Episode 53: How To Reopen The Economy

Description:

The U.S. is grappling with the right way to reopen its economy. Economist Richard Duncan joins Tom to discuss short-term and long-term strategies to navigate the unprecedented shutdown of the world’s largest economy.

SHOW NOTES:

04:28 – What’s Driving Down Oil Prices?

05:52 – When Will Oil Prices Rebound?

07:39 – How Will The Economy React Longterm To The Coronavirus Crisis?

10:38 – Why Does Tom Believe The CARES Act Is A Political Payoff?

12:32 – Does The Government Need To Flood Markets With Money?

17:35 – Why Shouldn’t We Be Concerned About The Deficit?

19:14 – What’s Creating An Economy Of Bubbles?

22:01 – What Happens To The U.S. Economy In The Next 3 Months?

26:33 – How Will Globalization Be Impacted?

28:32 – How Will Coronavirus Impact The U.S.-China Trade War?

33:46 – How Can Individuals Protect Their Wealth During The Crisis?

Transcript

Announcer:

This is The WealthAbility® Show with Tom Wheelwright, way more money, way less taxes.

 

Tom Wheelwright:

Welcome to The WealthAbility® Show, where we’re always discovering how to make way more money, and pay way less taxes. Hi, this is Tom Wheelwright, your host, founder, and CEO of WealthAbility®. So, here’s the question, are we going into a recession, a depression, or none of the above? So, obviously, we’re at a time when the US is starting to talk about reopening. And today you’re going to discover how to basically navigate this new economy, and what to do about it.

 

Tom Wheelwright:

We have history made today with oil at an all-time low. We have Just wild swings in the stock market. We have huge unemployment. And we have a very special guest, one of my favorite people on earth. Richard Duncan, who’s an economist, and an author, and a speaker, and one of the smartest people I’ve ever met in my entire life. So, Richard, thanks for being on our show.

 

Richard Duncan:

Tom, it’s great to be on your show. It’s great to be back in touch. Thank you for having me on.

 

Tom Wheelwright:

Oh, for sure. So, Richard, why don’t you just give them 30 seconds, and then I’m going to, of course, tell stories, but give them 30 seconds about who you are, and what you’re doing, and how in the world did you end up in Thailand?

 

Richard Duncan:

Okay, 30 seconds. Born in Kentucky, grew up in Kentucky, went to Vanderbilt. After Vanderbilt, I ended up backpacking around the world for a year. I saw Asia was booming in early 1984. So, after a couple of years back in business school, I flew to Hong Kong in 1986, and found a job as a security analyst, and I’ve been living in Asia most of the time since then, moving around between Hong Kong, and Thailand, and Singapore.

 

Richard Duncan:

And over time, I became an economist and a strategist. I was the Global Head of equity strategy for ABN AMRO Asset Management based in London, looking at all asset classes globally, and I worked for the World Bank for a couple of years in Washington as a financial sector specialist. And I’ve written three books along the way on the global economic crisis, and hopefully, a fourth will be coming out before too much longer. And now, I produce a video newsletter called Macro Watch as my main business.

 

Tom Wheelwright:

Well, thank you. That’s awesome. So, Richard and I go way back. We did a tour. I remember very well our time in Italy, when we were with Robert Kiyosaki, and the success resources people, but my favorite memory of Richard Duncan, and it’s historic today because literally, there was a point in time when oil futures were a negative $37 a barrel, meaning they were paying you $37 to take oil off their hands.

 

Tom Wheelwright:

And I remember Robert had a three-day seminar, and the main topic was gold if I remember right, but Richard was up on stage, and we had these oil guys up on statis, truly Texas oil man, right? I mean, they had the accent, they had the boots, they had hats, they had everything. And Richard, I’ll never forget. You said two things that I remember Richard said. He says, first of all, he goes, “So, you guys, there’s going to come a time when oil is $8 a barrel.”

 

Tom Wheelwright:

And they’re like going, “No way, it’s going to go to $150 or $200 a barrel.” And you go, “No, no, no. In fact, it’s going to go so low, you’re not even going to remember the smell of gasoline.” I’ll never forget that. And so, what happened today? Richard, literally, what happened today? Why did oil do this? I mean, it’s been low enough starting with Russia, and pushing the oil production, but then they just cut production. How is that they cut production by 10? Was it 10 million barrels a day and now, we’re down to basically zero for oil?

 

Richard Duncan:

So, right. They cut production or they say they’re going to cut it by 10 million barrels a day beginning the first of May. But the analysts are saying that the demand for oil has dropped by more like something between 20 and 27 million barrels a day. So, there’s just too much oil on an enormous scale.

 

Richard Duncan:

And in the United States, there’re just not enough oil facilities to accept that oil. In other words, they don’t have any place to put the oil. So, when the futures contract, anyone who has a future, of course, a futures contract, when it expires, they have to take physical possession of that commodity, in this case, oil.

 

Richard Duncan:

They have to take the oil that they have this contract on, and there’s just no place to store it. So, at that point, about 12 hours ago, as you mentioned, the price of oil, it was negative $37 a barrel because there was no place to store the oil. And that’s where we are. There’re so much excessive amounts of oil in the world that you can’t give this stuff away.

 

Tom Wheelwright:

Okay. So, let’s say they start reopening the economy and so forth, is it going to go back to… I mean, are we going to go back to see $40, $50, $60 a barrel oil?

 

Richard Duncan:

I think yes, there will eventually the over rebound probably up to those levels. But what we are seeing now and yesterday is a preview of what’s going to happen to oil in the future. And within a couple of decades, we’re going to have such technological advances, solar energy, electric cars, there will be no need for oil. Oil will be worthless. You won’t be able to give this stuff away, and you won’t be able to remember what gasoline smelled like. So, this is just a preview of oil’s future.

 

Tom Wheelwright:

Well, I thought it was just so awesome that today of all days, that today… so we’re recording this on Monday, April 20, and today, I have Richard Duncan, who I remember predicted it would go down to zero. So, I think you should own that prediction, seriously. I mean, there are people who made way less important predictions in the future, and they made billions of dollars. I totally think you need on this record. I think it’s awesome. So, okay, so you’ve got a crystal ball clearly.

 

Tom Wheelwright:

So, let’s talk about your crystal ball when it comes to the new economy or the new normal as everybody’s talking about it. What’s going to happen? I mean, what do you see? I’d like to know a couple of things. First of all, what’s going to happen in the next three to six months? And then what do you see in the long run as far as how will the economy react long term to this shutdown, and whether it’s short term or ends up being a long-term shutdown? I’m sure it has an impact, but what do you think is going to happen?

 

Richard Duncan:

Okay. So, I’ve made five Macro Watch videos on this. The first one was on March the 1st, the second one was on March 15th. And that was called Recession or Depression. And the answer to that question then and now is this, whether or not we have a recession or a depression depends entirely on the size, and the speed of the government’s fiscal, and monetary policy response to the crisis.

 

Richard Duncan:

In other words, how quickly the US government deficit spins, and how much money the central bank creates. So, that was March 15th. That’s a long time ago in terms of what we’ve seen since then. People weren’t talking about a depression at that point. But I’ve been surprised and impressed with how quickly the government has moved the following week. In fact, within hours of that video being published, the fed radically expanded the amount of money it was creating.

 

Richard Duncan:

And then on March 23rd, it moved to what people are now calling QE-Infinity. Essentially, they’ve said that they’re going to create however much money is necessary to keep the economy from collapsing. And in the five weeks, since March 11th, the fed has created an extra $2.1 trillion in five weeks, that’s expanded the size of its balance sheet by 48% in five weeks.

 

Richard Duncan:

And on top of that, congress passed the $2.2 trillion rescue bill, just to keep the small, and medium-sized businesses, and large corporations, and individuals from all going bankrupt, and from the banking system are failing. So, everyone needs to understand that if the government had not taken these measures, we would now be in something at least as bad as the Great Depression, and probably worse because it would have happened so quickly.

 

Richard Duncan:

All the banks in the United States would be in the process of failing businesses, small, medium size, large corporations, the banking system, everything would be in the process of collapsing. Unemployment would be somewhere between 30% and 50%. The reason we’re not there is because of the government intervention.

 

Tom Wheelwright:

So, I’m trying to understand this because having not gotten any of that money and most small businesses didn’t get that money, it mostly went to Ruth’s Chris, and McDonald’s, and Boeing, and the airlines. So, to me, I read that bill several times. And to me, it was a pork bill, okay? It was all pork there with the exception of the $1,200 checks that are going out to the public, which I think was really smart, because to help keep social unrest.

 

Tom Wheelwright:

Frankly, that, plus the unemployment, I think those two pieces were very smart. I think the rest of it was completely… personally, I think it was mostly a political payoff to big businesses. Why do you think we would have been in depression if they’ve not done this?

 

Richard Duncan:

Well, also, people who are unemployed are getting an extra, what is it, six?

 

Tom Wheelwright:

Yeah. I think that unemployment, that’s why I said I think that $600 a week is very important. I do.

 

Richard Duncan:

So, that’s the reason people can still pay their rent, and pay their mortgages, and why they’re not being thrown out in the streets, and losing their homes, leading to, as you said, to social unrest. But what we’ve seen so far is just the initial down payment. There’s going to be much more.

 

Tom Wheelwright:

For sure.

 

Richard Duncan:

There’s going to have to be much more or things will collapse. So, the reason I said we would be in the process of moving into a great depression is because if all the medium-sized businesses, small, medium-sized businesses fail, if the corporations all failed, and if the individuals all defaulted on their car loans, and their mortgages, then all the banks would collapse.

 

Richard Duncan:

And if the banks fail, that means that all the savings disappear, and that all the wealth is destroyed. And so, everything in the economy would come to a complete standstill, and people would begin going hungry.

 

Tom Wheelwright:

So, it became very clear in 2008 with the tarp, and all of the success of QEs that Bernanke and his successors had a belief that the biggest issue that happened during the depression was not putting enough money in the economy. So, what I’m hearing you say is look, that is the answer, that there’s so much money coming, the way I look at, there’s so much money coming out of the economy, that the Central Bank and the treasury needs to put the money back into the economy. I mean, is that too simplistic way to look at it?

 

Richard Duncan:

That’s the accurate way of looking at it. Another way of expressing something quite similar is to understand that our economy is driven by credit growth. Credit growth has been driving economic growth in the United States for decades. And any time since 1950, between 1950 and 2009, every time credit growth grew by less than 2% adjusted for inflation, the economy went into recession.

 

Richard Duncan:

And then, it didn’t recover from recession until there was another big surge of credit growth. So, what do I mean by credit? Well, credit is the other side of the coin of debt. So, you can think of this as all the debt in the country, government debt, household sector debt, corporate debt, financial sector debt, all the debt. If it grows by less than 2% adjusted for inflation, there’s a recession.

 

Richard Duncan:

Well, since 2009, credit hasn’t been growing enough to drive the economy. So, the fed has had to engineer higher asset prices, it’s had to push up the stock market and the property market to create a wealth effect to supplement the credit growth. So, the economy has been driven by credit growth, and when credit growth is not sufficient, the fed through very low interest rates and several rounds of quantitative easing, pushed the stock market higher, and that created wealth.

 

Richard Duncan:

So, this crisis, we’re very vulnerable in this situation because now, this crisis has, of course, asset prices have already fallen dramatically. At one point, the stock market was down more than 30% before the fed announced its QE-Infinity program, which by the way, marked the bottom of the stock market. Since then, the markets rallied more than 25%. But this virus would have meant that credit would have contracted sharply, and that asset prices would have crashed without this intervention from the government and the fed.

 

Richard Duncan:

So, we would’ve had a double blow that would have been absolutely certain to drive the economy into a protracted Great Depression, if we had not had this new government borrowing. So, the $2 trillion rescue package from congress that we’ve seen, that means that the government will be borrowing an extra $2 trillion. And as I’ve mentioned, so far, the Fed has created an extra $2.1 trillion.

 

Richard Duncan:

And again, this is just the down payment. We’re going to see much more government borrowing, much higher government budget deficits, and much more money creation by the fed to finance those deficits over the years out.

 

Tom Wheelwright:

There’s no question. I mean, even in the short run, I think by the end of this month, we’re going to see another bill in congress, which will be another multitrillion dollar bill. My suspicion is it’s going to bail out real estate because real estate is in deep trouble right now. Because you say people are paying the rent, but in fact, a third of people didn’t pay their rent, and under the CARES Act, they don’t have to pay their rent or their mortgage.

 

Tom Wheelwright:

And the mortgage holders being the investors, they get to defer their mortgage payments. So, it totally makes sense. I mean, this seems like it’s a snowball effect, that if you don’t do something about the snowball to slow it down, and to make it smaller, then that snowball just overruns things.

 

Richard Duncan:

Well, that’s right. I mean, in this disaster scenario, the government needs to effectively bail out everyone. It needs to provide loans essentially to everyone who needs one, without worrying too much about how many of those loans are going to eventually be repaid. That can be worked out later. But the United States is a very wealthy country. And luckily, we can afford to do this.

 

Richard Duncan:

I mean, for example, the size of the US economy, the GDP last year was $21 trillion. Now, the government debt is about 110% of GDP. So, this is a little bit larger than the economy. But just for an example, an extreme example, even if the government had to spend an extra $21 trillion supporting the economy through this crisis, well, that would double the size of the debt to the GDP.

 

Richard Duncan:

It would go up from 110% of GDP to 220% of GDP if the government had to spend $21 trillion. Well, even at 220% of GDP, that’s would still be less than the level of Japanese government debt to GDP right now. So, there should be no problem, no difficulty for the US to spend whatever it takes. It’s not going to take $21 trillion. But if it takes five, or even 10, then so be it. That’s just going to be the price we have-

 

Tom Wheelwright:

So, let me ask you this. So, of course, I run around with a lot of people that still want to be on the gold standard. And they’re going, what… and the question they’d go is that they’re so concerned about the deficit. Why shouldn’t we be concerned about the deficit?

 

Richard Duncan:

Well, if we were on a gold standard, then none of this would be possible. It wouldn’t be possible for the fed to create any money. And therefore, it wouldn’t be possible for the government to spend so much money. So, all of these programs that are keeping the economy from collapsing into a great depression, none of that would be possible. So, those things were not possible in the early 1930s.

 

Richard Duncan:

We were on a gold standard, and that’s why the economy collapsed into a Great Depression during the early 1930s because the government wasn’t able to undertake these massive spending programs, and the government and the fed wasn’t able to create trillions of dollars to reflate and keep the economy inflated. That’s why being on a gold standard would be absolutely disastrous.

 

Richard Duncan:

And that’s why people like Ron Paul, who said, ban the fed, they were absolutely 100% wrong. If we had banned the fed, then we’d now be in a great depression. So, we’ve moved into a different world where we’re not on a gold standard, and that creates opportunities that were not available to us in the past.

 

Tom Wheelwright:

But doesn’t that also create bubbles? I mean, basically, every 10 years now, I remember 1990, the real estate, the RTC and the real estate crashed there, 2000 and the stock market crashed there, 2008, ’09, ’10, the last big recession and now, 2020 and we’re in another big at least recession. So, it seems like this is on the one hand, it can bring you out real fast, but at the same time, isn’t that what’s creating the bubble in the first place?

 

Richard Duncan:

Well, you have to go back a little bit further in history and start, I think with World War II. In World War II, US government debt increased five times in four years. And the fed’s holdings of US government securities increased 11 times in four years. That was what was necessary to prevent the United States from being destroyed by our enemies and win the war. So, that was an emergency.

 

Richard Duncan:

That was a war. That was a crisis. It was an all-out war. The government had to spend whatever it took to win the war. And this government spending took the level of government debt to records that had never been seen before. But we won the war, and afterwards, all that government spending during the war, that created extraordinary new technologies, and created full employment.

 

Richard Duncan:

And that set off a 20-year economic boom. But it required when the war ended, the government just couldn’t go back to the level of spending that had existed that it did before the war. Because if it had suddenly stopped spending, the economy would have gone back into the Great Depression. It was only the World War II that pulled the US out of the Great Depression just to start with.

 

Richard Duncan:

So, after the war ended, the government continued was much, much larger than it ever been before, and it continued to grow. Because if it had not, we would collapse into a depression. So, you have to understand that the government has essentially been managing the economy at least since 1941 with help from the fed.

 

Richard Duncan:

And so, yes, this non-gold standard that we are on since that time, it has inclined to create bubbles. But it’s also created the greatest economic boom in history. World War II ended 75 years ago. And what we’ve seen since then, is the greatest expansion of prosperity in the world that the world has ever seen.

 

Richard Duncan:

Hundreds of literally billions of people around the world have been pulled out of poverty as a result of the US having very large budget deficits, for instance, and having very large trade deficits, globalization has come into existence, and the world has been completely transformed. Much of that would not have happened if we’d stayed on a gold standard because there would have been so much less spending.

 

Tom Wheelwright:

No question. No question. You wouldn’t have the bubbles, but you wouldn’t have had the growth. I think that that’s pretty clear. Let’s fast forward.

 

Richard Duncan:

But still have the Soviet Union for that matter as well because we-

 

Tom Wheelwright:

True. Right. So, let’s fast forward a little bit. So, Richard, what do you think happens… let’s start with the next three to six months, what happens?

 

Richard Duncan:

Well, so you mentioned the people being concerned about the budget deficit. Well, in the past, people needed to be concerned about the budget deficit because if the government spent too much money, it caused high rates of inflation. And if the central bank created too much money, that caused high rates of inflation.

 

Richard Duncan:

But what we’ve seen over the last 12 years since 2008 is that the government has expanded, government debts more than doubled. This was before the crisis started just in the last 12 years. So, government debt expanded by $12 trillion after 2008. And the fed financed roughly a third of that by creating money, and buying government bonds, and we didn’t get any inflation.

 

Richard Duncan:

We didn’t get any inflation because we had globalization. This time was different. A huge increase in the money supply, and a huge increase in government borrowing did not cause inflation at the consumer price level because globalization is so deflationary. United States can buy so many goods from the rest of the world where people are happy to work for less than $10 a day.

 

Richard Duncan:

So, globalization was deflationary, it had offset all the inflationary pressures resulting from the large budget deficits, and the money creation. And that’s what we’ve seen. So, that means that we’re probably going to be able to do that again. So, from the end of 2007 with time that quantitative easing, the third round ended in October 2014.

 

Richard Duncan:

Over those seven years, the size of the fed’s balance sheet or in other words, how much money it created, the size of the fed’s balance sheet expanded by five times, and we still didn’t get significant inflation at the consumer price level. Now, if looking forward, it’s very certain the fed’s balance sheet and the amount of money that they create is going to expand very rapidly again.

 

Richard Duncan:

But if it increased five times now from where it was before this virus crisis started, then that would effectively give the fed the ability to create nearly $17 trillion more that they could use to buy government bonds, or to prompt up the economy in various other ways. Now, they recently announced a $2.3 trillion program, where they’re going to begin lending money in all directions.

 

Richard Duncan:

So, to answer your question, looking out, again, the vital question is, will the government and the fed do enough to keep the economy from collapsing? They have the power to, they have the ability to do this, and so far, so good. But we need another big dose coming very soon, a fiscal and monetary stimulus to make sure that the economy doesn’t collapse.

 

Richard Duncan:

Now, it’s going to be expensive, but on the other hand, if they didn’t do anything, and just allow the economy to collapse by 50%, and unemployment to move up to 50%, then the budget deficit would explode anyway, because all of the government’s tax revenues would disappear. And the money that the government would have to spend on unemployment, and all kinds of other social welfare programs would explode.

 

Richard Duncan:

So, that would be very expensive also, and then we wouldn’t have an economy. So, it’s far better for the government to keep spending radically, on a radical scale, essentially, bailing everyone out until this virus goes away. And hopefully, that’s what they will do. And if they do that, then we’re going to come out on the other side, probably next year.

 

Richard Duncan:

And the world is going to look pretty much the way it did before largely, I mean, but there will be various significant changes, but we’re not looking at an end of the world scenario.

 

Tom Wheelwright:

So, let me ask you a question. You’re talking about globalization, and I’m just the student here. So, I’m not the expert, you are, but I want to ask. So, eventually, does globalization catch up with you? Because yes, there are plenty of people who will work for $10 a day. But we’ve seen price increases in India… and considerably price increases in India, and even in Pakistan, seeing price increases in China, will that eventually catch up, or is that so far down the road as to being negligible?

 

Richard Duncan:

That’s generations into the future. There are 8 billion people on earth now, and roughly two billion of them live on less than $3 a day. And the population is going to keep growing. So, we’re probably never going to run out of low-cost labor, just like we’re never going to run out of oil.

 

Richard Duncan:

But there is a real chance that globalization now could break down. And if it breaks down, then all bets are off about how damaging this crisis will be because if globalization breaks down, then all that deflationary pressure will disappear. And the United States will be hit by a new wave of high rates of inflation, just like we were in the 1970s, if not worse.

 

Richard Duncan:

So, everything that has been possible in terms of large government budget deficits, and the Central Bank creating a lot of paper money, that was only possible because of globalization. If globalization goes away, those things won’t be possible and the economy will certainly shrink.

 

Tom Wheelwright:

Okay. So, let’s go to the next logical place and that’s China. So, China is interesting, obviously, very different set of morals than the US. Very different type of government than the US. China, I mean, they’re willing to hold up masks to the US because they might need them, not because they need them now, but because they might need them, and the US is dying for them.

 

Tom Wheelwright:

So, what do you think happens there with China? I mean, you look at you look at these big companies, Apple and so forth have enormous presence in China. And what happens if there’s this… I mean, this could become a bigger and bigger trade war, couldn’t it?

 

Richard Duncan:

Well, so I mean, first, I think it’s important not to vilify any country or any group. You said they have a very different set of morals, and-

 

Tom Wheelwright:

I didn’t say they’re worse. I just said they were different.

 

Richard Duncan:

I mean, they certainly have a very different form of government. But morally, I would say they’re… everybody is pretty similar around the world individually. Now, in terms of not sharing face mask or exporting face mask, I haven’t heard that. But I wouldn’t be surprised if that’s true because the same thing is true all over Europe, for example.

 

Richard Duncan:

There’s a European Union, and the European countries won’t even share face mask and ventilators with each other. So, that’s not unique to China, if that is in fact the case. But what we do have is a situation where the US and China were effectively already in a cold war even before this virus started. And we had President Trump would put very significant trade tariffs on them.

 

Richard Duncan:

And that those policies were supported by not only the Republican Party, but also the Democrat Party. And things were very tense even before this virus started. Now, we can see that it’s very likely to become much worse. It’s clear that the tensions between the United States and China have not been this bad since Chairman Mao died in the ’70s.

 

Richard Duncan:

So, also, President Trump has frequently referred to this as the Chinese virus, Chinese plague. And recently he announced that potential measures would be required if it proved that they did this on purpose. Whereas, the Chinese, of course, I don’t know, but it’s very unlikely the Chinese or anyone else did this on purpose.

 

Tom Wheelwright:

I agree. I think it would be shocking if they did on purpose. Now, could it have been a laboratory accident? Absolutely. But I’d be shocked if it were on purpose.

 

Richard Duncan:

Well, it could have been. I mean, who knows, but SARS happened how long ago, 18 years ago, 17 years ago? Was that a laboratory accident? We had plagues all throughout history. They weren’t. They weren’t laboratory accident. So, I think Until we know, we should all be very careful about pointing fingers at anyone, and all try to work together.

 

Richard Duncan:

But anyway, tensions are getting worse between the US and well, I’m sure the American public is going to realize, and the political establishment as well, that it would be a good idea if we could make our own face mask, and ventilators, and medicine. So, there’s going to be a significant amount of reshoring, or reindustrialization in the United States, and bringing many of these factories back to the US.

 

Richard Duncan:

And relations between China and the US are not going to go back to the way they were five years ago. And this is going to create considerable problems for China’s economy. Of course, China’s economy was built on export-led growth, primarily exporting to the US, and the world is going to be very different. And China’s economy has been a bubble for decades, but the policymakers there have been able to keep it inflated.

 

Richard Duncan:

There’s a real question of what would happen if this bubble pops, and unemployment begins to explode in China. And there’s political unrest, and the Communist Party’s power is threatened, it’s anything, all bets are off, anything would be possible at that point. And if the tensions between the United States and China continue to increase, the trade were to break down entirely between them.

 

Richard Duncan:

Now, the reason the United States has as many friends around the world as it does is because it buys a lot of stuff from the rest of the world. A lot more stuff than they buy from us. So, if we don’t buy as much from them, we’re not going to have as many friends as we had before. And if we stop buying stuff from China, China’s going to be a whole lot less friendly than it has been.

 

Richard Duncan:

And in fact, could become quite unfriendly, with very significant geopolitical ramifications, particularly in my part of the world. Where I’m as we speak, the Southern Chinese border is only roughly about 100 miles north of here.

 

Tom Wheelwright:

So, maybe it’s time to come back to Kentucky. I mean, you never know, Richard. So, here’s a question for you. Okay. So, we let’s look at this from a very practical standpoint. Okay. So, you’re a US resident, and you’re trying to decide what do I do next? So, what do you tell them? I mean, we’ve talked a lot about the global economy in China, and Trump, and all this stuff.

 

Tom Wheelwright:

But outside of voting in November, there’s probably pretty much nothing we can do about that. But we can do something about our own economy. So, what would you be doing if you were in the us right now?

 

Richard Duncan:

Well, as an individual, you mean or-

 

Tom Wheelwright:

Yeah.

 

Richard Duncan:

Well, how much money, how much cash do I have? It makes a big difference whether I have $5,000 or $5 billion.

 

Tom Wheelwright:

Well, let’s say you’re the average person. So, you’re making $150,000 a year as a couple.

 

Richard Duncan:

And what’s my net worth?

 

Tom Wheelwright:

Very small, $100,000.

 

Richard Duncan:

That’s a stretch for the average American.

 

Tom Wheelwright:

That would be a lot. The average American probably doesn’t have $100,000. They probably have $10,000 at most. So, what do you do? If you’re if you’re the average American, what do you do?

 

Richard Duncan:

Well, so let’s be realistic. There’s not very much you can do if you’ve got $100,000. And I mean, is your house paid for? The reason I’m being so specific is because what you do really does depend on how much cash you’ve got available. The reality is a lot of people just can’t do much of anything. But for me, if I had a block of cash, if you only have $100,000, you can’t diversify very much, right? You can’t.

 

Richard Duncan:

If you have a billion dollars, that right advice is to be broadly diversified, so that even if you get wiped out in part of your portfolio, you won’t get one out everywhere. But if you’ve got just $100,000, then for me, I think one of the best investments long term in terms of security, I like security and safety. I like to own land with houses on top of it, so that you can rent the houses out, and that the land is a big store of value.

 

Richard Duncan:

So, rental income is something that you can control the stock market. My own experience is I woke up one night, woke up one morning in 1987 in October, and the US stock market was down 23%. My market was down 50% even though the Hong Kong economy was growing by 13% that year. And my stocks were the craziest things you could possibly speculate on. We’re down about 90%.

 

Richard Duncan:

So, I never quite recovered from that psychologically. But what it shows you is that stocks are extraordinarily risky even in the best of times. So, if you’re feeling lucky with $100,000, and you think the fed is going to keep pushing stock prices higher, well, go for it, maybe you are lucky. On the other hand, maybe you’re going to lose $50,000 or $70,000.

 

Richard Duncan:

But if you own a piece of land with a house on top of it, you’re not going to wake up the next morning with that having disappeared. It is going to be there, and it’s going to generate rental income for you for eternity. So, I think that secure investment is what most people should look to if they want to have security. Not condos because there’s no limit as to how many condos [inaudible 00:36:44], they’re not making any more land.

 

Richard Duncan:

So, it’s just like gold. I mean, gold, I like gold. I own some gold, but rather than owning millions of dollars of gold, I think it’s far better. Everyone should have some gold just in case you need to get out of town fast. That’s what I always say. But if you have millions of dollars, why not invested in land with houses on top to rent out because if gold goes up, the land will go up for the same reason. And vice versa, if gold goes down, land may go down as well, but you’ll still have the rental income.

 

Tom Wheelwright:

You know what? That’s interesting. I was talking to one of these gold experts years ago. I mean, literally, good 10 years ago. And I asked him, I said, “I don’t understand how gold is better than real estate.” For exactly the reason you’re talking about, so thank you for that. The other thing I would just throw out there to all of our listeners is I was thinking about this over the weekend.

 

Tom Wheelwright:

I’m going you know what, I feel very fortunate because I own multiple businesses. And as a business owner, I’m never going to get fired. Never going to get fired. I may lose my business, but I won’t get fired. Okay. So, I like to say, start a business, save taxes and never again get fired. And I do think, Richard, I remember when we were in Tokyo one time, and you talked about starting a business.

 

Tom Wheelwright:

And I thought, you know what, here’s a brilliant economist, talking about real estate and business. And there’s so much, when you have some control, this is what I hear you saying. When you have some control over your economy, it’s a little easier, whether it’s owning a rental property, whether it’s having some gold that you can get out of town with, or whether it’s having a business that you can pivot immediately.

 

Tom Wheelwright:

You can completely change the way you do business overnight. And so, anyway, with that, thank you for just… I know you look at macroeconomics all the time, and that’s probably not fair for me to ask you about the microeconomics, but when it comes down to it, it’s not always about the global economy. Sometimes it’s about our personal economy. And so, Richard, I just want to thank you again. Richard, how do we get more information from you, and especially, how do we get your newsletter?

 

Richard Duncan:

Okay. Well, so my business now is I produce a video newsletter called Macro Watch. And every couple of weeks, I upload a new video, essentially me making a PowerPoint presentation describing something important happening in the global economy, and how that’s likely to affect the stock market, the property market, commodities, currencies, and all the other asset classes.

 

Richard Duncan:

For instance, as I mentioned, since March 1st, I published five of these videos on the Coronavirus. So, each video is roughly 15, 20 minutes long, has 25 downloadable charts. So, if anyone subscribes to this, they will have one new video every two weeks for the next year, plus immediate access to the archives, which now have more than 50 hours of Macro Watch videos, including four courses.

 

Richard Duncan:

One called How The Economy Really Works. One called Capitalism In Crisis. One call China’s Economic Crisis, and one on explaining monetary policy, which is now the most important policy tool in the world. So, anyway, if your listeners would like to check this out, they can visit my website at richardduncaneconomics.com, as richardduncaneconomics.com.

 

Richard Duncan:

And if they’d like to subscribe to Macro Watch, I’d like to offer them a 50% discount. If they use the discount coupon code May, like the month of May when prompted, they can subscribe at a 50% discount. So, I hope they will check out the website at richardduncaneconomics.com. And at the very least, they can sign up for my free blog there, and follow my work that way without subscribing to the Macro Watch.

 

Tom Wheelwright:

Richard, I appreciate that. I very much appreciate your taking time for us. I’m so glad you’re doing your blog, and your video, and your courses. I think it’s so important to understand the global economy. I’m a very micro guy, right? I mean, I look at the day-to-day business of my clients. But at the same time, I do know that day-to-day business is massively affected by what goes on in the global economy, what goes on at the fed, what goes on with treasury.

 

Tom Wheelwright:

And so, we can’t separate the macro economy from our micro economy when we really get a good picture of what’s going to happen. I think, Richard, you gave us a great idea of what’s possible and a very different viewpoint frankly, than what a lot of our listeners might normally hear. And I very much appreciate that. And I’m willing to watch both sides, and I so appreciate, so appreciate your insight, and your willingness to continue to educate.

 

Tom Wheelwright:

And we just tell everybody that remember that when you get educated on the global economy, and you get educated on your micro economy, on your personal economy, you’re always going to make way more money, and pay way less taxes. Thanks. We’ll see you next time.

 

Announcer:

You’ve been listening to The WealthAbility® Show with Tom Wheelwright, way more money, way less taxes. To learn more, go to wealthability.com.

 

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