Triple-Whammy: Spiking Inflation, A Slowing Economy & Broken Supply Chains | Michael Every (PT1)

Michael Every, Global Strategist at Rabobank, returns to the program to discuss the trap the world’s central banks are in.

Spiking inflation resulting from their stimulus policies is colliding with slowing economic growth.

Their choice at this point is to impoverish the public through rising costs (and eventually so kill the economy) by continuing to stimulate, or plunge the debt-burdened economy direction into recession or depression by tightening.

He also gives us a wide-ranging perspective on the

developments in Asia (and China, in particular) and why the current lines of trade and supply chains will need to be re-drawn.

Why address this now?

Because governments and central planners have been kicking the can as far as they can down the road for decades, pushing off the repercussions of the decisions they make today.

But eventually, the road runs out and the can can no longer be kicked any farther.

And it’s increasingly looking like we’ve arrived at that point today.

Transcript

Adam Taggart: Governments and central planners have been kicking the can as far as possible down the road for decades, pushing off the repercussions of the decisions they make today, but eventually the road runs out and the can can no longer be kicked any farther and it’s increasingly looking like we’ve arrived at that point today.

Michael Every: If you look at central banks today they’re in a similar impasse. You raise rates, disaster. Your current rates, disaster. You just waffle and do jazz hands, disaster. You need structural reform.

Adam Taggart: Welcome to Wealthion. I’m Adam Taggart, founder of Wealthion, welcoming you back for another week of making sense of money and the markets so that you can make better informed decisions about building your wealth. There’s an old saying that because it’s the world’s largest economy, when the united states of America sneezes the rest of the world catches a cold but now with China’s economy on track to take over the number one spot by or before 2030, whatever happens in Asia increasingly now has direct ramifications for the rest of the world and a lot is happening in Asia right now. The majority of folks who watch this Wealthion channel are from western countries so to bring us up to speed on the key developments we should be paying attention to in the Asia pacific region, I’m pleased to welcome Michael Every back to the program. Michael is global strategist at Rabobank and is based out of Singapore. Michael, thanks so much for taking time out of your busy morning to join us.

Michael Every: Thank you very much for having me. It’s a great pleasure to be here.

Adam Taggart: Thanks. Michael, as we jump right in let me just start with the question that I asked all of my guests at the beginning. What is your current assessment of today’s global economy and financial markets?

Michael Every: Let me turn to Charles Dickens, if I may. “It was the best of times, it was the worst of times,” and I won’t continue on with the full beautiful quotation about idiotic leaders but that sums up my feeling pretty strongly.

Adam Taggart: I think actually it’s probably very well put. When you say, “best of times and worst of times,” can you just give an example or two of both the best aspects and the worst aspects?

Michael Every: Sure. Well, let me start with the worst which is what people traditionally expect from me and then pivot to the best. So from the worst we’re seeing a shocking increase in inflation right the way around the world.There is a whole slew of countries seeing double-digit inflation far higher than what people in the west are experiencing and sadly, the majority of them are the poorest people on the planet. So they’re seeing a savage setback to their particular already low set of living standards and the outlook going forward is that food and energy prices will continue to remain high or go higher so they’re going to get poorer and poorer and of course we’re looking at our own retirement funds, not trying to necessarily heal the world but it does bear remembering at all times that you have got a huge swathe of humanity that’s being bulldozed by what’s happening in the background. Then of course you’ve also got stark inequality within western economies between the winners and the losers. I mean you see that very much in the US but you see it in western Europe, too. You see it in emerging markets, et cetera. So that’s the worst of times and that’s before you start looking at the environmental crisis, if you want to talk about that, et cetera. At the best of times some people are making more money than god. Elon Musk is the richest man on the planet, whether he’s a genius or a snake oil salesman is an open question I’m not going to get into it but there are very divergent views on that and on any daily basis I wake up, check the news, and discover that some digitally printed nonsense asset which didn’t exist a few days ago is suddenly worth more than the Ford motor company. Some people somewhere are basically becoming the richest people who have ever existed without lifting a finger while a vast slice of humanity is struggling to put food on the table. So it’s the best of times and it’s the worst of times.

Adam Taggart: Okay. I think somebody listening to that might say it’s the worst of times and the worst of times based on both those but no your point is right that there’s a great chance to make a ton of wealth right now. It may be the unfortunate reality that it’s only a precious few that are doing that while the vast majority are experiencing the worst of times that you mentioned. Alright, I want to get into all of that if that’s not too big of an ask for this discussion. Let me start. So Michael, you are an incredibly prolific writer. You write a daily piece that goes into detail of many of the trends you mentioned and many other macro and micro trends that are going on around the world and one that you wrote recently really zeroed in on the disconnect between the financial economy and the real economy and reminding us to be very cognizant that they’re two very different things and by, “real economy,” I assume you mean manufacturing, supply chains, commerce, et cetera, things that take real infrastructure to operate and to deliver goods and services. Can you just explain why you wrote that and why you think it’s so important we keep that in mind? And then in your answer can you address whether you think those two things can remain separate and indistinct for a long period of time or do they have to eventually reconcile and if so how do you see that happening?

Michael Every: Okay, thank you. Let me start by maybe explaining a little bit more about what I do. Within my role I do not give investment advice and I want to make that abundantly clear to everyone who’s watching. I don’t manage any money. I don’t do either of those. I have a broad range of stakeholders and clients that I deal with and whilst all of them have a foot in a financial economy, for example looking at the yield curve or exchange rates and hedging against volatility, all of them are real businesses, very much in the food and agriculture sector in particular. Growing food, packaging food, producing food, shipping food. So the physical economy that allows all of us to imbibe the calories that keep us alive every day but they all have to coexist with the financial economy to make sure as a going concern that they’re still there, day in, day out. You can’t be 20% wrong on the exchange rate or unhedged on the interest rate front and continue to just pump out the food that we all eat. So I have a foot in both camps, if you will. Always have done, always will do, and I’m not trying to tell people how to get rich. I’m trying to tell people how to avoid blowing up while they’re trying to do what I think are useful things that keep us all alive. So I come at the markets from a very different approach from people who are just trying to squeeze out an extra return every three months or outperform a benchmark every year. It’s not how I think as a result, and the daily view alluded to, I will continue to point out that when you have the trend we had just this week where you’ve seen another altcoin copy of a joke currency suddenly become worth 30 billion US dollars overnight and the whole thing is literally a joke of a joke of a joke, yes, some people are making a lot of money from that but it’s not going to feed a single person and to come back to why we need the connection between the two, if we have a political architecture which applauds this kind of institutionalized idiocy and puts it on the front page of Forbes magazine or bloomberg starts lionizing and the financial time starts interviewing these people, then what is effectively just printed money, printed wealth? Absolutely will be accepted in cloistered circles for a while and that will filter through to the real economy as any money creation does, but if you don’t have a physical economy that can keep pace with that you’ll just have hyperinflation or you’ll have asset inflation where that money stays and eventually the longer-run view of society and political economy tells you if that isn’t redistributed or at least fairly circulated amongst all the people who are actually out there in the fields sweating or in factories sweating or delivering the product of those particular fields and factories to people are at home clicking and making billions by clicking, society isn’t going to last very long. So there’s a disconnect which can only last so long before it breaks down very, very, very badly.

Adam Taggart: Alright and those are big statements and I really don’t want to gloss over them. First off, let me just clarify for folks when you were talking about the joke of a joke of a joke of the cryptocurrency I believe you’re referring to shiba inu —

Michael Every: Which I hadn’t even heard of it until this morning. I’m not going to pretend I’m there deep in this crypto space. Remember cdo and cdo squared and cdo cubed?

Adam Taggart: Yeah, deja vu all over again and I just want to let folks know shiba inu is sort of a parody coin of dogecoin which was a parody of bitcoin and so we’re at the like third derivative here of parodies, but to your general point and that’s maybe an extreme example but it shows the rule that you’re talking about where if we can kind of just create fresh wealth almost out of thin air by just all agreeing that all of a sudden that the shiba coins have real value isn’t that really a wealth transfer? Meaning that there there really is a finite amount of purchasing power in the world and as we create more of the units that divvy up or added together make up that purchasing power we’re just really just sort of shifting who who gets a claim on that purchasing power and so today cryptos and some of these crazy ones like the ones we’re just talking about, the purchasing power is shifting into them and it’s because for whatever reason enough people in that ecosystem are agreeing on that. On a larger level, this is inflation which you talked about where we’ve seen over the past year and a half, I only know the numbers really in the US, it’s been basically 10 trillion dollars of both monetary and fiscal stimulus again just in the US. Many other nations have followed suit so it’s some big multiple of that worldwide where we’ve greatly multiplied the currency units. The problem is when you make more of them they don’t get fairly distributed as you say. They really pile up in the pockets of those that have the greatest advantage just making them, on a relative basis, even more wealthy and maybe that game can go on for a while until as you say the people who are doing the sweat work of growing our food, preparing it, getting it to our tables, et cetera, making the bridges and highways and airways and seaports work, when they begin to fall below the poverty line at some point we’re going to have some potential really large social crisis you said sort of a breakdown of the system. So is that why the inflation that we’re seeing right now is such a concern for the folks that are paying attention?

Michael Every: I don’t think that is because they’re choosing to ignore everything that you and I have just said and just cash in. Of course anybody anybody in their quote unquote, “right mind,” would. I think they’re just more shocked to see inflation, full stop, because it’s taken them a long time to realize that there wasn’t any inflation in the system because they had broken the back of labor globally and now because of the breakdown in supply chains, which I think is something else we need to pivot to in a moment, effectively what you have with a broken global supply chain is the return of labor bargaining power. If you can’t import things freely from other countries because these supply chains are strained you can’t effectively arbitrage labor and say, “Well fine. We’ll just get it from Mexico and Mexican workers. We’ll get it from China and Chinese workers.” You don’t get it. You can only get what you can get locally and that gives labor all the bargaining power in the world again. So I don’t think central banks are worried about the inflation we’ve seen so far in terms of the supply side push because that is a one-off. They’re terrified at the idea that labor might suddenly have bargaining power back despite the fact they’ve spent months and months preaching about how important social justice and equity and diversity and equality is to them. As soon as they actually see any sign of that becoming entrenched in the economy, it’s time to raise rates and take away the punchbowl for ordinary people.

Adam Taggart: Okay, great. Well, let’s dig into that because the path I was going down, which you can tell me whether you think it’s a long-term concern or not, is sort of the arab spring where we did see about 10 years ago where inflation got out of control in the countries of North Africa and some places in the Middle East and when your average worker can’t put food in the table they’ve really got no other alternatives but to rise up and try to throw out who’s ever in power and that that’s what happened there. So if I hear you correctly what you’re saying is maybe that is a long-term potential of unchecked inflation but in the nearer term you feel like because of the the breakdowns that we’ve had in the real economy, meaning these supply chains that have really broken, we may actually have a little bit of the reverse for a period of time where local based labor is able to finally demand some wage inflation, which they haven’t been able to get for decades. I see you nodding as I’m saying this but let me hand the football back to you here but I guess how optimistic are you of the prospects of labor really being able to get meaningful wage inflation? And by meaningful I mean higher than the price inflation so they’re doing better on net given the current situation on the ground.

Michael Every: Very difficult. I mean the stars that are lined for labor more fortuitously than they have done for decades when you’ve even got yellow in the treasury talking about labor versus capital which is a marxist taxonomy if you will which I’ve been using my entire professional career and nobody else was up until recently, then clearly at least in terms of the rhetoric there’s been a shift in thinking but when it when push comes to shove, when you actually see either attempts at unionization or attempts at collective bargaining or workers saying we don’t just want a hefty pay rise we want a hefty pay rise above inflation and we want sustained pay rises to narrow the gap with unaffordable houses for example or increasingly expensive food or winter energy bills then you see the panic here and the proof in the pudding will be central bank after central bank, I don’t want to only talk about the Fed but I would imagine they’re probably the most important to viewers, deciding are we going to hike or not are we going to taper or not if you look at the action in the yield curve over the past few days you’re seeing a very aggressive curve flattening where you’re seeing more and more rate hikes in central bank after central bank being priced in with the market saying yeah they’re gonna squash labor once again absolutely they’re not gonna allow any second round inflation effects but the long run cost of that are lower bond yields, meaning we expect that to be a policy error. So if I can just continue for one more minute, it isn’t that I’m just saying you’re going to have these workers uprising and pitchforks and burning torches. I’m saying logically if you continue with a system where a cloistered elite continue to just create almost infinite wealth and don’t share that with anybody else and everyone else is feeling poorer and poorer in real terms, global history suggests you end up eventually with that particular problem. In the interim if you start to see workers say well we have the power to push for higher wages so we don’t need the pitchforks and the burning torches it looks like central banks will blow everything up. They’ll raise rates and say, “We’d rather put a gun to our own head than allow you to have any share of this,” but you could also be slightly more cynical and say well particularly in America which is a very, very creative culture, rather than people picking up a torch or a burning pitchfork why don’t they pick up their mobile phone and just spend all day trading dogecoin? Why don’t they just sit down with their friends and create crap coin or marxcoin or whatever you want? If you can’t beat them, join them. Show what a farcical, idiotic system it is. Everybody stop working tomorrow, go home, create your own coin, or just day trade. See how the rich like that when no one does anything other than doing what the rich do.

Adam Taggart: So you say that like it’s a hypothetical but when you look at what’s going on here we are seeing a lot of that and they’re having trouble getting people to go back to work. I mean a bit of that’s already happening, right?

Michael Every: Yeah well it’s logical. I mean why would anyone work in the way we’ve set up this system? Take a step back, look at it objectively. There are a few professions that are still very well paid in nominal and real terms. The data are unequivocal. For decades, more and more jobs simply don’t pay. On the other hand, you can make more money than God. Excuse me being sacrilegious for anyone religious watching. I’m English and we throw these phrases around much more easily. More money than creases, shall we say, just by swiping right, picking which one of a series of digital penguins with sunglasses is slightly funnier than the other, or getting together with someone techy, which you can do for a couple of hundred bucks and creating your own NFTs or coins or whatever and if you’re lucky, and so there’s a lottery element to it, you can make more money in a few weeks than you will do in 10 or 20 years of working. So you’re only going to get the really, really uneducated working, the people who don’t understand how to do this and gradually there’ll be fewer and fewer of them. The whole system cannot be sustained the way it is. That’s my long-run view. It’s just a question of how long until we get there.

Adam Taggart: Yeah, exactly. I mean it’s just not sustainable because there’s zero value creation going on there. It’s just the transfer purchasing powers we already talked about. It doesn’t bring one more bushel of wheat into existence, one more barrel of oil, none of that. Here are the things that could kind of foul up the playbook for those that are either on the consumer side just trying to day trade all day or on the central planner side trying to pull all the strings, puppeteer the world. Increasingly the central banks are really stuck so they have been throwing a ton of stimulus out into the world and inflation is beginning to bite as you began here and it’s beginning to become a real issue for a lot of people. Sadly the poorer first, the poorer nations, the poorer levels of western countries, but it is creeping its way up the wealth scale to the point now where it’s becoming, and if it continues will really become, a political issue for those that are running the system. People will start losing elections over this but at the same time rates are about as low as they’ve been in recorded history and the global economy even after that tsunami of liquidity that’s been pumped in over the past two years is slowing down markedly and it really I believe sort of started in Asia, at least Asia started slowing down before certainly the US and now looking at the US Q3 GDP estimates it’s really been decelerating. I guess first let’s just talk at a high level and then I want to get to specifically what’s going on in Asia. If the central banks are basically looking at both sides of the precipice that they’re seeing on the other side of the knife’s edge here and saying, “If I continue stimulating the inflation’s going to get me eventually but if I try to hike here I’m going to kill this economy which is already pretty stagnant at this point,” how does that resolve in your eye?

Michael Every: It doesn’t. I mean one of my long-run theses is that the post-1945 architecture is collapsing. We see that around us more and more evidently. Look what happened in Afghanistan recently for example and the post 1989 architecture is collapsing when you see more and more talk of the US China cold war even if you can’t call it cold war in America because too many US pension funds and multinational corporations are just too friendly with China to wonder how it called that so the white house has to come up with different names like competition. So the global architecture on which everything else is based, everything, whatever you’re investing in, it’s sitting on that substructure. It’s crumbling away and central banking as we understand it, inflation targeting, when in fact we all know that they’re looking at house prices or stocks. We all know that’s actually what they’re looking at is itself at a structural impasse. As I put in a note, I think it was on Tuesday, if they raise rates here they err, E-R-R, if they leave rates unchanged they err, E-R-R, and if they say, “Err,” they err because there is nothing they can do here and in fact, this leads to another broader thesis which does tie back to Asia in a second, I promise you, is that if you rewind back to the 70s just after the dollar had broken a link to gold and Bretton Woods had ended, after a period of high inflation and high energy prices in particular we saw that the paradigm that had lasted from 1945 till then had collapsed. The result was globalization and what in Europe at least we call neoliberalism, so reaganomics. Deregulate everything. Trucking, air traffic control, start there. Basically market forces, consumer is king, regulation out the window, and there’s still a big school of thought in America that supports this even though it’s utterly, utterly failed. Utterly failed on every single parameter you look at, it’s been a historic catastrophe. I’m fervently in that view. I’m not anti-capitalist. I’m anti-completely deregulated capitalism which ends up as basically institutionalized mafia which Adam Smith himself openly said would be the case. If you look at central banks today they’re in a similar impasse. You raise rates, disaster. You cut rates, disaster. You just waffle and do jazz hands, disaster. You need structural reform which is what we had under Reagan but ironically what you need is an anti-reaganite reform to re-regulate, to restructure, to onshore, to nearshore and to make supply chains resilient rather than these long-strained international supply chains back to Asia and here’s how it ties in to say, “Okay I’ve got three particular suppliers for every product and I have lots of stock in the inventory store so I no longer get caught short if everything’s interrupted for six months. When I export I export to six different companies or six different countries, not just one. I have a diversified, distributed, resilient, antifragile system in terms of how I run my company, how I run my portfolio, how I run my country,” which changes everything in central banks until they embrace that, which they won’t. They’re part of the problem, not part of the solution.

Adam Taggart: Alright very well put. So, a number of things. First off, everything that Michael just said is really, really consistent with the conversation that we had last week with Neil Howe, author of The Fourth Turning and a lot of the general themes that Neil told us to expect, Michael just gave us a bunch of actually very specific examples here so if you haven’t watched that video I’ll put up a link here to it. You can watch it there after this one if you’re curious and Michael, I totally agree with what you’re saying there in terms of what’s needed. The system will be more resilient. My sense is it will be more expensive because we’re paying for the redundancy but sort of like organic food is more expensive than conventional food but you’re getting more healthy food out of it and more longer term benefits. It’ll be somewhat similar. We have a very cheap supply chain right now. In other words, it delivers things very efficiently, cost effectively, when it works perfectly but when it doesn’t, like right now, it’s very expensive. The ripple effects, the delays that you were seeing certainly here in the states with the pile up at the western ports and whatnot, it’s showing the true cost of the current systems that we have and you’re saying those just aren’t going to be possible going forward. We’re going to need somebody to really demand more anti-fragility. So, if I can put words in your mouth, it sounds like what you expect going forward is disaster when you said look there’s disaster is the predictable outcome of all three options that the central banks can face. We’re going to be facing basically a time of turbulence, that might be a nicer way to say it, but in terms of the type of leadership that we’re going to need to kind of make the transformation to the new type of order that you’re talking about, what’s really interesting to me is I agree right now, at least as I see in the west, we just don’t have that leadership right now. They’re still tripling down on the status quo. They’re doing everything that’s in their power to try to keep the current system alive for yet one more day. What’s interesting to me is if you look at president Xi in China, it’s really funny. I mean he’s basically A, looking more like a better capitalist than many of these western nations and this is a big part of the discussion I want to have with you here, he really does seem to be saying, “Look this system is going to implode and I can either ride it to the end and then just take the collateral damage that happens or I can take pain today but a smaller degree of pain and begin to make the hard reforms so that we don’t fully go off the cliff and we end up going into this future better prepared than if we had not taken these proactive steps.” I see you nodding as I’m saying this so let me you go here but is China maybe kind of leading the way on the type of reforms that the rest of the world is going to have to emulate going forward?

Michael Every: Very much yes and no. So I have to say it both at the same time. I was nodding because this is an area that I’ve done a lot of thinking about for a very long time. Well before I started in this position and I’ve been quite public about in various publications recently and I’m going to be a little bit controversial here because again I know we mainly have American viewers of this show. You need to read some Karl Marx. You do. Now you don’t need to read the whole books or basically floor to ceiling you could read Marx for the rest of your life and it all contradicts itself in different places, but you should have a grasp of some of the key arguments that he raised because even though he was very wrong in his ultimate conclusions and he had no idea what communism would look like beyond just happening which is the ultimate kind of very loose forecast, “It would just happen and I don’t know what it will be,” Marx’s critique of capitalism in some key aspects prepares you better to understand how capitalism works than any contemporary neoclassical economic theory does. Using a modernized reduction of Marxist thought allowed me within my own professional career to predict the global financial crisis before it occurred in the US. Very few people saw that coming. Those that did were all heterodox economists rather than orthodox. I would like to just take 60 seconds if I can to try and explain why even though it’s a hugely complex issue.

Adam Taggart: Absolutely.

Michael Every: Okay. If you listen to anyone who’s a contemporary economist, they are a neoclassical economist. They must be unless they state otherwise. The fundamental logical precept of neoclassical economics is this: everyone in the way the economy is modeled starts with a commodity which they represent with the letter C. You sell it for money, M, and you use that money to buy another commodity, C. So it’s CMC. You start with something, you sell it, you buy something else. In other words, their simplified model of the economy is everyone is playing pass the parcel, just swapping from left hand to right with money just being used to enable the transaction to happen so you don’t have to haggle over the relative price of goods. Does that sound like an economy that exists around us today? Absolute gibberish. Marx, amongst many of the things he said, had two very profound and very, very obvious insights. The first one is he said in capitalism you start with money, which is M. You buy a commodity, which is C. You add value to that commodity via what he called the means of production which is a factory but of course you can do it with your brain nowadays. There are lots of ways to add value. You sell it but you turn it into C plus or C-, he called it. So it’s got more value than C. It’s a value-added commodity and you sell it for M-, which is a profit. Now, that’s so obvious you would think, “How is this not part of a neoclassical model?” but it isn’t. But if you follow the logic of what Marx says, if you’re selling something for more than you got it for, where’d the money come from? Is it a zero-sum game? My profit must be your loss? No. Is it that I export more so my country gets rich and your country gets poor? No. It can be but it’s not that. Clearly there’s new money coming into the system all the time. And where does that come from? Well, you can print it in which case you get inflation or it’s spent into existence by the government which is basically state borrowing, you have to pay it back at some point in the future, or banks create it and how banks allocate that extra money creation, whether it goes into productive investment to make sure that the stock of money is matched by the stock of goods, or whether it goes into leveraged buyouts to push up the price of an asset a pre-existing stock. That will tell you, over a long run cycle, when you’re going to have your crash. So Marx above and beyond anything to do with the labor theory of value and underpaying workers all of which he believed too, he fundamentally understood that if you have too much of the wrong kind of investment into what he called fictitious capital rather than productive capital, “Are you physically producing things?” You are just resetting the stopwatch every few years for another crisis. Guess what. No central bank understands this. No neoclassical economist understands it. Not one model can ever predict where crises or financial market crashes come from within capitalism. Only a Marxist can do that which is why [inaudible] can see the structural flaws within our system whereas our best and our brightest are out there trading dogecoin.

Adam Taggart: Fascinating. Thank you for going through that. I think probably some of the Austrian school folks would say, “We are familiar with malinvestment,” but I think your point is interesting which is China maybe has the ability to see the shortcomings of the system better than a lot of the current western nations because they’re so wedded to the status quo that’s been going on for so long and they’ve been the primary beneficiaries of it it’s almost like that Upton Sinclair. It’s hard to get a person to see the flaws of something that he’s paid to support. I’m mangling the saying there. Let’s talk about Evergrande. I mean they are to a greater extent than the western economies letting their institutions that got overextended pay for their errors. A huge surprise for a commanding control economy but they are regulating more. They really do seem to be trying to kind of clean up things more than the US or Europe right now. Again, you know more specifically about what’s going on there. Why don’t we talk about Evergrande for a moment and just use that as an example and feel free to pull anything else in. What is China doing today that you think is the most meaningful for how it’s going to enter this future that we’re coming and maybe I’m wrong, maybe I’m giving them too much credit but what are they doing right now to prepare for what’s coming? And how is that differing from the approach that the other western nations are taking right now?

Michael Every: Well first of all, China’s doing some thinking. That already differentiates it.

Adam Taggart: I guess that’s true.

Michael Every: The problem is, as I said just a minute ago, Marx completely understood the problems with capitalism. By the way, he was a big fan of capitalism’s dynamism. He never said it was an unproductive system. He said it’s a crazily unstable, volatile system, which sweeps all before it but then keeps peaking and crashing and peaking and crashing. That was his criticism of it fundamentally above and beyond, the fact that workers weren’t paid enough. Anyone from that particular ideological background understands this and can act but what model do they have as an alternative and again, Marx doesn’t have one. Lenin doesn’t have one. Stalin put one forward. [inaudible] ended up saying, “Let’s copy capitalism to try and catch up and then we’ll see.” We don’t know. So Evergrande is obviously emblematic of what’s happening in that you’ve got a company which is massively over leveraged probably with a lot of hands in the till that shouldn’t have been there building far too much high-end property for a housing market dominated by people buying multiple properties rather than their first property at 40 or 50 times income multiples.

Adam Taggart: Sorry to interject here but I’ve read that the Chinese real estate market is the single largest asset on the planet.

Michael Every: It is. Yeah. It is about 70 trillion depending on how you value it and most of it is hot air in terms of the quality of the asset, the relative pricing. Would anyone outside China pay that price for it given the opportunity to live anywhere else? So it’s a trap market. The fact that demographically there won’t be anyone to buy them in the future China’s demographics are such that on some estimates even within China itself, by mid-century half the population would have disappeared and by the end of the century up to maybe a billion people would have disappeared depending on the most extreme fertility scenarios you can place going forward. So there’ll be no one to rent them and no one to buy them and you don’t own the property, you have a lease on it for 70 years. So you’ve got a 70 year option on a piece of a box in the sky based on a piece of land still owned by the government for which you’re paying more than New York, Manhattan prices knowing that there’s no one to rent it to now and there won’t be any market to rent or sell to in the future so yeah dive in please absolutely it’s an absolute bargain. Now is the time to get in but this is driven an enormous swathe of the Chinese economy for a very, very long time and this is the issue they’re doing the right thing and addressing this and I think other countries should as well in terms of social stability in terms of preventing polarization which they openly say they don’t want to see. The kind of mess you’ve got in America now between blue and red, no country wants to see that and obviously property is a large aspect of that so unless everyone’s benefiting in lockstep, you’re just making society angrier by only having some benefit. So they’re doing the right thing on that front. I think you can argue that. Even if they’re going to lengths that look completely unpalatable in today’s billionaire friendly western world. The issue is what do you replace it with? Now, they’re talking about social housing and I do actually think, and I’ve said in print, that if they bail out Evergrande it will be as a husk and it will be socialized effectively or nationalized and they’ll end up using it to build social housing so all the luxury apartments being built now will actually end up housing poor people one way or another. The problem is that doesn’t really pay for itself in terms of the revenue that they normally generate selling the land to these developers so you end up with a fiscal shortfall and then like every good state planned system you’re spending more money than you get in tax and you start to get repressed inflation or monetization, etc, and it can get messy if they don’t run a large trade surplus, which they determine to run which America and Europe and Japan would not want to see them run in the future and which then makes the domestic issues in China become geopolitical because while they’ve got a trade surplus, that wall of dollars basically protects them to do whatever they want domestically to a certain degree. So I’m throwing a lot into the pot here but the simple fact of the matter is you shift away from the model they’ve had which is very much an asset bubble, very much western style by multiple properties and get rich, what do you have instead? And we only have a question mark. We have fragments of answers but in the interim we will have much lower growth. So anybody from wall street and I speak to quite a few and I get spent a lot of research from others all still selling you research suggesting that China and Chinese markets are the same as they were 20 years ago when they were on this kind of bubble capitalist 45 degree or exponential growth upswing. I have no real understanding of what’s going on I just don’t want to see it similar to the Upton Sinclair remark that you were sharing with me earlier where you get returns in China they’ll be much lower. There’ll be state caps on what the return can be and it will be in socially useful areas so effectively China would be like investing in a government bond. China inc would be low return, state-backed, safe. And by the way locked in because your money goes in and there’s capital controls. You can’t get it out. So yeah if you want to invest in that that’s fine but it’s a very different beast to the go go seven, eight, nine, ten percent growth kind of animal that many people are still looking at.

Adam Taggart: Right. Kind of the China miracle that we’ve seen over the past two decades plus. Those days may be over and that seems to be a recurrent theme of everything you’re saying here which is sort of the world as we’ve known it is ending. It can’t continue going forward and again, I’m putting words in your mouth here, but in terms of what’s going to replace all this we’re just left with question marks at this point in time. Nobody seems to have a good game plan and just to be clear, I don’t want to try to suggest that China is doing all the right things here and certainly they’ve gotten themselves into a world of trouble. They’ve got a lot of issues. One being this ridiculous property asset bubble that they let build over the years but at least they seem to be addressing it a little bit sooner than we. And now reason why I kind of dug into this was are we seeing a little bit of glimpse in the future of what’s going to need to come to other countries with she kind of grabbing the horse by the reins here and beginning to deal with a little bit of the pain up front here? Well look Michael this just go in so many different directions. I’ve got a ton of questions. I’m only going to be able to get through a fraction of them in the time we have left but real quick on Asia, because we do have a lot of western viewers here and one of the requests I get from Asian viewers and from western viewers is, “We’d love to get perspective on other parts of the world.” You’ve done a pretty good job here already but what else is going on in Asia right now that you think would be wise for a western audience to be paying attention to right now?

Michael Every: I think the key issue above and beyond this structural slowdown in China, which may be delayed next year because of local political dynamics but after that will definitely kick in, is how the rest of the region makes up its mind of what it’s going to do vis-a-vis the US versus China and local political dynamics for example what India’s role is, what Asean’s role is, what Japan’s role is, and you are seeing a careful, “two steps forward, one step back. I’m not in any rush, I’m taking my time, but I’m kind of building up my plans,” momentum to start disentangling supply chains, to start looking at alternative infrastructure networks. So instead of everything looking like a hub and spokes where effectively you have China and everything else little lines coming out of China going to the rest of Asia it’s the US, you actually have clusters like an Indian cluster here an Asean cluster here, a Japanese cluster there and this ties back to what you were just saying about the world — ending is a very dramatic word but changing definitely, a different paradigm emerging and depending on who is doing what with whom and how, that will tell you what your growth outlook is for different regions. So for example if you’re locked in to selling to China and it’s a slowing China, guess what. You’re going to be slowing. If you’re diversifying and looking at other sources or looking domestically, guess what. The prospects are probably going to be a bit brighter. If, for example, like India you can manage to make the stars align which India kind of does and doesn’t, it’s never never plain sailing there but you can see where they’re heading, you’ve got an alternative growth cluster for the next 20 or 30 years given their lower starting base. It won’t be like a 10% growth rate like China had but you can get 6, 6.5, 7 in a good year. So huge opportunities on a large scale in different areas but it will all be related to who is dealing with who and that’s going to be part of this reshuffling of the global supply chain order or a rearranging of the jigsaw if you will, which we’re just starting to see the process kick in.

Adam Taggart: Okay and again, I’m not a student of Asia but I think we’ve seen one example relatively recently with China stopping purchasing coal from Australia. Long-term partnership for natural resources for what I can tell. Seems to be a political reason China decided to stop buying coal from Australia and it kind of set off a bomb around the world. All of a sudden China was buying coal that other players like India were sourcing from and then all of a sudden India didn’t have enough coal and then Europe was running out of coal because of its energy issues and then China got in the big bidding war. So, as you say, there’s going to be this sort of colossal dust up as all the lines get redrawn and things take time to equilibrate but it sounds like what you’re saying is once they do and we see what those new relationships are in the new world order, it’ll be a lot clearer but I’m just curious as you mentioned India, it seems like you feel like their growth prospects are not bad on a relative basis going forward. Are there any other parts of the aipac region that you think either particularly positively or negatively about its general prospects for understanding that we’ll wait for your final call until you see how those new lines of geopolitical relationships get drawn?

Michael Every: Vietnam also very positive. I mean that’s not a new story. They’ve been doing well for a long time. They’re clearly able to benefit both from trade with China but with the west and they’re really emerging as a rapid growth export center to the US in particular. Maybe that will hit a wall at some point for the same reason that exports from China did, the US did, but the geo strategic bank drop suggests that the US can’t afford to lose Vietnam too. So I’m positive on that. And Indonesia, it never outperforms. It’s not a country that most US viewers would be excited about, but similar to India it chugs away there in the background, chugs away on a good year 4.5-5% growth rate. It can do a bit better with help if Japan leans in, if the US leaned in again from a geostrategic perspective saying and we’re going to do our best to try and put money into infrastructure which Australia is also talking about hoping to do. Even India is all linking in together. Yeah that can go up to a 6% growth rate hypothetically and suddenly you’re looking at economies of pretty decent scale and pretty decent growth so there is upside here in this downside. The only thing I want to make clear is that when I’m talking about the supply chain shifting it’s a difficult process because if there’s one thing China is also completely cognizant of above and beyond the flaws of capitalism, it never wants to repeat what happened to the US. They are fully cognizant how the US was de-industrialized and hollowed out and obviously they were the primary beneficiary. If you read working papers from the people’s bank of China which is what I’m basing this on, not just smoke and mirrors, they openly say, “We will never allow that to happen to us. It was a historic era of enormous proportions.” So they will resist this with every policy lever they have, meaning for markets there will be much more volatility in the interim period. For example, if you want to shift a supply chain from China to India, all the intermediate steps that you need to take, Chinese companies will not help you do that. So you’ll have to basically duplicate the entire supply chain somewhere else de novo before you can do it. You can’t do one component at a time. It’s got to be everything. So it’s a very lumpy process I’m describing of not a lot, not a lot, not a lot, bam but you have to be positioned for that correctly.

Adam Taggart: Yeah, that’s a very, very good reminder. So many questions I want to ask you about there, I just don’t have time. Let’s do a quick lightning round and then I want to end with your view on sort of general market outlooks, what you think the market may do as we enter this period of increased destabilization. So real quickly, the Koreas. I had Jim Rogers on not that long ago. He’s quite sanguine about Korea and thinks it might become kind of the potentially the main economic powerhouse of Asia going forward. He even thought that there might be an open Korea, not necessarily a unified one, but an opening. You don’t have to agree with him but what’s your thoughts on Korea?

Michael Every: Well, demographically it’s in a lot of trouble but it has a lot of strengths in other areas. They’ve got a huge level of consumer debt. They’ve got a lot of domestic problems to deal with alongside a lot of domestic strengths. The North Korea issue is always going to constrain how bullish you can be on them because they’re a relatively small country and they’ve got an enormously problematic neighbor. I mean you have to be pretty optimistic to believe that the two countries can be unified because even though in theory the North would have a lot to gain from doing that, particularly if Kim can be given a the keys to the Korean equivalent of Disneyland and basically said go have fun for the rest of your life, there’s no way China would stand for it, would never allow there to be a kind of unified pro-western career on its border. We have to understand the geopolitical realities of that so I question whether Korea can be that particular node or the center point but I do think it can be an important economy in the regions the same as it is now.

Adam Taggart: Sorry, just since we’re in lightning around here I’m gonna switch to Japan. Japan, just a basket case that’s getting even worse or is there a reason to have some optimism about that country?

Michael Every: Again, it depends what happens with this supply chain realignment. They’re now talking about trying to bring industry home. Demographically, again, the population is shrinking so growth will always be quite low but you are now seeing a shift away from abenomics which was all market focused to redistribution which is a dirty word in the US to actually make sure people have more money in their pocket which actually will boost domestic demand. So if they act on what they’re saying and they can work together hand-in-hand with Australia and with the US and with Asean, things could look up there but it will be a bumpy ride and it won’t necessarily be good for stocks in the short term but in the long term after the sell-off and a new base then it could be good.

Adam Taggart: Okay and when you say it could be good would that require some changing of their immigration policy? Are they going to need to bring in young blood to make that good future or can they do it with the current demographics they have?

Michael Every: Well, that’s a question for many countries. Do you have to have a growing population just to get the growing GDP growth or does it make a difference if you just have growing GDP per capita regardless of what the population size is doing? That’s a philosophical or a moral question for each country. I don’t think we should presume that one size fits all in every country has to grow its population because otherwise GDP doesn’t grow. It’s like well for a start, that can’t happen because some countries will lose population due to immigration. So whenever I hear people say, “Well, immigration is great. We gained 100 doctors,” it’s like what about the country that lost 100 doctors? I never hear anyone talking about that.

Adam Taggart: Okay, well put. Alright, last part of lightning round here in Asia, Taiwan. Definitely increasingly a political flashpoint between China and the US. Do you see us getting through this to some sort of detent that works for folks in this new world order that we enter into or do you think it’s an intransigent problem that is going to erupt in some way?

Michael Every: It’s more likely to be the latter than the former unfortunately because the rhetoric from both sides is to climb higher and higher up the tree at the moment. If you look at the power dynamic, both in terms of the military forces in the region and the economic impetus, time is on China’s side quite clearly. If things were to change in terms of the supply chain dynamic that I’m talking about that might start to shift. So therefore that gives you the possibility of certain people seeing it as okay we’re rising now but we know we’re going to level out and then come back down again so therefore you only have a narrow window. I hope this can all be resolved but far smarter people than me who are far more in the loop than I would ever claim to be are certainly concerned and it will require cool heads, pragmatism, and hopefully judicious policy mix to make sure that we can continue with the current status quo.

Adam Taggart: Okay three resources the world seems very scarce these days but hopefully we find them here in time. Alright, well as we get to the latter part here of the discussion, let’s get into your market outlooks. We hope you’ve been enjoying this discussion with global strategist Michael Every. The interview continues over in part two where Michael provides his views on the financial markets and what he thinks investors should prioritize today given tomorrow’s outlook. To watch part two just click on the link provided in the description of this video below or go to YouTube.com/wealthion but before you go please don’t forget to hit the like button and then click the subscribe button below, as well as that little bell icon right next to it if you haven’t already/ It only takes a second and it really does help us out, as the more subscribers this channel has the more excellent guests like Michael we can attract onto this program in the future and if you’d appreciate a free, no strings attached portfolio review by a financial advisor who can help manage your portfolio with the risks that Michael has talked about here just go to Wealthion.com and we’ll help set one up for you. Okay, I’ll see you over at part two of our video interview with Michael Every.

The Next Crisis Will Force A Re-Invention Of The Entire Economy | Rabobank’s Michael Every (PT2)

In this Part 2 of our interview with Rabobank Global Strategist Michael Every, Michael lays out what he thinks are the biggest structural changes that will be made to the global economy once the next crisis hits.

He then warns that now, before the next crisis arrives, is a time for investors to prioritize capital preservation. He favors cash, safe havens like US Treasurys and commodities — especially productive farmland.

If you haven’t yet watched

Part 1 of our interview with Michael, you can watch it here: https://youtu.be/-WyEPltVWMM

Transcript

Michael Every: You’ll probably see huge government spending supported by the Fed which will no longer be looking at the stock market but looking at the physical economy and we’re moving towards that. They can use central bank digital coins to try and accelerate that process in terms of where money flows to and to micromanage the economy which China’s already starting to do, but you do that with made in America caveats again, using maybe digital currency to understand who’s trading with who so it can’t just flow offshore. You do that behind tariff barriers. You do that alongside a spending plan where you subsidize companies to bring production home and raise wages and yeah maybe the quid pro quo of that is we don’t hang the billionaires. You get to keep what you’ve got. We’re not going to kill you but you have to make sure that everyone else now catches up.

Adam Taggart: Thanks for joining us for part two of our interview with global strategist Michael Every. If you haven’t yet watched part one of our discussion with Michael in which he predicts we’re headed into an era of great change and disruption as events will force real structural change on our leading institutions and geopolitical partnerships head over to our channel at YouTube.com/wealthion and watch it there first. It sets the context for the investment perspective that Michael and our partners at New Harbor Financial share in this video and don’t forget to support this channel by first liking this video and then clicking the red subscribe button below, as well as that little bell icon right next to it. If everyone watching right now takes these two simple steps it really does make a difference in helping this channel reach a lot more people. Okay, let’s get started watching part two of our interview with Michael Every. Alright well as we get to the latter part here of the discussion, let’s get into your market outlook. So much of what you talked about is lots of uncertainty ahead. I’m gonna put words in your mouth but I think lots of turmoil, right? We talked about the trap that the central banks are in. Really no matter what they decide they’re gonna lose. There’s gonna be negative repercussions and you’ve mentioned many times about the ridiculous levels that many asset prices have risen to and we didn’t get into this discussion but I’ve gotten into many prior ones with past experts on almost any sector of the financial markets you look at, they are trading at all-time high levels of valuation, not just prices but the valuation metrics and you look at that and you look at your predictions of what’s going to happen with the economy, what’s going to happen with blowing up geopolitical alliances and whatnot right now, it is hard to see anything other than as a soup of things that markets tend to not like so let me ask you, with your investing hat on and looking at the markets from here, what do you think is most likely to happen?

Michael Every: Okay, near term the big issue is policy error or not. Do central banks hike as curves are now pricing for or don’t they? And if they do, policy error, crash, deflation, as much as that’s possible with supply-side inflation and serious serious problems. If they don’t, more of this bitcoin idiocy for as long as it can last until eventually central banks feel they do have to do something but to be blunt what I find more interesting than that even though that in itself we’re already talking about huge upswings and downswings. What’s next? After the system has proven itself to have failed either through yet another 2008 style policy error or policy continuity but the physical economy experiencing 2008 because you just don’t have stuff relative to the supply of wealth for some individuals, what does the structure then look like and I think most of my thinking on those grounds what does political economy look like do we see monetization and modern monetary theory and central bank digital coins and helicopter drops into people’s accounts but you have to only spend it on made in America products. Do we see that behind tariff barriers? Do we see it behind some really genuine shift to make in America or making Europe and making Japan? Do we see geopolitical lashing out where people basically try and blame other people and reflate the economy through more traditional methods, shall we say, which we’ve tried on and off over the past couple of hundred years? Or do we just see complete chaos because no one’s in charge and no one’s actually able to understand what to do? Each block or each country is going to be in a different position. Europe’s ability to do things will be different to Americans, will be different to Japan’s, will be different to the UK, will be different to China, but I really and have done for about five or six years focused purely or mostly on understanding after this, what then? Because you can hedge the policy error that’s coming up. You can’t hedge what’s following.

Adam Taggart: Alright so our next hour-long interview is going into that part, so little unfair of me to ask this, but I’m going to say most of our viewers here are US viewers and if you’re from a different region of the world folks, sorry. We’ll get to that in that next hour interview with Michael but in terms of what you think is more likely to happen and I’m not going to hold you to this as an iron-clad prediction but looking at the US we have the crunch, the breakage of the system. Given that long list of possibilities that you just mentioned, which do you think are more likely?

Michael Every: The one that’s most likely to me is going to be a combination of the populist elements of Joe Biden’s policies and the populist elements of Trump’s policies. So it’s going to be a much more America-focused, America-centric make America great again but working class and hopefully ticking all the right boxes in terms of keeping everyone happy demographically focus which will be enormously disruptive to global markets that rely on the international flow of dollars and the US dollar is the freely available currency to trade everything off the back of and in terms of presumption the US will be the world’s largest importer forever and indeed the overall structure of this ridiculous system we have today where after we finish speaking I’ll go and check what other newly created assets suddenly become worth billions of dollars, all that will go up in smoke I think. That’s my logical guess based on history.

Adam Taggart: Okay. Great and let me just see if I can restate that a little bit. You tell me from restating it incorrectly. Right now we have kind of an, “anything goes,” environment here in the states and that’s allowing the people at the top to concentrate their advantage to get ahead even further. That’s why we have a quarter trillionaire right now in Elon Musk, the world’s first quarter trillionaire. It sounds like what you’re saying is it will be a bit of a return to more of a focus on the working class, which I’ve got to say after the middle class just getting completely eviscerated over the past couple decades that might not be the worst thing in the world. It might be limiting some of the upward mobility of the top echelon of folks in America. We’re already beginning to see wealth taxes proposed on billionaires and now shifting down to millionaires and ideas of Janet Yellen talking about unrealized capital gains tax which is a little crazy but it does seem a little redistributive like, “Hey we’re not going to let you guys walk away with all of the pie and we’re going to sort of forcibly try to keep enough of it on the lower classes so that it’s quote unquote, ‘fair,” and maybe that’s political speak for quote-unquote, “They’re not going to pull out the guillotine,” and hang US politicians or kill US politicians. I see you sort of nodding as I’m saying this so I’m not too far off base?

Michael Every: No, you’re absolutely right. I mean to put it in more kind of traditional macroeconomic terms, you’ll probably see huge government spending supported by the Fed which will no longer be looking at the stock market but looking at the physical economy and we’re moving towards that. They can use central bank digital coins to try and accelerate that process in terms of where money flows to and to micromanage the economy which China’s already starting to do but you do that with made in America caveats, again, using maybe digital currency to understand who’s trading with who so it can’t just flow offshore. You do that behind tariff barriers, you do that alongside a spending plan where you subsidize companies to bring production home and raise wages and yeah maybe the quid pro quo of that is we don’t hang the billionaires. We’re not going to kill you but you have to make sure that everyone else now catches up.

Adam Taggart: Yeah and is it fair to perhaps assume that along with all that spending will also come a stronger tax regime?

Michael Every: Well, I would think so because people will have to contribute. I mean corporations would have to. Ironically if you’re basically electronically creating money you don’t have to tax in the same way but it’s all about power. You have to make sure they don’t have the money to bribe the next set of politicians to reverse the policy. That’s what it really comes down to. Kill the lobbyists and you entrench the system that you want.

Adam Taggart: I just want to underscore as well that that type of vision does jive a lot with what Neil Howe was telling us is just what you sort of expect from a fourth turning. You expect to see much more centralized control and frankly, you expect to see a demand for more centralized control from the populace. So you’ve got the folks running the system wanting to take more control over it and you have the folks that they’re ruling over saying, “Yeah, we want strong leaders here at this point.” Alright so perhaps unfair of me to ask you this in the last couple of minutes here, Michael. I know you do not give financial advice, you do not manage money, but as you look and let’s say with a shorter term lens sort of towards the kind of break breakdown that you were talking about. Do you have any advice for the concerned investor who’s just trying to prudently protect their wealth maybe prudently grow it through these times ahead? Any general advice for them or are there any asset classes that you particularly think are prudent to consider owning or ones that you wouldn’t touch with a 10 foot pole?

Michael Every: Okay, let me start with the 10 foot pole because that’s where I begin more naturally. I would be very careful in terms of geographical placement and that’s got to be a product of how you actually think in terms of geopolitics. Now, people can disagree with me entirely. I’m not claiming, “I’ve got a crystal ball, I can see the future,” but think about how you think the world will look and don’t presume it’s like a flat Earth where all countries are equal. Don’t look at a chart and say, “Well that country’s equities have really underperformed for the past year, therefore they must be cheap.” There may be a reason why they’re cheap. Just because something looks different on the line, do a bit of digging into the geography and the politics and understand why that might be the case because sometimes they just diverge and they don’t come back up again. So that’s one. At the other end, you probably gotta dive in. Let me be blunt. I’m not talking my own book but I’m increasingly tempted in my own money to put 1% of my assets into complete digital crap because if there’s a digital crap ETF, 1% of your money, if that’s spread across a thousand different complete jokes, who knows? One of them might be the next Elon Musk, at which point suddenly I can afford to retire tomorrow and I’ll do these calls for pleasure rather than for any kind of financial remuneration.

Adam Taggart: That’s sort of your short term. “If you can’t beat them, join them.”

Michael Every: Yeah. Exactly, but a very, very small slice just logically but given the returns that you can get but in between that I really think, as I said to you last time we spoke on a different platform, preservation of capital I think at the moment in this kind of volatile environment is far more important than trying to think, “I can pick up an extra percentage point here or an extra couple of basis points there,” when you see how volatile things can get.

Adam Taggart: So let’s dig into that because one thing you could do is just move to cash and cash is vulnerable to inflation and so that’s one potential risk. It also raises the questions: Do you just put it all in cash in your home currency? Do you distribute amongst other currencies? When you think about capital preservation, do you think about it as just being in cash or do you think about it as sort of some of the tried and true traditional safe havens like maybe some treasuries, maybe some commodities like a precious metal or something else?

Michael Every: Food producing land.

Adam Taggart: Food producing land. Okay.

Michael Every: Land in itself, okay. But if it doesn’t actually have any water and can’t produce food, it’s a fraction of the value of land that if needs be you could grow food on for yourself or a scale. I’m not saying this because I’m a tin foil hat duct tape and shotgun kind of guy and those who know me know that I’m completely the opposite but genuinely that’s an area that’s likely to see outside returns. Whatever kind of paradigm you have going forward, even if it’s just for climactic reasons that there will be an upside to anything that can reduce food and it’s pretty simple.

Adam Taggart: Yeah, and don’t worry Michael, in my previous life here that many of these viewers of this video know me from, it’s really about resilience. It’s not about building a bunker and hiding from the world. It’s just like you were talking about with the supply chains. It’s just living with greater resilience and obviously you can go buy your own acreage and build it into a food production system on your own if you want to. A lot of people don’t have the youth, the vigor, the interest, the time to do that. I did get into many different ways in which you can invest in productive farmland in this video right here with Craig Wisner, managing director of farmland LP. So if you are interested in learning more about what solutions about like what Michael was just talking about there with investing in land that’s a good video to watch. Alright Michael, well look, as we wrap up here thank you so much for your time. It’s always such a great fascinating interview with you. We need to schedule two hours for our next interview but for folks that have really enjoyed this discussion and want to learn more about you and follow your work, where can they go?

Michael Every: Well I’m afraid my direct work is for clients only, but I do appear quite frequently on Zero Hedge usually with a 24 hour delay after I’ve written a piece but for those who can afford to wait that long, which hopefully is most people, if you google my name, Michael Every RaboBank there will normally be quite a lot that comes up.

Adam Taggart: Alright great I’ll put up the Zero Hedge URL here so folks that are interested can go there, type in Michael Every, and I think they pick up your daily almost every day, Michael. So they’ll find a lot there. I cannot thank you enough again, Michael. Really appreciate it. Really appreciate you taking the time on a busy morning, your time there in Singapore. Thank you so much and look forward to having you on the program again.

Michael Every: Thank you, me too. Thank you for the opportunity.

Adam Taggart: Okay, now is the point in the interview where we switch and talk to the lead partners at New Harbor Financial, the financial advisory firm officially endorsed by Wealthion. We’re going to react to what Michael said but also talk about what the market has done since last week’s video. John Lodra, Mike Preston, great to see you guys again.

Mike Preston: Hello Adam, nice to see you.

John Lodra: Good to be back with you again, Adam. Thanks so much.

Adam Taggart: Alright well look, another great mind, Michael Every. Just such a big thinker. Really, really helpful to get his perspective kind of looking at the macro situation being situated outside the US both in terms of some of the things he told us about the Asia market that maybe we don’t think about on a day-to-day basis being based here in the US, but also interestingly a lot of the similarities in terms of the conclusions that he’s drawing that a number of our recent guest experts have as well and guys let’s start with his commentary about how no matter what the central banks of the world do next it really is a losing proposition for them. He talked about how if they tighten, they lose. If they continue stimulating, they lose. If they just play for time and delay, they lose. He also talked about kind of the inevitability of needing to redraw the supply chains around the world and that that’s going to create a lot of disruption, at least in the near term, as those new sort of both supply lines and geopolitical alliances get redrawn that’s probably a process I’m going to guess is going to be measured in years, maybe even decades, but everything I took from what he said was to say we are staring at an era of disruption coming ahead and I think he used the word disaster. I’ll be a little nicer and say disruption, but of course that led him to saying, “I think from an investing standpoint, capital preservation is the top priority right now,” but Mike, let’s start with you. What else did you take away from Michael’s words there?

Mike Preston: Yeah let me answer first the question about the Fed is trapped. There’s a lot of different ways to say it but the Fed is trapped almost certainly. They have printed money like crazy the last 10 to 15 years. They taught the rest of the world’s central banks how to do it and exported that around the world and so we have all the major economies printing money like mad. A total of 27 trillion dollars I think since the financial crisis. It was like 16 trillion just a few years ago in 2016 and 2017. We’re up to 20-27 trillion and that’s just in assets that have been added to central bank balance sheets or money that’s been printed which has been further magnified through fractional reserve lending. It’s caused worldwide debt to go from something like 10 trillion to almost 300 trillion now, worldwide debt, and all of that is only serviceable with rates near zero. Rates go up, the whole thing is over. So everything, that entire system, relies on this plan A because there is no plan B and that’s why we think it’s kind of a crime what central banks have done. They’re certainly smart enough to know what they’re doing, we just wish they would have been more honest about it because we don’t really think that there’s a plan B. This has to work or else. The whole system needs it and we weren’t asked to vote on that or weren’t asked our opinion on it and I think that’s a real problem so we think they’re trapped, we think there’s a moment of reversion to the mean coming. I know it sounds somewhat repetitive to say similar things every week but the single most overvalued market by ways that we measure it in US history, even the shiller price earnings ratio even unadjusted is up right around 40 right now. If you adjust it for other things like profit margins it’s above 50. If you look at stock market cap the GDP the buffett indicator it’s at all time highs well over 200%. So that’s my response to, “Is the Fed backed into a corner?” Yes, absolutely and I’ll just say one or two quick things about your other talk about times of disruption and opportunity. We are almost certainly in a fourth turn and a lot of your viewers will know what that means, but it’s it’s time of maximum effort, maximum change, maximum risk, and almost certainly there’s going to be opportunities to come out of that. There’s going to be risk and danger going through that and we think the investment opportunities we’re going to probably come about elsewhere in the world, emerging Asia, maybe even Latin America emerging markets in general. That’s not to say that they’re going to be a straight line higher from here but the era of investing in the USA because it’s the cleanest dirty shirt is probably ending and there’s going to be opportunities elsewhere.

Adam Taggart: Alright yeah and Michael mentioned a little bit of that where he talked about how right now sort of China’s the 800 pound gorilla in Asia from a trading partner standpoint but that he thinks that supply lines and trading partnerships are going to get redrawn here and you’re going to have sort of these multiple centers of excellence there that he talked about and to your point, Mike, there should be some very interesting investment opportunities in those economies, those nations that are participating in those. So again, it’s not all doom and gloom. You mentioned the fourth turning and I’ll just repeat what Neil Howe said. He said it’s going to be different the way that things are going to be structured coming out of this fourth turning but that doesn’t necessarily mean worse and yes, it’s going to be a painful ride going through all that uncertainty and that disruption but it doesn’t mean that we’re heading into an armageddon period, it just means we’re heading into a new period that’s going to have a whole brand new set of opportunities there. So that’s that’s a big part of what we’re trying to do here with these videos is see what’s coming and yeah, while we may have a period where we’re going to need to batten down the hatches, we will be battening down those hatches so that we can make it through the storm and then have the potential to invest in lots of the upside that’ll hopefully come afterwards. John, let me hand it to you. Anything else to add to what Michael said?

John Lodra: Not too much. I guess the geography point that he raised about kind of geographical selection is likely to be all that much more important, we agree with that. Last number of years it’s been all about the US markets, more or less. Most global markets and emerging markets have trailed and the silver lining of that I would say is that the valuations of those kinds of geographies, especially emerging markets, are that much more attractive on a relative basis than the US market. So not to suggest that in a kind of a material sell-off in US markets that overseas and emerging markets would be immune from any kind of pullback, that’s not at all what I’m saying but aligned with those economic shifts geographically we think that the selection of investments are going to be really important. We have long favored emerging markets for these last several years relative to US stocks from a longer-term valuation standpoint we continue that. It helps that many of these countries are resource-based economies which an inflationary environment should help support those countries but just anecdotally, supply chains are on everybody’s mind. I tried to get some new brake pads for my bicycle a couple weeks ago. I got the last one in the shop and to order more the back log is out until like February, March of next year. It’s pretty crazy. But I was talking to an executive of a cosmetic manufacturing company and one of the big bottlenecks in their business has been packaging, containers and things like that and they’ve talked about an attempt to re-onshore some of that packaging that would oftentimes be outsourced or sourced from China and other overseas markets. There’s going to be big economic shifts that I think will have overtures into investment allocations.

Adam Taggart: Yeah, well let’s dig into that just for a second here because a key takeaway from the conversation with Michael is we talked at the beginning of the interview about the ridiculous dissociation right now between the financial economy and the real economy and I want to give sort of two juxtapositions. Michael and I were kind of ranting about the appreciation in shiba inu which is the knockoff coin of dogecoin which is a knockoff coin of bitcoin. I’m going to put up the headline here from an article today that appeared on Zero Hedge. It basically showed that there was an investor here who put 8k into shiba inu last year and it’s now worth five billion dollars and when you can have that kind of just mind-boggling wealth basically just cogitated out of thin air, it shows you where we are in the story where we’re literally living in a fantasy land when it comes to the pricing of financial assets these days. Now, you contrast that to the real economy where the prices of essentials are going up because we literally can’t get our hands on them right now. I mean the supply chains are breaking down and so most of the conversation that I had with Michael really was about kind of the the real economy and how it’s going to have to be redrawn and made more antifragile and all that stuff and I think back to a conversation interview I did earlier in the year with steen jacobson from saxo bank who was very big on the real economy for a number of reasons but basically because so much of our infrastructure worldwide, but especially here in the states, this agent needs to be replaced and that’s true of many countries right now so there’s increasing global competition for the resources just to rebuild our bridges and highways and ports and things like that not even forgetting about one new electrifier transportation grid and stuff like that. Also made the really interesting observation that before supply chains really broke down was that the digital economy was getting so good at selling products, Amazon and whatnot, people clicking the buy button to get a product, but it was finding itself constrained by the number of delivery trucks, delivery drivers, distribution centers, etc, where these real world physical constraints are becoming the bottleneck on the digital economy going forward so where I’m going with all this is it really does shine a bright light that investing in real things, commodities, the companies that mine them, and the companies that then transform those raw commodities into value-added products, there’s really big investment opportunity there. So John, let me let you just react to that and then Mike, I’m going to ask you about what the markets have done over the past week.

John Lodra: Yep, real things. The inflation we’re seeing there we don’t think is a mistake. There’s the disjointed supply chains but yeah, I mean anytime you kind of make an imbalance of supply and demand and certainly there’s lots of stimulus sloshing around out there still that is stressed from a demand standpoint, the supply chains, but many times people think of tangible assets and they think of real estate. Real estate can be a great place. Michael I think nicely talks about land with productive food growing capabilities as being a good place. We totally agree with that and certainly land but with that income and inflation hedging capability, not to mention to be able to feed human beings, is a really important place to be. I will caution however that many forms of real estate are in their own bubble-like states. Making the news this week is that the median home price in this country surpassed four hundred thousand dollars for the first time ever and I think the year over year increase so far is a record or certainly a record in any recent year so we we’ve seen massive appreciation just in the last quarter I think it was up like 13% nationally. So we’ve had this massive ramp up in home prices which obviously is kind of important to humans to be able to find shelter and this this of course ties back into the notion that the federal reserve is entrapped because to let these kinds of things run further amok just means squeezing everyday people eat more and more yet the antidote to that is to raise interest rates and withdraw some of the stimulus and when you have a economy everything from households to corporations to governments as indebted as they are right now, the system almost can’t withstand that, so there’s no good choices here.

Adam Taggart: Yeah, no good choices and it’s on so many different dimensions. Just hearing you talk there, John, was thinking that the Fed, on one hand it’s damned because if it were to raise rates it would greater asset prices crash the system make everybody angry but particularly make sort of the oligarch class that the Fed sort of responds to incredibly angry at the Fed, so all that political pressure, but of course if it continues to let inflation run hot you get to the point where you have a critical mass of just the public, the masses themselves, getting to a point where they can’t take it anymore and start rising up. So it’s almost like what’s worse for those guys, the punishing power of the oligarchs, the punishing power of the public masses? I don’t know but it just seems like, again, no matter which road this goes down there’s gonna be a reckoning for them and sadly we’re all gonna be the collateral damage of that. Alright Mike, let me move over to you. Let’s talk about what the markets have done since last week. Let’s talk about the major indices in general and then we can talk about a couple specific asset classes like gold, crypto, and a few others.

Mike Preston: Yeah it’s just a story of all time highs, really. Just about everywhere continually. The S&P sitting here right around 2600. It had a 4% or so pull back and just in a matter of days over the last week or a little more than a week it went right back to its all-time high and the trend has been relentless to say the least. The tech stocks, the fang stocks have been a big part of that. There’s a lot of days where breadth is negative, there’s actually more decliners than advancers and yet the indices are up quite a bit and it’s just the strong stocks, Microsoft, Google. Apple and Amazon both report tonight but by and large the reports have been greeted very very favorably and these stocks have been breaking out and of course is the poster child stocks like Tesla, which added another 150-160 billion dollars the other day on news from a rental car company and these stocks are just moving gargantuan amounts based on the fundamental news related to them and you were talking about that crypto earlier, how an eight thousand dollar investment is now worth five billion. Nothing really seems to mean anything anymore at the moment that we are in a mania, we’re convinced of it, but certainly it feels interminable like it’s never going to end. We feel very strongly that it will. So the S&P is there. You’re at all-time highs. The breath and the internals are not good, yet the market is there based on the strength of a few stocks. Volatility is that multi-month lows. The volatility index is down at 15 or 16, hasn’t been there in many months. That’s at that year lows. Lastly, I think we should probably talk about gold and silver. I mean if you look at the charts of gold and silver, gold particularly to me right now Is one of the few things, as frustrating as it is, that has not gone vertical and gold is in this long sideways triangle shape consolidation going back to August of 2020. Going on almost a year and a half a big consolidation it looks to us like it wants to break out to the upside. There’s been two tries to break out to the downside in recent months, looks like it wants to break to the upside. 1800 right now on gold, would project to around 2500 if it broke out to the upside out of that triangle just on basic projection from technical analysis. Obviously that’s not a guarantee but there’s nothing really to buy here today that has any same value attached to it other than maybe some gold, silver, some select foreign markets or emerging markets, base metals, commodity type place. So heavy cash and exposed to those areas is what we think continues to make sense. So we’ll watch and wait.

Adam Taggart: Alright, well said. Just to build on that a tiny bit I guess I do want to give props to David Hunter who we’ve had on this program and he’s had the most courageous, some would say outrageous, predictions over the course of the year, but many of them have been coming true and David has has very publicly said he expects this latest secular bull market to end end of this year, beginning of next year and to end with a epic blow off top, just an epic mania, and I think to your points there Mike is could very well what we’re seeing here right now and I think back to the famous Mckay book on the madness of crowds where men go mad in herds and that’s what you see at the end of every bubble market where everybody rushes in, everybody throws caution to the wind and that’s when you get a tulip bulb that sells for more than the most expensive building in Amsterdam or you get a shiba inu coin, that investment that goes to five billion dollars or whatever, but we do seem to be seeing Hunter’s prediction playing out here. You mentioned the S&P at an all-time high and you mentioned Vix at series low. I just want to put up this chart really briefly I put in my recent video on stagflation. It’s a chart that was put up by Sven Henrich that shows that the Vix to S&P ratio has never been lower and that again, just shows an all-time high in market complacency, which is exactly the kind of extreme you would see before you have some sort of violent correction in the market so again, not saying that that indeed is going to happen next but we’re seeing all the hallmarks of the potential for that happening and then last, I just want to mention, Mike, you talked about the precious metals being still one of the attractively valued sectors out there. Just released a video yesterday from Jeff Clark. It’s an hour presentation going through his top picks for the precious metals mining stocks that he thinks would perform the best. He’s talking like 10-bagger, 20-bagger returns. Should we indeed have a catch-up phase here in the precious metals where their appreciation catches up to the type of appreciation that we’ve seen in other commodities this year? So folks, if you haven’t seen that go to Wealthion.com/clark and you can watch it there for free. Alright John, I’ll let you have the last word here as we wrap things up for this week. Any parting words of advice for today’s viewers?

John Lodra: Just to not lose sight of where we likely are in a cycle. I’ll reference back like you just did, Adam, to the video that David Hunter did with you a few weeks back. Our message there was, and I think his as well, is his his call for a near-term melt-up wasn’t a call to say, “Hey, everybody should be plowing their money in the stock market,” because he did call for up to an 80% meltdown after that and our point in that was just to understand what that kind of move likely represent and what it likely will do to one’s psychology and to be in control and aware of that, to not get sucked in, because the likelihood of getting sucked in and getting out successfully is very low, but instead to use that as almost fortification to say, “Hey, I know what this is all about. It’s craziness and I’m going to be strong and I’m not going to let myself get sucked into the craziness because I know that very high likelihood there’ll be much better times, much safer times ahead to be investing like a true investor and not a panicked fomo anguished investor that these markets are making everybody want to be,” and it’s not to point the finger in anybody these are very difficult emotions to wrestle with that’s why so many people get sucked in.

Adam Taggart: Yep, and that’s why we are so emphatic in recommending that people work with a professional financial advisor when it comes to managing their financial portfolios given the current era to work with a professional who can take the emotion out of your decision-making process and if you’re a new viewer here you heard Michael say focus on capital preservation going forward. You’ve heard what Mike and John here have had to say. If you have a good financial advisor to be your guide through the type of future that’s coming, great. Stick with them. But if not, Mike and John and their team at New Harbor offer free portfolio consultations where they’ll sit down with you, they’ll look at your current allocation, they’ll look at your goals, they’ll look at what they think the future holds, and they’ll just tell you what they think you should do and you can do whatever you want with that. You can implement it yourself, you can implement it with your existing advisor, or if you decide you might want to work with these guys there’s the opportunity to do that but there is no commitment to do that for having these free consultations. If you’d be interested in having one stick around at the end of the video, we tell you how to schedule one. It only takes you a couple of seconds to do so. Alright, if you want to see continued great interviews like this with folks like Michael Every and the other great guest experts we’ve had on this channel, please help support this channel by hitting the like button first and then clicking the subscribe button below, as well as that little bell icon right next to it and if you’d like to see which guest experts we have coming on this program in the near future or even better suggest ones that you’d like to see just follow me online at @MenloBear. I do look at every suggestion that people make there. Alright John and Mike, well another great week and whatever the markets do from here we’ll be tracking it together on this program. I’ll see you guys next week. Everybody else, thanks for watching.

Mike Preston: We’ll see you soon.

John Lodra: We’ll see you next week.

Adam Taggart: If you’d like to schedule a consultation with one of the financial advisors at New Harbor Financial simply go to Wealthion.com. These consultations are completely free and there are no strings attached. The good folks at New Harbor will simply answer any questions you have about your investment goals or your portfolio and give you their best advice given their latest market outlook. They’re willing to do this because they care about protecting people’s wealth and because Wealthion has connected them with so many thoughtful investors just like you over the past decade. We started doing this because so many people have approached us in frustration looking for a solution because they’re feeling out of alignment or downright ridiculed by the standard financial advisors who have been managing their money. You know the type. The kind that just pushes all of your money into the market, scoffs at the idea of owning gold, and when you bring up concerns about the market’s sky-high valuations they say, “Don’t worry. The market will always take care of you.” For many of the reasons discussed in today’s video we think this is one of the most challenging and treacherous times in history for investing. We strongly believe that today’s investors are best served working in partnership with a conscientious professional financial advisor who understands the risks in play. Now, we’re agnostic which professional advisor you work with as long as they’re good. If you’re already working with one, that’s fantastic. Stick with them. But if you don’t or are having trouble finding one you respect or trust then consider talking to John and Mike and the team at New Harbor. Now, for those about to ask, yes. There’s a business relationship between Wealthion and New Harbor which we’ve put in place to make sure everything is handled according to SEC regulations. All the details on this are clearly provided on the Wealthion.com website. Also, it’s important to note that New Harbor is able to work with US citizens, green card holders, and those with existing assets in the USA but for regulatory reasons they aren’t able to take on non-US clients. Alright, with all that said if you’d like some insight and guidance on how to protect your wealth during this unprecedented time in the markets go to Wealthion.com to schedule your free consultation with the good folks at New Harbor. Thanks for watching.