Here’s What I Learned at the New Orleans Investment Conference
I was homebound last week, per the COVID-19 situation, but still made a virtual trip to New Orleans, Louisiana.
I attended — and spoke at — the annual New Orleans Investment Conference (NOIC).
Founded by the late Jim Blanchard in 1975 — right after President Ford legalized gold ownership for Americans — NOIC has been one of the world’s premier “hard asset” events for 45 years.
There’s always a great lineup of speakers and exhibitors… and plenty of perspective on how to preserve wealth and make money in an era of runaway government spending in the midst of tumultuous events across the globe.
I filled a notebook with ideas, and I’m more than happy to share with Whiskey readers.
Let’s dig in…
“This whole mess is far from over,” said colleague Jim Rickards in his outstanding talk. “The recession is over. Now comes the depression,” he added.
Jim pointed out that the U.S. government — through the Fed — has issued $4 trillion into the economy, “to fight a virus that’s not going away.”
As Jim describes things, in the early days of COVID-19 last March and April, the disease was new and poorly understood. The idea — the “hope,” actually — was that it would burn out or mutate over several months.
“That $4 trillion in April was supposed to be a bridge, to get through the immediate hard times and take us into the summer when things would resolve. But for many reasons, things didn’t resolve.”
“The first wave of COVID-19 hit, receded and now we’re seeing a second wave,” said Jim. “But in many respects, this second wave is nothing but a delayed first wave because of the lockdowns and restrictions.”
Now the U.S. is looking at continued levels of government control and restrictions over many aspects of life: things like when and where people work, how they travel, go to school, interact via social distancing, etc.
Jim was critical of the overall approach of statewide lockdowns across the country. “Lockdowns don’t work,” he said. “We can see what has happened. We’ve destroyed the economy for little overall gain.”
While governments and many large companies — tech plays, large retailers and the like — remained up and running over the past months the lockdowns “devastated small businesses.”
Jim pointed out that many politicians are dismissive of small business, in part because those kinds of firms don’t have large lobbying efforts ongoing in Washington, D.C. They’re simply invisible or irrelevant to the deep state.
“But small business generates 45% of GDP in the American economy,” Jim pointed out. “And small business accounts for 50% of jobs,” he added.
“Many of those closed businesses are done, finished,” said Jim. “The owners are broke. They couldn’t afford to open their doors even if the lockdown went away tomorrow.”
The impact of what we’ve done will be generational, said Jim.
He cited a recent study from the San Francisco branch of the Fed, to the effect that “it takes 30–40 years for the economy to recover from the effects of a major shock like this pandemic.”
In other words, many people have been shocked and frightened. They have new living habits and will never return to old spending patterns. “It’s like if your parents grew up during the 1930s,” said Jim. “They taught you to collect steel cans and save rubber bands, because you could get some more use out of them.”
According to Jim, the U.S. economy slid into technical recession for the first half of 2020, for obvious reasons as the country shut in. And yes, things improved in the third quarter.
“But that third quarter of better economic activity comes off of a deep pullback in the first half of the year,” said Jim.
Any current and future growth will launch off of a lower baseline. “It’ll take many years to recover back to where we were in just 2019,” Jim added.
Another of Jim’s points was that “stimulus isn’t stimulus. Increased money supply doesn’t stimulate anything because you need ‘velocity of money’ too.”
Yet within the U.S. economy, velocity of money has collapsed. Here’s a 60-year chart from the St. Louis Fed illustrating the point…
Velocity of Money, St. Louis Fed.1
First, velocity of money is “a measurement of the rate at which money is exchanged in an economy. It is the number of times that money moves from one entity to another… It’s the rate at which consumers and businesses in an economy collectively spend money,” according to Investopedia.2
Per the chart above, money velocity in the U.S. economy held relatively steady from 1960 to the 1990s, when it kicked up. Since the mid-1990s, velocity has declined, which many economists attribute to aging baby boomers throttling back in the face of retirement.
But in 2020, velocity simply plummeted. According to Jim, this was because of the lockdowns.
Obviously, people who stay at home are not outside taking trips or traveling, not driving as much, and buying gasoline or using airlines and hotels, eating at restaurants, going to movies or sports events, etc.
Meanwhile, people who lost jobs from the lockdowns cut back on spending as well. Absent regular income, they tended to economize, in many cases living on greatly reduced income from unemployment comp.
“Without velocity, it doesn’t matter how much money the Fed or U.S. Treasury pumps out,” said Jim. “It’s not going anywhere.”
Jim pointed out that if velocity of money is relatively strong, then a dollar of government spending can generate a dollar or more of growth within the economy. But when velocity of money crashes, a dollar of government spending can actually be negative toward growth.
“The problem we’ll face in the future,” said Jim, “is if and when velocity spikes back up. Then that $4 trillion will begin to churn and we’ll see a giant spike in inflation.”
This line of discussion clearly favors people owning gold and related mining shares.
The downside risk is limited, while the upside is wide open considering the macroeconomic setup.
And there’s much more to say about Jim’s talk, but let’s now hear from another NOIC speaker, this one discussing the nature of government during crises…
“If you ask most people,” said British economic writer Dominic Frisby, “they’ll tell you that the largest financial outlay or investment of their life comes with buying a house over time.”
“That’s not correct,” he pointed out. “No, the largest investment most people make over the course of life is in their government, via taxes,” he said bluntly.
Frisby spoke to NOIC via Zoom link from his home in Britain, illustrating the ease of bringing thoughtful minds and people together via technology.
Frisby just wrote an excellent book on government revenue raising titled Daylight Robbery: How Tax Shaped Our Past and Will Change Our Future. He has a vast array of facts and well-formed arguments inside his head.
He pointed out that across time, “Most new taxes and tax programs come when the country goes to war or must deal with widespread public emergency.”
That is, war or similar events allow government to impose taxes and grab political power over daily life. Then when the war goes away, most of the taxes and power grabs remain in effect.
For example, the U.S. practice of paycheck tax withholding was implemented as a revenue collection method during World War II. Today, 75 years after the war ended, this form of tax collection is simply a fact of economic life to most people who work for wages.
Frisby sees the COVID-19 pandemic as another chance for “a government land grab” in terms of taxes, power and control over people.
“Government has seized great levels of control and won’t give it back,” he noted. It’s ubiquitous, from wearing face masks to restrictions on business hours, tighter controls over schools and education and even shutting down religious services.
Don’t think that many of these measures will lift anytime soon, he warns. “We’ll be living with COVID-19 levels of government control for many years, if not generations,” Frisby noted.
Frisby pointed out vast, current distortions in the economy, directly caused by COVID-19. And technology both amplifies and masks the disparities.
“People focus on the stock market,” he said. “They say, ‘Oh, it’s great that the stock market is going up.’ Well, OK, but…”
Frisby pointed out that much of what moves the stock market anymore is technology shares, companies like Apple, Facebook, Google, etc. Yet “they are doing exceptionally well, in no small measure because government has imposed restrictions that favor their products in a time of worldwide concern over disease.”
Frisby illustrated the clear divergence between a rising market for “tech” during COVID-19 while other vast swaths of the economy suffer. He pointed out that he was addressing NOIC from his home in the U.K., which means “a few dollars’ worth of business for Zoom.”
At the same time, per Frisby, “I didn’t buy an airline ticket, fly to New Orleans, take a taxi, stay in a hotel, eat meals at restaurants and such. So overall, my speaking to NOIC is a significant net loss to the economy.”
A related issue is that government policymakers tend to focus on big, visible metrics like stock market valuations. “They say, ‘Look, the market is up so we must be doing well.’”
Frisby calls this kind of thinking “ruling-class arrogance.”
He amplified the point, saying “a calamity strikes, and bureaucrats keep their government salary. They feel no personal economic pain. They go to work and watch things play out as the public scrambles. Then they come away thinking that they must be solving problems through their brilliant staffing and planning.”
Frisby’s point has to do with perception: meaning what someone sees and believes from watching or reading third-party “news” versus knowing how things are playing out in reality.
It points toward another major issue, which Frisby calls living under a “mediaocracy.”
That is, modern media have transformed democracy. Media have become so all-powerful and pervasive that they have nearly replaced governance by elected officials and somewhat accountable bureaucrats.
The problem is that much of media are dominated by people of like minds who attended similar schools and hold a common set of beliefs, “much of it heavily biased to the political left.”
Frisby pointed out that in the U.K., governance has drifted far from a traditional sense of political responsibility toward mere voters. Anymore, political actors tend to play toward media biases.
Set aside elected officials; even bureaucrats in civil service jobs fear saying or doing something that will draw negative headlines, if not a media campaign against them or their organization.
The result is that a dominating, left-wing media tends to pull politicians and policy steadily toward the left.
Frisby sees the leftward drift as a widespread phenomenon in Britain. And he noted that Britain is just a few years ahead of how things are playing out in the U.S.
Be warned, in other words. We already live under a vast scope of “control” that we thought was normal as recently as last January. And as 2020 progresses into next year, and the year after next, there will be more and more control over time. The groundwork is laid.
Of course, there’s much more from New Orleans and the NOIC, but it awaits another article.
On that note, I rest my case.
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Managing Editor, Whiskey & Gunpowder
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