이 에피소드에 관해
David McAlvany joins Coach Pete for a May 2013 conversation about the global financial picture. They discuss market behavior, emotional reactions, and the role of precious metals in the economic debate at that time.
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Transcript
Automatically transcribed from this episode; timestamps are approximate.
00:00 And today we go out to Durango, Colorado, and visit with David McElveney about the global financial picture and just what's going on in the world in general. Of course, David is CEO of his own company since 1972, International Collectors Associates, ICA Europe, and McAlveney Wealth Management. And you're also director of Swiss corporation Global Gold. David, welcome in. Good to be with you, Pete. Now, let's talk about this just in general. The market's been going bananas lately, and we've seen this. This is a story we've seen before. You know, the other day I bought a book on tape through a service. You can get books on tape on your iPad and iPhone, and I was starting to listen to it.
00:46 And I realized it was the third book in a series that I just recently started liking to listen to, Action Adventure Series. And it's been out for like five years, but I just found the author. And I was about three minutes into it, David, and I realized I'd already listened to the book in the past. But, you know, so I've heard this story before in the market, too. Every day we watch the fear and the greed battle each other, and it's just amazing these days that people haven't learned from past mistakes, isn't it? Yeah, Pete, couldn't have said it better. I mean, when you look at Action Adventure, I think one of the things that keeps us going in terms of those kinds of stories is behind the scenes there's some sort of peril. And I think that's most underappreciated in these markets today, that there is a tremendous amount of peril. And, in fact, it's the growth in the equity markets that's been primarily fueled by Ben Bernanke's QE3 and QE4ever.
01:37 You have the $40 billion a month in mortgage-backed securities purchases, which started September 13th. That was followed on December 12th by a $45 billion promise to buy Treasury paper that's $45 billion a month. And, you know, these things, you think, well, what does that have to do with stocks or the price of a bowl of rice in China? It has everything to do with all of the above. Essentially, what you have is an equity market, which is floating higher on the basis of cheap capital, rates that have been set at zero, and a lot of loose money policies. And you've got a real estate market that is 100% subsidized by the Fed. But without that $40 billion in mortgage-backed securities paper being purchased each month, there is no money flowing through to Fannie Mae and Freddie Mac, and there are no mortgages being written. So that's the nature of it.
02:24 We don't have a private market in the mortgage market hardly at all anymore. Fannie Mae and Freddie Mac representing close to 97% of that market. And that, again, being backstopped by the Fed and this direct monetization of mortgage-backed securities. So when you look at things, just in the last few days, we've had this massive improvement, a Kay Schiller home price index up 10.9%, and it appears that all is back to normal. At the same time, we've got companies doing well and earnings continuing to improve. But I think it's very worth noting is Barry Knapp, who's the chief U.S. stock strategist at Barclays Capital. He just pointed this out a few days ago. So 40% of the increase in earnings per share for the S&P 500 companies in the last 12 months have come from reducing the number of shares out there.
03:13 In other words, you've had companies taking their massive stockpile of cash and buying their shares back, which implicitly improves their earnings per share because you're dividing the earnings by a smaller number of shares, and it appears that the company is growing. The problem is we're not talking about organic growth. We're not talking about organic growth, and we're not talking about real economic activity that is driving the S&P and Dow higher. We're talking about funny money, antics from the Fed, and jawboning, which has gotten us this far. So again, we come back to your notion, Pete, of action, adventure, and really what keeps us on the edge of our seats when we're reading a book like that or watching a movie or what have you. It's peril. It's the potential of loss that keeps us intrigued and on the edge of our seats. Only I don't see very many investors today on the edge of their seats.
04:00 I see them ignoring every possible peril and assuming that we have only blue skies ahead. Yeah, and it's tampering with the supply and demand curve that the companies are doing there as far as minimizing the number of shares. That's amazing that they're getting away with that, and, well, I guess the investors are falling for it. Well, the other thing that investors are not realizing is that we're looking at near-record insider selling at the same time. So we have just the classic Patsy move where the general public feels like we can't miss this next late hire, and they get the support from the news media saying, okay, well, we're nearly 16,000 on the Dow. We can now set our targets on 20,000 or higher. I mean, I've seen some arguments for Dow's 60,000. I don't particularly buy that unless we're talking about a hyperinflationary scenario.
04:50 But what we do have is, again, people checking their brains and saying, what's the real story here? Insiders who are managing these companies, we started the year at 1,500 shares to one being liquidated, 1,500 to one liquidations compared to one-share purchase. Now we're at over 31,000 shares liquidated, sold. These are CEOs, CFOs, CIOs who are saying, listen, a bird in the hand is better than two in the bush. I will happily sell at today's prices and not worry about tomorrow. Let tomorrow take care of itself. Only one share purchase for every 31,000 sold. That's the reality. That's the reality, Pete. And so I think folks coming into the market today are really neglecting the risk side of the equation and only focusing on the reward. Meanwhile, you look at a market like gold and silver, for instance.
05:38 Bruised, battered, beaten up, ugly, beyond belief. The last two years have been painful for owners of gold unless, of course, you bought it at 2,300. Then you're still looking at a 400, 500% return, which beats the pants off of virtually anything else out there. But nonetheless, sentiment is negative, dark. And it probably will remain so. But I think we'll find over the next 6 to 12 months, the price is 20, 30, 40% higher. Each period of consolidation over the last 10 years in that particular market has taken the price 20 to 30% lower. And that period of price consolidation and decline has been followed by a 50 to 100% gain on the other side of that consolidation. Meanwhile, people focus on, and I think over-focus on, risk and potential loss.
06:24 And again, it's just a natural response to pain to disengage and behave. As Jason Zweig said in Money in Your Brain, a great book, would recommend it for all your listeners. You end up with sort of this evolutionary animal instinct, fight or flight. And yes, when you're in fear mode, sell it all and don't think about it until tomorrow. We've got the same thing in terms of that animal instinct towards greed. Oh, my gosh, if it's this good, it's only going to get better. And I think this is where investors, without a keen awareness of themselves, without a keen awareness of what makes them tick internally, will continue to make the wrong choice at the wrong time. It's just amazing the emotional reaction people have to the equity markets. And it's a potential of loss on both sides.
07:11 They don't want to lose the opportunity when everyone else is bragging about how much they're making. But then when the market starts going the other way, they don't want to lose their money. So loss, the potential loss, affects people's emotions and, in effect, affects their finances, doesn't it, David? David, I think that's one of the things that if investors do sort of grow up and mature in the context of being an investor, it has to do with self-reflection. It has to do with taking an account for who they are, not only as rational beings, but also emotional beings. And if they look back over their history as an investor and they're honest with themselves, they'll see that they tend to make the wrong decisions at the wrong time. It's very easy to just simply go back to the cliche of buy high, buy low, and sell high. And it's very hard to actually get that done.
07:59 Buying low and selling high means that you're really bucking the trend because there's a reason why. There's a whole plethora of reasons why the asset in question is selling at low prices. It's unpopular. To do that, to buy low and sell high, is very difficult. Typically, what you find is people buying high and selling low because it's very popular to buy. When things are high, you've got lots of support. You've got sort of a social mechanism which pats you on the back immediately. And the next thing you know, all the potential buyers are already in, and you may have been the last patsy to buy. And lo and behold, months or years later, you're licking wounds and saying, why did I do that? Why did I do that all over again? Self-reflection is so important in the investment process. And if you don't know yourself, you shouldn't be an investor.
08:46 Because, again, you won't understand what you are subject to in terms of the non-rational pressures on a day-to-day basis. Yeah, it's a lottery mentality almost. People don't want to be left behind, but they wait until it's almost too late to get in with P.E. ratios of stocks, price-to-earnings ratios getting really high right now. People are still pouring money in like it's really low. In effect, they are buying high, and they're going to eventually, when this rollercoaster goes the other way, many of them will sell low. Low volatility stocks, dividend payers, I mean, basically, because of Fed manipulation of the yield curve, they've set interest rates at zero. And this has created what we call seedy refugees, folks that would have been comfortable sitting in seedy or money market funds earning 5%, 6% on their money are now having to step into the stock market and say,
09:33 hey, wait a minute, if I can't get any yield in a 5- or 10-year CD or even a 1-year CD, if they like short-term paper, they're looking at stocks. And so you've had a massive outperformance in terms of dividend payers, low volatility stocks, but they now trade anywhere from 22 to 24 in terms of price-earnings multiples. You're paying in today's price for the equivalent of 22 years' worth of earnings. Hardly a bargain. Hardly a bargain. And so you find that, just as you said, Pete, folks piling in, but they're being forced to take more risk in large part because the Fed has manipulated rates so low and they, for many living on a fixed income, don't have a choice but to increase their risk profile in order to meet their income needs. That's a travesty. In fact, I am morally
10:24 outraged that the Fed is doing this to the middle class and those living on a fixed income, forcing them at the exact wrong time to be taking more and more risk just to make ends meet. Well, we've got about a minute left here on the show. I want to ask you this one question here because this is always, on my mind, media helping or hurting the average Americans when it comes to investing? I think media is hurting only because, and I'd say alternative media is quite different, but your mainline media is hurting because, listen, this is the business model. They sell advertising and Wall Street is their primary purchaser of advertising slots. If they are reporting bad news, you know what people generally do with bad news? It's a self-survival tactic. They turn it off. They turn it off. No one listens to bad news. Why? Because it's not fun.
11:14 So they have an impossible task. They cannot sell advertising slots if things are going from bad to worse. They have to be perpetually getting better. So what you have is the news media looking at information forever and always through a rose-colored set of glasses. And that means they're right probably one-third to half the time and wrong the rest of the time, but they're not willing to say that. And I think that's where they do the general public a disservice because it's not just a question of reporting the facts as they are. It's reporting the facts as they need to be reported so that advertising revenue can continue to flow into the network. Yeah. Horror and gore only works in Hollywood. They sell a lot of motion pictures because of that, but it doesn't work in real life. David, we appreciate your time today, and I want to have you back on
12:03 the future to talk about ways to buy precious metals. I think a lot of people are – they want some in their portfolio, but they just don't know how to get it the right way. And I want to have you on again and talk about that. Yeah, Pete, if people are interested in who we are and what we do, McElvenny.com is our main website. It's mcalvany.com. That's mcalvany.com. Where our 800 number is 800-525-9556. I would encourage folks to request a DVD series called The Fuse is Lit. We talk about Asia, Europe, in the United States, and how the debt markets and the currency markets, in our opinion, are a ticking time bomb. We have major issues here in the United States, and by 2016 to 2018, we think we'll be in one of the worst bear markets and bonds we've ever seen with major consequences into all
12:53 other asset classes as well. So the Fuse is Lit series. It's yours free. It's a DVD series that we put together this last year, and I think it'd be most valuable. McElvenny.com is where you can find that. Thanks for your time, David. Thank you, Pete. And folks, we'll be right back after this.
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