International Man: Do you think there will be retail inflation in the months ahead?
David Stockman: I think it’s hard to say because there are opposite forces at work.
On the one hand, if you look at something like oil and commodities, generally, we’re in a territory we’ve never been in before. The current demand for oil dropped by 30 million barrels a day, where they used to focus on blips of 400,000 a day, plus or minus.
This last effort to prop up the OPEC cartel is failing very fast. That side of the price index of the market basket is likely to head south very strongly.
On the other hand, supply chains are being disrupted with increasing intensity.
We’re looking at these meat processing plants that are being shut down. We’re looking at farmers who can’t get their products to market, and we’ll see more of that as we get into the production season this year. That’s just in the food area.
If we look at manufactured goods, China seems to be coming back to life a little bit, but the supply chains between here and there have been disrupted. There are big questions about what—in terms of both necessities and discretionary goods—will be available.
I think you’re going to have some prices skyrocketing for things that suddenly become scarce due to supply chain breakdowns.
In contrast, you’re going to have other things falling—especially the commodities that are collapsing owing to the drastic, unprecedented collapse in demand.
How that balances out, I think, is hard to tell at this point.
I think the problem with money printing is not the CPI—the problem with money printing is the massive inflation of financial assets—the bubbles that they create, and then the consequence of collapsing bubbles for the overall economy.
It won’t be long before all the C-suites of America see their stock options melting before their eyes and the stock price for the average company down 30%, 40%, or 50%.
They’re going to start throwing stuff overboard in hopes that with enough restructuring, layoffs, plant closures, and asset write-offs, they can convince the market to buy their stock again.
On top of the economic damage caused by mayors, governors, and the public health authorities ordering shutdowns, we’re going to have another C-suite-caused layer to this recession. As that runs its course, the C-suites are going to be laying even more damage on top of it. That’s the outlook that I see.
International Man: What can the average person do in this volatile environment to protect themselves?
David Stockman: One, there is no point whatsoever in being in the securities market—the stock market, bond market, ETFs, or trying to pick out companies that are winning from the shutdown like Amazon or Netflix.
When you have the Dow moving a thousand points up and a thousand points down from one day of the week to the next, it is clearly not a safe place for anybody who’s not a day trader. It’s not even a safe place for day traders, as we’ve learned recently.
I think you must get out of these markets. There’s no point in holding onto stocks or at least buying more.
What people need to do is get liquid.
I think people need to own gold because the central banking regime—I call it Keynesian central banking—is finally being utterly discredited.
They’ve pumped all this money we’ve talked about and have done nothing to stop the economy’s collapse or even the financial markets.
The thing to do will be to stay liquid, accumulate gold, and to minimize spending. We don’t know how or when we’re going to come out of this.
No one has ever taken this kind of jackhammer to the economy in such a brief time and shut it down. We just don’t understand whether this is going to take a year or ten years to work out of.
Therefore, the prudent thing right now is to hunker down, minimize discretionary spending, build up liquidity, get into cash, and buy gold.
There’s no playbook that will tell you where we’re going. We’ve violated all the rules of economic life and monetary rationality that have ever been created over the last centuries.
International Man: What are your thoughts on gold and its role in the future?
David Stockman: You must look at it in terms of the individual portfolio versus what public policy might do.
From an individual portfolio, holding gold is now more critical than ever, even as just a matter of insurance and wealth preservation.
You need to own increasing amounts of gold as we enter this unchartered territory. Beyond that, I think it’s very likely that if things unwind not that much more, gold can break through that old 2011 price of $1911.
Once it breaks through that, we’re off to the races.
So there is also an excellent speculative upside possibility in holding gold.
I wouldn’t buy gold for that, but there is a good speculative upside possibility that it could double, triple, and quadruple value.
Gold is important as a base of insurance and capital preservation of the wealth that you’ve been able to accumulate.
That’s the individual side—for the investor and the household portfolio.
When it comes to public policy, I have no idea. You would like to see some sense of going back to money that’s linked to something tangible, solid, and can’t be manipulated by the central banks.
If things get desperate enough, maybe there’s a de-facto way to back into that as central banks begin to accumulate more gold, as some of them are doing—like the Russians, the Chinese, and others.
I think it’s tough to predict where that’s going because the Keynesian mindset and groupthink is so deeply embedded among monetary economists—most of whom work for the Fed or Wall Street, as well as the apparatchiks who operate the eight or ten major central banks of the world.
Their mindset is antithetical to any notion of sound money. That’s because they believe that their job is to micro and macromanage the entire GDP of the world—the $80 trillion of GDP in the world and the $22 trillion or so here in the US.
If you have that mentality, sound money is about the last thing you’re going to have until they create a total shipwreck.
I don’t see that happening anytime soon, but it’s worth talking about.
If you understand sound money and how the gold standard—the pre-1914 gold standard—worked (it brought enormous prosperity to the country and the world), then you know the folly of what they’re doing today.
International Man: Amid the COVID-19 fear and hysteria, governments have granted themselves all sorts of new powers. What does this mean for the future of personal freedom?
David Stockman: I think it’s a very grave threat.
When you look at this objectively, this is only a severe winter flu or virus of a type that mankind has been coping with, not only for decades and centuries but probably millennia.
It has been turned into an existential crisis and 24/7 media hysteria that has opened the door to an expansion of government intrusion and power.
I can’t think of any precedent for it, including even what we did in wartime during World War II or, indeed, what happened after 9/11.
Among other things, this is a taking of property, the likes of which have never before been imagined.
Trillions of dollars are going to be lost by businesses that have been ordered to close their doors without a hearing, without the opportunity to present any alternative approaches that would permit them to remain open while also minimizing any threat to public health.
I think there’s going to be an enormous amount of litigation after the fact.
There’s always that plaintiffs’ bar out there looking for business. They’re going to start suing every mayor and governor in sight. I hope they do because this was just done by decree—almost without any analysis or impact statement analysis, and on the thinnest of public statutory powers relative to public health protection that mayors and governors actually have.
It will be necessary for people who believe in liberty and personal freedom to support efforts that I’m sure are going to be made to make the government officials who imposed these lockdowns pay the price for their reckless imprudence.
International Man: Exactly. It is unprecedented.
There should be attention to the fact that there’s something wrong with how government power is changing, especially in the US, because it has a history and tradition of liberty and individual freedom.
David Stockman: I agree. It gives capriciousness an altogether new definition.
To come in and order every business to close its doors and turn off the lights.
I happen to be in Greenwich, Connecticut, at the moment. That’s where we’re sheltering out this storm.
I was walking down the street yesterday, and store after store is closed, and I noticed the little small premise where the shoe repairman runs his business, and it’s pitch dark.
Now, why in the hell can’t the shoe repairman run his business? He can put a table out in front of the door on the sidewalk and say if you want your shoes repaired, set them here, I’ll have them done, and you can pick them up tomorrow.
The untargeted and unfocused nature of these shutdown orders has got to be vulnerable in the courts. They’re a clear and present danger to any notion of free enterprise and personal liberty that we have. Under existing law, there has to be hell to pay for the people who did this.
What we have is the government criminals shutting down the economy, causing financial assets to collapse. Politicians are bailing out the criminals in the financial system who have been riding the bubble for all these years.
It’s a pretty sad state of affairs.
Editor’s Note: The ripple effects of the government lockdown are only stating to take shape. That’s not to mention the unprecedented amount of money the that is being pumped into every corner of the economy by the Federal Reserve.
The more turmoil… the more volatility… the more FEAR in the markets…
The better for gold.
And gold has plenty more room to run… It delivers protection AND profits.
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