They Will Run It Hot Until It Blows Up Welcome Back To The 1970s: Inflation + Gold Explosion The Chinese Are Buying Gold Like Crazy "So, yeah. Biden did that enormous package and you got inflation. And Trump, doing pretty much the same thing. Then when you lay over China, who's fighting to keep their economy from imploding. As bad as our money supply is, China's is worse by at least a factor of two on their money supply and their debt issues. And, that's when you see, with the Chinese Central Bank, Chinese are buying gold like crazy." —Bill King * * * Kevin: Welcome to the McAlvany Weekly Commentary. I'm Kevin Orrick, along with David McAlvany. One of my favorite guests, Dave, and we have him on fairly often, is Bill King, and he has so much trading knowledge from his background going all the way back to the 1970s. I have to admit, I take continual notes whenever you're interviewing him. David: We have the privilege of reading Bill King's thoughts on a daily basis, and at least a couple of times a year he joins us on the podcast. * * * And so, Bill, you're a favorite guest on the Commentary. People love to get your insights on the market and the economy. Let's dive right in, but great to have you back. Bill: Oh, thank you. It's always fun. David: We had stronger than expected GDP figures announced shortly following the Fed's decision to cut the fed funds rate. What is your impression of the Fed's decision in light of economic strength and in light of record high prices in equities and gold? Bill: Unfortunately, despite the Fed for years saying, "We'll never make the mistake again," we're replicating the '70s. And, I think that's something we mentioned probably last time we talked, and you could see it developing. It's very similar. It's said history doesn't repeat, but it rhymes. Well, this one is doing more than rhyming. This is very, very close. And, it was easy to see. You had this unbelievable price stability from after World War II all the way up until early '70s. I mean, you can go pull up online, you can see McDonald's menu with 15 cent hamburgers in 1949, early '70s, that's where they were. Think about it, nickel candy bar, nickel gum, 10 cent Cokes. I mean, it was ridiculously stable. And, that's why we had such a great—not only a great economy in the '50s and until the nuttiness began in the '60s, but just social stability. Then you had a number of things happened in there. They had OPEC's raising prices and Kissinger went along with United States because they wanted to make Iran the policeman of the Middle East after the 1973 war where it stunned Israel, and they almost lost. Then, you had the big move into grains, led by soybeans and on and on and on. Nixon, in '72, wanted to be re-elected. Then, he had the Fed pump up the money supply. So, you saw that in the stock market, the '71, '73 double top and then they just got cratered. And then, [unclear] inflation showed up, you had the worst recession, '73, '74, since the Great Depression. Same thing with stock market. You had the American Stock Exchange, which was the NASDAQ of its time at that time, lost 89% of its value. Again, worst action since the Great Depression. So then, you started coming out of it, Carter came in, and then '78 midterms came up and he wanted even more money supply. And, you had Arthur Burns in there who famously said, "We can't call this recession anymore." And so then he put in G. William Miller to run the Fed in '78 and they just pumped the money like crazy because Carter wanted to do well in the '78 midterm elections, and that's when everything went berserk, and Hunt brothers cornering the silver. You go back though, and just for your listeners, if you picked up any list—whether it was Forbes or Fortune—of the richest Americans in the late '70s, it was real estate, oil, and gas. You didn't see Buffett. He was really nothing at that time. Very minor guy. That was the game. It was inflation. People wanted to get out of hard assets. And, you could go back to '71 when Nixon closed the gold window, he saw it coming. And, even you could go back to '67 when the US quit putting silver in their coins. It was all setting up, but part of that was because Johnson put in the Great Society program in '64, '65 in there, and then the government spending and it just took off. So then, mid '79 and '80, everything just went berserk to the upside. And then Japan threatened not to buy more US debt. Carter called, "What do I do?" Talked to David Rockefeller and said, "You better put a real banker at Fed," and that was bring in this guy, Paul Volcker. And Volcker gave everybody the medicine and there you go. The point there is inflation just doesn't come in one trend. There was two waves. The first was the shocking wave, which was like '73, '74 that broke long-time stability. And then, people got a little complacent because you had the normal reset. Gold fell sharply. Gold had gone up to almost $195 from— It started $40 actually but then it fell down all the way to a $100 and then started basing and took off again. And, that was the really first big gold bull market because, as you know, gold was pegged for decades. So, that's what I've been watching is you had that first inflation pop up and then all of a sudden we're sitting here kind of complacent and you get back to what do you think of the GDP? What do you think? What's going on here? Well, Trump's an inflationist. Well, look at the guy, where did he make his money? In major real estate. How do you make money in real estate? By inflation. That's the game. You lever up, you bet your net worth, you go to bank, you borrow gazillions of dollars and you hope that the property inflates. And, he said that a long time, "I'm the king of debt." And, that's why he ran into some trouble here with the budget because people were just, "This is ridiculous." So, yeah. Biden did that enormous package and you got inflation, and Trump doing pretty much the same thing. Then, when you lay over China, who's fighting to keep their economy from imploding. As bad as our money supply is, China's is worse by at least a factor of two on their money supply and their debt issues. And, that's when you look at night, you see, with the Chinese Central Bank, Chinese are buying gold like crazy. That's part of this configuration so it's going on here. And, we don't even have to talk about the global situation, Russia, Ukraine, some of this other stuff going on. There's always global issues and you could always point to, "Oh, this is happening," or, "That is happening," and there might be some influence in that, but the big one, if you really want to look at that, is what's going on in Europe. Europe is really hanging by a thread there politically, socially, or whatever you want to say. The last inflation scare we had here, when bitcoin took its first run and with gold and with silver was 2011. And if you guys remember, you had all the issues as Italy, Greece. All that was just a disaster because of what happened in the financial crisis in 2008, '09. So, that's when bitcoin finally got on people's radar, and you saw what happened there with silver. And, in fact, what you're seeing now, people are saying silver's at its highest level since 2011. So, you got Europe's kind of back on the map, not quite yet on the financial side, but on the social side and the geopolitical side. That's the configuration you're looking at. Like you said, stocks all-time high, gold, the cryptos going, although they're starting to settle down a little bit, but what's out there to stop this stuff from going higher? That's the question you have to ask yourself. And, unless you think the Feds going to start tightening rates or China's going to stop, this stuff's got more room to run. And, the thing people forget is, when you see how gold went crazy in late '79 and '80, Fed had actually started, shocked the world in October '79 when Volcker came out and said, "I'm going to stop reserve growth and rates are going to go where they're going to go." That was the October massacre. A couple of people that were in silver and gold almost got wiped out here in Chicago on the Board of Trade. But then, it took off again. They had a month whack, took off and it made new highs in January. Then everything started coming apart, and Hunts almost took down the system in March of '80. And, that's when Volcker started easing rates, pumped the economy, then the commodities took off. Oil made its high in November of that year and it started coming apart. But, that's what it's looking like here is that there's no Volcker at the Fed. Trump just put in his lackeys. They want to cut rates, which makes no sense. And so, I think as much as I see gold up here and going, a quick anecdote. About three months ago or four months ago, where we have my pension account, I get the call from the account, rough going, and this is one of the major banks in the US, "We're getting a compliance department notice here on your account that you're heavily concentrated in gold," which I had GLD, GDX, like that in there, and it's probably around 25%, 30% of the assets. Now it's well over 50% just because of how much gold has gone up. And, as you know, the gold stocks have really taken off after that. That's how, when the gold gets going, it goes crazy. In fact, I talked to a guy who was a really smart guy, Fortune 500 CEO, whatever, a good investor and talking about [unclear], and he kind of said, would be saying to you now, "Yeah. It's up. It's up a lot. But, boy, at the end, if you remember 1979 there at the end, it just went crazy to the upside when you get the real panic." And it continued when Volcker changed the table. It's going to be tough. It's going to be tough to navigate right now because the difference back then is you didn't have as many small traders and amateurs in there. And,