Gold's Protection of Purchasing Power & The Viability of Fiat Currency (w/ Simon Mikhailovich)

Video Transcription:

  Gold's Protection of Purchasing Power & The Viability of Fiat Currency (w/ Simon Mikhailovich)

Bill Kennedy: Simon Mikhailovich, co-founder of the Tocqueville Bullion Reserve Fund, welcome back to Real Vision. Simon Mikhailovich: Thank you, Bill. It's great to see you. Great to be with you here in New York City. So I think the last time you were on was last November, just after the US elections, I believe it was, and a lot has transpired since then. In fact, since the inauguration we've seen risk assets go up, both stocks and credit. But we've also seen safe assets rise in price, treasury bonds and most recently gold. And we want to talk about gold in just a moment. Tell me what you make of this environment where everything is rising. Well I mean the only thing that's become clearer since the election is that there's less clarity. That is clear. Now that we are seeing President Trump in action, I think everybody can form an opinion. We don't know what that means yet, but I think it's pretty clear that the uncertainty level has increased. Now if you're a long term investor, in let's say gold, and you went to sleep at the election, even if you knew who won, you went to sleep at the election I think the election day the price of gold was something like $1280 I forgot $1282-$1283 and today it's $1275 Right back where we started. Exactly, you wouldn't have known anything that happened in the interim. I think there are two different, I mean there are many different reasons why assets go up and down. There's the inflationary thesis, there's the Trumpflationary thesis, there is reflationary thesis. And then there is the systemic risk thesis, and the interaction of all of these things are driving asset prices. But the interesting thing is if one is a believer in the efficient market theory would look at these prices, you would have to conclude that the risk is as low as it has ever been in history. Right? Because the risk premium, which are spreads plus the rate, the risk free rate. So when you combine those they're hovering near 5,000 year highs. So the assets by extension are hovering near 5,000 year highs, as well. I'm sorry the rates are near 5,000 year lows and the spreads are near 5,000 year lows. Which means that the asset prices are at 5,000 year highs. The duration is as high as it's ever been, and duration is a measure of sensitivity for bonds. So it means the bonds are sensitive to the changes of rates as they've ever been. So you put it all together you would say, this is as risk free environment in some sense as that's what the market price is telling you, right. I mean I don't know why would anybody conclude that by looking at the facts. So the answer is confusion. So if you ask what changed I think there's even more confusion than there has been before, about facts versus where the markets are pricing. Yeah I think that's right and we seem to be going through this period of a reflationary trade. Which actually started well before the US elections, in July of last year, almost on the heels of Brexit, where we've seen the reflation trade really pick up. But recently in the last month or so that seems to have reversed itself. And I think we're starting to see some uncertainty to your point about growth and what growth is really going to be like under not just this administration but globally in a world that seems to be driven by populism, and this whole theme and notion of populistic fervor growing, whether it be through Brexit, or the Trump election, the elections coming up in France and Germany. Talk a little bit about how you view populism and its impact on the capital markets. Well first of all populism itself, the word populism simply means concern for the welfare and interests and voice of the common people. So the word itself there's nothing wrong with that, and it in fact, describes democracy or should describe a democracy the way it was envisioned. The way it is typically used is to describe, I guess, people like Hitler who was described as a populist, for example. People who use rhetoric, empty rhetoric, demagogues who use the cover of being for the people, where in fact they are promoting their own agenda. And that's why populism is often tied with totalitarianism, with different types of the totalitarianism. But that doesn't have to be that way. It is also I think the way that the establishment, or the word that establishment uses to describe people who challenge its hegemony. So a populist is somebody who is against the established status quo. But I think the bottom line is it describes a movement in situations where the democracy or the institutions seem to be not working for the common people. And so a movement arises that represents, or purports to represent, common people, and goes forward. So we're seeing this dynamic evolve as you're saying all over the world. I mean Brexit, the election of Trump, I think it's a symptom, or these are symptoms that the system is not working. I go into where I'm about to go with trepidation, because I'm going to mention the name that's very controversial, Vladimir Lenin who was obviously a Bolshevik, a man eater on a global scale, a villain on a global scale. But he was also a very astute regime change theoretician and practitioner. And so he formulated principles-- he basically said after the non success of the Russian Revolution in 1905, having thought that through, he came up with what he called a preconditions for a revolutionary situation. Now again let's not talk about Bolshevism or communism, in that context, let's just look at this in the context of regime change. So essentially what he said was for a regime change to take place, there are two conditions that are both necessary and they both need to exist, and they need to exist together. Neither one of them is sufficient without the other. And the two conditions were is that the ruled classes, classes that are ruled, proletariat in his case, are no longer willing to abide by the status quo. But that was not enough he said. It would also have to happen, is that the ruling elite is unable to use the tools that have worked before to manage the economy and the political process. So economic systems could change political systems could crash. Correct. So essentially it's a very simple concept. It's basically a combination of a percentage of, significant percentage of, population or up to majority of the population getting fed up with things the way they are and willing to do something about it, in the context of democracy, vote against it. But at the same time there has to be a situation where the ruling, whether they are the ruling parties or whether the government, are able effectively to use the tools that have worked before. So if we look at where we are right now, the reason I say these are symptoms, I mean you clearly have a significant percentage of Western populations that are unhappy with the status quo, it's not working for them and they're voting against it. And even in France, for example-- In the Dutch election, Wilders who is a populist, anti-immigrant party in the Netherlands, he did not win. But even though it was widely reported he didn't win, he actually improved his position. His party picked up seats and now he's the second largest party in the Dutch parliament. Whether the French elections go one way or another, the fact of the matter is these movements are growing in influence, and if they don't pass this time, I don't think it's a trend that's going to stop. And the reason for that is precisely what I just said before, you have large portions of population that are not willing to abide by the status quo but you're also, we're observing in real time, how the tools that establishment has used. Look at the American political parties, neither the Democratic or Republican Party was able to field a candidate that got anywhere in this election. So the establishment Republicans didn't do any better than the Democrats. At the same time, look at the central banks all over the world and look at the QE's and the zero interest rate policies, I mean they have worked to support the markets and to prop up the asset values, but they have not worked to create growth, organic growth, in the economy for which they were intended. So the reflation trade may have worked, but the economic reflation, in fundamental terms, has not worked. I think I agree with that. We've suggested that the populist movement is a function that Joe Public has not had a pay raise in almost a decade. I think Hoisington Investment Management has a very good chart. It shows real disposable income per capita going all the way back to the 1950s. And you see a very clear period around 2004 2005 where that GDP per capita, or sorry disposable income per capita, is falling and it continues to fall. That chart can be drawn for the UK, for much of developed Europe, and I think it's this notion that people have not been able to move ahead economically, that's led to the symptom, as you call it, that we're seeing in the populist movement. Exactly, yes. No, I absolutely agree with that. I mean clearly the globalization has not worked, and is not working for significant portions of the population. And whether people think it's a problem or people don't think it's a problem, it's in fact a problem. And we are seeing the expression of this problem in these elections. And elections do matter. I think we are going to see that the Trump administration is going to be different. I'm not sure in which way it's going to be different but it's clearly going to be different. It is already different than what we've seen before. We don't know what kind of policies are actually going to make it through the process, through the institutions, through Congress or whatever. But Trump is changing things and the impact of those changes we cannot predict. So I go back to saying, if anything has increased with certainty, that's the level of uncertainty. And yet the markets don't seem to suggest that. Although, I would suggest that the movement up in gold and so far treasuries, are precisely the symptoms of that unease that is starting to develop among investors who are looking at the early actions of the administration and saying, we're not really sure what this means. He said all these things, but whether he's going to do any of them, or whether he's going to do some other things. But what the impact of things he will do, in the way that he will do them, is not really clear. So I want to drill down on that a little bit, because one of the things he said he's going to do a deal specifically with immigration. For those viewers who haven't seen you before and know your background I think you bring a very unique perspective to the immigration story. So can you share with us a little bit about your story, and how you see immigration impacting the populist movement going forward. There really two questions here. There's the question that you ask, but there's a bigger context behind. So let me first answer what specifically you asked, and then I will share how I view the relevance of my experience to what you and I are discussing. Clearly, it is not surprising, and it should not be surprising, that in an environment where the economy is not working for a significant portion of the population, the arrival of more population that's competing for, or potentially competing for the same jobs, and for the same resources, and for the same social welfare dollars, is not going to be positively received. It also has to do with the nature of immigration. The immigration this time-- American immigration in the 1900s, immigrants came from all over the world, but I don't think there was really any ideological drive behind those immigrants. And most of those immigrants were not really driven from their lands by war, they were more driven here by economic opportunities and arrived willing to work hard. There was no social welfare network, there was no safety net, and so economically it was a very different. That's the American dream, that's what we think about the American dream, you get here with nothing, by the bootstraps, and the second generation, hopefully, will do better. Immigration we're seeing now is primarily coming, or to a large extent in Europe particularly, coming from the Muslim countries. There's a significant cultural difference. There's a significant religious difference. There are welfare states which are being taxed by the arrival of these immigrants. There's economic situation that is difficult for the native populations, for portions of, significant portions of native population. And I think this is creating a lot of problems. This is creating a lot of enmity towards immigrants, which on the one hand, you can understand, on the other hand, from humanitarian grounds it is difficult to say, how do you throw out people or how do you not let people who are literally running from being killed. Well you know history even in the 1940s, the United States refused to accept some of the Jewish immigrants, there was a story of The Ship of Fools it was called, turned them away and, of course, they ended up going back to Germany and dying. So how do we, as a nation not repeat that mistake? So this is a tremendous bone of contention that I think is feeding the populist frenzy, if you will. But in terms of what you asked about my experience, as I told here before, I came from the Soviet Union. I grew up in the Soviet Union. I came here in 1979, with $100 and a suitcase, because that's all they allowed us to take, and without a passport. So my parents, myself, and my two grandmothers were stateless for six years after we got here. But the environment was different and I was able to go to college, and work my way through college, and essentially realize an American dream. I don't know that people that are arriving today would be afforded similar types of opportunities, given the economic situation that we are in. But from an immigrant perspective it's difficult for me to see how we could not take the people. But I can see why people that are in the country, and particularly in a disadvantaged economic position, would act politically to vote against that. And that is a part of what's creating these terrible tensions that we are observing, and is driving some of these populist movements. Now the bigger question about immigration, which my experience taught me, is that in analyzing where we are today and understanding how the process that we're going through is proceeding in front of our eyes, and why most people don't necessarily perceive the true nature of this process. And I think that has to do with the fact that history is cyclical just like weather is cyclical. If you think in those terms you realize that by the age of 10 every human being has had over 10 changes of seasons, I'm sorry forty changes of seasons, right, four per year. You know what's coming when the winter is, when March comes you know what's coming next. The ebbs and flows of empires, are not processes that occur four times a year. And frankly, they're not even the processes that occur in every lifetime. And so the concept of people don't learn things from history, have to do more with human nature. Just like kids stick their hand into the candle to know that the fires is, even if the parents tell them that they're going to burn yourself, but they have to know that, in order to know that. So this whole human condition, I guess, whereby we need to learn things for ourselves, and only then do we really believe things and recognize patterns, I think that's a very important lesson that I learned through this immigration experience. Because we lived in the Soviet Union during the decline of the Soviet empire, I guess. And a lot of the, not that the United States has anything to do with the Soviet Union the 1970s in any shape or form, but the nature of the arc, I guess of the historical process, there are a lot of similarities. I mean the last 20 years of the Soviet Union were in retrospect called the period of stagnation. Nobody thought of them as stagnation at the time, but they were, that's what it was. It was a period characterized by vicious foreign war, that the Soviet Union fought in Afghanistan. Spectacularly, unsuccessfully more so than American foreign wars because draft, and so it affected everybody. And corruption of the politics, corruption the political process, the economy wasn't working the perverse incentives I mean all those types of things are difficult for people to recognize if they've never seen them before. So to that point do you see a clear demarcation line between populism and totalitarianism? Are their signals that you would say we're tilting too far? I'm not sure that I would tie populism and totalitarianism, but I would say that I'm definitely seeing signs of totalitarianism in where we are. Well this episode this week with the man getting dragged off a United Airlines plane. Chicago flight. Chicago flight. Think about that. Think of could this have happened 30 years ago? I doubt it. I think it's another symptom. It's a symptom that speaks to the spirit of the times, that combines this sort of security state, the rise of the security state, where people at the airport, we all go through them, the indignities of travel, standing in these lines like cattle. Line through these waving queues and then arriving and being told to take off your shoes, and bend over, and raise your hands, and spread your legs. If anybody told anybody 30 years ago, or 25 years ago, or 20 years ago that this was going to be the United States or that this was going to be the United Kingdom, people would say you're out of your mind. And so here we are. On one hand, we have this, now on the other hand, we have no antitrust enforcement. So we have four airlines that essentially control the skies in the United States, and they don't really care that much about you. And so if you live in Atlanta, and if you don't want to use Delta, if you want to boycott Delta, then everywhere you fly is going to be two or three stops. That's just the way it is. So if you bring this together, then you have not very caring airline employees, who have locked in, or at least think that they have locked in customer base, and you have police force that looks by the way like special forces, as opposed to a white shirt and tie, yes, ma'am, no, ma'am. Completely militarized. Completely militarized, acting like an occupation force. Now I'm saying that, sounds radical, well this was said during the campaign by Sanders, for example, said that. Yes, I think these are symptoms. I am clearly seeing signs of, not just totalitarianism in political area but also in the financial area. Financial repression, the war on cash, tremendous difficulties that the Americans have in opening foreign bank accounts, all of these things to me speak to constraining of freedoms, freedom of movement, freedom of capital movement, freedom of choice, impunity in financial affairs, where big banks you know nobody ever went to jail. All those things, yes, it's very concerning and this has been something that's been very much-- And of course we're under surveillance, add to that, everything you read, everything you say in writing or on the phone is potentially recorded. And just again last week, I think it was, Congress passed the law that enables internet providers to sell your browsing information to anybody. Only for marketing purposes. Only for marketing purposes, of course just for marketing purposes. But think about it, you don't have a choice who your internet provider is, right? Because usually cable it's a duopoly, or maybe it's an oligopoly, maybe two or three choices, and they are all doing it. So, yes, these are very concerning. I'm not sure that they're tied to populism directly. But yes, history tells us that populist movements frequently evolve into totalitarianism dema- whatever the word is. So I think part of that is tiedDemagogues --to that uncertainty created by that environment with the economic system that we know today. Now we're going to talk about gold. We would have to go back to millennia to get the entire history out, we don't have enough tape to get through that. I'd like you to maybe just focus on the economic system as we know it today. And I think we both agree it was a leaving Bretton Woods, 1971, Nixon shock, the dollarization of finance, the financialization of markets. Talk me through how you think about the economic system that we're in today and how you see that changing in years ahead. Well, I think going to the last question, I don't think anybody knows where we end up, or how we end up there. But I think it's a reasonable observation to say that the crisis that we are experiencing today probably started in the 70s. It is probably the same crisis that started in the '70s. Let's put it this way, a heart attack is a symptom of heart disease. It's an acute condition. So we think, when financial investors think of a crisis, they're thinking in terms of a heart attack. But heart disease is what causes heart attacks. And heart disease is a long term condition that you can have for a very long time until it impairs you. And in some cases it impairs you terminally. And if you don't heed the symptoms then it is certain to impair you terminally, if not in the first attempt from the first heart attack, then it would be the second or the third if you keep not behaving correctly, and don't change your ways. So in that sense, I think that the heart attack, that signified heart disease, economic heart disease, happened in the 70s, which resulted in going off the gold standard, and essentially monetizing the economy, financializing the economy. I don't think anybody would argue that from the 1980s, if you look at all the charts, consumption which is 70% of GDP, has been subsidized by debt. So from production driven growth, we've moved to consumption driven growth, and at that it's a debt financed consumption driven growth. And so this is only what now 40 some years since the dollar has become pure fiat currency. And I don't know of any precedent, and I don’t believe there is any, for a fiat currency to survive. The record of fiat currency through history, 100%, is eventual failure. That brings us to gold, because the history of gold for 5,000 years, 100% record, is lack of failure, to this day. But I think it's difficult to understand how we could ever change from a credit driven economic system. How do we have a shock like we had in 1971, to go back to a gold standard or some other fiat currency standard. I just don't see, and I think a lot of investors are skeptical of, us being able to go that direction. I would go back to what I started, history repeats itself, because humans are humans. This is not a new concept. There's a great quote from John Kenneth Galbraith talks about that no field of human endeavor as the knowledge of history is as short as in finance, where people don't remember what happened before. Santayana said, that the biggest lesson of history, that people don't learn from history. But actually this idea is in the Bible. In fact, in Ecclesiastes 1:11-- I'm not Bible quoting person just somebody brought it to my attention, literally this week, and I looked it up. --there is actually a quote that specifically addresses this issue. It says and I paraphrase of course, that that we do not remember things that came before us, and those that come after us would not remember things that happened to us. That's clear. So human nature is human nature. So when you're saying, why is it that investors are comfortable with that. Why would one be comfortable looking at a picture of lungs that have cancer in it, why would you be uncomfortable if you've never seen lung cancer. How would you know what you're looking at? It takes a doctor to know what he's looking at. And so just because somebody is observing the facts, it doesn't mean they necessarily have any reference point. That doesn't mean I'm right. It doesn't mean I'm right, but I am observing something that is familiar to me from prior personal experience. And so I see the patterns that are disturbing to me. Now does that mean that these patterns will result in a complete collapse of the system as we know it? It may be or it may not be. The question really is, can somebody afford to take a bet that that won't happen, given the facts on the ground? And if they can't afford to take that bet, then what should they do to protect themselves. And that's always been my idea about gold. Is that gold can be seen as a trade, it can be seen as a lot of different things. And I would suggest that 99% of gold transactions in the west are trading. Druckenmiller sold his gold, I discussed in my last interview, the day Trump was elected and then he promptly bought it back after January when gold started going up. So if you're trading gold then you can be trading pork bellies, it doesn't matter, it's just all sentiment. But in terms of its being an insurance, that's why you have insurance. And I would suggest that the reason there's very little interest in gold in the West, is precisely because people in the West don't necessarily have first hand experience with the kind of adversity that potentially can happen. By the way just to be clear, this is not the end of the world. Nixon closed the gold window, this happened during our lifetime, we're still here. Russia, everybody says collapse of the Soviet Union, well if anybody goes to visit Moscow it looks pretty spiffy. Not that all Russia looks like that but it certainly didn't slip under the waves and causing a lot of geopolitical problems. And the collapse supposedly happened only 25, 30 years ago. So I would say that people should not confuse the reorganization of a financial system and the devaluation of currency with the end of life as we know it, with the physical life as we know it. That's a very big mistake. I think that's right but part of the volume of noise around gold and the economic system is our indebtedness. Global debt to GDP today, 325%, $220 trillion, $15 trillion added alone in 2016, those numbers are mind boggling. I don't know how big $220 trillion is. How do we wrap our mind around those types of figures. I'll give you a couple of ways to think about it. One that I've used in the past, and that is that a trillion dollars is a lot of money. Nobody understands how much money it is, because the numbers are beyond comprehension. So one way to think about a trillion dollars is, if one were to pay or receive one million dollars per day, right, it would take 2700 years-- Years. Years, yes. -- to either pay off or just spend whatever you want to do, a trillion dollars. So you would have had to start seven years before Christ was born, and continue making payments or receiving payments through today, that's a trillion dollars. The other way to think about a trillion is in terms of time. So let's say we say that a trillion seconds, right. So a million seconds is about 11 days. A billion seconds is about 31 years. So these are humanly understandable. Right so 11 days and 1,000 times more than 11 days is 31 years, but 1,000 times more than 31 years is 31,000 years. So a million is 11 minutes and a trillion is 31,000 years, I'm sorry 11 days to 30,000 years. That's the difference, so these numbers are absolutely incomprehensible. And nobody should try to comprehend them, because it's impossible. But the implication is not so much the numbers, but the leverage. It's always boils down to the leverage. You can count, if you count it in Hong Kong dollars multiply everything by seven and if you count the Japanese yen multiply everything by 100. So the numbers, absolute numbers, don't so much matter, the question is leverage, and the question is debt service. Those are really the questions. So let's talk about debt service because we hear from time to time the size of the debt doesn't matter. We can still grow, albeit slow, but the economy can still grow, markets can still digest more debt. But I think the debt service is a critical aspect that we forget, maybe you can talk about that. Many people, I'd say most people, are not thinking in terms of debt service. They're thinking in terms of absolute debt numbers and they're thinking in terms of absolute dollars, and that leads them to some conclusions that I don't think are correct. So for example let me give a specific example, the trick in this debt accumulation that we've been through, is very simple. In 1988, the United States had $2.6 trillion of debt, in that year the federal government paid $214 billion in debt service. In 2008 we had $10 trillion in debt, and that year the federal government paid 430, I think, something like that. I'm sorry $450 billion of debt service. So from 214 to 450 so the debt went up four times, and the debt service went up two times, a little over 2 times. But from 2008 to today 2016, let's say the last federal fiscal year, the debt was $19 trillion and the debt service was $432 billion. So wait a minute in 2008 it was 450 and in 2018 or 2016 right, 10 years just about 10 years later, it was 432 and debt went two time's up. It's a pretty good trick. That's the trick. That's the trick. So for the debt to continue to rise from today, interest rates need to halve for the federal government to be able to continue this trick. And that may happen, in theory, but if that happens we already have pension funds slipping under the waves, where they have life insurance companies having serious issues, because they have annuities where they promised 4%, 5% pay outs and of course they're having trouble making that money. So I think that the clock is running pretty quickly because there are swaths of financial establishment, that cannot live for much longer with zero interest rates, or for these ultra low interest rates. So either the rates have to go up, which essentially will tank the markets, because when discount rate goes up value of financial assets goes down. That still works. That still works. Or conversely then people who rely on funding their liabilities with- - People who rely on interest to fund their liabilities, essentially aren't able to do that. And we're starting to see that. Dallas pension fund is going down. There's a Teamsters fund in New York that's having major issues. CalPERS has just started slowly to bring down the assumed return rate from 7 1/2 to 7 I think. So these things are already under way. So under that debt load, I think it's fair to say, an inability to grow our way out, be it the US or globally. Austerity is not going to get there, we don't have that much to cut. It seems to be inflation or even a deflationary scenario, are the likely outcomes. So that brings us to gold, and to the TBR fund. So maybe you can talk a little bit about TBR's position and how you're trying to solve that problem with TBR. Sure if one is trading gold for price appreciation, in dollar price appreciation, and of course using different financial instruments is fine particularly if you're doing it in the short term. Although I have to say we were talking before we started, yesterday LBMA London Bullion Market Association fix, which is a daily fixing of the gold price, I wouldn't call it broke down for the first time, but I would say that something went wrong because, It was about 1% versus spot, correct? Yes, yes the pm fix, which in New York happened at 10:00 a.m. 6:00 p.m. In London, I think it was $1252 something and the futures at the same time and actually the trading in the spot market was going at $1264 that's $12 difference, that's a huge difference. So what that highlights, is that financial instruments that are backed by gold or use gold or structurally rely on various types of indices, are potentially exposed to the same financial risks that the financial instruments exposed in general. So if you own gold as a protection against various financial risks, then it shouldn't be exposed to financial risks. That seems to stand to reason that you shouldn't buy insurance against problems with the insurance industry from an insurance company, because your chances of getting paid, or getting paid correctly, at the right moment diminish. So TBR was organized to own gold in a way that protects the holders as much as possible from all kinds of financial risks, the risks of the banking system, the risks the financial system, the ability to diversify the holdings globally, and to provide investors with the best possible property rights. As a person who's spent the last, I don't know what, 20 years running a private fund I understand the difference between a product and service. Most people the best way for people to understand what I'm talking about is when you're buying app on your phone or when you're going sign up for a mutual fund for something they thing pops up where it says agree, those who would look behind that would see that there are many, many pages of agreements, that nobody reads, so they just click, Agree, get over the pain and they move on to things. That's a product. That's a product where the rights and obligations are heavily tilted towards the provider of the product and where the objective typically is to harvest as many fees in as obscure a way as possible. Let's put it this way, from different shave off fees in different places. Fiduciaries which are typically managers of private funds, represent the interests of the client, and so they typically charge a specific stated fee and their expenses, but those expenses are at cost they are what they are. And so TBR is organized in that way. So that's one feature where the difference is there there's an alignment of interest. Where in products there's not necessarily an alignment of interest. The other difference are the terms, it's always about the terms. Private funds in general and TBR just adopted a structure that's used by thousands of private funds, are privately negotiated because they are not available to regular investors, and they're typically heavily negotiated between the managers and institutions. And so over the years pension funds, insurance companies, investment companies, family offices, very sophisticated investors who employ lawyers to vigorously negotiate on their behalf. Right, so over the past 30 years these structures have been heavily negotiated and have evolved in a way that offers maximum protection, property rights protection to the investors and it offers a fiduciary environment so that should prevent things like Bernie Madoff. So owning physical, in a fiduciary framework. Correct. It's owning physical gold that's administered in a way where the manager represents your interests, the interests are aligned. And where there's an infrastructure, like independent administrator, that is not a part of the manager, that reports on what the fund owns of what everybody in the fund owns, where their auditors, their custodians who report independently, so triangulation. There's a whole framework of how it's done, to manage properly other people's money. And essentially we didn't invent anything we've just adopted it, to doing it this way. And I think it's critical because if one owns gold with the purpose of preserving purchasing power, and you mentioned purchasing power, of preserving purchasing power. Preserving the purchasing power is as much about preserving the claim to the asset as it is about the price. Let me give you an example. Let's say if somebody bought gold or owned gold and stocks in October of 2007, by March of 2009 gold rose 25% and stocks declined by close to 60%. Gold didn't rise that much, all right, but if you look at it, the dollar invested in gold became $1.25, the dollar invested stocks became $0.40. So the purchasing power of gold in terms of corporate assets, has increased threefold. And if you use this example in the 1930s, which was a much bigger dislocation, the dollar was devalued, gold appreciated by 70%, stocks declined by 90%. Now of course, gold was nationalized, but for those countries where that didn't happen the purchasing power of gold increased 17-fold relative to corporate assets and some other assets. So I think it's important to understand that the purchasing power is not about necessarily nominal prices, and this is why gold works in deflation as well as inflation. In inflation the price appreciation of gold historically, has either kept price or even outran the inflation. And in deflation if you own it through the right vehicle, where you preserve the ownership of gold, then you keep the purchasing power. Because having the gold locked up in a bank that won't give it to you, has zero purchasing power even though the price of gold may be sky high or wherever it is. So that's why I think it's very important for people, not just to focus on gold itself, but also on how they own gold and minimize the types of risks that they're trying to ensure against. So final question to you how do you talk to asset allocators, like myself, about what's this pension paradox, the idea that a foundation or endowment that has to meet their 5% distribution every year cannot do it through the purchasing power component of holding physical gold in their portfolio. Talk me through that. Financialization of gold using GLD is one thing but holding physical gold, how should institutions think about that? This is one of those situations where structurally it's very difficult, if not impossible for most institutions to hold physical gold because their objectives-- On the one hand they have long term objectives, of preserving the purchasing power of the endowment, or foundation, or whatever it is. On the other hand the managers, the employees typically, who manage the money day to day are judged by short term results. And so structurally it is very difficult for people to, particularly when it's not their money but it is their job, to do something that may impair their job in the short term, for the sake of potentially saving other people's money in the long term. I think it's almost too much to ask. It is not surprising to me that there's virtually no exposure that fiduciaries have to gold across the Western world. Therein lies a great opportunity, because fiduciaries typically act after the fact. So, if and when, or as and when, we go through a transition from the current system to a new system, which just mathematically is something that has to happen over, I believe, over the foreseeable future, without the end of the world. But financially fortunes will be lost and other fortunes will be made. It is my belief that, just like in the 70s, fiduciaries after the fact will be allocating money to gold just like they used to as a prudent fiduciary measure after the money has been lost, but that would be after the fact. And so before the fact that creates a tremendous opportunity for people who are not constrained by those considerations, such as private wealth, private investors, who can and do buy gold and even there the penetration is very low. So because gold has no cash flow, it is purely priced on supply and demand, I think it is fair to say that increase in demand is bound to increase the price. And if that doesn't happen you could still tremendously create purchasing power even without the significant price change, and that's what I think it's all about. Gold to me is a tool that you use to protect purchasing power, potentially enhance purchasing power, and then redeploy that purchasing power at the highest moment of hysteria, which inevitably happens, against human history, happens over and over again, into productive assets, which at that point will be devalued. So it's all about relative purchasing power it's not about absolute price. Good. Simon we're going to leave it there. Thank you very much. Always an interesting conversation and we appreciate your time.