April 4, 2014; What’s in Your Wallet?

The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick

Kevin: I really enjoyed last week’s interview with James Rickards, but I keep processing what he was talking about with Buffett going out of cash and into a railroad to go into a solid asset. I want to talk about that idea a little bit today, because most of us can’t buy a railroad, but we can accomplish the same, or even better, types of purposes if we just know how to value something. How do you count something? I remember James talked about how you measure? If you’re measuring a football field with a yardstick it’s a hundred yards. If you’re measuring it with a ruler, it’s 300 feet. How do you measure what value is, Dave?

David: And that’s a great question. I think where we left off with our discussion with Jim Rickards last week, we pointed out Burlington Northern Santa Fe was really a dumping of paper for hard assets.

Kevin: He wouldn’t want you to know that because he has a lot of paper assets, as well, but he got out of a lot of it to buy a railroad.

David: Exactly, 34 billion dollars’ worth of paper assets, and moved that into tangibles, something tangible. It’s not an unreasonable move. When you think of the nature of fiat money, where is it going in value? It’s trending toward its intrinsic value. We know that’s zero. That’s the nature of every fiat currency, that’s the history of every currency created by man, as opposed to that which we bring out from the earth.

Kevin: Dave, for years, as you know, in my office I’ve had currencies hanging on the wall. I came to work here in 1987. Some of them had value when I hung them up, but they all, at this point, have zero value.

David: So, for an astute investor, if you are positioned in a form of cash that is not subject to the effects of central bank management, and oversight, what we have from the Ph.D. standard of the day, whether that’s the ECB, the Bank of Japan, the Fed here in the United States, when you look at the exchange that Buffett put in place, the reality is, this could have been far more attractive.

Kevin: So what you are talking about, when I think of cash at this point, Dave, every currency in the world is a fiat currency. It’s not backed by, really, anything but faith, so are you talking about actually considering maybe gold as cash, or things as cash, at certain times?

David: Here’s why I do. A fiat currency is based on one variable for its usefulness, confidence. And if you just take off the last part of that word, the reason I don’t like fiat currency is because it starts with a con, and that’s the only thing that maintains value is this presentation of value, this con game. I think, as a value investor, Buffett could have owned, and this is the reality, he could have owned three, and as many as five railroads, for the money spent on Burlington Northern, if he was using real money. And this is the difference. I look at gold as real money. I don’t look at greenbacks as a form of cash, I look at it as a confidence game. It really is something that you are speculating with. You’re speculating that it will maintain value during the period of time that you hold it, and that is a speculation, that is a rank speculation, because the evidence is against you. The evidence is that every central bank has destroyed the value of currency over time, whether it’s nicking you for 2% a year, or 4% a year, or 10% a year. Inflation is a mandate that the Fed has in place, other central banks have targeted, and it is a way of robbing the holder of that asset of real value. So when you look at it, it’s all a con game. When you step away from the con game and look at real money, ounces, gold and silver, it’s a very different thing. And again, a value investor, if Buffett truly were, could have owned three to five railroads for the money he spent on Burlington Northern.

Kevin: He does down-talk gold. Rickards talked about why. Obviously, if you are somebody who makes most of your money in the stock market, you’re not going to tell people that you’re buying gold. Buying a railroad, people don’t compute that as much, but let’s put this under the microscope for just a little bit. Let’s take Buffett back 12-13 years. The cash that he used, what did you say, 34 billion for the railroad? That cash didn’t really earn him any interest, and if he was in the stock market, we all know that they lost a decade in the stock market. We’re just now getting past where we were in the year 2000. So, if he had had gold, what you are saying is, he could have purchased three railroads, four railroads, with the same amount of cash had that cash been changed into gold early on, and held as a cash position. You’ve talked about this many times to us here at the company. You say, “Guys, don’t just think of cash as your cash position. Buy gold for a cash position.”

David: And that’s backward-looking. Let’s look at it forward-looking, as well, because I think for someone who is stepping into the gold market today, what could have been is very different than what might be, or what is in front of us. Applying the concept of the Dow-gold ratio, what you are, in essence, doing is swapping stuff for stuff, and that’s very important to understand. When you look at the Dow, this is not a collection of paper assets. This is a collection of companies that have real assets behind them: Land, plant, infrastructure. Buffett exchanged paper assets, that is, greenbacks, fiat currency, for hard assets, and that’s a reasonable exchange. However, and this is very relevant for our audience. For those that accumulate ounces of gold and silver as an alternative to greenback savings, and use real money as an alternative to fiat money, the compulsion to get out of cash is not quite as strong as Buffett may have experienced. If you look at 34 billion sitting in cash, 2009, when he made the purchase, that was just moving into the cycle of declining interest rates to zero, and really, yes, it made sense to him.

Kevin: Well, look at history, Dave. Cash, itself, has gone to zero many times. We just talked about that. Never, in 5,000 years, has gold gone to zero. Nobody goes broke in gold.

David: Right. Never had a zero value, unlike every fiat currency ever created. So fiats begin the death march on the day of creation. The dollar is 97% through its journey of decline when measured in purchasing power terms. That’s the story we’re on. We’re talking about 3% toward terminus. This is a really funny thing, but nobody really wants to be around for that currency extinction event. For the holder of ounces, here’s what you are looking at. You are looking for the optimal exchange.

Kevin: Sure, concerning interest on your ounces, so at some point you’re going to want to deploy those assets elsewhere.

David: And what is the optimal exchange. So patience is, to me, the factor that serves as a multiplier. Something you will overlook, and I think this multiplier is exactly what you overlook if you are merely counting or courting nominal gains.

Kevin: And when you say nominal gains, that is in dollars.

David: Exactly, you invest a dollar, and now you have two dollars. I think, while that is a 100% gain, again, that’s in nominal terms. What the Dow-gold ratio implies is an improving exchange rate between ounces and the real stuff of a money-generating enterprise. Does that make sense?

Kevin: Sure, something that actually produces something, and actually grows.

David: But you’re just talking about an improvement in the exchange rate, because if you are looking at gold as currency, silver as currency, let that sink in. We’re talking about an exchange of real stuff for real stuff.

Kevin: In reality, for hundreds of years, Dave, this is what we were talking about. If somebody said that they had cash back in the 1890s, what that meant was, they had 20-dollar gold pieces, 10-dollar gold pieces, or a piece of paper that represented redeemability for those same items.

David: Right. You want the real stuff, at a discount, which routinely actually does trade at a discount when you are talking about the Dow, and you would prefer your cash, what we call ounces, to be, in U.S. dollar terms, trading at a premium. So again, you have two variables here.

Kevin: So when does the premium apply? When do you know that gold is actually over-valued and you need to re-deploy?

David: What price would I consider gold or silver to be at a premium? Well, okay, a price in excess of an inflation-adjusted value triggers something inside of me, whether it is in my mind, or in my heart, it triggers a willingness in my mind to consider other values out there, and of course, the other very relevant factor is the price of the targeted asset. So, if the inflation-adjusted price of gold and silver reach a high level, that’s one factor. Then, of course, there is the asset that I want to purchase. Is it selling at a low level? Remember, premiums on the outside can be multiplied further with a discount applied to the asset to be acquired on the other side of the equation. So we look at CPI inflation adjustments.

Kevin: So, why don’t we look at that? Dave, if you were to look at the price of gold today and say, it’s at a premium to inflation-adjusted pricing. What would that be?

David: To break the old highs, and this is just using currency PI numbers. Of course those are low-side numbers, but CPI inflation adjustments put us at $2400 to $2600 an ounce.

Kevin: That’s if you’re using the government’s inflation numbers, which we know are altered.

David: Yes, and silver is about $120 to $130 dollars an ounce. That would take you back to the 1980-1982 period. Why would I reference peak values? Well, they simply give us a benchmark. The old highs of $875 or $50 plus an ounce for silver, translated into 2014 dollars, would be $2400-$2600 gold, $130 silver. The fun begins when you factor in an inflation variable, any inflation variable, which is more representative of actual inflation.

Kevin: Which today would be about 8-9%, if you’re looking at John Williams’ work?

David: Yes, so we know that the methodology switches in the 1980s to 1990s leave the current inflation, and inflation during the last several decades woefully understated, under-estimated. So depending on what inflation statistics you use, you can take John Williams’ estimates, and the numbers just mentioned, on the high side, if you’re using John Williams’ inflation statistics, then the inflation-adjusted price for gold is closer to $11,500, or for silver, $535 an ounce. So we have long thought that a reasonable estimate, in the context of this bull market, in terms of where prices ultimately go, and what is considered too dear a price to pay, when you should be considering liquidation instead of purchases, somewhere between 1½  and 2 times the previous inflation-adjusted high. What that does is, it accounts for much of the distortion in the inflation reporting through the year, so that pencils out at $3600 an ounce, if you’re talking 1½ times the inflation-adjusted price, up to $4000-$5000 an ounce. We’re talking about, again, numbers that seem high today, but we don’t have any reference for real-world inflation in that CPI statistic. So again, this is just a reminder. Today’s 2% inflation, on the 1990s methodology, is closer to 4.5%, and on the 1980s methodology, today’s inflation statistic, as it is reported, is closer to 9%. So, by methodological shifting, we’ve moved toward a number that seems very neutral, benign. Nobody’s worried about 2% inflation, unless 2% is actually 9%. And then, you know what? You’ve got, as we’ve described in previous conversations, Kevin, the equivalent of a Cypress 10% tax on your savings. Only, it’s not a one-off event, it’s every year, because inflation is what? A predictable and repeatable event, just like the sun rises, so does the Fed’s penchant toward theft.

Kevin: So let’s say that gold does go to $4,000, $5,000, $6,000 an ounce. That’s really not the ultimate goal is it? I think of the parable of the talents in the Bible, and of course, it’s dealing with spiritual issues when Christ is talking about that, but he’s also giving some fundamental basics. Hey, somebody actually took their talents and they employed them to a growth perspective. So the idea would be, so what if gold goes to $4,000, $5,000, $6,000 in dollar terms? What are you going to do with it? That’s really the question.

David: Yes, there’s the issue of the pricing of assets we may wish to own. In the last DVD we produced, “What Is Real Money?” we asked the question, what’s important to you? A home to raise your family in, a rental property to supplement your income with? A piece of land to grow things on or just enjoy? A business that provides jobs in the community you live in, and a means of support for you and those that you care for? This is the stuff we’re talking about. I substitute ownership in a productive enterprise, but you can fill in the gaps. I like stocks. That’s what I consider a productive enterprise, and I like how they trade, they’re very liquid. But go ahead, substitute anything you want in that value equation. For Buffett, it was a railroad. And he was using his stock of cash, we have a different stock of cash, and that is one significant difference, but what is he looking at? A railroad is a means of transportation for oil and other soft commodities. This is a system of track covering 32,000 miles with over 6,000 locomotives. This is stuff! This is stuff, and the price paid was 34 billion greenbacks, for the portion not previously owned, and the assumption of Burlington Northern Santa Fe’s debt. 34 billion fiat dollars, back in November of 2009. Now let’s look at this. $1,060 dollars was the price of gold, so 34 billion dollars translates into 32 million ounces of gold.

Kevin: Okay, so he could have had either the railroad, or 32 million ounces of gold at that time.

David: So let’s just say that from fiat currency into tangibles, this was a great exchange. It makes sense why he would be moving from one to the other. But my point is that a more optimal exchange would have been from real money to the real stuff of Burlington Northern, and I’m going to leave the value, as we talk about this, I’m going to leave the value of Burlington Northern the same as we’ve discussed it. It certainly could have sold at a discount in the right economic circumstances, but let’s leave that as a constant, 34 billion dollars. Gold doesn’t trade at $1,060 anymore, it trades at $1285 an ounce. So today’s purchase of Burlington Northern would not cost Mr. Buffett 32 million ounces, it would cost 26½ million ounces.

Kevin: So it would have been beneficial, even with gold’s correction down, for him to have actually just held on and put it into gold for the time being, in Burlington Northern.

David: Yes. This completely ignores the interim move of gold from $1,060 at the time of his purchase to the highs of $1920 an ounce. At today’s prices you’re talking about a 17% discount to the price that Buffett paid.

Kevin: You said let’s look ahead, though. Looking ahead, because gold is not going to stay down at $1285, not with the printing of money, so let’s say that gold does go up to $2,000 to $3,000 an ounce.

David: More compelling in terms of a discount, is the hypothetical price. Yes, $3,000 an ounce, now the cost in ounces for Burlington Northern is 11.3 million ounces.

Kevin: Instead of 32 million.

David: Right. That’s a 65% discount. 65%. Again, this is our favorite value investor, but he could have saved himself 65% on the purchase price. Now, for those that don’t see $5,000 an ounce as reasonable, just ignore this last hypothetical, but $5,000 an ounce for the gold price translates into about 6.8 million ounces to buy Burlington Northern. That’s a far cry from 32 million ounces it cost Mr. Buffett. So, if we’re exchanging ounces for miles of track, ounces for the hardware that run it, not to mention the dollars earned for utilizing the hard asset as a transport system, would you prefer paying 32 million ounces for the asset, or 6.8 million for the same asset?

Kevin: What that means is he could get 4, 5, 6 railroads for the price of the one had he been in gold.

David: It just depends on how you look at it, because it’s either a 79% discount, that’s one way of looking at it, or as you just mentioned, another way is to say, I’ve improved my purchasing power. Buffett, had he been patient, with real money on account, in his pocket, he could very well have bought five railroads instead of one.

Kevin: I was just talking to a great client of mine, he’s been a client for many years. He said, “Kevin, let’s make the next few conversations a discussion on our exit strategy on gold.” I want to start planning, I want to start preparing for what we’re going to do.” One-third of his assets will always be in gold, that’s the triangle, that’s the way we’ve always taught. But he has more than a third of his assets in gold right now because he’s treating gold as cash. He’s waiting to deploy some of those assets.

David: The number, again, just going back to Burlington Northern for just a second, that number could be very different if Burlington Northern shares were either up or down. But bear in mind, it is a rare set of circumstance, in fact, it’s never happened, to my knowledge, that gold prices are high and companies are selling at normal prices.

Kevin: They’re usually discounted, right?

David: They’re selling at a discount. So we traded Burlington Northern as a constant, 34 billion is the sticker price in fiat currency terms. So again, you have two variables there. You have the appreciated cash position, and you have, potentially, under the right circumstances, the depreciated target asset in question, and so for the person looking for an exit strategy, you don’t have to have both variables. You can have either just the depreciated asset, on the one hand, or the appreciated cash position on the other.

Kevin: But boy do you get a bang if you get both.

David: Oh, now you’re talking about, again, it’s not five railroads, but it’s 10, if that’s the case. If you get the best of both worlds, then you’re really talking about force multiplier. This happened with Hugo Stinnes back in the 1920s. We’ve talked about Hugo Stinnes before. Stinnes inherited a coal business. He decided early on to invest, I think, what was worth roughly 3500 pounds, into a new steamship technology that was just being perfected, and he had this built in England, shipped over to him, and he started exporting coal to France. What that gave him was an income stream in something other than German marks.

Kevin: German marks were about to go through their hyperinflation.

David: Right. Meanwhile the rest of the world is still referencing currency and gold as an equivalent. So he is being paid in French francs.

Kevin: Which was then a gold-backed currency.

David: Yes. Everywhere he expands his business he is being paid in foreign currency terms, and because he has a solid currency, he has the ability, in Germany, to start acquiring, not tens, or hundreds, but thousands of businesses in the 1921-1924 period. Unfortunately, I think the stress killed him. He was dead in 1924. But he is known as one of the greatest German industrialists to emerge through World War I and he consolidated his business interests and expanded them, not only in Germany, but in Switzerland, Austria, the Balkans, Russia, and Argentina, because he had something that very few, in fact, almost no German businesses had, which was foreign currency revenue.

Kevin: Which was gold, actually, if you think about it.

David: You can’t duplicate foreign currency revenue unless you’re a multinational, trading products in different currencies, and today we do have that. You see General Electric selling, interestingly enough, locomotives, in other parts of the world, and they collect that foreign currency revenue. In fact, we have a few corporations that are in the news this week for having hidden some of their foreign currency income and basically have skirted billions of dollars in taxes. Caterpillar comes to mind, but there are others. I think what you have, in the example of Stinnes, we can duplicate to some degree by denominating our savings in the most reliable foreign currency on the market today. It’s not the euro, it’s not the Japanese yen, it’s not the British pound. It is what has been money for 5,000 years. Denominating your savings in gold and silver, this is, I think, where it gets particularly interesting, and you give yourself the Stinnes advantage.

Kevin: Well, you know, you may be an expert in understanding the values of stocks, and I think of Andrew Smithers, he’s just a brilliant guy. His family has been in the stock investing business for several hundred years. When you talked to him in December, he said that the stock market was dramatically over-valued. What was it, 70-80% overvalued? So he is brilliant at seeing those types of things. He said that he was going to go to cash until that correction occurred on the stock market. How do you feel about that? He’s going to paper cash.

David: The critical problem I have with Smithers is that the move to cash which he advocates, in light of stocks selling at close to an 81% premium to their average replacement cost. It’s like Buffet. He puts too much trust in our fiat money system. It may be a superior position if all you are wanting to do is prevent stock market losses, but, as Buffett identifies, there is a tangible nature to this shift. Greater value in tangible hard assets than simply greenbacks. And I think when you’re looking at a currency that has endured the test of time, this is where you return to gold and silver, not as a commodity, but as a currency, and I think that misnomer of currency versus commodity, commodity versus currency, is where Smithers would say, “I don’t want to invest in speculative commodities, not when I’m trying to save my assets from decline. He has misconceived what gold and silver actually are, as reliable currency.

So here we are again, with the notion that saving, in the more traditional form of cash, gold and silver, warrants critical attention right now, not just because Ph.D.-managed cash is in a death spiral, but because opportunities to grow wealth this way, or if you say it differently, deploy your savings optimally, this is right in front of us. This is right in front of us. Of course, you can scale back your expectations of what assets you may want to purchase. Again, it may not be a railroad, it may be a rental property. It may be a ranch, it may be a business you operate. It may be an investment in a publicly traded firm. The list can go on and on, but the two variables in the equation are: premiums on your cash position, discounts applied to the asset you wish to acquire, One of these variables may be enough for you to spend your ounces, but as we mentioned before, if both occur at the same time, it’s not five railroads, but 10. The multiplier is dramatic. And in that circumstance, Buffet sure looks like a patsy, and you look like an investor with a real value-investing notion in place and in play.

Kevin: Well, you know, Buffett is a billionaire, so lest we call him a patsy, he is a billionaire, he seems to be doing okay, but I think of Fox News two days ago, you were on.

David: And I don’t want to imply that Andrew Smithers is a patsy, either. I think these are brilliant men who have done very well for themselves, and frankly, could have, if they looked at something as simple as the Dow-gold ratio, taken what is a vast fortune, and could have actually had a fortune comparable to what we saw in the 1830s and 1840s. You realize that we have not, even with bigger numbers in play, because we’ve lost value in the underlying currency, the wealth that we’ve created today doesn’t hold a candle, doesn’t hold any comparison to the wealth created by the Carnegies, by the steel magnates and the railroad giants of the 1830s and 1840s. We have yet to return to that kind of wealth, haven’t seen it since. Have not seen it since. And I’m saying that if Buffett had applied this, or Smithers, in this case. If he just chose a better form of cash, he would be looking at a multiplier, on top of wealth preservation, which is, I think, a very compelling argument when you’re looking at intergenerational resource management.

Kevin: Well, it’s a tough concept for people to get their heads around. I think about two days ago when you were on Fox Business, you told me, you said this was as close as you have really ever gotten to getting into a fight on the air. What you were trying to do is convey that the value in the stock market right now is overvalued. But the guys who were sitting there discussing it with you didn’t see that at all.

David: They said, no, no, no, no, no. PE multiples really are a compelling value.

Kevin: Price earnings.

David: Price earnings ratio. It looks like a decent time to be adding to positions, it’s only about 15, and that’s not overpriced. If it were 20 or higher, then I guess you could argue that we’re overpriced, but now is a good time to be considering value. And then one of the guests went on to say, “This is one of the most unloved stock markets I’ve seen in my entire career.” And I was flabbergasted. I was thinking to myself, “How is the Dow, near record highs, 16,500, somehow an unloved market? How is it an unloved market? How, when you look at the NASDAQ, and the growth over the last year to year-and-a-half, is this an unloved market. How, when you’re looking at margin debt, now exceeding 3% of GDP, an all-time record…

Kevin: We’ve never been there before, 3% of GDP.

David: Six months in a row, to new all-time highs, and now, not just in nominal terms is it an all-time high, but relative to GDP, it’s at 3% of GDP. Why is this relevant? Because, you know what? At 2%, we’ve had, following it reaching a threshold of 2%, within 6 months, it’s not perfect timing, but as an indicator of where you are and where you’re going, every time we’ve hit 2% of GDP on your margin debt numbers, we’ve had a 50% drop in equities. So now we’re at 3%, unprecedented territory, and somehow the equity market is supposed to be a value in here? This is where PE multiples are usually brought out by folks on Wall Street to support the next sale of stock. Earnings. Kevin, earnings are too volatile to be particularly helpful when you’re looking at valuation metrics. Plus, nearly half of earnings come from an inflation component, so when you look at earnings, yes, okay, it helps you, on a relative basis, figure out what’s more expensive than something else, but the Shiller PE, or what’s called the Cyclically-Adjusted Price-Earnings Multiple, what it does is it smooths our earnings over a 10-year period, and adjusts them for inflation, and gives you an idea of what the company is actually trading at. No fuss, no muss, it gives you a real picture of it. And this is where Andrew Smithers would say, “Yes, and when you’re trading at 25 or 26 on a Shiller PE, or a cyclically-adjusted price-earnings ratio, your probabilities of losing money over the next 7-10 years in the equity market are nearly 100%.

Kevin: Let’s just go ahead and draw this, for perspective, because you’re talking about 25-26 PE. For the person who is not familiar with price-earnings ratios, if the stock market truly is cyclically adjusted, in the 10-14 range on price earnings, that is a reasonable range, is it not?

David: It’s reasonable, it’s not cheap, and the place that you generally want to buy if you are a long-term value investor. If you are a contrarian, like I am, you would prefer to buy single-digit PEs. Or in this case, a Shiller PE that is single-digit. Because, again, you take out the volatility of the normal earnings.

Kevin: Because it’s adjusted for 10 years.

David: Yes, it’s adjusted for 10 years, you’ve adjusted it for inflation, so you actually know what the earnings of the company were, as opposed to what the activity of the central bank was to goose all the numbers in the system. This is where you have to have a clear idea of what’s what.

Kevin: And Dave, lest we think we and our clients are above the urge to go speculate when you have a bubble going on, like in the stock market right now, I know there are people out there who have been sitting in gold the last 2-3 years. They remember the high and they’ve seen it come down and they are saying, “Gosh, everybody that I work with, everybody around me, they’re making a ton of money in the stock market.”

David: That’s not true! That is not true. If someone had the prescience to step into the stock market and buy at the lows in March of 2009 or 2008, then and only then do you have in the S&P 182% gain. To outpace 182% gain off the lows you have to go exclusively into biotech stocks, which might have given you 350-360% return, in that same time frame. But again, you’re talking about being the perfect stock market timer, and picking the low and pricing it right now to perfection, who did it? Tell me who did it. Because I can tell you, the guy at the golf club is lying.

Kevin: Right. He’s just now getting back to even.

David: He owned those stocks in 2004, 2005. So let’s give him the benefit of the doubt and say he’s not back to even but he’s got a 25% gain. Right. 25% gain on a 7-year hold. 25% gain on a 14-year hold. The Dow and the S&P are only better by 25% over a 14-15 year period.

Kevin: And in that same period, gold is up, 230-240%.

David: This is, again, where I think if you are looking at gold as a commodity, you’re missing the point. If you are looking at equities and just pricing them in nominal terms, you’re missing the point. The Dow and the S&P, even though you are at higher numbers, nominal terms here we’re talking about. If you price it in gold terms, you’ve had a 75% depreciation in those asset classes. So the other way of looking at this is, in the last 14 years, you had a choice. If you are positioned in real money, you can now buy four times the number of shares, again, a 75% depreciation in the Dow and the S&P equates to you stepping in right now and increasing your financial footprint four-fold. Four-fold.

Kevin: Even without gold making another move, you could be four times better off with shares just by the Dow-gold ratio going from 43, down to 12 or 13.

David: Go the Buffett way. Spend your cash. And we’re talking about ounces here, and not greenbacks. You would own four times the number of shares in the S&P and the Dow, and I don’t care that it’s 25% higher, because you’re missing the point. Four times increase in purchasing power, and you look at where the Dow-gold relationship is today, at about a 13-to-1 ratio.

Kevin: And what you’re talking about is, you take the price of the Dow, you divide it by an ounce of gold and you to what? 12.8 right now.

David: And the number on a normal cycle will take you to 3-to-1. So you have a factor of 10 immediately in front of you. Or if you wanted to do this differently, say we’re at 12-to-1 today and we’re moving to 3-to-1. You’re going to increase your purchasing power another four-fold as we finish this cycle. Another four-fold increase. So you look at a Burlington Northern, you say, “Well, I’d like to own one. Frankly, I’d like to own four.” And I think that is what is on offer for the person who understands what real money is, and how it not only preserves purchasing power, but increases it under certain circumstances.

This is, I think, one of the most compelling times, as an investor, to keep your eyes wide open, and not be suckered in to some of the games Wall Street plays. Again, PE multiples, and trying to get you into the stock market today, there is a time to back up the truck. There is a time to buy equities. There is a time to, with reckless abandon, or, I should say, with careful calculation, choose the companies that will come out of the storm and be the companies that grow back to a dollar per share. But if you can buy it at 10 cents on the dollar, this is, I think, where we see tremendous value immediately in front of us. Spend your cash. By all means, spend your cash. But right now, you’d better make sure you’ve got the right form, the right denomination. Just as with real estate it’s location, location, location; with cash, it’s denomination, denomination, denomination.