Episode 49: Macro Investing with Axel Merk

Ben Lakoff, CFA
June 21, 2021
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The Macro outlook is a fun one to cover. Equity markets, US Dollar, Monetary & Fiscal Policies, Precious Metals… There’s a lot to unpack.

Where does this all end? Fiscal Austerity or Debt Jubilee? Not Likely. Inflation? Obviously, but less obvious is when.

Really enjoyed this conversation with Axel and it’s packed full of little tidbits and hope you enjoy.

Listen on your Platform of choice:

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Show Notes

0:00:00   Welcome and context

0:01:27   What is your background?

0:04:50   What’s happening in financial markets at the moment?

0:07:25   What is the reflation?

0:11:20   What emerging markets are you most focused on?

0:13:21   How do you think through the current transition?

0:18:44   What are your thoughts on precious metals?

0:24:40   Can investors look at gold as an alternative currency?

0:28:00   What are your thoughts on MMT?

0:30:50   What needs to change so we won’t see inflation?

0:35:25   How are governments going to work out the debt?

0:40:01   If you had a magic wand, what would you change first?

0:44:06   What are your thoughts on Bitcoin?

0:48:40   Where can people find out more about you?

Show Links

Axel’s Website

Axel on Twitter

Episode Transcript

Ben: [00:00:00] Welcome to the alt asset allocation podcast, exploring alternative investment opportunities available to the everyday investor. Here’s your host Ben Lakoff.

Hello and welcome into the all to asset allocation podcast. Today’s interview is with Axel Merk and we cover a lot. So the macro outlook is a fun one to cover equity markets, U S dollar monetary and fiscal policies.

Precious metals. There’s a lot to unpack. An Axel actually has some pretty unique views on a lot of them. Where does this all end fiscal austerity or debt Jubilee? Not likely inflation obviously, but less obvious is when, before you listen, please don’t forget to like, or subscribe to the podcast or even better leave a review on apple.

If you’re watching this on YouTube, please subscribe to the channel and, or give the video a thumbs up. All of these things really, really help. And I really appreciate it. Really enjoyed this conversation with Axel. Apparently I say really a lot, but this one is really packed full of little tidbits, and I hope that you enjoy awesome.

Axel. Welcome to the show. Happy to have you

Axel: [00:01:13] great to be with you.

Ben: [00:01:15] Thanks for taking the time today. Really appreciate it. I wanted to start off today with there’s a lot going on. And actually we started off the conversation talking about how hard it is to know what’s going on, because everything just seems new and wild.

Before we get into all of that I want to start off with a little bit about you, who you are and where you are.

Axel: [00:01:36] Who am I? Well, I’m just a humble investor. I do a little bit more than that. We, we manage about a billion these days and mostly precious metals related assets, gold and gold miners.

We’re really active in all asset classes. I am well-known for my views on currencies. We started to, I started business in the, in the nineties, but we really. Got to the public front in in the early two thousands. When we started being concerned about the twin deficits, when we started doing deep dives into central banks, we want about the financial crisis.

I don’t consider myself following the herds. Anybody who gives, ever gives me a label. I kind of felt the grading, but I don’t like that because I, I do my own thing. And I disagree with even today with many of the dunes they say what’s happening. Right. So I, I always have some nuances. My, I see my role in, when I talk to you and others and giving people food for thought and to kind of tie into what we see.

Talked about it before we went on air and being humble, I think is important because none of us really had a clue. And when I look at investing. It’s not so much about what will happen tomorrow. It’s about a risk assessment, right? What are the odds of something happening? And do you think it’s necessarily a worthwhile to take that into account and how that might sound right, but I’ve been around the block a few times.

And so I I’ve learned to, you can call it cynical or humble or whatever it may be.

Ben: [00:03:02] Oh, I mean, I think that’s highly relevant and thinking that you can consistently always call the direct, the correct direction. It’s just not really feasible at all.

Axel: [00:03:15] It’s it’s more, it’s a more about the risks you’re going to take, right?

I mean, let me take it and give you the example of 2008. A lot of folks came out late 2008, early 2009. Oh, this is the time to double down. You’ve got to invest now. And if you look at it, The history. That was correct at the same time. I think it was irresponsible for my need to do that, because the only time you can double down is if it’s compatible with your risk profile.

So if you did the quote unquote right thing, and rebalanced took chips off the table, as times were good. Sure. You have cash by all means double down, but most people didn’t do that. Right? Most people just went in there had. Asset prices went up to me and said more money allocated to the equity markets than they should have.

Asset prices plunged dramatically. So now you lost half of your net worth and you should double down. That’s just not right. And, and so it’s in this context, it’s an investing is a very, very personal thing. And one thing I tell them, if people ask me are where do you invest? Where to invest? Then you do one.

Advice I can give is invest in yourself, right? You are like a fixed income security. You are in control of that. And so try to retain your earnings power and be healthy. That’s the sort of thing you can control rather than buying X, Y, or Z anyway.

Ben: [00:04:30] Absolutely. And those have the highest ROI and impact your happiness and all, all these other things that are way more important than, you know numbers on the screen going up.

That’s for sure. , it’s a good segue talking about crazy high asset prices and evaluations at all times highs, perhaps let’s start off. I mean, on your, your website, you talk a lot about economic cycles, business cycles, stock markets. Let’s start off kind of with a bird’s eye view of what’s happening in financial markets right now.

Axel: [00:04:59] Exactly. And I said, I might disagree with some, so asset prices may be high. That doesn’t mean they can’t go higher. Right? Valuation metrics are very, very difficult indicator as to where things are going to be. Greenspan in late 96, warned about irrational exuberance. And so depending on the type of investor you either, oh my God, something is too expensive.

I stay on the sidelines. Oh, I think, Hey, I’m going to peak. I got to time the Peaky I’m going to sell in March, 2000. We are, and I don’t think you mentioned business cycle. We, we have a, we publish business cycle report equity market report. And the reason we publish the business cycle report is not because we want to forecast GDP to the second decimal point now it’s because that historically speaking, it’s.

The bear markets that have happened during expo economic expansions are much less severe than those during recessions. The real. 40%, 50% plus bear markets we have seen in the equity markets have come during economic recessions and at least in my view, and I would think my name, my nanny audience will agree.

We’re probably in the early stages of a recovery now and ask how sustainable is it? What, what issues are there? But because we are in the early stages of a recovery, And because we have kind of a global coordinated effort by both fiscal and monetary authorities to, to reflate the world. That, to me creates its own set of dynamics, which kind of inflates a lot of stuff.

Now, is it going to have a good ending while that’s a very different story? Right? I say we had the early twenties and with that, I mean the early 1920s. And they were obviously even in the equity markets from severe downtowns in that before 1929, but then I give them 29 didn’t then so well, and then the 1930s didn’t end so well either.

So I’m very concerned, but as we speak right now, I think the global reflationary trend is firmly intact. And, and so I’m actually, even though by the way, patients are high, I’m not concerned about the S and P right now.

Ben: [00:06:57] The roaring 2020s, the repeat and it’s highly, highly relevant. When you talk about this reflation globally, because of monetary and fiscal policies coordinated globally can you dive into that in a little bit more detail?

What you mean?

Axel: [00:07:12] Yeah. Cool. How many hours do you want to spend on that? So let me, one of the things I’ve tried to do in there was like these, I tried to get people thinking about things they don’t think about every day. And so let me just dive in some corner, then you correct me if I go off too much on a tangent, but Goldman reflation means the short of it is people.

We’ll feel more confident that that will borrow, that happens on the smallest scale. Big business has access to cashflow. Small business has to be worried about cash flow. When a vaccine becomes available, you’ll start investing, you see business investment pick up on a global scale. It means. People will borrow money.

Now you can borrow in local currency, but predominantly people borrowing us dollar. And what that means is that when somebody in emerging markets borrows money into us dollar, it’s a kin to a short sale. They’re selling the dollar to buy the higher yielding currency. Right. And so as long as that reflection takes place, there’s a downward pressure on the us dollar.

There’s an upward pressure on emerging markets. It’s part of the reason why I think we’ve entered a after several years of a bull market in the dollar, we’ve ended a cycle of bail market in the dollar last March. And so that trend should benefit emerging markets that should weaken the us dollar. Now, clearly, if we have a severe risk off period, you have a quote unquote short squeeze.

It doesn’t need to be as severe as we saw in recent volatile stocks, but. That’s one of the reasons you have this quote unquote flight to quality, you know, That, that there’s so much quality necessarily about the us dollar, but you have that thing going to reverse because when does a shock people, de-risk they take down leverage.

And when they take them leverage on a global scale, they have to buy back the dollar. And so currently one of the themes and the reflationary trend is that the other thing to just hit on another point in, in recent years, the S and P 500 has really been the place to be for many global asset manager. And not just on paper.

Institutions over allocated to the U S and they are over allocated to S and P and obviously within that to some darlings, and that’s where it kind of the, the, the high evaluations come in as globally. We’re trying to reflate. People will diversify and not just the individual, but institutional managers as well, that should benefit small cap value-based stocks that should benefit emerging markets.

And by the way, if you go back to 2000, we had an asset bubble burst, but the rougher 2000 actually did very well in that period. While the Nast like punched kind of the broad based small cap stuff. Actually appreciated and value over that same period. And so there’s always a bull market somewhere. Yeah.

I happen to believe that, I mean, obviously a lot of the gains and the, and the markets may have been taken up front with that too. Amazing confidence. Yes. Equity markets that hot, but that doesn’t mean the money won’t lush around somewhere. And I think a lot of the places that’s going to go to is more to kind of through to those sort of areas.

And by the way, just to kind of. Digress. The tad more emerging markets are not what they used to be much heavier emphasis on China, much heavier emphasis on characteristics, more associated with a developed economy. The emerging markets used to be banks and energy companies, and now it’s it’s high tech company.

So, so if, when you do historic comparisons, a lot of the, the underlying fabric has changed.

Ben: [00:10:31] Yeah, so that makes a lot of sense. downward pressure on the U S dollar small cap. Well, these gains from the S and P 500 big tech that are, that are kind of over allocated and have risen a lot, will be redistributed to small cap value emerging markets.

When you say emerging markets, that is an interesting concept or a comment.  Traditionally, it was like significantly China or India. Are you picking specific emerging markets say Brazil or, or how do you think through that?

Axel: [00:11:05] Actually, China didn’t use to be one of the big ones I, I happen to, but that’s just me.

I, I, again, I don’t want to go too much into specific advice. I China, I like I know that there are many things happening in China that we don’t like, but but as far as. Kind of the ability to reflate China is, is, has a really many levels. Now, clearly there are some issues in China and then potential bubbles.

But if you look at, if you look at just the potential down the markets, there’s really an opportunity for breaking out and another market. I like to point out that’s, that’s going to be a little bit more on on a mental basis is South Korea. And the reason I mentioned South Korea is that the, this whole Korean exchange is very highly correlated.

To to international trade. So when international trade picks up, that’s a leading indicator. How how the. How the, the market will react. And so if you think that trade global trade is going to pick up again, South Korea may be a place to be, again, this is an investment advice, and I happen to be invested in those markets.

So I might be touting my own horn. You mentioned Brazil. I, I know too little about Brazil, right? But it’s part of the same theme. But I try to stick to the things where I have a better grasp of things.

Ben: [00:12:20] Yeah, that makes sense. You mentioned that this is kind of the roaring twenties all over again,  there’s room to run, but kind of alluded to the fact that the roaring twenties didn’t end well, and this one potentially, I mean, It can keep going up for a lot longer than we ever think.

Right. But this time feels a lot different with global debts as high as they are around the world.  I always say that drunk, the world is drunk on cheap debt. Right. And I continue, it will continue to play that cycle until. It, it doesn’t play. How do you think through transitioning from this, this kind of risk on roaring twenties?

Valuations are just a number to, oh my gosh. You mentioned that you, you don’t really agree with like the doomsday scenario, not necessarily that I do, but a lot of these scenarios kind of in with pitchforks and torches, right?

Axel: [00:13:09] Well, I mean, Clarify a few things. So first of all, I do subscribe to the doomsday scenario in the sense that this is not going to end well, I just don’t happen to think that that day of reckoning is happening tomorrow.

I’ve seen policymakers kick the can down the road. So many times that I think that will continue to happen now. If I listened to myself because, oh my God, I’m this equity bullet here. Right? I actually think that the, the, the time to invest in equities may be because it’s reflationary, but again, it goes back to can you afford to, right.

And can you afford to build a financial cushion now in the roaring twenties so that when the reckoning comes. You’ll prepay it now, obviously with the caveat and risk that I might be wrong and that day of reckoning is going to come much earlier. And so you talk about pivoting, I’m a pivoting. I am just as I’m resting and equities, I am just as much investing in other things to try to prepare me.

And one of the things that when, when. The advantage that the rich person has is that they can have multiple revenue streams. So when something doesn’t go well, that you can, you can go around, right? I mean, I mentioned early on investing in yourself by invest in the equity markets while you can invest in, in real estate, get rental income and you can invest in precious metals.

I mentioned the outset, we, we are best known for our work on the precious, my little side. So I substantially invested in that space because I happen to believe that We are environment way up. Wait, let me just back up here. Gold, if you just take that right there. The three types of golden MES, very crudely said, one is the, the investor who believes that oh, gold is not correlated to any other asset really in much.

And so it’s good as a diversifier. And those have those kinds of meds have been increasing. Then there there’s the speculator. They just go on for a ride and currently they might be playing something that’s mobile all the time. You have some competition there, but then there’s a substantial investor that says, Hey, gold is a break.

Doesn’t pay me any dividend. But. If you don’t get compensated for holding cash, gold may be doing fine. And if there’s one correlation, the price of gold has its two to 10 year yields. If you and notably really. So if you deduct inflation from, from the 10 year return, there’s a reasonably high correlation and without getting too technical if the federal reserve commits to keeping rates low, but the economy is going to pick up net of inflation.

Real rates are going to continue to decline. And so I happen to think that yes, gold should do very, very well in this sort of environment then. So to the extent I can afford to, I invest in both of those two to try to have a diversify. Now in, in recent months, there has been a higher correlation between the gold and the S and P 500.

And some people say, Hey, you don’t meet a need one, or the other, those correlations will break down. And then also. In the last cycle we had in precious metals, gold minus didn’t do so well because the, the reason to invest in gold miners is because you kind of get that leverage. They at least in theory, they, the cost of mining is fixed, but but then.

The kind of the, the price of gold goes up. You have a disproportionate benefit. It didn’t quite work that way because a huge portion of gold mining is, is energy costs. Energy, all prices were hugely high. Then the governments wanted them to have more taxes to work either way. Just this time around. There was much more discipline in the mining industry.

Almost like positions on happenings rapidly. Now, obviously that’s a very speculative area. And too, we probably give it back to you. One thing that I see as, as somebody who providing who was active in the markets and providing some, some investment products and services yeah. Investors want to have their cake and eat it.

And what I mean with that is if people are petrified about where we are, they would hold cash and some gold. Whereas instead, what we see is people have equities. And gold and gold miners and what gold miners even better. I’m not suggesting that that’s obviously very speculative, but. Because gold mine is also specular as I was a volatile.

You don’t need much in that, in your portfolio to get diversification. And so that sort of environment weigh in whether that’s the right place to be or not is of course another question, but two, I’m just pushing back to you and saying, Hey yeah, like equities and I don’t think everything is dandy. No, I think this is a time to prepare for what’s down the road.

Ben: [00:17:29] Yeah, no. And thanks for that. And I I’ve listened to your stuff. I know you’re not just a full poem, PERMA equity bowl, but at all, it’s nice to always start with equities because at least in America, the kind of consistent over allocation and emphasis on equities and, and that lends itself.  Especially right now, one of my reasons for being.

Bullish on gold. In addition to all the things we’ve talked about is the under allocation of gold, across many, many portfolios. I mean, it’s just very much under owned. It, it took me a long time to kind of get a, across the hurdle doing CFA and, and understanding, you know, discounted cash flows. It was hard to invest in something as a store of value, knowing it wouldn’t kick off a dividend or anything like that.

I totally get it in, in terms of other ways of playing the gold play. You mentioned minors. Do you have any thoughts on silver, other precious metals?

Axel: [00:18:27] The reason why we. Focus on gold and talk about gold. A lot is because the dynamics are much simpler. Gold is Dustin brick. There are jewelry use obviously, but the industrial use is comparatively low.

The moment you go to two other metals, it gets far more complicated, right? Because in a, in an economic downtown, often silver gets drawn down and then it spikes up now clearly because of the greater volatility. Some people love it. But it ultimately depends on the risk profile that, that some people want to have.

And we had this quote-unquote attempt of a silver squeeze the other day. Well, we do deep dives into the markets and the reason why it is quote unquote squeeze in the last too long is because there wasn’t much to be squeezed. The, the positioning in the market was not at extremes. We monitor the CFTC data.

Those are the, the data in the, in the derivatives markets, very closely. And so there wasn’t anything extreme to be squeezed. The other thing, of course, compared to some of these heavily shorted securities, the silver market is much broader. And so that means if you have a rallying cry traction in the, in the blogosphere short may.

It may empty the inventory in some coin dealers, but it’s going to make much less of a dent in the markets. And if anything, of course if you had a, if you had a bunch of people, let’s say you wanted to buy 10 silver coins this year. And because of that, call-to-action you bought five silver coins to quote-unquote squeeze the market.

Well, are you going to buy more than 10 coins that year? Or will you have bought some things more? And now you’re just introducing some additional volatility. Now on the flip side of it, the sort of talk we had does increase potentially the, the audience that learns about precious metals. And so there might be some new ones coming in.

Then if I can just digress here for a second, I mentioned inflation and real interest rates being a driver for this. The major driver for inflation, and my view is inflation expectations. And now that may sound that cane, but if you go back to the 1970s, it’s because you think prices will be unstable because you will be higher that you will try as hard as it can to, to push prices high if your worker demand higher wages.

And so in that context, Now and as this is airing, we don’t know whether the, the 1.9 trillion similars will have passed, but my guess is much of it will be, we will be overstimulating the economy. And I had just the other day, a chat with somebody who is not political, not into monetary policy or anything.

He asked me whether this will be inflationary and Larry Summers of all people said it may well be. And so. This, this sort of thing can become a self-fulfilling prophecy in, in people getting concerned that this will be inflationary and as a result changed their consumer behavior. And to, to just kind of put a nail in the coffin of thinking that I’m, I’m kind of a bull here.

The thing I’m, I I’m concerned about, I’m actually not concerned about the inflation that we bought. We going to see at the very near term because of the year over year comparisons. What I am petrified about is this thing that. We’re not thinking about even thinking about inflation, that, that the federal reserve will allow intentionally inflation to run high in the context of an over stimulus right.

Of a global reflationary move. And Larry Summers and I really agree with right points to this and Janet Yellen now, treasury secretary push us back and saying, oh, the federal reserve knows how to deal with inflation. So who cares? Well, We got to have so much leverage in the system that this is going to create a lot of instability.

And so going kind of back to the investment thesis and why it’s so important that you only do what you can afford to do the same with precious metals and precious metals all that time. It’s because what I see, I don’t see that kind of, we have a bottle into crash. Now I see a tremendous amount of instability going forward, where just think about the years of the Eurozone, where.

Policymakers and overnights kind of changed the rules of the game, right? Policymakers will kick the can down the road somehow and you don’t know what’s going to whack you. And so that’s the sort of thing you gotta be resilient to that. And there is no easy answer to that. And I just happen to think that in the short term equity prices benefit, but I don’t know.

I don’t think this is going to end well.

Ben: [00:22:48] Yeah. And it, it can’t. Eventually on a long enough time horizon, but that time horizon can be a lot longer than all of us kind of imagine. All of these, so this coming stimulus all of these things contribute to the downward pressure on the dollar as well as the global re re leveraging.

But my issue is that the. Everybody it’s such a coordinated monetary policy, fiscal policy globally. That it’s it’s it’s you, you may be bearish on the dollar. But. It’s hard to be bullish on, you know, the Euro or the yen or any other, other currency. So in this case, do you start to view gold as more of an alternative currency as opposed to a investment?

Axel: [00:23:39] Well, we, we, we, you know, it’s fine. My shop, I have always looked at gold as the ultimate hot currency. And for many years, actually, the Euro was very highly correlated to gold. And when I mentioned this to folks in the gold space, of course, I got it. Various there. And look at that correlation has, has, has, has started to break down and in pod because we now got my dumb luck, God at the European central bank who is everything, but a brother Hawk.

And obviously our predecessor wasn’t either what I see happening is yes, that’s our goal and, and I mean, ultimately the question is, does it matter how I, how one, where I look at gold versus currencies, the, the race has been towards zero on interest rates throughout the world, as we reflate. It appears that New Zealand and Australia may take the lead of, of kind of stepping away from that a little bit.

I’m not suggesting they’re gonna raise rates much, but. Because their economy is soft, being more shielded from COVID. They, and they are historically more dynamic economies. I think there will be some things happening. We will have more activism by central banks probably. And that activism though, right now isn’t so much on the value of the currency.

It is more trying to support the fiscal authorities. And that’s a very dangerous trend. Not so much. I mean, people from some of your guests, I’ve talked about MMT central banks, when they started buying mortgage backed securities, they stepped away from conducting mortgage monetary policy, monetary policies, really worrying about the price level money supply, things like that, the moment you allocate money to specific sector of the economy you’re conducting fiscal policy.

And the problem with that is. That you’re becoming, you’re losing independence. And the problem with that is it becoming intertwined. And you’ll see that in the U S happening right now. The federal reserve is financing. The spending well, Who cares how much money you’re spending. Right. And, and, and so you’re getting the taste that, oh, we’re spending 1.9 trillion.

In addition who chaos, right? The money just grows on trees. And that creates also a feedback loop. And you see it in the European central bank where I’m going to go out there, former French prime minister and the head of the IMF as talks about climate change. When I first thought that, oh, central banks not going to worry about climate change, you know that.

Okay. Well, sure. If we have a major disaster, you got to make sure the bank stay afloat. That’s not what she’s talking about. She is talking about making it easier for green companies to have access to credit from a central bank point of view. And, and so you’re diving deeply into fiscal things on elected officials.

And that is of course, And then politicians see, Hey, I can have my agenda B be fulfilled by the central banks and they have the big bazooka. And, and so that, that is part of that instability that I foresee because they, they got to get caught up in things that, that they don’t know what what’s going to hit them when they come out on the other side of that.

Ben: [00:26:31] I completely agree. Generally your thoughts on MMT. We’re going down that path. It’s just this crazy theory. What are your thoughts?

Axel: [00:26:41] It wasn’t crazy theory, but somehow in recent years, greatest theories having a chance of becoming a reality. Let’s keep in mind that Janet Yellen is a. Lay by economist and say she wants to jumpstart this economy, which means that different ways of providing economic stimulus and and Trump, for example, he cut taxes for corporations.

So when you cut taxes for corporations, that’s an indirect stimulus. These companies invest more, they might hire more people. Wages may go up and in the long run that might be inflationary. Janet Yellen is a labor economist wants to be more direct. She wants to have a $400 plus check to. To the person who’s going to spend it.

She would be in favor of high infrastructure spending because those sort of things make it directly to the man and woman on the street. And the key difference from an investor point of view is that those sort of policies are far more inflationary. People say, oh, after 2008, we didn’t have much inflation or anything really.

And so it’s not going to happen this time. Well, Larry Summers himself pointed out. We under compensated after 2008. And now we are overcompensating. Not only are we overcompensating, we are overcompensating with policies that are far more inflationary and, and, and so they’ll sort of that those things matter, and they will, will have an impact on asset prices.

And particularly, yes, they, they have an impact on the price of gold because people always think, oh, gold goes up when inflation goes up. No gold goes up. When the risk of inflation goes up. Right. And, and let me just make one more comment, because you asked about the currency markets in most countries when inflation numbers come out higher than expected, you would think the currency goes down.

But no, the opposite usually happens in the immediate aftermath. When inflation is higher than expected, the currency picks up and the reason the currency picks up. Because all those smart people in the market say, oh my God, that means the central bank will do the right thing and raise rates. And therefore they return in a currency is going to be higher.

It’s only then in the coming weeks when people realize, oh no, They were just kidding. They’re not going to do it, that the currency weekends again. And so those, those dynamics don’t happen kind of on a one-on-one basis. And similarly in the price of gold, I mean, the short of it is that the markets are there to exert maximum frustration on investors.

And they’re very good at that, but they are not so good at correlating to the thing that you always do.


Ben: [00:29:09] Yeah. That makes a lot of sense. What scenario or potential scenario do you see on this path that we’ve headed down that doesn’t end in kind of runaway inflation?

Axel: [00:29:23] Well, we get inflation. We get inflation such that the fed is saw central banks around the world are uncomfortable with it. They start tightening things on their own. They spend a we’ll, we’ll have a depression type of thing. Then there’s an onset of a depression that said, oh, we didn’t mean it. At the table tandem type of scenario.

And they’ll try to reflate. On an evermore and we kind of, we’ve seen those sort of cycles. They get ever more severe and we’ll be told everything is going to be fine. Right. And, and, and so, yeah, it does not have to end in hyperinflation. It, it creates and can they add in all kinds of things now? We might get substantial about inflation and we’ll be told everything is fine.

Right. I mean, we, we have incentives lined up that we have to pay for all this debt that we have at least as a percentage of GDP. And so we have an incentive to inflate our way out of it. And whether or not it’s going to go off the rails. I don’t know. Again, as an investor, it’s about the risk, right?

What is the risk that things will not work as our policy makers have planned. And if, when things that is at risk, what are you going to do about it? Right. And and so the one thing I can control is my own health, maybe to a limited extent, but I can invest in that at least, and, and, and, and being educated and so forth.

And then if I have the flexibility to invest, I can put money into different sort of risk backwards that I include gold and that. And and, and believe that doc might take me through that now to just take a step back. When we talk about investing, I think th the big, the question is always, what is one’s goal, right?

Is the goal to beat the S and P 500. That is the goal to do this and that. And fundamentally for most people. It is so that one can afford retirement in a way so that if one’s ability to generate cash depreciates or you’re fed up with working, can I retire? One of the things that we have seen, and I talked about that 15 years ago already society adapts, right?

We talked 15 years ago about the baby boomers, not having enough money. Well guess what? They’re working longer. And just like women in the 1950s, they didn’t work. Well, if you tell a woman nowadays, Hey, why you’re working, you’re probably going to get slapped in the face because society now accepts and endorses that women work well.

Society now accepts that 65 year old works. It’s a feature, not a bug, right? And so suddenly we are proud the fact that it’s not necessary to have two breadwinners to earn a living. And that may not be enough. That’s a different story. And so don’t. Don’t I kind of on the estimate, the human mind to adapt to the sort of environments, not at the same time, of course we have a choice, right?

Do we want to be the cattle that’s done to grind along? Or do we want to be in a, hopefully in a situation where even when inflation does come that, that we have the flexibility to decide rather than having society impose on us, what we have to do.

Ben: [00:32:10] Love it very, very well said and highly, highly relevant.

That is a very great little segment that I will share widely with my friends and family, because I think  it’s very important. Right. And  we’ll just end up working until we’re 95. Cause that’s the new normal, and this will be a distant memory. People once saved for retirement and and, and.

Did something else.

Axel: [00:32:32] And if I can just do a shout out here to George Schultz he passed it a way in a, in an early February and he turned a Honda in November last year. And I had last met him on a zoom meeting. The first week of February, he was participating on a weekly basis and at the Hoover Institute in, in, in online conferences, on monetary policy and he would every week ask some pointed question.

He has a guy who worked well beyond his nineties active in society and a great loss to, to mankind that that the great states man is, is no longer with us.

Ben: [00:33:09] Awesome. I just, before we leave that topic, well, not that topic, but the the debt load and increasing rates and kind of having this whip Shaw back and forth.

And everything’s fine. Do you, would you see, obviously you can see, but is it probable of any sort of scenario of extreme austerity? Playing down the debt, as opposed to inflating it out or even some sort of globally core coordinated debt, Jubilee, or cancellation that might happen.

Axel: [00:33:44] Nope.


let me, let me get into that. I have argued about since I, I went, by the way I sold them, I stocks and in in 2007, late 2007, because I, I said, this is, this is going to be bad. I took out physical cash and in the late summer of 2008 and it was very, very concerned about kind of how how does that play out, but austerity.

It’s tough. Right. What I said at the time is the best. And I still say that today. And if it’s a very simple thing, the best short-term policy is a good long-term policy. If people just thought through of what might happen with whatever levels they put in. Right? And so instead, we’re trying to patch up things by, by, by spading people out and, and whatnot.

Austerity means people have to give up entitlements. Right. And instead we’re doling out more entitlements. And so think of any benefit, the moment you get a pay increase in your job, you take that as a new baseline. The moment you get a medical benefit, you mom went, you get this or that. And so taking that and, and talk about Brazil earlier in Brazil, the constitution links, social security to inflation.

It’s very difficult to have structural reform and inflate your way out with that in the U S we have some of that as well. And so that’s why people kick the can down the road. And similarly in, in Europe, right? I mean, I’ll stare at, he was imposed on Greece and it created an major, major, major political.

Challenge. And so I went over the last hundred years, we have moved further and further away from austerity and embraced credit creation. And so I happen to think we’re going to go further and further into that direction. And we haven’t seen anything yet now. And the reason I said no blanket through your, both of your questions, right.

I have to at least the global debt, Jubilee, Jubilee. There’s so many things that I disagree with. And the reason is that first it implies global coordination. The Europeans can’t even agree on anything and they’re small area. Right? How can the world agree on, on a reset? It’s not going to happen.

Everybody is in it for themselves. Right. And that’s why I say think much rather how’s society going to adapt. How is this going to evolve now? Can it lead to war? Yes. Can it lead to a reset? I’m not so sure. Now maybe that’s the ultimate end game, but that’s a, that’s a very, very far down the road. And the other thing, it implies that I have a huge problem with.

It hands over to control to those smart policymakers that will be enlightened to do a reset. Well, you got to bail yourself out. You can’t rely on governments to bail you out. If you want to have a gold standard, have a personal gold standard, but don’t think the government is going to do it for you. Now they’re going to tax the hell out of you.

They’re not going to. Go back to, to discipline. And, and, and so it has, in my view, the dynamics backwards it is, it is the individual that has to take the precautions. You can’t help that the government is going to fix things for you. And so and then the other thing is it, it implies, which I have a huge problem with is that.

There is some sort of global coordination of everything that’s happening. My own view is actually far more pessimistic. It is that the road to hell is paved with good intentions. I’ve gotten to know many policymakers over the years that good people that are trying to do the right thing. It’s just what they do happens to get us into a worse place more often than not.

Right. And I, and I mentioned y’all chose for me for a reason, because he was a principle person who was able to articulate those views in a very reasonable way. We don’t have men like him anymore. And, and, and so we have a road to hell that’s paved with good intentions. And, and that also means it’s the, the dynamics of the incentive structure that we have that drive us towards that position.

And if one talks about this global reset, It’s oh, there are a few folks that, that pull the strings and we all just puppets. I don’t think that’s how the world works. So anyway, that’s my rant on that

Ben: [00:37:53] highly, highly relevant. I’m curious if you were able to wave a magic wand and change one aspect of either incentive structures or some, some idea within the people making these decisions what would it be?

Axel: [00:38:09] Well, it wouldn’t be what I just alluded to. Whenever you make a decision, think about the long-term implications that a, that rather having to focus on the short-term, how the focus on the long-term that’s how you build confidence. Right? In 2008 we had a problem, right? We, and we kept insolvent institutions alive.

And you talked about austerity. Yes. That would have been the right recipe. And so that’s, that’s obviously the baseline now in practice, that’s very difficult, right? I mean we, everybody blames all kinds of people for when things go wrong. There’s always the prevailing political party that finds kind of the culprit.

The other thing There was a reference point as we just got. So gung ho about which political parties and office I happen to think that monetary policy is far more relevant than, than who calls the shots in Washington that obviously we get excited and, and concern and, and whatnot, depending on where our political preferences are, but what matters much more is, is what the central banks do.

And then what then Obama, Biden or trumpet is, or has been doing.

Ben: [00:39:13] I think the broader theme and issue of short-termism short-term thinking and the ability to stomach, the short-term pain that’s associated with the right decisions to benefit the long-term and benefit the long-term good. It’s just, it’s pervasive throughout every aspect of society at this point.

Axel: [00:39:33] So just to tag onto that, right? The. The, the big threat of the current similars we have from the fed is that politicians have gotten a taste that you can spend trillions and nothing happens. Nothing bad happens. Okay. Asset prices go up, jobs, come back. Everything is great. And, and so there is this perception that you can do anything by, by spending money.

And dares and politicians have always had some of that feeling, of course, but it’s been exacerbated so much and we reached extremes that in my view, lead us down a road of instability. And by the way, you’ve heard me talk about instability. That’s a codename for some pretty bad stuff.

Ben: [00:40:12] I just keep saying pitchforks and torches, it should be like a drinking game at this point.

Cause that’s like, that’s the ultimate scenario I see in these situations.

Axel: [00:40:22] So, absolutely. And I, I mean, if you, if you think back to, to talk about that, 15 years ago, what happened is we had global reflationary effort in the time China joined the world stage. We kept America rolling after nine 11. And all of that pushed up energy prices, but kept consumer goods prices lower.

But if America was squeezed high input costs, no pricing power. So it accelerated the outsourcing. The man on the street didn’t know what was happening to them, except that the purchasing power eroded that. Kind of was a big, big Frodo ground for this popular descent. And so then we elect the populist and guess what?

The populace is not going to make our life better. Then we do a U-turn in the other direction and things get worse. And that’s kind of how that, that instability is feeding on itself. And it, meantime, of course whoever’s in power is blaming lots of people. And then we got to get the pitchforks.

Absolutely. Yes.

Ben: [00:41:18] That’s pretty relevant that I’ve been thinking about here lately is this is being recorded beginning of February. And Tesla just came out and announced that they had wat bought $1.5 billion worth of Bitcoin. Bitcoin is seen as this wealth. Equalizer this inflation trade or whatever, and we don’t have to go into a lot of detail on it, but the thought was that always, it was like the people’s money.

It was different. It was opting out of, out of the system, but now with micro strategy and Tesla and presumably a lot more big tech companies putting this asset on their balance sheet. Well, they’re publicly traded stocks that are Teslas in the S and P 500. So everybody that owns the S and P 500 town now owns a tiny little bit of Bitcoin through the Tesla balance sheet.

The thought of all of these big corporations putting Bitcoin on their balance sheet. The shareholders that you know, are already the elite few owning. The majority of those, that price goes up. If Bitcoin price goes up, the share price of those things go up, it seems like it’s almost an accelerator for this wealth inequality that already exists because of the route that it seems seems to be going down, which is, which is an interesting switch.

Axel: [00:42:34] So I can’t talk about Tesla specifically because I’m not supposed to give investment advice and all that, but yeah, I may make some, some, some general and broad comments here. When, when Tesla published this, they actually published it in that 10 K one of the financial reports and they said they invest in Bitcoin.

And all that. They actually refer to Bitcoin as a digital amps asset, which I think is the right way to, to phrase it and gold. There is also, they said digital assets and gold and they, they will hold it as an asset because they want to get a higher return on their cash. Now a few things most.

Corporations have an extremely boring cash management. And that is because they are aligning, they’re aligning their, their liabilities and their assets. And so they are not investing in, in many other things. Now, so whether it’s going to get the right traction, it remains to be seen that said, The underlying motivation.

Well, none of them might be marketing of course, that they get some, some, some, some spotlight, but it’s the marketing opportunity, right?

Ben: [00:43:37] You have this little tech company, like throw it on your balance sheet

Axel: [00:43:41] obviously, but we also had a Right. And in 2000 you add that you’re suddenly going to be active in that space and then your stock price gets a boost.

But the broader point is that This concern about the purchasing power of the dollar is of course broadening. And this is just a symptom of that. So I’ll, I’ll just leave it at that now. And then more broadly speaking about the wealth gap increasing because of asset price inflation. I a hundred percent agree with that.

I mean, obviously if you have assets, prices go up I don’t want to. So Jess, that digital assets kind of themselves are the key driver in that I think that’s a much, much broader trend. And beyond that it’s just of course, a different discussion about kind of everything that’s happening in digital currency space.

The one thing I can tell you coming from the regulated world, everything I say is censored in some ways is that regulate us. Love to have control of your money flow because they want to tax it. And so day will find a way and they already do. Of course, in some extent, find a way to getting you back into the system so that they have kind of a tight grip on you.

And the one thing I th there’s one last comment I want to make, maybe on the spaces, a lot of smart people are working on digital assets on these centralized legends. And I don’t know what will be the answer, but. We should pay attention to that because there was something that had come out of that that that’s gonna affect our lives in the future.

Whether or not it’s not adjusted whether that is going to be the prevailing trend. I, I I, a question has opened, but it’s certainly a space that that’s worth watching.

Ben: [00:45:13] Definitely. Well, I think zooming out macro decentralization, these distributed ledgers, they will have a place somewhere in the future.

And whether there’s a speculative asset like Bitcoin or ether attached to it is anybody’s guess. But yeah, I think especially with a lot of these like deep platforming and things like this, if you have a decentralized social network, Well, then you can’t censor anything at all, which has its own issues, but there’s, there’s a lot of benefits that can come from that as well.

Awesome. Well, Axel I’ve really, really appreciated this conversation. I think we touched on a lot of very, very key topics there and tell you what I got a lot of really, really nice little tidbits that I can’t wait to pull out and share with my audience. But before we kind of cut this thing off where can my listeners find out more about you about merch investments?

Where do you, where do you want to send them?

Axel: [00:46:05] Well, the easiest place is probably it’s Twitter at axle. America is my handle. That’s the way I on a real-time basis can comment on, on some of these macro issues. I cannot and will not talk about any products. That we do at Mirka, but if you go to American, you can learn everything about the, we publish research charts on the equity markets and business [email protected].

We have some investment products in the gold and gold mining space and other things, so you can scout around, but go to Twitter. And they you’ve got the interesting bits because you get me commenting on what our lovely policymakers Optum.

Ben: [00:46:43] Awesome. And Twitter is such a superpower. I had never really used it before a couple of years ago.

And the, the amount of gold that I get from there is, is amazing

Axel: [00:46:53] to just put in a kind of a pitch for Twitter does briefly you can curate it in whichever way works for you. Obviously, if you want to follow the folks who post wonderful. Cute cat videos. You can do that. But what I do is when I see an interesting article in any publication, I look up what a journalist is and then see whether it’s worthwhile to follow that person’s Twitter feed or similarly, if somebody else tweet something intelligent and then like once in a while to kick out with people as well that I follow.

But that allows me to create a a, a news flow that is far more valuable than. Anything you get into media. I mean, I go to Fox. If I want to get the latest on what’s happening in the demo with the Democrats. And I go to MSNBC, if I want to see the latest, outrageous thing about the Republicans, you kind of know what you get.

You actually go to the other side because they post the most exciting stuff that the other side has done, but it’s pretty useless for the most part. And so you really got to curate your own news flow. And the important thing is that, especially when it comes to politics, get out of your echo chamber and follow some interesting people or folks who think a little differently from what you do.

Ben: [00:47:57] Yeah, absolutely. Axel really appreciate you coming on today. Thank you so much.

Axel: [00:48:02] My pleasure.

Ben: [00:48:03] There, you have it. Thank you for listening. Really appreciate your support. Show notes, transcript links, and more can be found on our website at all. Asset If you’d be so kind, please share this with anyone you think might be interested or get some value from this conversation.

If you have any questions or comments, please reach out. I’m always happy to hear them. Lastly, if you’re on YouTube, please like the video or subscribe to the channel. If you’re listening to the audio version of this, please subscribe to the podcast and, or leave a review. This really helps more people find the podcast.

And I really appreciate it. Thanks again, and hope you have a fantastic day. Happy investing.

Ben Lakoff is an entrepreneur and finance professional. He has developed strong global finance experience through 10 years of international assignments in the US, Brazil, Afghanistan, Southeast Asia, Czech Republic and through the award of his Chartered Financial Analyst (CFA) certification.