Buck: Welcome back to the show, everyone. Today, my guest on Wealth Formula Podcast is Brien Lundin. Brian is the president and CEO of Jefferson Financial, a highly regarded producer of
investment-oriented events and publisher of investment newsletters and special reports.
Under the Jefferson Financial umbrella, Mr. Lundinhas served as publisher and editor of
the Gold Newsletter, the publication that has been the cornerstone of precious metals
advisory since 1971, and has hosted the annual New Orleans Investment Conference,
the oldest and most respected investment event of its kind. Brien, welcome to Wealth Formula Podcast.
Brien: Great to be with you, Buck. Thank you so much for the invitation.
Well, you know, we’ve talked about gold before, Brian, and, you know, obviously it’s,
you know, it’s known as a hedge to inflation, but we’re in a particularly
complicated time, whether that’s related to inflation and interest rates, whether the
various conflicts in the world. I’m curious what, right now, in your view, is happening and where
gold, therefore, lies in that mess?
Brien: Yeah, you know, I, just to put aside
the geopolitical issues, I don’t think that’s ever a real reason to invest in gold.
There are really two reasons to invest in gold or to buy gold. One is as insurance for your wealth,and in that regard, it’s insurance against something that’s, you know, is going to happen.
It’s not like your home insurance. You buy insurance for your home, but you don’t really
expect it to catch on fire. When you buy gold as insurance against your wealth, you’re insuring
against something you know is going to happen, the depreciation of the purchasing power of your home currency, typically the dollar, and you know it’s going to happen. The only thing in question is the degree and how rapidly it depreciates. You do have a good idea that the dollar is going to be worth significantly less in three, five, ten years from now, but gold will hold its value and protect that purchasing power. So, that’s insurance. Now, when you look at the macro
economic picture and you see trends that would tend to encourage gold to play catch up, which
it often does, when people really get worried about the depreciation of the future value of their currency, they tend to flock into gold. And gold, which doesn’t track inflation tick for tick over long periods of time, tends to play catch up and really rise quickly when people really get concerned. So, if you think the macro environment is pointing toward that kind of a catch up, moving gold and even an overshooting gold, then that’s when you can then invest in gold as a way to leverage those macro trends. I think we’re always in a situation where you want to have
gold as insurance, but I think right now we are particularly in a situation that argues for investing in gold and riding that kind of macro wave that would result in an acceleration, a rapid acceleration in the gold price.
Buck: I’m going to ask you a very basic question, and I think it’s asked other places, but I think it’s a reasonable question. Now, what, in your view, gives gold its value, its intrinsic value? It is certainly, it’s rare, but tell me why gold?
Well, nothing else qualifies. You can look at gold as a proxy for work. In ancient times, there needed to be some type of a currency, some money that would be a proxy for work. Otherwise, everything would have been barter, and there was no efficiency to human interactions, economic interactions. So, it was a wonderful invention, and as such, there’s no other element known to man that functions as well or even perfectly as gold does. It doesn’t tarnish, it doesn’t degrade, it’s not very useful in other areas of commerce. It just sits there looking pretty and doesn’t go anywhere, which is, coincidentally, what you want. And it’s fairly heavy, so it’s dense, and there’s a lot of value that can be contained in a small amount. Easily workable, fashioned into coins and everything else. All of these features made it work perfectly as money. My friend Robert Kiyosaki calls it God’s money for this reason, because if you had to come out and invent an element that could function as money, and gold didn’t exist, you would come up with gold. It serves all those functions. So, because of that factor, over thousands of years of being used as money, it has become really synonymous in cultures as money. And you get this gold fever because it has an innate in the human consciousness symbolism of value and worth, and everlasting worth. So, it’s something that’s happened literally over countless generations that it’s been ingrained in the human psyche, as this is the ultimate value, the ultimate store of value. And it really gets down to physical attributes that are unmatched by any other element known to man.
Buck: Ultimately, it seems to me that the big part of it is, it’s just been around forever, right? I mean, people can talk about the various qualities and all that, but people are buying gold because an ounce of gold is buying about the same amount of stuff as it did thousands of years ago, right? For people in general.
Brien: Yeah. You know, there’s a great website called pricedingold.com. And what that does is take various indices and items and consumables and services, and simply takes their price, their nominal price in dollars over time, and discounts that by the price of gold, essentially dividing it by the price of gold in dollars at that time. And if you do that, you see a number of interesting things. You see, for instance, that, say the price of an Ivy League education is today priced in gold, the same as it was in the 1930s, and over the intervening period. You can see that over the past 60 some odd years, the S&P 500 and the Dow Industrials have gone nowhere. They’re at the same value priced in gold that they were in the 30s and 40s and 50s.
You see things like the Big Mac has actually gotten cheaper in every major currency if you discount it by the price of gold. And so, if you look at that, looking at those charts, on that website, immensely valuable. Again, one of the things that struck out to me was that the only thing that gold has not been able to keep up with and discount has been the accumulation of federal debt. So, if you take the U.S. federal debt and divide it by kilotons of gold, you can see that, generally speaking, that debt keeps rising, even priced in gold, that we are spending so rapidly in creating debt so rapidly that even gold can’t keep up. There are, however, in that long trend line, a couple of blips and pretty significant ones. One is when that ratio falls and the value of gold rises. And then there’s another one where it falls. It’s very significant. Those were the 1970s and the other one was the 2000s, which were very longstanding bull markets in gold, when it caught up, when it didn’t really just trade sideways over long periods of time, but it caught up to people’s worries and macro secular trends and then even overshot. And now, if you look at the end of that long-term trend line, you see another point where it’s going down again. And it seems like gold is catching up again and beginning another one of these counter trend moves against debt. If it’s like the 70s and 2000s, well, then it’s an opportunity, like I was just talking about, where you really want to invest in that macro picture because the kinds of profits that can be generated are really life changing if you get in early on one of those trends.
Buck: Now, do you have a strong feeling about physical gold versus gold stocks?
Brien: Yeah. Well, I guess it’s a strong opinion. I think everyone needs to own some physical gold. If you’re new to the sector, the first thing you need to do is buy some physical gold, store it well and in an accessible location, not a bank safe deposit box, because one of the things you’re insuring against is, say, a bank holiday or not having access to a bank, but having it accessible and in a reasonable holding, depending on your accumulated wealth at that point. Investing and in mining stocks is one of the areas we specialize in in Gold Newsletter and finding ways to leverage positive moves in gold, silver and other metals, other resources through mining stocks. And mining stocks is an area that’s inefficient in that you can outwork other people. You spend a little money subscribing to the best newsletters, going to a couple of the conferences, really educating yourself in the area. You can find undervalued opportunities that will then outperform the rest of the sector. And it can be a lot of fun, too, because those opportunities, when they’re successful, can be really tremendously profitable.
Buck: What about ETFs? Just like simple ETFs rather than, I mean, some people are probably thinking, well, gosh, it’s a pain to store this stuff and all that. What do you think about ETFs?
Brien: Yeah, it’s a great avenue to get a proxy for gold. I don’t think it replaces the need to have some physical precious metals in your possession or accessible. It is a way to, say, increase your gold holdings and your gold exposure very easily and in a very liquid fashion. In those ETFs, though, I recommend the Sprott Physical Bullion Trust. For gold, that would be the symbol P-H-Y-S. For silver, that would be symbol P-S-L-V. Not S-L-V, but P-S-L-V would be the way to go. I personally know the people who created those bullion trusts, and I know that they are really hardcore gold and silver bugs who buy that gold and store it away and do it for the right reasons, and I’m not quite so sure for the other ETFs.
Buck: What’s your take on Bitcoin? I mean, I know in some ways it seems
very different, but many of the things that you’ve described as the qualities of gold resonate,
I think, with hardcore coiners, right? I’m curious what your take is.
Brien: Yeah, I’m still trying to decide about these years on Bitcoin. I’m really attuned to and positive and support the original motivations for Bitcoin, creating some independence from government-run monetary systems, the anonymity, etc., but it seems as time goes by that the
anonymity has gone away, and it becomes very traceable, and it’s sliding more and more under the umbrella of government regulation and control. So I’m not sure if that end goal is quite as pure as it began in one sense. I think from an investment standpoint, it’s more of a speculation
like a non-profit generating tech stock would be, but that in itself has some allure as a speculation because it’s very likely to become something at some point. Whether it’s certain current valuation supports that, I don’t think anybody can say because nobody really knows what it’s going to be despite what they may say. So you can’t get a fair value of its value. But if you’re playing momentum, if you’re playing technicals, and you’re playing it as a speculation, then I think there’s probably a place for it right now. But as a safe haven, I think it was proven not to be that, at least not yet, over the past year, 18 months.
Buck: Yeah. Just when you look at what’s going on globally, various wars, conflicts, you know, Ukraine, I guess, you know, if you look at China and potential threats towards Taiwan, it seems like there’s a little bit of a movement right now, and there’s always been, but more so now to sort of sidestep the US dollar. And I’m curious on your take on that. And I mean, and then what the role of gold by these nations would play in that kind of sidestep.
Brien: Yeah, I think there’s a valid argument for these nations wanting to sidestep the dollar. I don’t think it’s practical unless they can find some very credible and foolproof way to associate a new trade currency with gold. Otherwise, you are subject to the whims of Xi or Putin, what side of the bed they woke up on that day as to whether you can get your money out, where you can get your money in, what the value is going to be, what the motivations may be, etc.
And while there’s lots to criticize about the current state of law, and the rule of law in the United States, it’s still the best out there. And therefore, it is the natural haven for wealth around the world. And I think it’ll continue to be that way. And the only way that a really credible alternative to the dollar could emerge would be if it were attached to gold in some real, ineffective, incredible way. But you know, that could happen. That could happen. And I think Russia, I think China and a number of other countries are moving toward that, if not through some type of very clear strategy, then at least in a very general feeling that the dollar is not worth what it used to be, because of all these entitlements, debts, etc. And that’s something I think that’s also valid for every other developed world currency, because debts have been accumulated to such an extent that none of these fiat currencies are really worth what they should be, and that they’re all rolling down the devaluation hill at the same time. So I think that the People’s Bank of China, the Russian Central Bank and other central banks are accumulating gold because they kind of sense this instability in the financial system very generally right now.
Buck: They have been for a while, though, right? They’ve been accumulating for some time, haven’t they, Brien?
Brien: Yeah, about over the last decade or so, about 10 or 11 years ago, it was when it kind of flipped and central banks stopped selling gold and started buying gold. And since then, they’ve been perhaps the world’s major buyer and accumulator of gold. And they’re betting against their book, as it were, but who else to understand their book better than they?
Buck: What do you think of this concept of central bank digital currencies? I’m curious what you think about them and how you look at them through the lens of gold.
Brien: Yeah, it’s not to get to sound crazy, but it would be a sign of financial apocalypse. Is what it would be. It would be giving the central banks and the government, you know, the leash on all of your activities, the stick to beat you with, total control over what you buy, what you sell, who you support, what you do. It would be absolutely apocalyptic in its implications. And the more that central banks or media carrying water for the central banks and the government try to allay fears, the more dangerous it is. And the more you know that their motivations are not pure because otherwise they wouldn’t be pushing it so hard. So ironically, and thankfully, I don’t think Chairman Jerome Powell is a fan of CBDCs. And I don’t think he’s pushing for it, but the next guy probably will. So it is extremely dangerous. And, you know, I would urge anyone to do whatever they can to advocate and urge their representatives to try and get something enshrined in law that we cannot institute that, at least in the United States and anywhere else in the world. It would really give government out, you know, it would create a collectivist despotic government right off the bat.
Buck: I guess it depends a little bit too on what the use of that decentralized central bank currency would be, right? I mean, in a way, if you look at all of the vast majority of US dollars are already digital, right? And so can they track those dollars? Yeah, they probably can track those dollars just fine through the banking system, right? But I guess the question is whether the idea is a central bank, a coin that would replace, say, cash, you know, and I don’t know that that’s where they’ve gone, but it is a little bit of an alarming situation. What do you make of the current banking situation? And, you know, obviously that’s another impetus for gold price to go up, but yeah, what’s your take on all the recent bank failures and all that?
Brien: Yeah, you know, I don’t think, generally speaking, I don’t think you take the interest rates at their lowest level in 5,000 years and easiest monetary policy in central banking history that persists for 12, 14 years. And you don’t take that and then all of a sudden reverse it with the second most severe rate hikes in central banking history and the greatest in terms of percentage rate hikes and interest rate increases in central banking history. I don’t think you go from one extreme to the other without breaking something. And obviously we’ve broken a few things. And the question at this point is, is that sign of something that’s endemic that we’re going to have more of these banking failures? It’s a wider spectrum than you would think because Silicon Valley Bank was very exposed to duration risk. A lot of community banks are not. They have most of their portfolios out in loans and are therefore actually probably benefiting. But I think there are more
cockroaches in the kitchen that are going to erupt, not necessarily in the banking system, but somewhere, whether it’s derivatives, whether it’s purely just the recession that seems to be looming, whether it’s a break in the stock market, some hiccups in the financial plumbing, i.e. the bond market. Something else is going to erupt and probably a few things down the road. And when that happens, the important thing that people need to remember is that the Federal Reserve, when they react, their policy prescription is going to have to be much more dramatic than what they did post-COVID. And if you remember post-COVID, they accomplished in four to five days what they took four to five years to do post-2008. This time, they’re going to have to do that much more because the markets, they’re not addicted to easy money, they’re addicted to ever easier money. And like an addict, they develop a tolerance to the drug. I mean, you’re very familiar with this. So that the dosage has to be increased to achieve the same effect. They will have to do much more than what they did post-COVID when the next crisis comes. What that crisis will be, no one really knows, but the odds are it’s going to be something that will be surprising.
Buck: You think because of the rapid, that crisis is coming because of this rapid increase in interest rates, correct? Yeah. Yeah. And so, I guess the question is then, you know, I think a lot of people are, you know, have surmised that there’s a possibility of something happening where, you know, I think in general, historically, the Fed, when you have a hot market or hot economy, can raise rates until something breaks, right? And something did break, but maybe it wasn’t enough for it to break. And then something bigger can break. And at some point they can’t ignore it anymore. But if you have inflation still running at six, seven, 8%, then what do you do? You’re in a situation where you have to reduce, where you’re bringing interest rates down, but inflation continues to be a problem.
Brien: Yeah. And while I don’t think the inflation will be seven or 8% or more, I think six would be the top end of the range, I would predict, but I think it will probably be four to 6% kind of persistently, which is still well above the Fed’s 2% goal. And I don’t think they can do anything about it. Again, Powell does not have Volcker’s tool bag. When Volcker raised rates over 15%, the federal debt was only about 35% of GDP. Today, it’s closer to 135%. So, when the Fed increases rates, it creates a lot of other dislocations and costs in the economy. Now, because the debt loads are so enormously high, so enormously greater than they ever were before. And you can look at individual and corporate debt and then you get direct effects on the economy. But if you just look at federal debt, the cost of servicing the federal debt has, in the last report, soared $852 billion a year. That would have been mind boggling as an annual deficit not too long ago, but now that’s just overpaying an interest in the federal debt to anybody who holds treasuries, including China, including fat cat hedging funds and investors, et cetera. So, I think that that cost of servicing the federal debt will soon rise over a trillion dollars and things are rapidly getting out of control from that standpoint. That alone is kind of a brick wall in the way of the Fed. They could literally crater the budget if they got the Fed funds rate up to 5.5%, 6% or more, like the market was predicting by the summer just a few weeks ago. Now, they’re looking at the Fed having to actually cut rates before the end of the year. So, we’ve had a tremendous switch in expectations due to the banking crisis and the looming recession. And I think we’re going to have another real awakening coming up when something else starts to crack in the bond market, in the derivative market, in the stock market, in the economy, or wherever it may come from. It’s going to happen and the Fed will have to do what it’s always done, create excess liquidity in a dramatic fashion. And then, because of that, foster the next bubble.
Buck: And then presumably, I guess your thesis would be that if you’re in that situation and you have ongoing inflation, 5%, 6% even, and in that environment, the Fed is lowering interest rates, then the people who are holding on to inflationary hedged assets will do best. And those would be, say, gold, it’d be real estate. Is that right?
Brien: Yeah. Gold, real estate, silver, tangible assets in general. You get into some of the tangible assets, you get into specialist areas where you get actually even collectors and you have to have a collector mentality if you’re going to make money from it. But generally speaking, gold, silver, income-producing real estate are ways to go. There are arguments right now for a whole suite of base metals out there and energy metals, battery metals, because alongside all of these macroeconomic trends, there’s a technological trend toward electrification of transportation, EVs, the revamping of electrical grids around the world, etc. That’s going to demand ever greater supplies of copper, lithium, graphite, cobalt, zinc, etc. There’s a whole other argument there for base metals, but that’s a topic for another day, I guess.
Buck: Speaking of which, what are some of the other metals that you think are positioned well right now?
Brien: You know, like I just said, I think copper is one of them. Lithium is a little tough to play right now because it goes through these periodic boom-bust cycles and we’re in kind of a boom right now. The way to play that really is through mining stocks, so I would be cautious about getting into that market right now. Longer term, I think the price of copper is going to double over the next, say, three to five years or so. There’s just not enough copper out there. There are a lot of copper projects around the world that are known, but they’re just not quite economic. They need a higher copper price to be economically viable. To meet the demand that’s coming up, every one of those will need to be developed. I think mining stocks in the copper space are a great way to play that trend, which is similar to and somewhat associated with the macroeconomic trend I was talking about, but then a bit immune to it or a bit disassociated from it as well.
Buck: So Brian, tell us a little bit about, I’ve attended the New Orleans conference once before. Tell us a little bit about that.
Brien: It is the oldest investment conference in the world and has, I think, the best reputation out there for delivering cutting-edge information from top experts in a very non-commercial way. We have an exhibit hall that’s filled with great opportunities and great companies that have the opportunity to present their discussions and their products and services and their stories in breakout sessions where you can go to and listen to it. Other than that, we have a main general session hall that brings some of the brightest, most insightful minds out there today on that stage in completely non-commercial presentations. Even beyond that, some of the best information you get isn’t really coming from the podium on the stage, but from your fellow investors, because the fact that these are people who came down to New Orleans to spend four days in a really intellectually stimulating environment, they’ve kind of self-identified as the people you want to talk to and exchange ideas with. And that is as valuable, easily as valuable as information that’s coming from our stage. So, it’s a wonderfully stimulating environment. There is an intellectual energy here in New Orleans, and of course, you have New Orleans with all the sights and sounds and food and music and ambiance that that presents. And that’s why it’s been going on for, this will be our 49th year. There are people who’ve been coming for decades and would not think of missing it in a year. So, it’s the kind of thing that really has to be experienced to really be understood. And it’s a legacy that we continue to try to burnish with every event.
Buck: And tell me about the newsletter.
Brien: Well, that’s the oldest gold and silver or precious metals advisory in the world today. We’re in our 52nd year. All of this was started by a man named Jim Blanchard, a real visionary, who was a real icon of the gold and silver industry. He acted more than anyone else to get gold legalized, gold ownership legalized in the early 1970s, started his newsletter and his business educating the public about gold and silver and associated investments in 1971, really on the day that Nixon closed the gold window or severed the last tie between gold and the dollar. And at that time, it was illegal to even own gold, interestingly and weirdly enough. And obviously, that was a situation where we knew we were going to, or Jim knew we were going into a highly inflationary environment, but it was like the captain of the Titanic steered toward the iceberg and then confiscated everybody’s life jackets and poked holes in the lifeboats. You couldn’t own gold. You couldn’t protect yourself from what was coming. So he worked to get that changed. And in 1974, they legalized gold again, gold ownership. So Jim started these investment conferences to teach people how to invest in gold. Over the years, it’s expanded to cover every asset class and geopolitical issues, as well as macroeconomic issues and everything that drives the markets. So it’s really kind of a catch-all investment event, covers everything. And then Gold Newsletter really focuses on the macroeconomics that drive the metals, focuses on the metals markets, but also covers dozens of junior mining stocks in each issue that gives some recommendations on companies that we believe are really well-positioned to deliver high-sized gains as they discover or develop mining projects.
Buck: Where can people learn more about both New Orleans Conference and also the newsletter? Is there a website that we can refer to?
Brien: Yeah, goldnewsletter.com, all one word, or neworelandsconference.com. Either one gives you all of our information and details on the long history of our organization and where we’re going and how you can profit from the information we produce. We don’t sell gold and silver, we don’t sell investments, but we do provide great information. And there’s a free buyer’s guide or investor’s guide, rather, to gold and silver that you can get on our site that’s completely objective and comprehensive, covers everything you need to know about investing in the precious metals arena.
Buck: Brian Lundin, everyone. Thank you so much for joining us on Wealth Formula podcast today and love to have you back in the future.
Thank you, Buck. Great talking with you.
Buck: We’ll be right back.