CEO of Monetary Metals Keith Weiner sits down with Matthew Piepenburg of Matterhorn Asset Management to discuss gold, fiat and crypto. What is real wealth? What’s the relationship between interest rates and Bitcoin? Do central banks know what they are doing? Matt and Keith sit down to discuss it all.
Show Notes
Gold Outlook Report
Gold 1, Bitcoin 0
Gold Bond
Gold is the Best Money
The Case for Gold Yield in Investment Portfolios
The New Way to Hold Gold
Chapters
00:00-00:05 Intro
00:05-01:02 What is Gold?
01:02-02:02 Why is Gold Different?
02:02-02:34 How Monetary Metals Works
02:34-03:33 Gold 1, Bitcoin 0
03:33-05:02 Gold Lighthouse
05:02-06:08 Interest Rates and Crypto
06:08-09:01 Low Interest Rate Environment
09:02-12:09 Popping the Bitcoin Bubble
12:09-16:26 Do Central Bankers Understand?
16:26-19:33 Central Bank Critics
20:05-25:21 Trust in the Fiat System
25:21-27:42 What are the Solutions to Collapse
27:42-27:54 Outro
Transcript
Matt: This is Matthew Piepenberg from Matterhorn Asset Management, based out of Zurich, Switzerland, founded by my good friend and partner Egon Von Greyers. I’m a commercial director and principal at Matterhorn. And I’m sitting down today with Keith Weiner, the CEO and founder of the Monetary Metals. And he’s also the author of the Monetary Metals 2022 Gold Report, which Egon and I just read and really enjoyed. I think right out of the bat, one of the things we really like, Keith, is you have a very unique and I think sound understanding of what gold really is. And for many investors and pundits, gold is many things. It’s certainly not a risk asset. It’s not a stock or a bond. It’s also not a typical commodity. It’s not even a typical metal. It’s a monetary metal. And you have written about gold is frankly misunderstood. And in a lot of ways, people think about gold in the wrong way. And I’d like to ask you, what do you think is the right way to think about gold? How does that tie into the unique service that Monetary Metals was kind of a paid to own service?
Keith: Well, thank you for the introduction. You mentioned gold is different from other metals, different from all other commodities in a number of regards. By and large, we have virtually all the gold mines in 5,000 years of human history. The value of the next unit so far, for 5000 years, this is held. The value of the next unit is the same with the value of the previous unit. Now, if you think about it, that’s what you should expect to see in money. That’s how money should behave. That’s a matter of richer for. It’s always nice to have more money, which is not true for water, for lumber, for copper, for cotton, let alone anything perishable like oil, food. There’s a point at which you don’t want anymore.
Matt: Right.
Keith: And so people should think of gold as money. Not as an investment, not as something that goes up. So anyway, some people think we’ll buy gold, gold is going to go up. We accept gold from investors. We put it out in the productive businesses. We pay interest on that gold in gold. So again, money is not something that you buy and sell to make a profit in terms of some non money unit. Money is something you have to get a return in money. Right. And so we had a gold bonds, the first gold bonds since 1933 that we’re aware of, the nominated gold principle and Intraday and gold matured in I think it was September. So right around that time, Coinbase announced that they did a billion and a half dollars bond raise, which everyone said validates crypto and validate Bitcoin. So I wrote an article called Bitcoin, I’m sorry, Gold 1, Bitcoin 0, and said that gold is being used to finance a productive business. In our case, it was a mining company in Australia a Bitcoin, the leading public crypto company, Keith, either capital for growth and expansion, borrowed dollars. People say that the borrowing of dollars valid except in finance.
Well, anyway, Bitcoin can’t be used in finance because it’s promised to go up, right? So for Bitcoin, people going up as a feature. But imagine borrowing something that’s going to go up. So you want to buy $400,000 house, you take out a $400,000 mortgage, and in five years your mortgage is promised to be $400 million. Correct.
Matt: The debt levels at the corporate household, of course, even sovereign levels are so distorted, so profoundly distorted. And again, this goes back to two or three of your points. That kind of all coalesce, in the sense measuring your portfolio, measuring the value of your kilo bar, measuring the value of your balance sheet, measuring the value of your checking account by a Fiat currency, by a dollar, by a Bitcoin, by Ethereum, coin by any crypto or any other form of quote unquote money. Those are those constantly moving ships. It’s that Lighthouse of gold in the distance that stays consistently what it always is and how it has been and always will be. The world still wants to measure, as you said, even at the gold bar, price by a dollar or buy a Euro, or buy a Kroner or buy a ruble, although you can’t get that now online, you came to ruble price. All these distortions driven by low rates, driven by the need to create more, to offer more at lower and lower rates, to expand an increasingly discredited money supply in whatever the currency, whatever the zip code, whatever the country code has not changed.
It seems to be getting more and more desperate, more and more insane. And of which case, that low interest rate is just one other form of distortion when you combine artificially repressed interest rates with increasing money supply. But as you said, gold will always be money. It will always be a monetary metal. Everyone else is trying to find a way to find its value in there. And I have written and I really love to get your opinion because you’ve already touched on you’re flirting with it already, but you’ve touched upon it brilliantly in your report. There’s been a very emotional debate about cryptos in general, or Bitcoin versus gold. To me, it’s not a debate at all. It’s not a debate. It’s two very different asset classes. It’s not even apples to oranges. It’s totally different. And yet it’s emotional. There are many who have almost an evangelical faith in Bitcoin. I and Egon, and many others certainly applaud the middle finger that Bitcoin gives the central bank policies to Fiat currencies. I respect the intellectual argument behind it behind it. But when you cut down to the core of the matter, and I think you made a very brilliant distinction between a pyramid scheme and a Ponzi scheme, and when you were talking about gold versus Bitcoin, talk a little bit more about this low interest rates environment and how Bitcoin or cryptos are more like a pyramid scheme.
And once you hit max price, there’ll be mass sell offs. In other words, describe Bitcoin or crypto versus say something real like gold in a way that I think even crypto fanatics could understand without getting emotional, if that’s a large question.
Keith: Yeah. So the first thing I want to touch on is the low interest rate environment. So there’s a universal human need to be able to accumulate savings. We have a number of working years that were given to us on this Earth. And towards the end we know that we’re still going to continue living for a while, but we get into some sense and we can’t either don’t want to work anymore and can’t work anymore. And so we need to accumulate savings. Normally in the normal world, you do that by earning interest and it’s the compound. I started my career in 1990 and the standard advice at that time will set aside 10% of your salary, put it in bank CDs by the time you turn 65, I don’t remember whatever the magic number was, a million and a half dollars or something like that. And what was interesting was I was at a million and a half dollars, like 80, 85% of it was the compounding of the interest and only 15% of it was the status side of your salary.
So we’ve now taken that away. The central banks have waived the war on interest. They’ve won it’s all over the country is in a different place. We’re all in the same trajectory. Right. But the need is still there. So people turn to speculation as a surrogate for investment or savings. And the problem is, it should be obvious. And yet I said the entire Bitcoin movement has built this intellectual edifice for the purpose of denying this plain fact, which is whole generations can’t get rich by speculating, right? There’s this pyramid aspect to it, that who buys first and sells first does well. And then he might complain because it went up after he sold, but he has no real complaints because he put in one and he got back five. But in investing, the profit comes from your financing something seductive and the profit comes from that production. In speculation, you’re forking over your capital, your wealth to somebody else who can spend it an expectation or hope that somebody else will fork over even more of his life savings to you. And then when you get out there’s like a proud of all society as being.
And that’s what Keynes thought (John Maynard Keynes). This is sufficient for having destroy the capitalist order, the interest rates to zero, asset prices go to infinity. And all that speculation on asset prices decide to consume the capital that is inherited from a previous happier era. That’s the first thing about Bitcoin is that it’s income for you to spend. And there’s something kind of good about that the more you think about it. So then the next problem is how do you know that you’re not the guy who bought at the top? The old saying is they don’t ring the bell when the top happens. So the same people that are saying buy Bitcoin now it’s going to go up are the people that were telling you to mortgage your house and sell your business to buy Bitcoin 68,000 last November.
And they don’t know where the price is going. Clearly, I’m perfectly comfortable to admit I don’t know where the price is going to go. So if someone says, I want to buy victim, I’m like great speculation. Yeah. It’s going to obviously superior to go. Far superior to go that’s skyrocketing.
Matt: Absolutely.
Keith: And also crashing.
Matt: That’s just it, though, to me, it’s a speculators dream. We’ve seen speculation. It’s certainly unlike any other asset I’ve seen, even in the.com bubble where I came of age and risk assets, is an underqualified hedge fund manager in the I’ve seen other bubbles. We’ve all seen them. We’ve seen them in gross stocks, tech, the.com this time it’s different. We’ve seen it in real estate, mortgage backed securities. Nothing compares to Bitcoin, not even again. We can go to Tulip mania, all those talks. But I think what fascinates me, by the way, not even really sure where Bitcoin came from, where it’s head office is, who it’s board of directors are. There’s nothing there other than a massive platform for speculation, which again, will make you richer than gold in a few years or make you poorer in a few seconds. So it’s not a store of value or alternative currency, but it’s exactly what it is. Speculators dream or nightmare, depending on the circumstances in the window of time. We’re looking at what amazes me and going back to this, all these distortions come from low interest rates, though, and creating an opportunity where you can’t save anymore.
So you’re forced further and further on the risk branch to speculate in something. You get nothing, even in junk bonds, in inflation adjusted yields. So Bitcoin becomes this new seductive siren against which those ships you’re talking about are going to crash into the rocks at some point, at some point. Gold will never be that siren that will destroy it will ultimately get the last laugh. I’m not saying that as a gold bug or a gold bias. It’s common sense, this common sense, this historical understanding of money, this historical understanding of cycles of bubble assets from tulips to railroads to Bitcoin. How is it, even, as you mentioned, Keynes or vanishes or even you can talk to Adam Smith or you can talk to David Hume in the 1007 hundreds, any smart person who studied Econ in College beyond high school, let alone a PhD level or Masters level, who works at a central bank, who has the title of an FOMC member, let alone a chairman or chairwoman. How can they not know that this is happening? How can they not know of this distortion? Of course they do. And yet they continue to do the same thing, the same definition of insanity, decade after decade, thinking they can solve a debt problem with more debt solved for by creating more currency, to buy that debt, to repress the yields on the bond prices, their own sovereign IOUs, they drink themselves their own Kool Aid.
How do they think that’s a sustainable solution? They must know. It isn’t, in my opinion, because they’re not stupid. They may not be ethical or moral, but they’re not stupid. So do you see a scenario where they’ll blame it on covet? They’ll blame it on a war, whatever war makes the headlines this month, this year, next year, they’ll never blame it on the man in the mirror or the woman in the mirror. So at some point do you see what the IMF has been telegraphing almost since Covid became the headline that we need a new monetary solution. We need a new Bretton Woods 2.0. We need a new reset of global chapter eleven, a restructuring, a new central bank digital currency, which again is fiction for another way to create another fake currency, to create more debt, to keep this game of musical chairs going with a new form of music. How long can this fantasy, I think this lie continue?
Keith: The first quote that I want to offer is Sinclair who said you can’t teach a man something that his salary depends on who’s not knowing, right? Not necessarily a big fan of up in Sinclair, but I think you really hit the nail and head after your question, how long can it go? Adam Smith said there’s a great deal of ruin in the nation. You can have this ruin his policy and it doesn’t bring ruin immediately. It is depleting something. We are consuming the capital rather capital glance think there is, but we’re going deeper into that. One thing I want to touch on a little bit is I don’t think they understand. I’ve had a number of conversations with central bankers, not at the level of Jay Powell and Janet Yellen and Bernanke, but one level down and two levels down. I’ve met a number of them at cocktail parties and events or whatever, and I’ll find chatted with them and they’re smart people to get those PhDs. They learn differential equations, they learn a lot of stuff, but I liken them to let’s say we’re going to make an analogy to a race car. There’s the guy that’s capable of designing a new kind of engine.
There’s the guy who is capable of with a conventional engine building the cab diagrams to manufacture machine it. And then there’s the guy who knows how to set the driver’s seat and operate the steering wheel and the levers and the pedals.
Matt: Right.
Keith: And I think that’s where most of the central bankers are as their operators. They understand that if I push on this lever, this happens, and if I pull on this lever, this happens, but it goes broader than that. So I’ve appointed term. I really hope it gets traction and I call it the otherwise remarketed. And here I am kind of taking the test. The people that are advocates for free markets that can tell you what’s wrong, Keith, food truck regulation. They can tell you if you hike minimum wage, then what you’re going to do is you’re going to kill the jobs of the very people that you profess to want to help. They can talk about immigration quotas as being bad and high taxes are bad and all these things, they get that. But when it comes to money, their idea is that the central bank should centrally plan our economy and their little lives for us, but they should do it under there was a name route of the shiny new rule that instead of inflation targeting, which most central banks use in the US, dual mandate of inflation and unemployment, instead of that mandate that the central bank should use GDP targeting, for example, it’s still central planning but with a new equation.
Matt: Right.
Keith: And it’s an attractive nuisance, I guess.
Matt: Are they Cartesian mathematicians who are missing the historical forest for the trees in the sense, like you said, they’re operators. They understand their odometer, the stick shift, the gas pedal. They understand the various mechanisms, but they’re missing the larger picture here, that when you get to a certain point where you’re creating this much money, where debt is this much higher than GDP, that mathematically you can’t grow your way out of this. How can they not see that?
Keith: There are two different groups we’re talking about here. There’s the people that are actually running the central banks, and I really don’t think they see it. Then I’m not talking about their credit, the people in the Liberty movement who criticized the central banks, but their criticism is very muted. Well, we think you should be using a different rule of essential plan. Some of those guys have written books on the history of the gold standard and history of free banking and things like that, and they should understand it. But somehow several things happened along the way. First, the concept of sound money is perverted and stored like everything else in our world today. There wrote an article, Sound Money Project, which at the time was part of the Atlas network. It’s not part of AIER. That article argued that every industry, whether it’s farming, mining, manufacturing, distributing, is always improving efficiency. And I did some research into dairy and found that between 19 and 65 and 2012, you got more cows per acre, you got more liters of milk per cow, you have less labor per cow. Real resources independent of the bookkeeping, unit of account, how you measured it, real resources produced a gallon of milk was reduced by about 90% during that period.
So production is way more efficient today than it was even in the 1960s, let alone going back historical of the centuries. So suppose that across all industries, the rate of improvement and hence of price reduction was, let’s say, running about 2%. And suppose you’re the head of the central bank and the President says, I want a policy of inflation, inflation. I want sound money, which means I want a static price level. And suppose it were possible, which it isn’t, of course, to debase the money at a corresponding matching rate in the opposite direction as industrial efficiency. And so I had a picture that I took from the Saturday Evening Post. What was the name of the Norman Rockwell had this painting called The Double Rise. So it’s a woman buying a chicken and it’s on one of those stainless steel scales hanging from the chains from above the counter. Right. And the Butcher can’t see her finger because there’s some Butcher paper that’s curled over and she’s cheating by pushing up on she can’t see because behind the meat that he’s cheating and pressing down on the scale. So that’s a rhetorical question. Suppose that her finger was pushing up by 3oz and he was pushing down by 3oz.
Would anyone call that an honest or sound measurement of the chicken? Yeah, of course, they’re both cheating. And the fact that they happen to cancel in that instance doesn’t validate anyway.
Matt: Sounds like our CPI scale at the Bureau of Labor Statistics. It sounds like intentional, I equate it to a fat camp where they don’t measure the calories that come from beer, chocolate, or pasta, then they give you your weight. In other words, it’s just fascinating how they create a scale that’s so inherently bogus that two plus two equals one. And inflation as measured by the CPS, is another form of, to me, intentional disingenuous reporting. But again, it goes back to this question of trust and understanding from the high level to the mid level. If the retail investor in commodities in general are gold in particular, or risk assets, doesn’t understand these forces because they trust in some system that works when the very architects of the system have to know better. But most people don’t take the time to do the complex math, and they certainly don’t take the time to do the history. It’s like Andrew Dickinson why he founded Cornell University back in 1865. No one reads them anymore. I don’t think you could find them at Barnes and Noble. He did a very interesting book that came out right before the Federal Reserve came into existence in it was on Fiat money in France just prior to the destruction of all things French in the 1790s.
And if you read Andrew Dickson White account of the French Empire, which like America, found itself extended in too many wars, too much debt, not a lot of growth needed a quick solution. Print a little bit of money here just for the time being. Very smart people in the National Assembly, good people with math backgrounds saying this will be fine. It’ll only be a couple of months. It became an addiction. It went on and on. Pundits said it was a great idea. Journalists said it was a great idea. Markets ripped. Let’s solve all our debt problems with more money creation. In the end, it ended in a disaster for France. It was very similar. This was written long before QE one through four, Operation Twist. This was written in. It was written before Jekyll Island. Yeah. That was in the 1790s in France. And today I see a very similar thing where the math can be a little complicated for some people. The futures curve, I get it for some are not going to take time to look at that. Maybe the central bankers don’t want to look at that. Maybe they do want to look at that.
But history never like gold lies. It does rhyme, as Mark Twain said, like the National Assembly in France, like the Federal Reserve today or the UCB or the European Union in Brussels. So much self interest and ignorance and out of sight, out of mind, missing the wins and the surprises and the warnings of history or missing that Lighthouse that you talked about the very beginning. The obvious thing is you can’t create fake money over and over, force interest rates down, encourage more debt, encourage more fake money to pay for that debt and sustain your monetary system. And you can’t measure your wealth, whether it’s billions or millions or hundreds of thousands, whether it’s at a hedge fund, whether it’s in a portfolio, whether it’s a checking account at Goldman Sachs. If you’re measuring your wealth in those increasingly debased currencies by increasingly debased mentalities of experts who people increasingly rely on, who are openly ignoring the obvious, what is real wealth? What is real wealth? This goes back to the very title of your group, monetary metals. I’m sorry, it’s not a gold bug thing for the last 5000 years and long after Bitcoin is a memory, it’ll still be gold.
And people think that’s bias. They think that’s pushing a gold bug agenda. It’s just history and math. And I think if more investors understand history and math, don’t wait for the central bankers or your experts, your elected officials to understand. Trust me, Biden Harris, not even Trump. No one understands math anymore. Who’s leading the systems that we’re in. It doesn’t bode well. The analogy I use, Keith, always is, look, you and I can sit down and start one Martini at lunch and another one by the afternoon and by dinner a few more. We can have a few nights of martinis if we keep the martinis and maybe a Bloody Mary coming. But eventually, no matter how much we have learned to drink martinis, we’re going to have a hangover right now. We keep postponing the hangover. And again, it’s not gloom and doom. It’s not sensationalism anymore. I think we’re way past this. What amazes me is there’s still this going back to this idea from the vibe, there’s still a trust that some experts somewhere knows better, that the IMF and the reset or the global central bank digital currency, something will always save us.
And what I think is happening. I’m curious to get your opinion on this. Is it’s already falling apart? Because when you look at history and math, not just math, not just applied mathematics, not just contango, not just smartness on the SAT or the futures curve, but when you look at the combination of history and math and common sense, which everyone has, the Emperor really has no clothes. But when systems collapse, from ancient Rome to Weimar Germany to Venezuela to 18th century France, and it was a classic example, very similar parallels to what’s happening in America. France was the great Empire then America is today. It no longer was that. It no longer is today. As every regime from the 1930s to the 1790s starts to fall apart, it leads more and more towards autocracy, dishonesty censorship. I’m not going to get into a political conversation red or blue or purple. It’s irrelevant. As desperate systems begin to fall apart, individual civil liberties, freedom of the press, freedom of movement, freedom of expression from Canada to the Kiev starts to change. These things are the various things we saw happening. That system started to collapse in prior historical moments in time where debt was this high, fake currencies were this familiar, and the notion that some experts somewhere in the National Assembly of 1790, France or the US Senate or the Fed today is smarter than you when they’re clearly not.
Again, unfair question, Keith, but how does it all end? We know it doesn’t end well. None of us are going to time it. We’re already seeing the symptoms of the system cracking. What are the solutions? What can a retail investor, middle class 1% do? Again, our view is gold. Your view is gold, I think to common sense extent, but without trying to time it, which is a mugs game, how does this end? Well, I don’t see it. Again, that’s not to create sensational drama. It just simply can’t end well.
Keith: Either we change trajectory or end horribly when it collapses. It’s going to be terrible. And I think the closest real historical example we have is 476 Ad collapse of Rome. Very few people have any connection to food production anymore. Food production is done by a very tiny number of people with huge industrial scale equipment. And we’re talking about the collapse of industrial scale production. That’s going to be a collapse of not only food production but also food distribution. I live in Phoenix, which is a desert. There’s no water without electricity. Should we fail to produce energy, there’s no water. This is the killing zone. So it’s always better to have gold than not in a situation like that. I know somebody whose family escaped Hungary ahead of the Soviet tanks. They got to the border and some guard unit there with the machine guns in the whole thing. The father took off his gold watch and handed it to the little command. That guy said I’m going to take my minute on a patrol. That way I’ll be back in 15 minutes. You better not be here. We’ll shoot you and then Austria borders that we run.
And so they literally ran across the border into Austria and then from there. But that said I think that rather than planning to survive it until I got my guns and my gold and my ammo right I want to try to avert this. That’s the mission of mountain metals.
Matt: Well enjoy talking with you and we’ll look forward to another chance. Good luck with Monetary Metals. We’re really excited for you.
Keith: Alright. Thanks so much.
Matt: Okay buddy.
Keith: Take care.
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The Case for Gold Yield in Investment Portfolios
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