Saatchi to the u. S. Federal reserve bank because what Charles Saatchi did what he specialized in and he maybe he copied others before him but he was a show man and doing this as he would buy up junk junk art and then announce that he Charles Saatchi had bought junk art right and therefore he would make a fortune on dumping this junk are onto other people well this is kind of what the Federal Reserve bank is now doing is they are literally now buying junk theyre starting as of just a few days ago to buy junk corporate debt in the in the e. T. F. Market Exchange Traded funds so before we get into this i want to show you how its how you could turn junk into great art now a lot of people want a special show just for stakes hair so i was inspired me to come up with an art show right here is stacys hair looking surprised on purple. Usually im responding to something max has said you know this is me being shocked at something youve said this is stacys hair on yellow no card looking kind of oh dear max has gone too far without one ive seen that face many times. And this is me my hair stacys hair on green looking slyly thats right hair i are is the Ticker Symbol for hair its a closed end fund and you can buy all of the hair tablo those that we feature here on this episode of kaiser report its currently trading at a market cap of about 3900000000. 00 but were expecting the fed to come in and front run the market in take this up to a much higher capitalization possibly 7 or 9 trillion dollars and by owning it now you can its almost like having a lot of tracys actual hair but its. Got a name. Oh my. Thats. Really max it had to happen eventually. To say dead dee dee. Hair on fire. With flaming hair chasing max around the house with a broomstick but i love the Charles Saatchi analogy because the so perfect you know he created this idea of junk art and this came after junk science and junk finance and junk economics finally junk art was created by Charles Saatchi and he would take marginally talented artists like damien hirst buy up you know monopolizes arts and artificially boost the prices at the galleries that he own and then cash out there heres a headline a tweet actually from the day that the fed started buying these junk bond e. T. F. The century h y g i believe its a symbol the fed plans to start buying credit e. T. F. Today it says its primary goal is to smooth out market functioning although it already did that with just the promise of buying e. T. F. Arguably the feds goal in following through is largely to preserve its credibility for the next time so this is another interesting point about economics what comes 1st supply or demand classically people think 1st you create supply and if theres any demand for it youll see demand but here in this case you see demand 1st the central bank is creating demand for junk and then wall street will go out and create more john theyll create more supply and theyll use this 0 percent money infinite quantitative easing to finance this all the market of junk right. Of economic principles and they will cut spending on so this is the latest chapter in the effort to replace the real economy of productive assets in a wage earners where the fan tast mcgauran whole land of money printing Virtual Assets and the nonexistent economy and cooked books and cooks to. Mystics i mean these have more value than anything on the Federal Reserve Balance Sheet if you were to mark to market everything on the Federal Reserve Balance Sheet that is to say what is the actual resale value of the 6 they have the 7 trillion dollars of assets they claim to have what could i get in the open market the answer is 0 there is no market for those assets at all there they have no market price at all so technically even if these collectively got as little as 4. 00 or 500000. 00 it would be worth more than the 6. 00 to 7. 00 trillion the fed claims it has on its Balance Sheet because theres a market for these theres no market for what they have now the fed also strangles the market by the neck grabbed by the neck and strangles it and you can see that and another statement from another Legendary Hedge Fund investor you know we talked about Paul Tudor Jones getting involved in big point why because the fed because the fed is dumping junk pretending junk means anything for testing junk has value junk refining the Financial System just like the art market was junk a fight here to stand junk and junk in miller everybody always says drunken miller its hard to say druckenmiller but he was the guy who basically made the quantum fund made george soros a multibillion or he ran that fund for over a decade he says that the stimulus will be deflationary not inflationary says negative rates make no sense as theyve been saying on the show now for 7 years i think theres a tweet of mine saved for posterity where i make this point originally in 2013 that quantitative easing and the stimulus packages dont fight deflation they cause deflation by creating the Zombie Companies and zombie banks that become the pendant on the ever increasing amounts of money printing to stay solvent or to stay afloat and it pushes out of crowds out all the productive. Companies and productive assets get get pushed down and we have a great example of this right now during the copen 1000 crisis where the zombie banks are being bailed out and these small entrepreneurs are being left to go out of business that means that American Economy in 5 years time will have no seed stock theyll have no ability to grow the economy at all about only have zombie banks and at that point serviced by the fed and the debt levels will as we point out before the fed will go from 6. 00 to 7. 00 trillion dollars of quote unquote assets on its Balance Sheet to closer to 80 or 90 trillion dollars of fake assets on its bound shape but it will little by that time you will have a hyper inflationary currency collapse on the u. S. Dollar so can i have my art back there have a 2nd the stacys hair remember this is going to be the stock symbol hair its a i r and were going to talk about it more every sunday by the way tomorrow well were going to be doing lockdown with the kaiser so we do a special lockdown live show on periscope just go to our twitter at kaiser report but you know just as so comparing the fed to Charles Saatchi is if the market the art market only rewards with excess of return junk art like staceys hair i say theres a premium on that whereas real art say youre a picasso or van gogh or rembrandt or any of these masters or Leonardo Da Vinci and those are undervalued that there is no market for them the players start to play the players and therefore they forget what real art is they dont even know how to value real art anymore and you see that in the market as you had said you know and then druckenmiller obviously watches chis report and definitely spins in every sunday to lockdown with the kaiser is but you had said this is a tweet from december 3rd 2013 you were responding to somebody who said that inflation was coming because of the excessive quantitative easing you said actually q. E. Is deflationary as it supports zombie banks who choke off all money velocity kill q. E. And youll get inflation looking to this we. Here is that tweets from sober look a segment on wall street journal live burra dot observes quote the velocity of money is hitting record lows massive amounts of liquidity but not much Economic Growth some view this trend as discussed inflationary there is money velocity and its sinking and collapse right at this point weve talked about money of austerity and how its a true picture of Economic Activity and it has steps will be now prochoice absolute 0 which means the u. S. Economy is absolutely a cadaver its absolutely dead and i love the i you know that the analogy of art i remember in the south of france they had artists socalled on the border of the sea and they were painting and it turns out they send photos to china and china creates thousands of duplicate with Chinese Workers in factories making thousands of these replicas from a photo sent to them from whatever location youre in and those those paintings are sent to france and then they they sent back they cost a dollar to make and they sell them for 56700. 00 and this is the pretend artist is still like with his bare rayyan and he still like trying to add a few touches to it but its been for manufacturing china for a dollar so here comes the fed the fed will see that fake artist thats fake paintings as nesta t. As a strategic cant let fail business and theyll buy all of his fake art to keep the pipeline a fake art going but meanwhile the actual artist i live in the hills of france or they live in provence they live in paris they are therefore not getting any theyre allowed to starve to death so the actual supply of real art dies completely and are left just with junk are just like we have only junk economics junk finance junk science a resist live in a total wasteland i got to whip out ts eliot at this point to start reading the way slam because that always comes to mind when we reference the fact that we are sitting on a fricken garbage dump called planet earth speaking of garbage dump. The e. T. F. That the fed was buying with h. Y. G. E. So again at a certain point you know the wizard of oz the barnum and bailey the show men you know nobody believes it anymore and theres a certain you do do a suspension of disbelief and everybody does russian to junk bonds and and fracking like that was part of the jump on industry is like if you actually open your eyes and look a little bit like it was never making money so this is a bad investment the same with people rushed into wherever they thought Charles Saatchi was going to invest next because they wanted to front run him right well at a certain point people stop doing it they run out of chunks and possibly look at the look at the art prizes in britain the turner prize awarded at some point to tracey emin for her unmade bed right thats junk art right and thats the reflection of our having been jungle fied by people like Charles Saatchi you turn it into a ponzi scheme and gave Dame Amos Damien Hirst who is doing spiral graft in his basement to sign up for a 1000000000. 00 or at least he was until everything fell apart well he actually had assistance to that but finally im reading this tweet oh the irony of closing in the red on day one a fed spying program a classic sell on the news moment to say nothing of the fact that the 750000000000. 00 allocated is nearly been offset by new issuance in bond markets since fed announced it was rushing into no mans land like i said people are front running with junk creating junk to sell to price not see this artificial demand and they produce artificial supply and thats a complete repudiation of supply and demand economics its in fact communism all right when we come back much more coming our way dont go away dont forget to buy hair h a i r c cs hair. The world is driven by shape. Jerry thinks. We dare to ask. About is the. Police this is. The glorified operation in dying one some of the wealthier neighborhoods its been far more contained and the numbers are much lower than some of the flora neighborhoods to start to see if anything were working with can source outside of the state because theyre just so d it is so unlike anything out of this. Welcome back to the kaiser report im ask iser time now to continue our conversation with royal pal he is the founder and c. E. O. Of global macro investor and rail vision group last episode we discussed bad coin and gold and the macro picture were going to continue up on these things welcome back roll expects good to be it lets talk to you know the macro picture for a 2nd so as a Hedge Fund Manager how would you describe your you know corner of the headphone world what is your you know specialty i guess you could call it if you have one are you just an omnivore thats out there eating everything or are you a macro specifically more macro but can you give us an idea how you classify yourself and then give us an idea of what you see as being the big macro picture yes im a macro going through and through explore what don its what i know i spend my whole life there global macro investor the clues in the title i write the research for the worlds biggest macro hedge funds family offices. Bank sovereign wealth funds other stuff like that all macro i just think of the world might make a pitch in the macro community is time horizon have along with some time arise in the most so i tend to operate with 6 months 18 months time horizon and sometimes longer and that gives me a look at should see not to do the kind of month to month p. And l. Trading that everybody else gets forced and so i dont run a page from the new longer just from my money and i thought i was many so thats kind of my age and i look at everything or less the classes from equities to come up with his 2 fixed incomes Foreign Exchange to credit. Them ive no stake but when you get given an opportunity set like we have now my crew is my current turns are. Interesting because my current returns in the down cycle so thats that part of the Business Cycle when growth is weakening and goes negative usually what happens in the Business Cycle you accumulate slow returns take a macro any most markets over 8 years that site and then they reverse the unwind happens within 18 months so if you think of it in terms of the ability to make returns you make huge amount of sense 19 months which is when most of the macro hedge funds look for opportunities like this level it sells explodes and resends it concentrates it from a this were already going into recession we had a trade war underway we had an oil war underway and the Business Cycle was going negative well trade was going negative and then we had the black swan of the coronavirus and that morphed into a recession and now into the worst economic event in probably recorded history so we dont have plays out from him thats the most important thing weve been looking at this on real vision and also you know many of the worlds most famous investors come and say ok what goes on from here my own personal view is that we have some bounce back as economies open up a bounce back is not enough were seeing that in china south korea and others where its still below 0 growth and that probably extends for extended period of time with social distancing and a number of other things in place including Human Behavior around this crisis and the reality is is that with the world absolutely laden with that. And i reduction of cash flow after the event we just had which just taken everybodys cash out already the chance of going to or so since eventually insolvency event extremely high so i think we can put it goads the 1st debt deflation insults event since the 1960 now lets talk about this term youre using here Business Cycle because in the old days before Alan Greenspan there was something very clearly in play called the Business Cycle companies would build up a lot of inventory prices would get wake economy would slow down the central bank would lower Interest Rates to stimulate lending and the cycle would pick up again but starting with Alan Greenspan and becoming even more exaggerated with subsequent Federal Reserve bank chair people the Business Cycle has been overwritten by the greenspan put which became the bernanke he put which became a janet yellen put which became the jay powell point that is the say the central bank roll not allow the cycle to roll over they print and they keep printing to keep stock Prices Higher the bond market to give you kind of a signal in all this has been a bull market for 40 years right so whats your comment on that i think its actually a popular human response i dont think its a reality i think the evidence shows us from japan and the u. K. And europe that monetary printing is not necessarily an asset inflation issue it depends what structural sense one pays in a i think that people believe in the us that the central bank is omnipotent and i think that will be shown to be not true and i think were about to find outs and i think were going to find out what the central bank has been fighting from day one which is deflation and why deflation weve got so that monster ball point where Interest Rates is 0 and were about to have negative 3 Percent Inflation so that means real rate sort of 3 percent ok thats higher than they were before the luck previous 2 crises in 20082001 so you tighten Interest Rates to such a level in the middle of a recession. So this is what theyve always been fighting and now its going to happen and we give a little and i think that the emperor has no clothes that the own 3 is going to end up being some sort of fiscal and some sort of jubilee at the end of all of this so i dont believe that that puts israel i think its a psychological one thing is for sure it keeps a lot of zombie banks and zombie corporations alive that would have banned exterminated if rates were allowed to flow on the markets without fed intervention and we would have had a more natural cycle as youve been describing there but instead we have a zombie economy where a lot of the Productive Companies and productive assets are squeezed into insolvency and the deadwood is allowed to continue on i mean one great example being the airlines i mean why would why have they been allowed to buy back their own stock with 0 percent money from the central bank for for years at the b. Has the horn buffet and then the 2nd a crisis and they go insolvent right thats an example of a failed market but i want to ask you something about the mechanics of all of this and some of the charts that go on in the signals that we see and how this informs folks and the Money Management business like yourself are in the media like we are when you see a chart like the velocity of money thats gone straight down for 20 years despite all this money printing what does that tell us i mean that what do you make of that very straightforward is a function of 2 things. Debt and demographics so the more the debt loads increase the less 2 pence see that is to all people to be able to use that money for anything except debt service so we shouldnt housel bubbles it Corporation Level so money doesnt get spent you know also dont forget the. Corporate buybacks was a complete kind of destruction of council because it didnt but its a so its a good you sir that coast. That cause the loss of monies at full the aging population does the same thing weve seen it in japan weve seen it in europe weve seen it all across the world. Well we can observe a aging population so once you do that those 2 things the aging population plus the velocity of money driven by the debt what you end up with is an economy that goes slower and slower and slower over time and has almost 0 ability to generate inflation regardless of what some children sound 2008 their crib move would have been to allow a lot of banks to go bust and stead of trying to bail them out increasing the debt load because off the out money as debt and baking into the cake a 12 year later crisis that were having today would you agree yes but the problem is is you know its a pesky thing miss because that because it plays up elsewhere so 2008 was the banks this time around so the banks this time around its a cool projects in the car loans and the Student Loans and then the foreign borrowers of dollars with that 12 shrilly and of dollars boat or rowings so you can kind of stamp announce it just moves around. And part of that is obviously for the same reason that you suggest that Interest Rates have for some borowitz been far too low and the others still remain to high so it just depends what part of the society but you know in that society where the rich get richer the poor of the poorer you know its flow to others so so its a its a complicated world but that that that massive increase in debt that took off again after the last crisis not necessarily the banks we could have stopped all of that. If we had let more people go bankrupt because that we put. You put some sort of risk in the equation the still not enough risk and as you rightly point out the moment the fed starts going cope with credit i understand why they try to bail out the pensioners sort of veteran bail out you know people who are 64 ideas old thats rich time i get it but the problem is some the flip side of that youre encouraging behavior from corporations and others that it doesnt once you get bailed out so i dont even know how to deal with that situation the fed no easy place to be right now lets say hypothetically that the global Central Banks are in communication with each other and do a lot of Work Together as no nomi prins wrote in her recent book on the subject of collusion she suggests that in fact they are colluding they do a lot of bank back channel talk and they Work Together and lets hypothetically say that the Banking Industry since the 1980 s. And the introduction of Financial Derivative products have the ability to separate risk from reward in a novel way that what had been available before in the history of capitalism and an economic sense hypothetically this debt that you say hit the banks in 2008 and somehow quote as you say moved is a possible route will pile that that risk the word the just just can be packaged with derivatives and shuttled around the Global Banking system and Financial System in a way where it simply is taken off the Balance Sheets of those who dont want it like informed connected banks and it ends up in places like pension accounts that are huge and as we know not really well managed it becomes a toxic debt dump and this is 8 a kind of high horse of mine that i write and get on and scream from the rooftops about. What happened was. The debt within the system as you say caught repackaged out of the banks because they werent allowed to take risk by regulation so they are relatively little risk all what happened is all of that corporate debt load went into the Pension System thats it so on the average guy has no understanding of what theyre doing they had jammed full of corporate credits with over 0 defaults priced in ahead of the biggest recession in history at retirement age whilst having an all time high allocation to equities at the same time driven by the pensions industry in the ira and straight i think its criminal what theyve done to repackage that that and give it to people who needed the yields well they they needed the yield that they didnt need the risk and theyve given it to them and then have no understanding of the risks they were running which is this moral issue the fed now have to deal with is what the hell do we do here because the moment we put bail out the Pension System were bailing out cooperations and that bad decisions over the increasing debt loads. Its tricky i think in the end they will end up making direct payments to the pensioners and then you can screw the corporations are making about mistakes in the us all right raoul pal founder and c. E. O. Of global macro investor a real vision thanks for being on the kaiser report thanks so much really enjoyed it well thats going to do it for this edition of the kaiser report with me max kaiser and Stacy Herbert want to thank our guest raul pal over there ad lobel macro investor in real vision if you want to get in touch with us its kaiser report on twitter and that twitter handle kaiser report every sunday at 1 pm eastern time is a 45 minute live periscope broadcast with max and stacy and plucking and a lot of other guests dont miss it and so next time by oh. Its. Easy to. Do you think you can only take you through we just told you if you could. Leave. To kill someone thats all its contents is what you want. Them to sort of his name is. Jesse q. Theres. Just so you can. Use to describe. This new book my man companion for me my siblings wanted to do you know for the slow but the but also acknowledge they. Do you come from the blue. The negative beyond any doubt is antarctica coronavirus is everywhere from chicago to taper off and from greenland to Easter Island fashion trends are the same wherever you look everyone is Wearing Masks and gloves and person number one is Hand Sanitizer its just one endless day behind closed doors but people keep working behind these closed doors the best they can during the pandemic this film is about the people whose job it is to observe and film is about the colleagues producers and camera who help us make documentaries all over the world and as you probably understand i will have to make this film without leaving my home. And challenge. The virus is the enemy of revolution in chile the outbreak has interrupted protest that had the ration since last october. And ski has left there for many years and has often helped us organize film shoots across latin america. Cheating would be usual. There you can meet your school. And they. Are pretty. Much the work to. Get on. As a what you will i mean when you come to do you know where you would rather. Be shellys. Them you can go to a place cleaning solution a mustache maybe. Just dont use what you please if you should eat. All of these are looking. At those people accused of
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