding because it wouldn't take a whole lot. Everybody's levered to the hilt, right? So if you have some event, maybe it's the oil shock, I don't know, whatever that event is that causes that chain reaction to happen, it's going to unfold really, really fast. And that's when you have, I'm not saying the great taking will occur in that, but that's the environment that would cause it to unfold. And that's why we're so diligent. I believe it's so important to protect yourself against it. You know, another things that we recommend. I like it from a long-term standpoint, too. But, you know, I I've had clients say, "Well, what happens if SIPC insurance isn't there? What happens if FDIC insurance isn't there?" Now, I will say my base case is this. If you're government leaders and and you have this deflationary event occur, because if this all unfolds, it is going to be deflationary. They might comprint into it, but that deflation could take over to the point that that at least it doesn't immediately unfold. It could have its impact in time. [sighs and gasps] If you're a government leader, would you rather print enough money to backs stop SIPC and FDIC to where you only got 10% of the population that absolutely gets swiped out, maybe 15%, right, that loses a large majority, and those are the ones that want to hunt you down, or do you want to let it all go and have 100% of the population coming after you? I don't know how that'll unfold. But let's say in case that happens, then it's a prudent thing, not a recommendation because I'll only give the recommendation when I talk to somebody and know their circumstance. But pull some out of the system. You know, think about that. Gold is a good hedge against inflation and chaos from a long-term standpoint. You've talked about this in the past. If we had deflation and deflation was bad enough, well, if even your power company, you still got to pay the power bill, right? But that power companies had to borrow money for their infrastructure. They have debt. So if price of goods went down to where they couldn't support that debt, they could go bankrupt. The bankruptcy courts would let somebody else come in and buy those assets and there's a reset. So um if all of that went away and you still have some gold, it's a zero tier asset. It doesn't have a creditor on the other side. Yes, it's going to be lower in value, but it'll still buy as many cans of soup as what it will today. On the other side, if they print us into oblivion, we have a currency crisis. It has proven over time and especially here leading up to the inflation we have now to be a good inflation hedge. The rest of the world is buying a lot of it, right? I [snorts] think as a protection against our weaponization of our currency, then it can protect your purchasing power against that higher inflation. So, at the extreme, it's something good and you got that out. And the thing is the average person doesn't have assets that are outside the system like that. If you got cash outside the system and we have currency crisis, you lose purchasing power. Gold has the ability to protect against that. But if it's outside the system and everybody loses everything and you got that, well, you have some resources that you otherwise wouldn't have had. And then the second thing that I tell people, don't be lazy when it comes to FDIC insurance. Okay? Just because they have bailed out everybody in those banks in the great financial crisis doesn't mean that the FDI is going to, you know, that the government's going to bail out above because they haven't changed the laws, right? If they would change the laws, it'd be a different story. But what it's caused people to do is to be complacent. So it's like, ah, the government's not going to let me lose anything if my bank goes down. But the law still states that you only have protection up to a certain limit. So you're putting your hope in in a system that may or may not do that. There's no legal requirement for it to be done. So So don't be complacent, right? >> Yeah. >> Take the time. Sorry. Go ahead. >> And and and just to be clear on this, so FDIC is $250,000 per account type, right? And again, so you can parse that out a little bit, >> but remember before the GFC, it was 100,000. They they bumped it, >> right? They could bump it the other way again, right? So they could, >> you know, you could sit here and go, "Well, I've got it structured. I'm I'm under the 250 limit, you know, across account types." And there are, by the way, services that that will do that for you. Um, if you happen to be >> fortunate enough to need that service. Um, there there are companies that specialize in that. >> But again, they change the rules, Paul. If the crisis is big enough, >> they change the rules, right? It's just it's hard to plan on the rule changes, but I think you have to create some buffer in that and just understand, you know, they can both giveth and taketh away, right? They could they could make the FDA limit go higher or lower. >> Don't really know at this point. >> That's right. And you know, Treasury I mean treasuries have issues from a long-term standpoint is my concern, but at least now for a US citizen, that's the safest asset that that you can own. Now, it's not going to protect you against inflation if you have it too long. I don't want to be long in that maturity with the environment we have in the backdrop. But if you just don't want to have to deal with multiple banks to stay under the FDIC limits, then just go straight directly to Treasury Direct or buy your treasuries in a type one account. That's a lot easier to deal with. And going back to the going back to the gold thing, this is one this is the way I explain it to people. Okay, let's say if you got X amount of dollars and we're going to take 10% from a long-term standpoint and put it into gold and it's appropriate for that person. I tell them our hope is 10 years from now it's the same price. Okay? Now, if you're 90% gold, you're not hoping that. But for that gold, we hope 10 years from now it's the same price because that means we've not had an inflationary holocaust or a deflationary holocaust, right? And I tell people, think of it like fire insurance on your home. Who in their right mind is going to be really upset in 10 years and go, you know what? I'm upset my house didn't burn down because I spent $40,000 over the past 10 years to to insure my home. That's not the case. But you understand the importance of having that insurance on your home because if that home does burn down, the loss is so catastrophic that it was worth the 40,000. I'm just picking a number that that you paid to insure that home over a 10-year period of time. So if if people think prudently and they plan and put that structure in place, what I'm finding is they're better investors. They're better investors. They're more calm investors. They're more prudent. And [snorts] in in my experience of working with people like that, they're far more successful over the long term than they are if they just let their emotions make decisions because they don't have any strategy behind the decisions they're making. It's whatever tweet comes out. It's whatever CNBC tells them. It's whatever their friends tell them. It's whatever their brother-in-law is doing that may not be appropriate for them. You got to focus on your own circumstance. Know your situation. Know why you own what you own. And from our standpoint, know when you will sell what you own to lower that risk to protect that capital against the risk of a a major decline. or on the other side know why you'll raise that risk and how you'll dramatically change the targets in that portfolio to protect yourself from a hyperinflationary event. It's not that hard to do, but it takes discipline. It takes patience and it takes keeping your emotions in check. And for most people, that's very hard. >> Well, or they're busy doing a whole lot of other things in their life because what you just described, Paul, is a full contact sport editorially. I don't think it should be that hard, but we don't make the rules, right? So, thankfully, you're there to be that full contact sport. You're the coach that's in there playing the game, right? So, that's fine, >> right? >> You know, >> that's right. >> And but I mean, cuz come come on, that's way too complic I get frustrated when I'm I get sent these insurance binders that are this thick. I'm not reading all that, you know, but I know there's a a crocodile hiding on page 49, you know, that I'm going to be sorry I didn't read at some point in the future, but I just can't I can't possibly keep up with the flood of all the things, every one of which is is like a giant nightmare of complexity to sort of go through, right? [laughter] >> I used to not read them. I'm actually getting to where I read them now. My poor insurance >> No, I have to. I I do too. I start because I'm like, oh, [laughter] but it's just I'm annoyed by it. Like, it shouldn't be this hard, right? You know? Yeah. Yeah. >> You're my home insurer. You should be able to fit it on a 3x5 card. Here's what we'll insure you for. You know, >> Paul, the whole issue here is is that, you know, even with all of that, yes, stretch stock markets, you know, crazy times, exit liquidity, >> there's still this machinery in place that says, hey, if things get really tight for Wall Street, >> right, >> they've authorized a legal code that allows them >> to just reach in and say, you know what, heads we win, tails, you lose. you know, when times are good, we're raking in big bonuses. Times are bad, you're paying for it. Hey, this is just how raccoons operate. It's part of the thing. I just wanted people to be aware of that. So, and by the way, you're the only person in in your in your um business that I could actually get to engage in this conversation >> and you did and you dove in and you figured out things we can do. Everybody else shrugged and said, "That sounds like career risk. I don't want to talk to my clients about that. I don't know what I could do anyway." or frankly in some cases I think they were too lazy. Um which none of which bodess well. So thanks for diving in on this. >> Oh it's my honor. I hate to say it. I mean but I have not found one other person that that has put any effort in in the industry. I know they're out there because I know there's one that I didn't get a chance to meet that my attorney knew. But uh but they're far and few between. My reality is you know it some people are like that's too scary. Like that's too scary. I don't want to change my business to do it. Okay. Well, that's that's not a good strategy, right? You you have to play the game by the rules that are forced upon you. But if you're willing to look into that darkness and see what worst case scenario is, and you can find an ability to be able to sidestep or at least shield yourself from it better than the average person, then you're prudent. You're wise and go on about because you've done everything that you can prudently do to protect yourself and your family and the the wealth that you've accumulated by all the sacrifices that you've made in the past. So that's the way I see it. I mean, it's just prudent and wise to be able to to put the structure in place, maximize SIPC, get your type one accounts in place, get some insurance outside the system. You know, it takes a little bit of work, but it's easy to do. And once you get the structure in place, it's pretty easy to to monitor going forward. You just have a couple of more statements to look at than what you did before. >> Absolutely. So, thank you for doing that and thank you everybody for listening today. Uh please take the great taking seriously. Uh you can look at I've got a free series on it. Also there's a webinar on that that we did um I think about almost two years ago now at Peak Prosperity which you can check out and uh it lays out all the different options and things very clearly. So if you just like to cut to the chase that's also available over at Peak Prosperity. Paul, thanks so much for your time today and especially thank you for helping people navigate these um wild [music] times. >> Oh it's my honor. It's my honor. Thank you Chris.
Wall Street Finally Found The Buyers
Summary
Transcript
Nothing in this program should be considered investment advice. It is for educational purposes only. Please hit pause and read this disclaimer in full. It's the perfect backdrop. Wall Street has waited for the perfect euphoric moment [music] to get their exit liquidity. Hello everyone and a very special welcome to this episode of Finance You. I am your host Chris Martinson and today I'm back with Paul Ker of Kiker Wealth Management and we have so much to talk about. Welcome Paul. >> Welcome. Welcome. Good to see you Chris. I was thinking about all the stuff we have to talk about. >> I think this is probably going to be one of the most important segments of an episode we've ever done and this is something everybody needs to know about. And I know not everybody wants to know about this, but I think we have to consider it given the excesses we see going on right now and the possibility of some sort of a systemic crisis coming. Whether that's going to come to us out of yen, you know, related breaching the 160 barrier out of Japan and the unwinding of the carry trade or maybe it's the the massive oil price spike that comes anyway, you know, despite Trump's claims. But I think it's actually going to come out of somewhere else. So, we got to talk about this and I think we have to talk about Larry Frink. We're gonna have to protect ourselves from Larry. Okay. And uh so you know who Larry Frink is, right? You know, the CEO of Black Rockck. >> Absolutely. >> Yep. >> Absolutely. >> I think Larry should be personally I think he should always be wearing a t-shirt that says born to steal because this is kind of how he rolls up. This is I can't believe like this statement when you listen to this for what he's actually saying. Paul, I think this should be leading to literal pitchforks and torches in the streets right now. And here he is waxing on about AI. >> But if if we can get more and more Americans to think about growing with the United States, uh we will have far than enough money to invest in this infrastructure. But as as the governor was talking about, the [clears throat] need for electrons is growing every day. some of these ve, you know, if we're going to be the leader in technology, which we are, if we are going to be the leader in AI, which we presently are, it's just going to require trillions of dollars of investments. And if we don't invest in it, China will be the global leader in this. And so to me, it's not weather. It this is a must. And if you think about how that translates, it translates into a more of dynamic economy. We need the United States economy to grow at over over 2%. We need the US economy to grow at 3%. Especially with the growing deficits the federal government has. And so much of this money, not just the project, is going to be coming from the private sector, from savings accounts, from pension accounts, from insurance companies, and on and on and on. Whoa. You know, Paul, if you feel like something's really important, like on your farm, you invest in it. You don't say, "You know what? My neighbors are going to have to pony up for this thing I want on my farm because I've decided it's that important." Listen to him. He's like, "We're going to have to invest trillions and it's going to have to come from, this is crazy." He said, "Pension accounts from also insurance companies and their their pools of resources, right? My insurance costs go up every year because they some get sucked into crappy investments like the ones Larry's talking about. And then savings accounts, right? How do you tap into savings accounts to help fund the AI infrastructure? Well, you make electricity costs be born by people who have to pay for it out of their savings costs. Savings accounts. You create inflation to you print money to spend on this project. And sorry, that comes out of people's savings accounts. Larry Frink just told us straight to our faces, we're going to invest trillions. We might blow them, you know, and our only excuse for this is because China might get there first, whatever theirs is, right? >> Well, dude, if you think it's that important, put your money into it, right? Go ahead. >> Put your company's money into it. You're managing a company with, I think, 11 trillion in assets or whatever it is now. Go for it. >> You fund it. >> Nope. He said, "We have a plan. >> We're going to make your savings accounts and your pensions and honestly your 401ks." So, we have to talk about this, right? Right now, as we're as we're doing this on June 3rd, there's a number of really massive IPOs coming out into the marketplace, okay? An initial public offering. And one of them is for SpaceX. And whatever you think about it, I think, you know, it's amazing watching the rockets get caught by tweezers. I'm not a pining on that. This is neither for or against anything that Elon is doing or for or against the company or the shares that are coming out. But did you notice that all of the big um market indices changed the rules for the SpaceX IPO, allowing it to be immediately incorporated into the indexes without going through this normal curing period. You know, IPO, let's give it 6 months, 12 months to make sure it actually makes money or something. Stuck sticking it straight away into all the major indexes. And and so what that means is that Paul, everybody who's passively invested, right, you have a 401k, it's with Fidelity 6040. The 60 that's in stocks is parked in in, you know, basically maybe a S&P and a and a NASDAQ index. You are now an automatic purchaser of SpaceX right from the get-go, whether you want it to be or not. And and so that actually is the dynamic I think he's talking about. >> It sure seems to be. And look, they've kept these things private for a long, long time, right? I mean, this is the perfect opportunity to provide exit liquidity in a passive world, right? Change the rules, get me into the index, force buying, market it like crazy. And look, I think it's SpaceX is absolutely phenomenal. Starlink, all of these, like you said, this is not talking against that. I'm just talking about the backdrop of what Wall Street has continued to do to the average American to stack the odds in their favor and the euphoria around this SpaceX IPO is like nothing I've never seen ever seen in 28 years. I mean, it's absolutely mindboggling. Yes. I mean, I've had I've had high school friends that that have never bought a stock before that I've not talked to in five or six. I mean, you know, we stay in touch, but once every four or five years that I've probably had 15, 20, you know, calls personally, it's like, "Hey, I've never bought a stock before, but I want to get this SpaceX." I mean, that the euphoria out there is pretty amazing in the demand, right? I mean, it's the perfect backdrop. Wall Street has waited for the perfect euphoric moment to get their exit liquidity. Well, and then Larry here is talking about, you know, but if we could get >> what happens when when when we get to um these data centers, right? And we're going to need electrons and we're going to have to do all these data centers and you know, we need this we need this infrastructure. It's going to be trillions of dollars. Trillions. Trillions. Okay. [clears throat] So, again, without opining on on this, although I I have opined with you in the past that nobody's given me the business model for these things yet. You know, you notice Larry didn't say, "By the way, we've run the numbers and these data centers are just going to be cash machines. Here's why. And it's going to be a good thing for everybody invest in it." Excuse me. He's saying we got to get there before China and we're so certain about this, we're going to make you pay for it, which is kind of a odd moment there, right? Um, obviously it's it's bunch of junk. Again, he should have that t-shirt. Born to steal. If Larry says it's a good idea, I'm instantly leaning on the side that maybe it's not a good idea. But that's me after watching this guy operate long enough. Um, so we have the situation, Paul, where where there's this huge hysteria. We're going to pour trillions and trillions into this whole thing, but if what if it doesn't work out, right? Just sake of argument doesn't work out. China gets there first, whatever that means. Or it just turns out there was no there to get to. And it's kind of a cool tool and it has some things but then we finally figure out it's maybe good for this not for that. Makes companies more efficient but doesn't actually create more generative cash flows because it giveth and it taketh away. Companies are more efficient but there's fewer people with jobs who can buy the stuff the company makes. Right? It's got it's got a complexity to it. We hadn't quite thought through. Well, in that case, what we're going to find is that all those trillions basically just evaporate into thin air as is typical. Not my first bubble. You got the history of bubbles behind you there. Y >> bubbles too giveth and taketh away >> in equal measure, right? Um so what happens if if it just turns into a great takeaway and and so that's why we got to talk about this great taking thing. And by the way, this morning at Peak Prosperity at the website, there were two comments down there. I'll go to the bottom one first. Somebody said, "Hey, I'm relying on Paul Ker's team and their expertise to manage my retirement funds." And this was we were talking about this concept of what happens if these things don't quite work out. And then a guy I will only publicly call out by his first initial T said, "Oh, I need to talk to Paul's team. I hope they have exit strategies if everything goes to S. Uh, I sure would like to have the cash rather than have it turned into some sort of government bailin, >> right? >> Um, we need all the help we can get to get through this. The good thing is we have strategies in place." Now, as far as talking about exit strategy, we do have exit strategies. You have to, and I've said this time and time again, I can be bearish, but I can also play the game by the rules that are forced upon us. >> Yep. >> And I can build the argument right now that the market's going to ignore everything. And if we get through by some miracle without this energy shock, that the market just runs all the way into year end. That's one thing if you're participating in the market already and you're doing it cautiously and you're selling into that strength a little bit. It's a prudent thing to do by all historical measures that comes along. But one thing that I can tell you the one benefit with this market rally taking place is our exits are continuing to rise. So the one thing that that that we will do, one part of our strategy is I know exactly when and why we will sell to convert to cash. Okay. To protect that capital from a breakdown. I also know what environment and what indicators will tell us that if we move into this hyperinflationary holocaust that everybody's worried about, right? I don't think your S&P 500 index, you know, all those stocks are going to be the best place to be. some will be. But there are other asset classes that that history has shown when you study all of Germany's collapse, all of the hyperinflation from Wymer to Argentina to others that there are other asset classes that are better than just general stocks to protect you. So we do have strategies in place and we will move quickly and without hesitation when the weight of the evidence and and our strategy tells us to. Markets [music] are facing heightened uncertainty and thoughtful portfolio management has never been more important. If your current strategy relies solely [music] on passive investing or diversification without active oversight, it may be time to consider a different approach. At Peak Financial [music] Investing, we connect you with experienced wealth managers who actively manage [music] portfolios using disciplined, research-driven strategies designed to adapt to evolving market conditions. Our focus is on helping clients navigate volatility with clarity and confidence. 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Well, I I just want to move into to sort of the other sort of larger existential risk around this whole thing, which is, you know, we had the great financial crisis and as a consequence of that, you know, Wall Street really got scared. They saw the light at the end of the tunnel and it was a train, you know, and and so they passed all these new rules that most people are unfamiliar with. And thankfully a man named David Rogers Webb looked at those rules very carefully and he was of course a deep financial he ran you know ran money for people for a long time retired now so he had the time and he looked at this and he's like these are some really strange rules because when you when you add them up it's basically Wall Street saying you know if we get in that kind of trouble again we're just going to take your money just like Larry Frink said we're going to make you pay for this thing right so I just want to take a quick detour through this concept called the great taking which is the title of Fid Rogers web book. This is just a very quick overview. People, I did a whole nine-part series on this. It's it's a couple hours of material. It's worth the dive. If you have wealth, you really need to know about it. If only to say, "Nah, that doesn't worry me for X, Y, and Z." But I will tell you that everybody who has looked at this carefully has come away a little bit worried and maybe a little bit more horrified that they they in the story would even dare put this stuff in black and white. >> Okay. So to get there, I I always start with this F Frederick Bastiot quote uh because I think it applies. It says, "When plunder becomes a way of life for a group of men in a society, over the course of time, they create for themselves a legal system that authorizes it and a moral code that glorifies it." End quote. Yeah. So, we're going to talk about this authorized legal code. it it is now legally permissible to take your stocks and bonds under certain circumstances and and that's that's the important part because this isn't just like oh no we're all screwed. Uh there is a way to avoid all of this stuff but first you have to know what the rules are. So what I did, I went to the sources, right? I'm reading the US titles, right? So I'm actually in US titles 11, 11 A, and 12, which is bankruptcy, bankruptcy rules, banking. This is federal co, federal law, right? Um, hanging out in places like the uniform commercial code, which applies across all the states, articles 8 and nine pertaining to investment, securities, and transactions. Um, looking at case precedents, legal precedents. So this is the dive I did. I this is how I I roll. I just go down in there and say, "Okay, what do we got?" And here we find um in the uniform commercial code, which applies to all the states, section 8-501. Um it says here that that you if you have an if you own stocks in say a Fidelity or Schwab account or any other broker, I'm not picking on anybody. This is how it applies across the whole industry. Yeah. If you have securities in an account, you actually what you have is you don't own a stock anymore in that account. What you have is you have you have a person then acquires when you open up an account and you have a a share of a stock in there. You now have a security entitlement. What's a securities entitlement? Well, it's a legal definition. Okay. If I have a security entitlement, does anybody else have access to that? And it turns out, well, depending on the type of account you have, absolutely, you are no longer the senior claimant in in this. You are now a claimant, one of many. Depending on the type of account, this is the important part. Paul will explain all this to you in just a second. Um, so what does it actually look like? Well, you know, let's say a company, SpaceX or whoever, GM, uh, it doesn't matter. They issue a share of stock. The legal owner becomes seed in company, which is this obscure little holding company that Wall Street created. And then, oh, the DTCC becomes a security entitlement in the chain of custody of of who owns this share of whatever company we're talking about. And then your broker might be another intermediary. But then there's you, the beneficial owner. You, there you are. And depending on the type of account, you might be at the bottom of that chain or the top closer to the top. This makes it very simple. Stock is issued. We can trace where it belongs. It's actually a lot more complicated than that. This is what this this is actually not even remotely a a a complicated diagram of what Wall Street actually looks like now. And it's amazing, Paul. Like, nobody actually gets a physical share like a like a piece of paper anymore, Paul, with a cusip number on some really fancy engraving. They have a an an identification within a a database table that goes through all each one of those squares, boxes, circles, triangles is a is is another database. And somewhere through that whole chain, your share of whatever stock we're talking about is represented in there somehow, right? So just so you understand, a lot of complexity. Um, and it turns out that under certain, so this actually comes from the EU clearing and settlement legal certainty group. Um, I think it was back in 2005. They were asking questions like how does this work? because they're trying to harmonize across the US and Europe and you know sometimes people own shares and euro clear system and here too and we diversify. So the European regulators had a question and so they asked this question directly of the New York Federal Reserve right and they said where securities are held in poolled form which is what happens most case you have a poolled they they like you don't have a share with your name on it of company X held in here in your broker your broker has a pool of company X a big giant pool maybe a million shares of company X and you have a claim on a part of that pool and so They asked here when securities are held in poolled form eg a collective securities position rather than a segregated individual position per person does the investor have rights attaching to particular securities in the pool. Answer no [laughter] I love simple simple answers. The security entitlement holder does not have rights attaching to particular securities in the pool. He or she has a pratada share of the interests in the financial asset held by its securities intermediary to the amount needed to satisfy the aggregate claims. Legal ease Paul as soon as I hear this much legal ease trying to explain do I own my the things in my 401k? Do I own the things in my portfolio or no? And they have to use this many words to say no. It's more complicated than that. uh uh that that should send up some yellow flags if not red flags right away. It's like, wow, it shouldn't be that complicated, should it? You know, but this is what it's become. All right. >> Right. >> So, it that's that's the thing. Now, here's where it gets really really specific and then we can we can talk about how you can be either more exposed or less exposed to the risks that are inherent in the system should there be another financial crisis. So now section 8-511 again in the UCCC universal uniform commercial code priority among security interests and entitlement holders except as otherwise provided in B and C below. It turns out that the claims of entitlement holders other than the creditor have priority over the claims of the creditor. Oh, good. I have I have priority. Well, except except as noted in sections B and C. You got to start with the this is this is good legal language. Except Except for here and here. You own them. Don't worry, Paul. Except you have them. Except for B and C. Well, what's B and C? Well, a claim of a creditor of a securities intermediary who has a security interest in a financial asset held by a securities intermediary has priority over the claims [laughter] if blah blah blah blah blah blah blah. Okay. And so this is actually what they're saying here if I can decode this for people very quickly is there's two types of accounts out there. This is where you come in Paul and you can tell people about those. But it turns out that they're really parsing with a lot of legal language here that there are certain types of accounts if you have them expose you to this idea that your your assets now become co-mingled in this larger intermediary which is the broker you operate with and also the other intermediaries the broker has arrangements with which I guarantee you have no insight into. Right. And if anybody in that chain gets in a huge amount of trouble, your stuff gets all encumbered in that fiasco, however that unfolds. Okay. >> So, type one, type two, there's different accounts, right? >> Yeah. Different accounts. And this is ridiculously important. So, just just to kind of summarize a couple of things. one, if I remember correctly, David Rogers Webb got it wrong because in one thing because he said that all account types were able to be rehypothecated. Rehypothecated as part of relending those securities out. So after doing some research and and kind of you know first panic, second going back through the emotions we went through with that can prove this wrong. No, you can't prove it wrong. Okay, what the heck can we do? Right? and still run a riskmanaged uh strategy. You know, one thing that we originally thought was, hey, you can just get certificates in form, but I think it's only 10 or 12% of the stocks out there you can still get certificates for. And that that has its own set of problems, right? But coming back to the type one and type two account, the first thing that you need to do and you need to make sure of is that you're in a type one account. Okay? Okay, so a type one account. And one thing about Fidelity that I love is they were able to through my attorney demonstrate that they do not rehypothecate securities in a type one account because the law still does not allow broker dealers to rehypothecate securities in a type one. Now, and an important point, um, we ran this past your lawyer. I ran this past other lawyers. We ran it up and down the flag pole. I actually got involved in deep conversations with people in law inside the in interior council for large banks and also firms and they're like no this isn't absolutely it's not true and then they'd come back a few days later like okay it is true you know so we were doing some guy on the internet with a comcast connection was was helping to educate you know because of what David Rogers web had kicked off and and you're right he he I think he tangled up that one thing about those type one accounts and we did chase that down so everything we're saying here >> has been vetted uh as far as we and maybe it's changed in the last 8 minutes and we'll keep up on it. Um but you know this is how we understand it today. >> This is so embedded in the system it didn't change in 8 minutes you know from that standpoint. But >> um you know and I will say it was like a nine months it was like uh doing four-year degree in nine months while working full-time. Like I have never studied that hard since I got I mean it was insane. But going back to type one account so the simplest way to explain it so type one is a non-m margin account. Now what that means is you cannot borrow against your securities in a type one account and your broker dealer cannot rehypothecate or lend out those securities to short sellers with option market or however that is. A type two account is completely different. So back when I first got started in the industry, the broker dealer that I was with wanted everybody in a type two account. You get rewarded for special trips and things like that. the more time two accounts that you had, even if people weren't using them, they would pitch it like, "Hey, you know, you want to have these because if you want to borrow against your securities, you can." Now, to borrow against your securities, you have to change the type of account that you're in to a type two account. So, a type two account is a margin account. Okay? Now, you don't have to use margin in that account, but you have the ability to use margin in that account. The moment that you move it into a type two account, your broker dealer has the ability to rehypothecate those shares or lend them out to short sellers. So you're and you don't know whether they do or not. So you can have a, you know, a thousand shares of XYZ stock and let's say it's worth $500,000. In your mind, that's a line of credit that you might need at some point in the future and it's convenient because you don't have to sign any paper at the time. that gives your broker dealer the ability to lend those out there into that derivatives market for other traders and speculators and they're going to make money on that uh and relending it. So they t they do have some incentive to put that out there to increase revenues. And one of the things that we've seen in the broker dealer world, they had a competition to drive transaction fees down to nothing, thinking that they would get a monopoly, I think, and be able to raise them, but that's not happening. So they're getting creative in different ways where they structure accounts to pay you less on money market here. The things we're having to do are harder. But the point is, you know, that gives them that ability. So the first thing if you want to protect yourself against great taking is make sure that you're in a type one and not a type two account. The second thing that you have to rely upon and try to maximize is SIPC insurance. So that's security investor protection corporation. Now, it is not like FDIC insurance in the banking industry. So, let's go back and just kind of think about how this cycled through. Prior to the Great Depression, there was nothing uh there was no FDIC. Okay? So, when the crisis hit, the banks failed and people lost absolutely everything. [snorts] So on the aftermath of that for the government to put into regulations to try to keep that from happening again, banking regulations changed and FDIC insurance was introduced. So if you have a CD at the bank and the bank fails, you are protected up to $250,000 and FDIC insurance. That's against a failure in the bank. SIPC is different. So if you go buy XYZ stock and that stock goes bankrupt, that's on you. you didn't do your research, you're carrying the risk from that. SIPC does not protect you from that. What it does protect you from is if that broker dealer fails and your securities are rehypothecated, then you've got $500,000 of SIPC coverage against that security. Okay? So, that's the minimum thing that you can do is have it in a type one account and then maximize your SIPC coverage. So, what's an example of how you do that? It's really easy in one circumstance. So, let's say you're a married couple. You've got $1.5 million in stock in a joint account. In that joint account, you have $500,000 of SIPC coverage. So, if the great taking were to occur, if your broker dealer were to fail and those securities are are rehypothecated, you only have $500,000 of SIPC coverage. [gasps] What you can do, there's other planning issues that go with it, right? But what you can do from a simple standpoint is that $500,000 is two is per account type. So a married couple with one a.5 million could have a joint account, open a single account for the wife and a single account for the husband and move 500,000, leave 500,000 in joint, move 500,000 into the wife's account, 500,000 into the husband's account. You got three account types and now you've increased your SIPC coverage up to 1.5 million. So by staying in a type one account and maximizing your SIPC coverage strategically through the different account types, you can protect yourself as much as possible. Now if somebody has 3 million for example in a joint account then you might do that same account structure joint individual individual at one broker dealer and then joint individual individual at another broker dealer. So that's how we have utilized it for some of our clients. I just tell them say look you're going to have more statements okay and that's going to be a pain in the rear end to keep up with. That's more 1099s that you're going to get on these non-retirement accounts. But this is how you do a little extra work to be diligent to protect yourself as best you can against the risk of the great taking and maximize your SIPC coverage. So there are all kinds of strategies that we take people through to implement to maximize. I mean, you know, and I will say if I'm over at any broker dealer, right, then I feel comfortable being over at Fidelity because they actually demonstrated for us that they do not rehypotheate securities in a type one account where other broker dealers wouldn't even engage in conversation. Now, that doesn't mean that they're doing anything wrong. It just means that they're one not taking it serious enough or two just don't want to give you a chance to look in uh under the you know behind closed doors to verify that's the case. So you can still use them but there are certain broker dealers that I will not be over 500,000 unless a client just tells me look I don't care. I want to protect myself a little bit. Um but those are things that you can do. Now here's another interesting fact. Hold on to that fact. Remember that. But um a lawyer who was helping me through through all of this um sent me a an an article last year that showed that there was a broker dealer that even though they were type one accounts had coingled them, right? >> Oh, and took some losses and got super spanked and all that. So, um I just want to say that that uh there are a lot of broker dealers out there and I'm not saying anything for or against any of them. This was a much smaller one, right? But if anybody has you, you should if you can't go to your broker dealer and have them confidently answer this. We absolutely do not ever co-mingle type one account funds, right? >> Um that would be important, but you know, we all heard about that like um I I know these weren't type one, type two, these are futures accounts, but remember that this was horrifying that even happened. That case back with um um MF Global, right? >> Oh yeah. Yeah. >> Yep. And that guy who was super well connected with the Democrats gotten almost no trouble, but he had he had basically taken money out of client accounts to cover shortfalls in some crazy bond trades or something he'd been doing. I don't know. I can't remember the exact details, right? >> But that was wild. >> Absolutely. You know, >> and so >> and so that's why, you know, even if you are like I feel very comfortable in type one accounts with a major company like a Fidelity that says, "Hey, we here here's how we operate. It's a matter of who we are. That's fine because because in a to lose money to even have SIPC have to come in and cover you that that those those securities in your account have to evaporate somehow. They have to go away, right? >> Well, so let's imagine you have a big broker dealer and they're they they've lent out you have 50,000 shares of something in a type two account. I have 50,000 in type one account and they've loaned 50,000 of these shares to some who made a really bad bet on on uh Japan's, you know, trade balance or something or whatever. Anyway, that short seller goes bust, bad due diligence. They can't pay any of this back. Now, that broker dealer can't cover those 50. Their capital accounts wiped out. They are gone. SIPC will try and cover you as best it can under this scenario over here. But these other 50,000 in the in the type one account didn't go anywhere. They're still there. You don't even need any SIPC coverage. It's like, ah, here you go. Here's your $500,000 of of shares back, you know, because they weren't caught up in this whole thing. They're over here. They're they're segregated and parked on the side. So, I just want to sometimes I've had people say they think that, you know, oh, if I I I'm guaranter goes out of business or something happens, I'm going to lose all this and I'm going to have to um you know, be covered. But by doing it your way, we have double safety built in. Probably it's safe already. But if there are somehow other losses that come in cuz there's a little float, there was things that was happening. You had some money in a money market account that was midstream at the time of the disaster, like it'll top you up on that on that side of things, right? Is how I understand it currently, >> right? And look, I have clients that are like at Fidelity, they're like, "Hey, I want to maximize SIPC as much as I can, but I got an account that's going to be $2 million or a million or whatever, and I'm okay as long as we're in a type one account." That's fine. My job is to to give you the options and let you make a decision that you're comfortable with because that's what I'm supposed to do as an adviser and a fiduciary. Now, before I go to that interesting fact, let's kind of go back. So, I talked about FDIC being developed after the banks uh collapsing during the Great Depression. I can't remember the data um but somewhere in the 50s and 60s you had a couple of broker dealers that went bankrupt caused an issue that was the introduction of SIPC coverage. Okay, so that's kind of goes back to the 70s I believe when that was put in somewhere around there. I can't remember the specific time but let's roll forward to today. The market environment has changed especially with speculators. So the derivatives market which is derivatives are options. Okay, Warren Buffett called them weapons of mass financial destruction. And one of the things I shared in the the webinar that you did was, you know, around 20134, I developed some option strategies to implement in our portfolios because they are sexy. I mean, they really are. But the problem is, you know, as I was praying and kind of looking and developing, I was kind of really disappointed at the time, Buffett came out with that quote that says derivatives are weapons of mass financial destruction. And I'm like, "Hey, Buffett knows the market far better than I ever could during his time. If he believes that those are dangerous products, then I'm not going to implement them on our strategies for clients that are in retirement." Right? It's one thing if you're 25, 30 and you get wiped out. It's a different thing if you're 65, 70, 75, or 60. So, uh, just remember, you've got this whole complex out there that's more popular now than it ever has been. You know, zero uh, day uh, options. The average retail individual is all into options right now. I mean, the amount of options trading, which you have to have a type two account for 90% of the options that you trade, are the sexy thing that the average individual is caught into. And if you go back to Warren Buffett's wisdom of weapons of mass financial destruction, that's where I'm concerned that the great taking risk could come from is if those derivative counterparty risks start failing. And it's not only that, it's your structured products, right? So, if you've got a unit investment uh trust that says, "Hey, we're going to protect you against, you know, the first 20% decline in the market, they do that with derivatives. They do that with options, right? And these are very popular products out there right now that still happen to pay commissions to uh to the commissionable advisors. Fee feebased guys like us don't get that commission on that. But those are products that are wrapped around derivatives that on the other side of a blowup there'll be some type of check and balance like FDIC or SIPC put in place. So that's [snorts] my concern there. Now the interesting fact 401k plans are interesting. A lot of times people become complacent with their 401k uh 401k. They retire, they change jobs, they leave it at that old 401k, okay, because it happens to be doing good. It's passive, whatever. or they don't want to deal with it. 401k plans have $500,000 worth of SIPC at that broker dealer on the whole plan, right? That's not for your account at the 401k. That's on the whole plan. So, if there's $10 million worth of security, you know, and and $100 million worth of investments inside of that 401k plan, there's only 500,000. Now, most of your 401ks are not going to be in a situation where they can rehypothecate those securities, but I have not found any thing that that guarantees that that cannot happen. So, I always tell people, you know, it's it's a good idea to not leave those 401ks out there where they're sitting there. One, you have a little bit restricted restriction on your investments inside of most typical 401ks. The second thing is if you're concerned about the great taking, you don't have that extra protection as a certainty that you do if you roll it over to an IRA that you can have an, you know, designate a type one account and have that extra SIPC coverage that you know you have for you on that particular account type. So that's something else for people to take into consideration. And and here's why I think the concern is growing again because you know basically all of this machinery was put in place. Um and we saw the same thing happen in the aftermath of 089. By 2010 there was already this idea that oh we're going to go from bailouts of banks to bailins you know and then everybody had to struggle with learning much to our surprise and chagrin that I don't have money at the bank. I'm an unsecured creditor of the bank. And in 2010, they elevated and restructured that that um bailout ladder, right? So, so who who um you know during the redempt period like who's at the top, right? Who do we pay first, right? Um and so when you're in that that bankruptcy workout, it turned out that the bank account holders are at the bottom of that ladder. They're like, >> "Yeah, >> they're just rumaging around down there with a janitorial service that has an unpaid bill, you know, to the bank when it goes belly up." Right. Right. you know, but at the very top they they elevated the derivative bets the banks make with each other to the very top of the list. Now, why they do that? Because they're like, well, gosh, there's so much leverage in these derivative products. If bank A can't pay bank B when they go belly up, then bank C might have to go down because they're they're all anyway, derivatives are that important. We're going to make sure that we can, you know, pay for those, but we wouldn't want to use public money. >> Oh, we'll use bank accounts, right? Right. >> And that's called the bailin, you know, and they softened it a little. Said, "Paul, we know it looks like you used to have a million dollars with this big bank that went under, but don't worry, >> we gave you a million dollars worth of shares in that bank, which is now worthless, >> right? >> You know, or whatever, right?" And then they extended that to this, it crept along to the point where they're like, "Well, if we really had a giant hiccup in the functioning of the overall market, right? >> And yes, they focus on a broker dealer might go under and they have to sort of recapitalize that. what do we do? But really, it's that there's all this piping and plumbing connecting everything across the whole thing. And they can't allow they can't allow the piping to get frozen up. >> So big banks and and big broker dealers aren't going to do business with each other if they aren't confident, this is the argument goes, if they aren't confident that in a pinch that piping stays open. Because if I'm a uh let's say I'm a big prime you're a hedge fund prime broker I'm not going to lend you money unless I'm really confident that there's a way really a mechanism pre-identified for that to come back to me right >> if it's not there interest rates are going to be higher I'm going to do less lending we're going to be more cautious we'll do less activity so the idea was well convenience privacy security you know what we're going to default to max activity in the financial system [laughter] and and we're going to make you capitalize it under certain circumstances. That's what people are concerned about. All right. >> The machinery has been put in place. The trigger has been installed >> such that if it has to be pulled, it's there. Right. Right. >> Okay. It hasn't been pulled, but it's there. So, we know now we know that the trigger is in the system. So, now you and I have been talking about like, oh, look, the carry trade is unwinding in Japan and the yen's about to bust through 160 and their bonds are blowing out and maybe they have to just like shut that system down. And I personally could see how that could start to freeze the plumbing and piping up. >> Yeah. Yeah. >> And that could lead to a condition where people go, "Time to pull the trigger." >> Yeah. You know, and it and it could be something that that not they don't necessarily I mean, pull the trigger because of the market reaction, but it's something that the market forces upon it. I mean, you know, you look at you look at the speculation that's out there. Let me see if I can pull up a couple of I think I've got a couple of things here. I want to look at uh Okay, so speculation in the market. I mean, we're essentially gambling at this point. This is this is not investing. That the the investor is speculating with no no fundamental reality, no historical market experience. Whether it's stated or not, they fully believe that it's different this time. And there are a lot of things that are very different this time. Okay? But but one thing that we can see throughout history with all of these bubbles is that speculation gets to the point where it collapses upon itself. So I mean we've got an environment here and let me see there's one this is quite fascinating. You know you take where the market is right now. So Zero Hedge put out this pretty good article that says outside of recession rebounds the S&P hasn't done this since right before 1987's uh Black Monday. Okay. So after the first oil crisis, you had this massive uh uh spike in the market, but right before Black Monday, you had this massive speculative frenzy. Uh I've got an uncle, first time that he ever bought a stock was about 60 days before the 19 Black Monday 1987, and we were talking about it a couple of months ago. He's like, "That scarred me for quite some time." But everybody I knew was in the market, and it and and it felt like it was never going to go down, so I just kind of joined the party. We're seeing a lot of that right now. I can't quite read that. Um, is that is that the two-month u market advance? What is that? >> Uh, this >> what's it measuring? >> It's it's measuring hopefully I'm showing the right screen. It's measuring uh yeah, the the market advance over a 90-day period of time if I remember correctly. I have have to go into the article, but yeah, the veracity of the rally essentially. So, instead of pulling up the article, I'm just kind of showing the picture here. Um, now if you go after the great financial crisis, it makes sense when you're at the bottom of the market, the market's been washed out, and then something triggers a reversal. That doesn't bother me that much. You go back to after COVID, right? After they printed all this money after the market had dropped that much, that was liftoff. But here we are today, we're back up to that level. Not quite as high as we were before Black Monday. But that's completely different from what we have seen from a historical standpoint. It's a completely different environment. It's one thing if you're coming off the bottom and you get this massive rally, okay? Because the market swung way too far below and it just got oversold. Everybody's throwing the baby out with the bathwater. All the people that piled in at the top. Fear to they let greed take over. Fear of missing out. Fear of losing everything causes them to they can't help it. I've been in this business 28 years. It's a virus that takes people over. They can't help it at the extremes. Okay. Now, when you get a market that's already extremes, overvalued, and then you get this poof, that's what what really results in a blowoff top, okay? And you don't know how it's how long it's going to last. You can break every historical record. The Great Depression broke all of the prior historical records because that speculative bit just kept going until it collapsed upon itself. I think it was Charlie Blo that stated that the AI bubble right now is the greatest that we've seen outside of the railroad bubble. Now, you take that into consideration. And just because there's so much uh such a lack of fear, let me see if I can find that real quick. There's two things I'm looking for. Bear with me. Um, okay. Yeah, this is what I wanted to get. So, let me move them over. Bear with me. I wasn't organized. [sighs] So, let's talk about leveraged bets. The only way that you can get leveraged in here is really to use these derivatives. So if we go back to this zero hedge post on here again the panic investors buying outofthe-oney call options on three times levered ETFs I mean look at this spike that's occurred I mean people are going allin essentially okay now let's add to that so uh Ed Dow puts in here five sigma this is pretty interesting for those that don't don't really uh know the sigma uh ratio of five sigma represents the chance of your child eventually reaching a height of 72. I only know a couple of people that are 72 uh bizarro finance world. So momentum stocks versus low volatility stocks a five sigma deviation. Okay, so if we go back and take a look at this, look what happened. If I can bring this up, we had a huge spike in March of 2000 right before the market reverted. Okay, we had what a 80% NASDAQ decline from there. So this was emotion took over, fear of missing out. June of 2008, okay, you had this huge spike. February of 2021, now for those that you know, there was forces that kind of bled the market out on the other side of that, but in February of 2021 was right before stocks and bonds went down 20%. And now we're look at this. I mean, this is the most extreme that we've seen in quite some time. Add to that. This is uh Jay there to help. S S&P average single stock one month put call skew ratio. Basically people buying insurance has now collapsed to the lowest level in Goldman Sachs entire data set. This just goes back to 2017. >> But look at this. Okay. So what do we see here in this uh put call skew ratio? Uh let's see. This is 2020 right at you know when COVID unfolded people wanted insurance like crazy. Okay. Um, look where we are now. There's no fear. All this basically represents is there's no fear in this market at all right now. So, >> as a contrarian, Paul makes me want to buy puts. >> I know it does. It does. You know, and the interesting thing is the only reason that I'm that that I'm not buying a few puts on the portfolio right now is because they're subject to the risk of the great taking if everything kind of comes apart. >> So, my argument is I don't believe that this is an environment where number one, you can short the market. Okay? Because it could it could blow off another 12 months on a tweet or I mean this is one of those times where where you just have to you just have to keep your emotions in check, sit back and be patient. And it makes me think of Redard Kiplings if if you can keep your wits about you when everybody else is losing theirs then you'll be successful. You know, you'll be a man my son is what it says. So my concern is is we're at the perfect environment right now where people the government has been able to print, government's been able to print, Trump's been able to put a tweet. Wall Street, the average investor has felt some fear. They've kind of stood on the sidelines. This is really wearing on people right now. I don't I think I was telling you or a client or somebody earlier in my 28 years of doing this, I remember the fear that people missed in the year 2000. that fear of missing out that I didn't have the experience back then to really understand how unique that was but it's still imprints summer of 2008 you know Bernanke subprime is contained you know oil prices are moving people were at least in our area were just all in real estate right before things got bad and then we've had issues they printed they printed but you got inflation coming in you've got tweets that are out there you've got zeroday options the markets turned into, you know, you can bet on anything right now. This is max betting speculative environment. The problem is most people think they're investing, but they don't understand the mathematics and and cash flow and time value of money and and all of that, but they're all in right now on this narrative with the backdrop of the greatest risk of the great taking unfolding because it wouldn't take a whole lot. Everybody's levered to the hilt, right? So if you have some event, maybe it's the oil shock, I don't know, whatever that event is that causes that chain reaction to happen, it's going to unfold really, really fast. And that's when you have, I'm not saying the great taking will occur in that, but that's the environment that would cause it to unfold. And that's why we're so diligent. I believe it's so important to protect yourself against it. You know, another things that we recommend. I like it from a long-term standpoint, too. But, you know, I I've had clients say, "Well, what happens if SIPC insurance isn't there? What happens if FDIC insurance isn't there?" Now, I will say my base case is this. If you're government leaders and and you have this deflationary event occur, because if this all unfolds, it is going to be deflationary. They might comprint into it, but that deflation could take over to the point that that at least it doesn't immediately unfold. It could have its impact in time. [sighs and gasps] If you're a government leader, would you rather print enough money to backs stop SIPC and FDIC to where you only got 10% of the population that absolutely gets swiped out, maybe 15%, right, that loses a large majority, and those are the ones that want to hunt you down, or do you want to let it all go and have 100% of the population coming after you? I don't know how that'll unfold. But let's say in case that happens, then it's a prudent thing, not a recommendation because I'll only give the recommendation when I talk to somebody and know their circumstance. But pull some out of the system. You know, think about that. Gold is a good hedge against inflation and chaos from a long-term standpoint. You've talked about this in the past. If we had deflation and deflation was bad enough, well, if even your power company, you still got to pay the power bill, right? But that power companies had to borrow money for their infrastructure. They have debt. So if price of goods went down to where they couldn't support that debt, they could go bankrupt. The bankruptcy courts would let somebody else come in and buy those assets and there's a reset. So um if all of that went away and you still have some gold, it's a zero tier asset. It doesn't have a creditor on the other side. Yes, it's going to be lower in value, but it'll still buy as many cans of soup as what it will today. On the other side, if they print us into oblivion, we have a currency crisis. It has proven over time and especially here leading up to the inflation we have now to be a good inflation hedge. The rest of the world is buying a lot of it, right? I [snorts] think as a protection against our weaponization of our currency, then it can protect your purchasing power against that higher inflation. So, at the extreme, it's something good and you got that out. And the thing is the average person doesn't have assets that are outside the system like that. If you got cash outside the system and we have currency crisis, you lose purchasing power. Gold has the ability to protect against that. But if it's outside the system and everybody loses everything and you got that, well, you have some resources that you otherwise wouldn't have had. And then the second thing that I tell people, don't be lazy when it comes to FDIC insurance. Okay? Just because they have bailed out everybody in those banks in the great financial crisis doesn't mean that the FDI is going to, you know, that the government's going to bail out above because they haven't changed the laws, right? If they would change the laws, it'd be a different story. But what it's caused people to do is to be complacent. So it's like, ah, the government's not going to let me lose anything if my bank goes down. But the law still states that you only have protection up to a certain limit. So you're putting your hope in in a system that may or may not do that. There's no legal requirement for it to be done. So So don't be complacent, right? >> Yeah. >> Take the time. Sorry. Go ahead. >> And and and just to be clear on this, so FDIC is $250,000 per account type, right? And again, so you can parse that out a little bit, >> but remember before the GFC, it was 100,000. They they bumped it, >> right? They could bump it the other way again, right? So they could, >> you know, you could sit here and go, "Well, I've got it structured. I'm I'm under the 250 limit, you know, across account types." And there are, by the way, services that that will do that for you. Um, if you happen to be >> fortunate enough to need that service. Um, there there are companies that specialize in that. >> But again, they change the rules, Paul. If the crisis is big enough, >> they change the rules, right? It's just it's hard to plan on the rule changes, but I think you have to create some buffer in that and just understand, you know, they can both giveth and taketh away, right? They could they could make the FDA limit go higher or lower. >> Don't really know at this point. >> That's right. And you know, Treasury I mean treasuries have issues from a long-term standpoint is my concern, but at least now for a US citizen, that's the safest asset that that you can own. Now, it's not going to protect you against inflation if you have it too long. I don't want to be long in that maturity with the environment we have in the backdrop. But if you just don't want to have to deal with multiple banks to stay under the FDIC limits, then just go straight directly to Treasury Direct or buy your treasuries in a type one account. That's a lot easier to deal with. And going back to the going back to the gold thing, this is one this is the way I explain it to people. Okay, let's say if you got X amount of dollars and we're going to take 10% from a long-term standpoint and put it into gold and it's appropriate for that person. I tell them our hope is 10 years from now it's the same price. Okay? Now, if you're 90% gold, you're not hoping that. But for that gold, we hope 10 years from now it's the same price because that means we've not had an inflationary holocaust or a deflationary holocaust, right? And I tell people, think of it like fire insurance on your home. Who in their right mind is going to be really upset in 10 years and go, you know what? I'm upset my house didn't burn down because I spent $40,000 over the past 10 years to to insure my home. That's not the case. But you understand the importance of having that insurance on your home because if that home does burn down, the loss is so catastrophic that it was worth the 40,000. I'm just picking a number that that you paid to insure that home over a 10-year period of time. So if if people think prudently and they plan and put that structure in place, what I'm finding is they're better investors. They're better investors. They're more calm investors. They're more prudent. And [snorts] in in my experience of working with people like that, they're far more successful over the long term than they are if they just let their emotions make decisions because they don't have any strategy behind the decisions they're making. It's whatever tweet comes out. It's whatever CNBC tells them. It's whatever their friends tell them. It's whatever their brother-in-law is doing that may not be appropriate for them. You got to focus on your own circumstance. Know your situation. Know why you own what you own. And from our standpoint, know when you will sell what you own to lower that risk to protect that capital against the risk of a a major decline. or on the other side know why you'll raise that risk and how you'll dramatically change the targets in that portfolio to protect yourself from a hyperinflationary event. It's not that hard to do, but it takes discipline. It takes patience and it takes keeping your emotions in check. And for most people, that's very hard. >> Well, or they're busy doing a whole lot of other things in their life because what you just described, Paul, is a full contact sport editorially. I don't think it should be that hard, but we don't make the rules, right? So, thankfully, you're there to be that full contact sport. You're the coach that's in there playing the game, right? So, that's fine, >> right? >> You know, >> that's right. >> And but I mean, cuz come come on, that's way too complic I get frustrated when I'm I get sent these insurance binders that are this thick. I'm not reading all that, you know, but I know there's a a crocodile hiding on page 49, you know, that I'm going to be sorry I didn't read at some point in the future, but I just can't I can't possibly keep up with the flood of all the things, every one of which is is like a giant nightmare of complexity to sort of go through, right? [laughter] >> I used to not read them. I'm actually getting to where I read them now. My poor insurance >> No, I have to. I I do too. I start because I'm like, oh, [laughter] but it's just I'm annoyed by it. Like, it shouldn't be this hard, right? You know? Yeah. Yeah. >> You're my home insurer. You should be able to fit it on a 3x5 card. Here's what we'll insure you for. You know, >> Paul, the whole issue here is is that, you know, even with all of that, yes, stretch stock markets, you know, crazy times, exit liquidity, >> there's still this machinery in place that says, hey, if things get really tight for Wall Street, >> right, >> they've authorized a legal code that allows them >> to just reach in and say, you know what, heads we win, tails, you lose. you know, when times are good, we're raking in big bonuses. Times are bad, you're paying for it. Hey, this is just how raccoons operate. It's part of the thing. I just wanted people to be aware of that. So, and by the way, you're the only person in in your in your um business that I could actually get to engage in this conversation >> and you did and you dove in and you figured out things we can do. Everybody else shrugged and said, "That sounds like career risk. I don't want to talk to my clients about that. I don't know what I could do anyway." or frankly in some cases I think they were too lazy. Um which none of which bodess well. So thanks for diving in on this. >> Oh it's my honor. I hate to say it. I mean but I have not found one other person that that has put any effort in in the industry. I know they're out there because I know there's one that I didn't get a chance to meet that my attorney knew. But uh but they're far and few between. My reality is you know it some people are like that's too scary. Like that's too scary. I don't want to change my business to do it. Okay. Well, that's that's not a good strategy, right? You you have to play the game by the rules that are forced upon you. But if you're willing to look into that darkness and see what worst case scenario is, and you can find an ability to be able to sidestep or at least shield yourself from it better than the average person, then you're prudent. You're wise and go on about because you've done everything that you can prudently do to protect yourself and your family and the the wealth that you've accumulated by all the sacrifices that you've made in the past. So that's the way I see it. I mean, it's just prudent and wise to be able to to put the structure in place, maximize SIPC, get your type one accounts in place, get some insurance outside the system. You know, it takes a little bit of work, but it's easy to do. And once you get the structure in place, it's pretty easy to to monitor going forward. You just have a couple of more statements to look at than what you did before. >> Absolutely. So, thank you for doing that and thank you everybody for listening today. Uh please take the great taking seriously. Uh you can look at I've got a free series on it. Also there's a webinar on that that we did um I think about almost two years ago now at Peak Prosperity which you can check out and uh it lays out all the different options and things very clearly. So if you just like to cut to the chase that's also available over at Peak Prosperity. Paul, thanks so much for your time today and especially thank you for helping people navigate these um wild [music] times. >> Oh it's my honor. It's my honor. Thank you Chris.