August 2024
We wanted to extend a big thank you to all of you who have supported the podcast, our host Chris Galeski and our incredible guests these past two years, and we can’t wait to keep bringing you valuable financial insights and confidence through every episode.
To celebrate this special occasion, Chris had a conversation with the one and only Grant Williams, renowned speaker, author of the widely read financial publication Things That Make You Go Hmmm..., host of The Grant Williams Podcast and co-founder of Real Vision.
Here are some key takeaways from their discussion:
• It is important to decide if you are a speculator or an investor.
• Investors must be patient and adopt a long-term perspective in their investment strategies, focusing on the intrinsic value of what they are buying, and aiming to hold assets for extended periods of time, often through fluctuations.
• A speculator’s primary goal is to capitalize on market trends. This can be riskier since they are trying to time the market, which is often impossible.• Grant highlights gold as a reliable store of value during turbulent times.
• With increasing geopolitical risks, high debt levels, inflation, and upcoming policy decisions, this is a time of instability where investors need to not only worry about growing their wealth but keeping it.
• Grant encourages investors to stay updated with the news and consider how governments and central banks may react to certain events or solve issues, and how their policies could impact one’s investments. It is important to be adaptable in your financial strategy as circumstances change.
• Grant also shares his thoughts on the upcoming U.S. election and potential tax policies of each candidate.
Keep an eye out for more details on our upcoming Investor Symposium on October 17 at the Westlake Village Inn.
Grant will be our keynote speaker, sharing his vital insights for successful investing like having a healthy mindset, the importance of listening, how gambling can derail a plan, and the significance of exploring all the options available.
Learn more about Grant here.
Watch previous episodes here:
Ep. 98 How to Build Financial Confidence
Ep. 97 The Stock Market Selloff: Morton's Perspective
Hello, everyone, and thank you for joining us for the 100th episode of THE FINANCIAL COMMUTE. It's special for a couple reasons. Not only is it our 100th episode. I can't believe we've been doing this for two years. But we also have a special guest speaker, Grant Williams, author of Things That Make You Go Hmmm..., The Grant Williams Podcast and also co-founder of the Real Vision Group.
Grant, it's such an honor to have you here on this podcast today celebrating our 100th episode, but also the fact that you're going to be a keynote speaker at our symposium in October. Thank you so much for joining us.
Well, thank you for having me. And congratulations on 100 podcasts. That's, I know that's that's that's a big milestone. Congratulations on that. Yeah, I'm really looking forward to the symposium. It's going to be, it's going to be a really good day. I can't wait to meet everybody.
And there's so much to talk about. That's the good news.
There is so much to talk about, not only from investing, but also the political environment. We've got an election going on, and just the interesting things that are happening in the world. Now you have a podcast that's titled "The End Game" and it speaks to a number of these different things that are going on there. And you get to speak to some of the smartest people around the world to talk about what the potential end game might be.
Can you share with us a little bit about the purpose behind that podcast and then, some insights that maybe, maybe you've taken away from that?
I mean, I do that with, my co-host Bill Fleckenstein, who's, an absolute legend. He' a lovely guy, and he's been around a long, long time, and he's, you know, he is a very, very smart, smart man. So, we set out to try and figure out, you know, how this kind of period ends and what comes next, and it's interesting.
I think a second or third guest was a good friend of mine, Mike Green. And the first thing he said to us, he said, of course you realize that the game never ends and he's absolutely right and the game doesn't end. But what we're trying to figure out, as I said, is, is we've had this period, of extraordinary monetary policy that kind of started with the Bank of Japan back in the late 90s, early 2000s, and it's spread out around the world, out of necessity, not out of any great, planning on the part of central banks have kind of done everything they can to keep things together.
And we all knew going into this that there would be a finite lifespan where this policy would be effective. We kind of knew that there would be inflation as a result, we got rampant asset price inflation. We didn't really see the goods and services inflation until Covid, turbo kicked in. But then we've kind of gotten to the point where if we're not at the end, we can probably see it from here.
So, you know, Bill and I, have been just trying to pick people's brains to find out how they think we kind of transition from the world that we've come to know over the last 20 years, which is a world of kind of central bank backstops, easy money, low interest rates, abundant credit. How do we transition to the opposite, you know, when interest rates start to go up, which obviously we've seen them do, it tends to reverse just about everything in the financial universe.
You know, when we start to see credit get tight, we start to see asset prices come under pressure. And we haven't seen that yet. But these are all the things that we have to be prepared for rather than, expect to observe on day one. You know that the clue was in QE. Everyone said there's going to be inflation because we didn't get it for a long, long period of time unless you were looking specifically at financial assets like just because, you know, something hasn't broken yet when they've raised interest rates to 5% from nothing, doesn't mean that something's not going to break.
So really, what is that going to be? How is that going to ripple outwards into the financial system and beyond?
And most people don't realize that central banks around the world weren't doing this for fun, like there were fundamental problems in their economies that caused them to have to force interest rates to be zero, print trillions of dollars. And now kind of the only way to get out of it is a couple of ways... if we're going to speculate about it, you can raise taxes, which nobody wants to vote for.
Or you can let inflation sort of run to where you wake up one day and you go, 30 trillion. That's not that much money, which is just silly.
Well, it's silly, but it's a tried and trusted way of dealing with this. You know, we've seen this throughout history at various periods of time. The interesting thing, you know, what you said there about people don't want to vote for tax increases. Of course they don't. But nobody ever does. The tax increases always happen as a result of a massive fiscal shortfall.
And, you know, we've seen where we are. So we know really that the reality is taxes are the government's only income. So the only two ways to fill that hole are to raise taxes or to cut expenditures. That's literally the only two options available to them. And I think, I think we're more likely to see the former than the latter, because everyone has become so conditioned to, to expenditures going up and of course, governments have had access to cheap financing for so long now.
So we've just got into this habit of spending rather than cutting back. So just because we don't vote for tax increases doesn't mean we're not going to get them. You know, we've just seen a government change here in the UK. And pretty much the first order of business, the new labor government, which is, if you're an American and not familiar with how the British system works, the labor government's just come in is essentially a left leaning, Democrat type party.
And the first thing they announced was, supposedly $20 billion shortfall in government finances, which quote unquote, may result in us having to raise taxes even though we promised we wouldn't during the election. So, yeah, this is how these things happen. And I suspect we're going to see a lot of that. You know, we're going to see a lot of, a lot of attempts by governments to raise their revenues.
We saw obviously, all of us saw the Kamala Harris tax plan laid out in black and white the other day, which kind of spooked a lot of, people in the financial markets. But this is, this is a need. This isn't, this isn't a want about the governments. Now, this is something they need to do.
And so, I've used this quite so many times since Jeff Gundlach sent it to me many years ago. He said, you know, there's one thing more powerful than greed and fear and its need. He said, when you need to do something, you don't have a choice. And that's kind of where we are. We're at the need stage of this.
And so, the mindset for investors has to change to if the government needs to do this, unpopular or not, what are the policies that will solve this problem for them? And how might those policies affect my investment portfolio? Because that's kind of the phase we're going into.
Yeah, that's very thoughtful. I mean inflation's also just a hidden tax. Yeah. It causes people's dollars to be able to buy less goods and services which is not too different. But it doesn't solve the issue with government debt and government spending. You write an article that we look at religiously, that's titled Things That Make You Go Hmmm...
And based on that sort of title, what's causing you to go hmmm today?
Oh, boy. Well, I'm 15 years into writing that, that particular piece. And, it's funny, I was talking to someone, just last month who was asking me, you know, I said, how do you go about doing this? Or, you know, do you struggle to find something to write about and, like, that's when I struggle to eliminate things, not to write about.
There's so many things every month that, that are worthy of kind of further thought and investigation. So, you know, I try to just find something that I think is interesting and important, dig into it and hopefully give the readers an understanding of why this is important and what it might mean for markets, for governments, and for them as investors.
And so, you know, recently I've written, I've written about Japan a fair bit in the last couple of years because I think Japan is an important place. And there's some important things going on in Japan right now which are definitely going to ripple outside the financial system. I read about gold a fair bit. You know, I think gold is a very important part of every portfolio.
We love gold.
Yeah. I mean, and that's being borne out now, you know, which is and it's interesting because to a lot of people, it's, it's a, it's a matter of the price. And the reality of it is it's really not the price. I'm actually going to talk about this at the symposium and try and help people understand why the price of gold is really not necessarily what you need to look at when you're considering it as a portfolio, which, which, you know, doesn't instinctively make sense to a lot of people.
But once you kind of explain gold's role in a portfolio, you begin to look at the whole financial world in a very, very different way by placing gold at the center of it in the way that it's meant to be. So there, you know, I've written about the UK government, I've written about, so many different topics, in the last year, but two of the ones that have, have really, resonated with people.
And again, this is part of what I'm going to talk about when I come and talk to you guys at the symposium. Is this idea of a reflection on the part of ourselves, and, trying to understand who we are. Are we an investor or are we a speculator? Because what I found in talking to people over the years and it's gotten more pronounced over the, over the last kind of 4 or 5 years plus Covid as this kind of gambling mentality is really kind of lit a fuze under not just markets but investors is to go back to basics and really ask a question.
You know, who am I? What are my goals? What am I trying to do? What am I trying to solve for? Because a lot of people think they're investors, but really they're speculators and vice versa. And it doesn't matter if you're an investor or speculator. There's a place for both in financial markets. But thinking you're one when in reality you're the other and you behave in that way can be really problematic for how people manage their assets, manage their portfolios.
And so you know, subjects like that, are really interesting ones to explore with people because you find, it's very easy to, to sit and talk about this topic or this idea or that idea or, you know, we think the dollar's going stronger or, you know, gold's going higher or whatever. And that's great.
But really understanding who we are helps us then decide what to do with that information. What does the dollar going up mean to an investor? Well, it means something completely different to what it means to a speculator. And so understanding those, those differences is a really crucial, foundation stone for everybody.
I love the way that you phrased that. I mean, we talk a lot, not only in our quarterly letters and just sort of the media stuff that we put out to clients about having the right mindset and the right strategy. It's not just about having the right investments, the gold, the real estate, the physical assets, and then also being exposed to the traditional markets.
It's having the right mindset as to the decisions you make, how you react to them, why you're doing it, and then having that long term view of investing as well. Because being a speculator can be dangerous when you need to live off your portfolio, because you might make the wrong reaction emotionally, because those dollars mean something to you in terms of what you want to do in your life and beyond.
Yeah. Beautifully put. Yeah, that's exactly it. And, you know, that's where we are in the cycle now. And people just need to have an understanding of what their aims are, what their objectives are. You know, we've had a period of 15 years where you could just play flat out offense. You didn't need to play any defense.
You didn't really need to be careful. You know, we've seen some scary periods. You know, the end of 2018 we saw a scary period. Covid obviously was a big wake up call for a lot of people. But realistically speaking, you've been able to just buy and close your eyes, and buy the dip. And everyone's become accustomed to doing that.
And it's worked really, really well. And the point I made in, in a presentation I gave last year was that, you know, if you've been in the markets, you got rich even by accident, if you just have money at work in the markets or all time highs, you got rich. But now is a time where you need to think about staying rich.
A you know, I don't use the term rich pejorative. I'm just trying to make the point that your net worth is increased. And it does come a time when there might be an opportunity for further gains. But does it make more sense to chase them at this point, or does it make sense to reorganize your portfolio so that you have you participate less in the upside, but you're protected on the downside, and that's, it's an important shift in mindset for people who might, but it's a difficult one because they're surrounded by friends who are still in the all out offense mode.
And, you know, you get cautious and you put more gold in your portfolio in. Okay. You get more defensive and you feel good about it until your neighbor, you know, tells you that he bought those Nvidia calls and they tripled overnight. And people start to second guess short term decisions.
And that's, you know, just comes back to this idea of understanding if you're an investor or speculator, if you're a speculator, then these short term shifts, that's what you do. So you might well completely change your portfolio the next day and reverse position. That's totally fine. But if you're being an investor and you do start to get cautious and you do try and take steps to eliminate downside risk in your portfolio, you have to get comfortable that that is not a decision you've made for the next week.
That's a longer term decision designed to protect you from something that might not happen tomorrow. But there's an increasing chance that it does and you want to be ready for it. So again, this mindset is very important for people to to understand.
Yeah. And you know valuations matter. The price at which you buy something at. But also right now is a really interesting time because it's been 15 years since the credit markets created some attractive opportunities. Now, I know that we've been exposed to private credit, whether it's through real estate or other asset backed stuff for many years. So we've been able to generate, you know, high amounts of income for people during a zero interest rate environment.
But like right now, and you can buy a short-term U.S. Treasury bond and get 5.3, you've got short-term credit, but you know, fixed income that's you know, yielding in the mid-60s to sevens. And you've got some private credit in the 9 to 12 range. That's an attractive place to be considering where valuations are.
Absolutely. You know and suddenly a portfolio of short end treasuries. It's fixed income maybe a little bit of private credit depending on your risk appetite and some gold. Suddenly it actually looks almost like a kind of sexy portfolio, which nobody would have thought several years ago. But things change. And of course you are getting paid to wait and you are getting paid to be cautious.
And the trick there is to understand the credit. So you're exposed to a new duration risk, which is very different to the world we've lived in, where it has been a lot more focused on, on the kind of an equity culture in terms of, of number go up and buying stocks and looking for the price to go up and looking for an expansion of multiples rather than an improvement in the business.
And what tends to happen when markets reverse direction start to go down is the quality of the business matters a lot more in the share price. People have kind of gotten away from that. But we tend to find out, which companies are in robust shape pretty quickly when things reverse.
Yeah. There's a great point. I mean, things that we feel very strongly about here. You know, it would be difficult to have this podcast with you and not bring up the elephant in the room in terms of what's going on and around the world with the political shifts. You have some interesting feelings on, you know, how the pendulum swings.
And right now we're in this just sort of environment where people are voting for the other person, not because they necessarily believe in the policies, but they have to vote that way because it's just not the other person. Right. And you also believe that as time goes on, it'll shift back to a more normal, situation.
And it's not so much do or die where the world's going to end if this party wins or the end of America as we know it is going to end if this person wins. What are your thoughts around that?
Look, it's, it's such an important topic, but it's such a, it's such a charged topic, which is a shame, because it's something that we all need to be able to find a way to discuss. And, you know, your point is absolutely right. You know, that people are voting for one of two things.
They're voting for our guy versus their guy, or they're voting for the other team because this team have done such a terrible job for me and my family. And that, that environment is a very difficult one thanks to things like social media and thanks to things like, the media, which has a clear bias in most countries.
This is not, I would encourage people to understand this is not an America specific thing. This goes far beyond the US. It just so happens that the US is the biggest and most important election in the world, and it gets the most coverage both domestically and overseas. So, we have this situation where whichever side comes in and wins these next election, we've seen this happen in the UK just now.
We've seen France go through it. We're about to see the US go through it. Whoever wins, it's going to be a poisoned chalice. You know, there is a time when you kind of don't want to win, because you're going to be handed a very poor set of options. And I think that's what's going to happen to whoever wins in November.
I think the, the narrative that it was Trump's to lose and now it's Harris' is to lose is probably not going to turn out to be correct. I suspect there will be some twists and turns between now and early November like they were back in 2016, particularly. And I don't think this election is a full conclusion, but foregone conclusion by, by any means.
And that's going to be difficult. You know, I think the one thing America really wants is a landslide victory from one side or the other. You know, it's the only real way to avoid any nasty, post-election claims of an election being stolen. And, you know, the closer it is, the more divisive it's going to be. I just don't think we're going to get a landslide victory.
So people need to be prepared in the wake of the election. Whichever team, whichever side loses that election, not necessarily the party, but the supporters are going to feel very angry about losing it because at various points since last year, each side has been told that their candidate is a shoo in to win it.
So, I think we're going to see plenty of turbulence around this election. We've seen in the UK a forerunner, we've seen in France as a forerunner, to give you guys a sense of, of how these things are going. You know, we've seen an awful lot of kind of unrest in France around their elections. We've seen a lot of riots and, and, and social unrest in the UK in the wake of the labor victory, though, they weren't necessarily political riots.
But, the tension that have been stoked leading up to the election and the problems that have built up with regards to inflation and the unaffordability of living here in the UK. It doesn't take much for any kind of spark to, to start people out on the streets. And while we might have a riot, we had a riot in, working class areas of northern England over a particularly gruesome murder.
It brought people out on the streets and very, very quickly. And it had immigration, inflation, all the hot button topics were all wrapped up in this. And so I think people need to be prepared. There's a lot of anger, there's a lot of unhappiness. There's a lot of, frustration at rising living costs.
And politics is unfortunately, well, its goal, I guess, is to kind of ameliorate those feelings of unrest. It tends to agitate them, particularly around election time. So people need to be ready for that.
And, you know, the emotional side of that is sometimes they take their view of what might happen with these elections and how it affects their investments, and want to make some decisions based on that. What are your thoughts about making long term investment decisions based off of, you know, a single, election or a point in time throughout the year?
Well, it's a great question. It's such an important question. I think the key thing for people to understand is if you think that the outcome of this election particularly, is going to result in wildly different outcomes for your portfolio, you're probably mistaken, because of what we talked about earlier, about the things that these governments are going to need to do, no matter who gets in, they're going to have to find a way to persuade the public that we have to do this.
And it's like, if I can persuade them, great. If I can't say, then they're going to have to force this stuff through. So I suspect that, you know, Democrat proofing your portfolio or Republican proofing your portfolio is an important thought exercise to go through so that you, you know, you have an understanding of the likely policies and how they might affect you.
But I suspect the reality post the election is going to be, is going to be much closer in terms of outcome for investors than you might say we would. We would certainly have, more problems with the Kamala Harris tax plan that was unveiled, this past week. If that gets put through, I suspect that will soften over time, because if it doesn't, I think that's going to be a disaster.
So I wouldn't think that would go through as, as it's mooted. But I also don't think that if Trump wins, you're going to get the kind of tax cuts that maybe he's intimated that he's going to deliver. So the reality is constrained. And, there's a great, geopolitical analyst, good friend of mine, Mark Papic.
And he talks about looking at the world, particularly if you're trying to figure out what politicians are trying to do through constraints and preferences. And they all have these preferences, the things they would like to do, but they have constraints around them and the constraints that are kind of encircling politicians everywhere are just coming closer and closer, reducing the availability of preferences to them.
So if you start to think about constraints and what politicians won't be able to do, I think that's a really good starting point.
Yeah. Grant, thank you so much. I know we've unpacked a lot here today, but you're also going to join us at the symposium to go a lot deeper on a number of these topics. I love how you shared, you know, the mindset around making decisions and recognizing who you are between being an investor or potentially a speculator, and the importance of really playing defense in an environment like we're in today, just because of valuations and the unprecedented amount of debt that the world, you know, economies have.
So excited to have you join us here for our symposium in October. And thank you so much for your time today.
It's been a pleasure. Thanks for having me. Congratulations on the hundredth show. And I'm really looking forward to seeing you and everybody there in October.
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