Dear Readers,
We hope you all had a wonderful Christmas with friends and family. Our hearts go out to families and customers up north and we hope you are all staying safe and pulling together. Christmas and the New Year are often reflective times, and more so when the unexpected happens.
This time of year is traditional for big new movies and old favourites, watched either at the cinema on a frosty (or windy!) evening or at home on the sofa with mince pies. I was staggered to read that the Star Wars movie broke a box office record after taking £9.6 million on its first day. Timing is also one of the deciding factors on the successful release of a movie. But looking ahead to the January films being released and one of them really caught my eye; because it doesn’t look ahead – it looks back, or does it? The movie is called “The Big Short.” For those of you not familiar with the book of the same name, this is the story of the financial collapse of 2008 and the man who saw it coming!
“From the jungles of the trading floor to the casinos of Las Vegas, The Big Short, Michael Lewis’s No.1 bestseller, tells the outrageous story of the misfits, renegades and visionaries who saw that the biggest credit bubble of all time was about to burst, bet against the banking system – and made a killing.”
‘In the hands of Michael Lewis, anything is possible … if you want to know how a nation lost its financial mind – and have a good laugh finding out – this is the book to read’ Sunday Times
‘A terrifying story, superbly well told’ Daily Telegraph
‘Magnificent … a perfect storm of brilliant writer meeting big subject’ Guardian
I have pondered many times over this last week on the tragic similarities between storms via nature and financial collapses. It seems the storms just keep coming and we hope and hope the waters won’t top the barriers. But in York the story is tragically different when you read under the surface. York flooded because the very mechanism installed to try to keep the flood out – the flood defence gates – were opened to actually let the water in. Why? Because it was thought some water had got into the pumps, so that if the water naturally overtopped the defences they wouldn’t be able to then pump it out. So, they actually opened the flood gates in order to be able to pump the water out later. It sounds backward, and it very understandably angered many people. But I wonder what is different to that than quantitative easing and record low interest rates? The very mechanisms put in place to try to stop an economic collapse will be the very mechanism fails, opening the flood gates of a future economic collapse. I think it will hit the States harder than the U.K., particularly if we insulate ourselves against the collapsing Euro zone. The papers this morning are full of a wide variety of angles on the financial news; some dire, some upbeat, so it is very difficult to sort the wood from the trees.
But if Michael Lewis saw the housing market and future economic collapse of 2008, what is he seeing now? With the release of the movie imminent, it is a fascinating time to hear what this man is once again seeing. The following interview appeared in the New York Magazine’s News and Politics section two days ago. We hope you enjoy a slightly lighter but incredibly relevant read to help ease you through our blogs into the New Year. Remember, the safe haven of Physical Gold and Silver is always available and we look forward to hearing from you soon to help you purchase more or start your collection of bars and coins:
“We are sure, just as many of the so-called “smartest men in the room” ignored him last time, so every status-quo-maintaining, asset-gathering, commission-taker will be quick to dissonantly shrug off Michael Burry’s (the economic soothsayer from Michael Lewis’ book “The Big Short”) warnings this time.” (Tyler Durden, ZeroHedge)
I also wanted to draw your attention to The Telegraph’s article this morning outlining what a tumultuous year it has been in 2015 for the FTSE 100. “For those with FTSE trackers, 2016 doesn’t look much better, with the heavy days of early 2015 a distant memory.”
Put this together with the comments of Michael Burry below and we have some great insight into how to prepare and weather the coming financial storms of 2016. Personally, I really enjoyed reading his very sharp, concise analysis, which made even more sense when placed next to his clear dislike of making money for money’s sake. It sounds like someone who has seen inside the machine and come out able to make a difference. We hope this inspires you our reader to take independent steps to safe guard your wealth and investments. Contact us to find out how Physical Gold and Silver help protect against he bubbles of the fiat currency system of which Burry speaks:
“As NYMag.com reports, in an email, which readers of the book will recognize as his preferred method of communication, the real-life head of Scion Asset Management answered some of questions about the state of the financial system, his ominous-sounding water trade, and what, if anything, we can feel hopeful about…
The movie portrays all of you as kind of swashbuckling heroes in some ways, but McKay suggested to me that you were very troubled by what happened. Is that the case?
I felt I was watching a plane crash. I actually had that dream again and again. I knew what was happening, but there was nothing I, or anyone else, could do to stop it. The last day of 2007, I couldn’t come home. I was in the office till late at night, I couldn’t calm down. I wrote my wife an email and just said, “I can’t come home; it’s just too upsetting what’s happening, and I didn’t want to come home to my kids like this.” As for punishment of those responsible, borrowers were punished for their overindulgences — they lost homes and lives. Let’s not forget that. But the executives at the lenders simply got rich.
Were you surprised no one went to jail?
I am shocked that executives at some of the worst lenders were not punished for what they did. But this is the nature of these things. The ones running the machine did not get punished after the dot-com bubble either — all those VCs and dot-com executives still live in their mansions lining the 280 corridor on the San Francisco peninsula. The little guy will pay for it — the small investor, the borrower. Which is why the little guy needs to be warned to be more diligent and to be more suspicious of society’s sanctioned suits offering free money. It will always be seductive, but that’s the devil that wants your soul.
When I spoke to some of the other real-life characters from The Big Short, I was surprised to hear that they thought that financial reform was pretty effective and that the system was much safer. Michael Lewis disagreed. In your opinion, did the crash result in any positive changes?
Unfortunately, not many that I can see. The biggest hope I had was that we would enter a new era of personal responsibility. Instead, we doubled down on blaming others, and this is long-term tragic. Too, the crisis, incredibly, made the biggest banks bigger. And it made the Federal Reserve, an unelected body, even more powerful and therefore more relevant. The major reform legislation, Dodd-Frank, was named after two guys bought and sold by special interests, and one of them should be shouldering a good amount of blame for the crisis. Banks were forced, by the government, to save some of the worst lenders in the housing bubble, then the government turned around and pilloried the banks for the crimes of the companies they were forced to acquire. The zero interest-rate policy broke the social contract for generations of hardworking Americans who saved for retirement, only to find their savings are not nearly enough. And the interest the Federal Reserve pays on the excess reserves of lending institutions broke the money multiplier and handcuffed lending to small and midsized enterprises, where the majority of job creation and upward mobility in wages occurs. Government policies and regulations in the postcrisis era have aided the hollowing-out of middle America far more than anything the private sector has done. These changes even expanded the wealth gap by making asset owners richer at the expense of renters. Maybe there are some positive changes in there, but it seems I fail to see beyond the absurdity.
How do you think all of this affected people’s perception of the System, in general?
The postcrisis perception, at least in the media, appears to be one of Americans being held down by Wall Street, by big companies in the private sector, and by the wealthy. Capitalism is on trial. I see it a little differently. If a lender offers me free money, I do not have to take it. And if I take it, I better understand all the terms, because there is no such thing as free money. That is just basic personal responsibility and common sense. The enablers for this crisis were varied, and it starts not with the bank but with decisions by individuals to borrow to finance a better life, and that is one very loaded decision. This crisis was such a bona fide 100-year flood that the entire world is still trying to dig out of the mud seven years later. Yet so few took responsibility for having any part in it, and the reason is simple: All these people found others to blame, and to that extent, an unhelpful narrative was created. Whether it’s the one percent or hedge funds or Wall Street, I do not think society is well served by failing to encourage every last American to look within. This crisis truly took a village, and most of the villagers themselves are not without some personal responsibility for the circumstances in which they found themselves. We should be teaching our kids to be better citizens through personal responsibility, not by the example of blame.
Where do we stand now, economically?
Well, we are right back at it: trying to stimulate growth through easy money. It hasn’t worked, but it’s the only tool the Fed’s got. Meanwhile, the Fed’s policies widen the wealth gap, which feeds political extremism, forcing gridlock in Washington. It seems the world is headed toward negative real interest rates on a global scale. This is toxic. Interest rates are used to price risk, and so in the current environment, the risk-pricing mechanism is broken. That is not healthy for an economy. We are building up terrific stresses in the system, and any fault lines there will certainly harm the outlook.
What makes you most nervous about the future?
Debt. The idea that growth will remedy our debts is so addictive for politicians, but the citizens end up paying the price. The public sector has really stepped up as a consumer of debt. The Federal Reserve’s balance sheet is leveraged 77:1. Like I said, the absurdity, it just befuddles me.
The last line of the movie, printed on a placard, is “Michael Burry is focusing all of his trading on one commodity: Water.” It sounds very ominous. Can you describe this position to me?
Fundamentally, I started looking at investments in water about 15 years ago. Fresh, clean water cannot be taken for granted. And it is not — water is political, and litigious. Transporting water is impractical for both political and physical reasons, so buying up water rights did not make a lot of sense to me, unless I was pursuing a greater fool theory of investment — which was not my intention. What became clear to me is that food is the way to invest in water. That is, grow food in water-rich areas and transport it for sale in water-poor areas. This is the method for redistributing water that is least contentious, and ultimately it can be profitable, which will ensure that this redistribution is sustainable. A bottle of wine takes over 400 bottles of water to produce — the water embedded in food is what I found interesting.
What, if anything, makes you hopeful about the future?
Innovation, especially in America, is continuing at a breakneck pace, even in areas facing substantial political or regulatory headwinds. The advances in health care in particular are breathtaking — so many selfless souls are working to advance science, and this is heartening. Long-term, this is good for humans in general. Americans have so much natural entrepreneurial drive. The caveat is that it is technology that should be a tool making lives better in the real world, and in line with the American spirit of getting better and better at something, whether it’s curing cancer or creating a better taxi service. I am less impressed with the market values assigned to technology that enhances distraction. We don’t want Orwell’s world, but we don’t want Huxley’s world either.”
In conclusion and to be accurate, the books original title is actually, “The Big Short – Inside the Doomsday Machine.” I think that’s a fair summation of the fiat currency system really! Own your own Physical Gold and Silver bars and coins. Quick, easy and discreet, Bleyer help you into the traditional and timeless store of wealth and value that is pure bullion gold and silver. Whatever your budget, we have something for you.
We will be closed for the holidays from 3pm on the 23/12/15 to 9am on the 04/01/16, phone and email support will be limited during this time. But please do browse and order online during this time. (Although we will do our best to honour any orders made over the holidays, if the price moves up by more than 1% we may have to cancel or renegotiate your purchase. This is due to our suppliers holiday closure meaning that we will be unable to replace any items sold until they return.)
If you have any questions then please send an email to sales@bleyer.co.uk, we will get back to you as soon as possible. We look forward to taking your calls from 4th January from 9.00 am. Until then, enjoy the rest of the holidays and we look forward to doing business with you throughout 2016.
