646: Exposing Truth About Gold, Silver and Real Estate- A Historical Race for Wealth

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Welcome to the Holistic Survival show with Jason Hartman. The economic storm brewing around the world is set to spill into all aspects of our lives. Are you prepared? Where are you going to turn for the critical life skills necessary to survive and prosper? The Holistic Survival show is your family's insurance for a better life. Jason will teach you to think independently, to understand threats, and how to create the ultimate action plan. Sudden change or worst case scenario, you'll be ready. Welcome to Holistic Survival, your key resource for protecting the people, places, and profits you care about in uncertain times. Ladies and gentlemen, your host, Jason Hartman.

It is my pleasure to welcome Mike Maloney. I've been wanting to get him on the show for many years. We've had a couple of people over the years with his organization. He is the author of many things, including his most recent book, the Great Gold and Silver rush of the 21st century. He's coming to us today from his home in Puerto Rico. Mike, how are you?

I'm doing great, Jason, how are you?

Doing good, Mike. The virtual stage is yours, my friend.

Okay, so you were asking me to show people some of the charts in the book because you were impressed with several of them. And so this empty graph that I've got up here, I've been presenting this since, I think, you know, I used to be the rich dad advisor for precious metals with Robert Kiyosaki, and I toured the world with him from 2005 through 2010. And I think I started presenting this in 2009 or 10. But basically, this empty graph here goes from 1895, and we've updated it to take it out to 2025, and the price goes from $0 up to a BU. And what this is is the price of a can of Campbell's soup. And under the gold standard for 73 years, the price bounced up and down from $0.08 to $0.12, but it stayed in that average of $0.10 for 73 years. And then we left the gold standard. And when we did, the price doubled, and then it doubled again, and now it's doubling a third time. So it went from 10 to 20 to 40 to 80, and now we're on our way to 160. But what I didn't realize was that I had only told half the story when I was writing the book. The other half of the story occurred to me, and that was what I should have done is taken this chart and flipped it upside down. So if you look at the scale on the sides, I'm going to change it from being priced in dollars to being what is the cost? What is the price of the dollar? Not what is the price of Campbell's soup? How much does the dollar cost? Most people don't think this way, but if you are the grocer, if you're standing at the store at counter grocer's on the other side, he's trying to buy dollars from you, what's he paying with Campbell's soup?

Right.

So this is the price of a dollar measured in soup. And what you see is that it was 10 cans of Campbell's soup. And now the dollar has fallen. It isn't the soup getting more expensive, it's the dollar getting cheaper.

And so 1971, when Nixon took us off the gold standard, that was the last tie to gold. And the dollar became 100% fiat at that point. That's when you saw the dollars get cheap or really wait, expensive versus Campbell soup. Right.

The purchasing power of the dollar went down and down and down. It used to cost a dollar, used to cost 10 cans of soup from the grocery store's perspective, now it costs 2/3 of one can.

Yeah.

So 0.66 of one can. It's very, very dramatic, the difference between currency and money. And so this was a story that I used to tell for very many years. And then writing the book, it occurred to me it isn't the soup changing in.

Come down measured in dollars. Back in the 1800s, we had steam shovels that would dig up stuff and then put it into a horse drawn carts that would take all of the ore to make that steel can. And then we had to create the steel in those old plants, the number of man hours, and then cut a little sheet of steel and roll it into a cylinder and solder that can together and then fill it with soup and glue the label on and stuff. Now there's a machine that just goes bamboo and there's an aluminum can that is punched out in 10th of a second. And then it goes into this production line where it never stops. It gets filled with soup while it's moving. It gets the top crimped on, it gets the label put on. We've gone from many hours of human labor to just a few seconds of human labor to make that can of tomato soup. And so it should have fallen under a hard currency system, a hard money system. If we were using money instead of national fiat currency, cost of a can of Campbell's soup should be about 2 cents today. Anyway, I just wanted to show you that we've got these massive bubbles in everything, and it's very different this time around than it was back in 2008. This is data from Dr. Robert Shiller, and it's PE ratios. And this is the S&P 500. And what he's done is taken the price of a stock divided by the earnings per share of that stock, the profits of the companies per share. And we've gone into something I call the bubble century. But if you notice, 2008, it was not in a hyper bubble. It came back down a little bit, but it bounced back up since this chart was made. This is from the book. But we have been in this insane bubble century. And if you take out this century, you can see that the mean here, the fair value on PE ratios is somewhere between like it's 14 or 15. 13, 14, 15. You add the bubble century and we've just basically gone insane for this whole century. And it is saying that if there is a stock market correction, you know, to get back down to 15 from over 30, we are. The stock market could easily lose 50% or more. But that's just one way of measuring it. Another way of measuring it is the Buffett indicator. Warren Buffett likes to use this as his favorite measurement for Is the stock market fundamentally overvalued or not? And this is the value of all the publicly listed companies. It used to be the Wilshire 5000 index, but there's now only about 3500 publicly listed companies. There used to be more than 5000. So that index contains every publicly listed company in the US that's on the major exchanges. And what you see here is that in 08, the value of the companies was about 100% of GDP. Today, we're over 200% of GDP. And if you take out this century, the. You can see that the mean before the bubble century was somewhere around 60, maybe 65. The mean. And I've got proof that this is true in the next slide. But then you add the bubble century, and a lot of people think that like 100 or 120% is okay, and it's not. It's dangerous. So we are in a hyper bubble.

And so what's interesting about that, Mike, is that even in these eras where the Buffett indicator would indicate a bubble, Berkshire Hathaway has made a lot of money.

Oh, yes, until the bubble bursts. And the bubble hasn't burst yet.

Right.

In fact, you make the most cash as the bubble is inflating, that's where everybody gets rich. And then the people that don't exit at the proper time end up giving it all back again. So, anyway, I'll go to the next slide which proves that this is correct. I found a couple of economists in Europe that had done a very extensive study of 17 advanced economies going all the way back to the year 1770. And this is going through libraries and newspaper articles and stuff like that and finding the value of the stock markets and then adjusting them for, you know, the exchange rates and purchasing power parity. And then this is an interquartile chart. So they take the 17 countries, they eliminate the top 25% and the bottom 25% for every date on this chart, and they only take the middle 50%. That gets rid of the outliers where there was a hyperinflation or a stock market closure for some reason. So this is probably pretty conservative. And the shadowed area is the range of all of those 50% of the countries that they're measuring. They have the 17 countries they're measuring, and then the blue line is the average. And again, what you see is that we went into this insane bubble century worldwide where everything is overvalued. And during the crash of 08, it didn't even come back down to fair value. Now, this data only goes to 2017. They. That's when they finished. Their. Their publication is called the Big Bang, and you can do a search on it. But if you eliminate the bubble century, you discover that the mean is somewhere around 30%. 20, 25. Well, 25% of GDP for these countries, and then it went up to about 75% for this century, suggesting that stocks could crash by two thirds. And that data was from, like I said, 2017, and it's even higher now. The next one you commented on this is the number of work hours. So you take the average wage in the United States and the points on the S&P 500. How many work hours does it take to buy one share of the S&P 500 to equal that number? You know, dollars equaling number of points. And from 1860 all the way until about 1997, it bounced in this range from about 10 hours to a little. There's a peak there in 1929 of about almost 40 hours of work, with the average being about 22. And then suddenly we've jumped up to about 75 in this century. So it's showing once again that valuations have been insane. And everybody is used to this. If People get punished enough, then they will go back to realistic expectations. And so I just think we could be in for something horrific.

The other thing this chart really I think tells us is why the wealth gap is increasing. Because the average person has to work harder and harder to buy their share of the S and P. Right. To enter the investor class, they have to work harder and harder. So not as many people can participate in the investor class. And that means their long term potential is lower and they're just going to progressively fall more and more behind.

Yes. And the wealth transfer is caused by the Federal Reserve when it does qe. It types numbers into existence dollars and it buys from one of their primary dealers a US treasury or a mortgage backed security. And those brand new dollars enter the financial system. They enter a brokerage house and then the brokerage house has to repl asset that it sold. And so it goes out and buys another stock or another treasury and the price of everything in the financial system gets lifted up, it gets inflated. This is wherever currency goes first is the sector that gets inflated. If they sell some of that, they can buy a whole lot more stuff in the general economy. So this took the richest people that derive their net worth from their stock portfolio and made them much, much richer while the average person got left behind. And so it's created an Inc gap and a wealth gap that is just huge in the United States. But you know, the, the average work hours should be around 22 is fair value and we're over 122 today. So we're in this insane territory of the bubble century. And we've got bubbles in the stock market that are the greatest. This is the biggest by several measures, it's the biggest bubble of all time. And then, you know I, I showed this chart at the, at the conference and it's real estate and it's Robert Shiller's inflation adjusted home price index and it's adjusted to 100 in the year 1880. And so this is the variation of overvaluation and undervaluation. According to this is already inflation adjusted. And it's saying after you inflation adjust it today we are at about 125, 130% overvalued in.

So let me talk about what's the 20 city index. So here's the misleading thing about this chart is that back then in the old days we didn't have financing. And like you said Mike, wherever the money goes, the bubble inflates. Whether it be college tuition, real estate prices, whatever, it doesn't matter, right? If you can finance it with long term debt. There's going to be a tsunami of money chasing a limited supply of assets. Now college, by the way, which is a pet peeve of mine, is a fake scarcity. Real estate, homes for sale really is a scarcity. A real scarcity. Okay, so what's happened here and when. What you can see on this chart is that right around the mid-80s there, there was a guy named Lewis Ranieri and he was profiled in the Big Short, okay, in Michael Lewis's book and movie. And he's the one who invented the mortgage backed security, okay. And that's when it allowed the mortgage market to dramatically expand. And so there was a lot more money chasing a limited supply of real estate. Now go back further than that and you can see this chart is above 100. When the government sponsored entities came onto the scene. Fannie Mae, Freddie Mac, right. I mean, literally the stated goal of Fannie Mae is to promote homeownership. Anything you promote is going to get more expensive. So, you know, it's like, of course this is happening, you know, and so, so it really is.

I just think real estate investors should probably have some insurance. I'm not saying that real estate is a bad investment. I'm saying, well, some is depends on the real estate. I've been presenting this chart since 2004. Right there. And I was warning in 2004 that we were going into a massive real estate bubble and it's not going to be pretty when this thing ends. So in 2005, when I was on the road with Robert Kiyosaki, I used to present this and then Robert Kiyosaki would say, real estate's going to crash and all you flippers in the audience are going to get slaughtered.

Yeah, a lot of irresponsible lending caused that. Yeah, absolutely.

Yes, irresponsible lending. Today we have a different set of problems, but they're problems nonetheless with mortgage rates going up at such a incredibly fast rate.

And so the other, the other thing that's interesting about this is that because it's not a stock, right, It's a consumer good that is a necessity. Good, Right. The other thing is, what it doesn't show you is that people simply capitulate, they simply accept less. I mean, that's what inflation does. That's what bad fiscal and monetary policy does. It lowers the standard of living, right? And that's why you've got to have insurance against inflation. You've got to have something that offsets the bad deeds. The elites are Putting on us, the central banks and the governments. Yeah, it's quite interesting.

Moving on. This is the home price to median household income ratio. And people used to pay four times their income for a home. And then during the real estate bubble of 2006 and seven they were paying 6.8 times, was the peak there. And now they're paying seven and a third times. Seven and a third years of their income is what they're paying for a house. Now that is very influenced by interest rates. So when we had interest rates that were just down at 3% for a 30 year mortgage, that helped to inflate this bubble.

But now the title wave of money we've been talking about. Yeah, yeah.

And so cash flow real estate is one of the best investments you can make. It's just that there are times in history where it's good to have some sort of insurance in case prices come down, in case vacancies go up.

Yeah. Here's the thing about this chart that's interesting is that what it doesn't show you is it doesn't show you what the home price to median income ratio is in other countries, which gives you the. Compared to what? So for example, if you were to look at this chart in England, it's like 11.5 times. It's really unaffordable there. Like you people think it's unaffordable in the US and it is compared to what it was. I mean, you know, it's housing affordability is the worst it's been in four decades now. But when you compare it to other countries, you see that the US is actually more affordable. The other thing it doesn't tell you is that the home itself kept changing throughout this time. The average home size in 1970 was about 1500 square feet. Today it's about 2300 square feet. So the house itself has gotten bigger and better. You know, the same thing has happened in the car market and you've probably noticed this in the news. Everybody has been talking lately about how there's no such thing anymore as a $20,000 new car. You know, it just doesn't exist. Right, but it used to. It's sort of like left the dock, right? That whole idea of getting a cheap new car. But what they don't tell you is that the car itself has gotten so much better. It's just loaded up with features and safety equipment, airbags all around, you know, on the sides in the front, anti lock brakes. I mean, even a cheap Toyota has all that stuff nowadays, you know, whereas before it didn't.

In the CPI you have to account.

For these changes and a lot of it doesn't.

The Bureau of Labor Statistics tries to. In the Consumer Price Index they do something called hedonic adjustment and they are adjusting for all of those areas. So they're actually saying that the price of cars has fallen since 1980.

So with hedonic adjustments. And I talk about that a lot, Mike. You know what's interesting about that? It does have a logic to it.

But also what it's saying somewhere in between though. It's not what they say and it's.

I agree, I agree. But here's what it's really saying. Yes, it's logical to hedonically adjust. But you know, what is wrong with that whole idea? It basically says we as people aren't entitled to progress. The Consumer Price Index gets the benefit of progress, not us, right? Our lives with technology, constantly with technology, our lives should just keep getting better. I mean, that's the point of progress, right? We're not living in caves anymore. We're living in beautiful homes that are new and insulated and warm and cool and when they need to be insecure. So the index in my sense does not get the progress. We should get it, you know.

Yes, I absolutely agree. And it is being stolen from us by the way the system is designed. And this is something that my, you know, this book was four years of my life and I had a team of researchers and an editor and the. My researcher and chart maker Alan Hibbard put together this graph and there's a bunch of complex formulas behind it. But this is the 5 year change in GDP divided by the 5 year change in gross federal debt. So you've got the gross domestic product product divided by the gross federal debt. And when we used to borrow a dollar back after World War II, we would get between 6 and $8 worth of growth in GDP. Now we borrow a dollar and we only get back somewhere between 30 and 50 cents worth of growth. And everything changed when Ben Bernanke introduced some new rules of economics. Some new, you know, he fundamentally changed the way we do things. So, you know, and he won the Nobel Prize for it. He won the Nobel Prize for doing what is going to end up bringing down the world economy. So our politicians are still operating from the old playbook. They think that we can borrow our way to prosperity and we can't any longer. That all changed in 2008. When we borrow, we do not get positive growth in gdp. We get less growth than what we're borrowing. So we're just digging the pit deeper and one day that pit is going to cave in on us. This is, is not a good trend. And the amount of deficit spending that we're doing now is just absolute crazy.

Well, you know, the, the million dollar, trillion dollar question is how long can they kick the can down the road? Because there have been lots of predictors of the debt being too high, the bubble being too big for many, many decades. I mean, certainly, you know, I think I always kind of think of this guy, I had him on the show, Howard Ruff, and he was a gold bug. And you know, he was saying all this stuff in the 70s and you know, he was right. Like the thesis is right. Okay? The thing that we don't know is how long they can kind of just keep this whole scheme going. I mean, I agree with everything, you know, but we just don't know how long it can. You know, they might be able to kick this can down the road another hundred years. No, nobody knows the answer to that.

Well, if that was absolutely true, there wouldn't have been any global financial crisis in 2008. And those three other times that I showed the corporate debt to GDP, the crisis that was caused with each of these recessions where General Motors had to lay off so many people and so on. Pan Am went bankrupt, Global Crossing, Lehman Brothers. There has to be these corrections for them to be able to kick the can. Other than that happening, if the corrections don't happen, you'll have bubbles that grow so big that it'll be a complete collapse of the whole monetary system, which we got close to in 2008. We were very close. I put this in the book in terms of a horse race. And if you bet $1 on stocks, that's number four, real estate number three, gold number two, or silver number one, what would it return? So stocks went up 1.4 times, would have returned, your dollar bet would have returned a buck 40. However, there was raging inflation. This is from 1971 to January of 1980. So it was actually a negative return. Real estate went up 2.3 times in price. And that's a lot for an eight and a half year period that we're measuring here. Eight and a half years, 2.3 times increase in price, except in terms of gold. Gold went up 25 times its price. So if you had sold a home August 15th of 1971, when gold was still 35 bucks, and we went off of the Bretton woods system, the gold standard, and bought gold, sell a home buy gold and then sell the gold. In January of 1980, you could have bought nine homes homes with the proceeds. If you had done that with silver, you would have been able to buy 17 homes with the proceeds. So this is basically measuring things the way you were talking about, where you measure one thing against another thing and you eliminate the currency because the currency is lying to all of us. Do get my book. Go to ggsr21.com get a sample for free. Don't you know it's 19 bucks on Amazon right now, but you're going to learn how the economy works, fundamental economics, monetary history, stuff that will last you the rest of your life.

Good stuff. Mike Maloney, thanks again for joining us.

Thank you, Jason.

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