Shutting Down the Economy was a Very Big Mistake?
When we will look back at the lockdown, do you think it will be called the biggest mistake of modern history by global politicians who used a hard hand to control the coronavirus?
Well, the biggest mistake of modern history is quite a statement. The Wealth Generating know we are going to look back and say it was a very bad mistake and it was a mistake of history. The biggest in modern history? Never before did the whole world close down when we had epidemics. We have had several in this century and certainly in the last century. This is the first time that the whole world has closed down the economies and it is not a good decision.
If I look at the world right now, debt could be large in the government’s balance sheet but private debt and the household debt is not that high. Could that be the differentiating factor this time?
The household debt may not be as high as it would have been because nobody can get a loan. But unfortunately, people are not having income and they are somehow borrowing money on their credit cards. So yes, maybe household debt has not skyrocketed like government debt but the US was the largest debtor nation in the world three months ago. Since then they have added trillions of debt; both the central bank, all the states, and cities, and this has happened throughout the world. Japan has added huge amounts of debt. So even if Japanese citizens or American citizens are not adding huge amounts of debt, do not worry; the governments are.
What do you make of the current size and the scale and the market cap of the US tech giants? Some of these companies are now commanding market caps that run into trillions of dollars. Their market caps are bigger than a lot of countries put together.
These things often end in blow-offs and that part of the market is already beginning to have its blow off. They go up nearly every day. The valuation is incomprehensible to those of us who are a little more conservative. So yes, this is part of the same thing I was talking about. This often winds up in mania or a bubble and that looks to me what is forming in the US and maybe in some other places as well. Some Chinese stocks are the same way. Alibaba and Tencent are some of the stocks that just never go down.
What should an investor do in this kind of environment?
Only invest in what you know a lot about. Do not listen to me or anybody else. Maybe you can listen to ET Now but stay with what you know. As I look around the world, I will tell you what I am doing. Bonds are a bubble. Bonds have never in world history been this expensive. We just talked about how some stocks are too high. Commodities are the cheapest asset class series right now. We could say that a few weeks ago too but as I look around, the world commodities and some of the beaten-down areas like airlines, transportation, hotels are very cheap on a historical basis. So these are places I like to find things that are ignored and cheap but some people are very good at buying Amazon and buying stocks that go up all the time. I am not any good at that.
Have you added more gold in your pockets and have you bought more silver?
I have bought a little more gold. I am not buying a lot right now but surely in Asia, many people are having to sell their gold and silver to eat. These are hard times in some places; so I am waiting. I suspect maybe later this summer I will buy more gold and silver because before this is over, gold and silver are certainly going to turn into a bubble. When people get terrified of their government and paper money, they always go to gold and silver. They always have and they will again. I am like all the other peasants in the world. All of us peasants know we better have some gold.
China for the last 20 years has been one of the demand and consumption drivers for the world. How do you see that changing, now that there seems to be a challenge at least on the global trade front?
China has not escaped and will not escape what is going on. They are opening up. They have certainly opened up more than most other countries so far and they seem to have done a less bad job. I do not know if we can trust any government in what they say about the virus. If you listen to them they have done a less bad job. They are opening up. I can certainly see every day on the internet many Chinese cities and restaurants and places are open. They are coming back but they are coming back slowly.
Remember, if you are an airport and you have no flights and then next week if you have six flights, it looks better than what it was before. So everybody is going to look better for a while just because we are opening up many parts of the world economy and things will look better than they were when everything was closed.
Do you think in the next couple of years, the dollar could lose its charm of being the reverse currency? One day the world will realize that US debt is getting unmanageably high even though right now money has moved into dollars because of chaos in the world. Do you think it is a matter of time a bright boy will get up from the right side of the bed and say America has got debt issues and the dollar should not strengthen?
Very good insight. I happen to own a lot of US dollar dollars despite what you just said and despite that, America is the largest detonation in the history of the world. I own them because as turmoil develops, people look for a haven. They think the dollar is a haven for historic reasons. It is not but everybody thinks it is. So I own the US dollar. It is going to get overpriced; it might even turn into a bubble. I hope when that happens, I am smart enough to sell my US dollars because every word you said is right and it has worsened; that debt gets higher and higher every week. Now the US dollar is probably in its last legs as it can go on for a while. It has gone on for a while but many countries like China, India, Russia are finding ways to compete with the US dollar and looking for something to compete with the IMF and the World Bank and currency settlement. Zo the world is already trying to figure out the way to do something and compete with the US dollar. So you are exactly right. I am not the only person who knows the US dollar has serious problems.