August 15th, 2012; Three Benjamins, Three Questions

The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick

Kevin: David, you are back home now. It is nice to have you back in the studio. I know this is not the only studio gig you do, though. CNBC was asking you about the popularity of Benjamins yesterday. What was your answer?

David: Yes, Benjamins are never out of favor, but here’s the rub: Over the next 60 days, it is what one of the two Benjamins, specifically, Benjamin Netanyahu, or Ben Bernanke, put in motion, which may have radical impact to the oil markets, and even food prices. So we have implications in the oil market and Middle East tensions, and that is worth looking at. What Benjamin Netanyahu does relative to Iran – that’s a topic.

Kevin: A year ago we were talking about Iran and it seemed like the ball was in Iran’s court as far as what action was going to be taken. At this point, it seems like the decision has shifted over to Netanyahu and Israel. Are they going to preemptively strike?

David: Also a year ago you could have looked at the blow-back effect from both Syria and Lebanon and have said, “Okay, you have to include in an Israeli calculus what the next step of defense would be,” and what has changed in the last year is that Syria has its own issues to deal with, Lebanon remains an issue, but even more important, front and center, the real calculus for Israel, is the blow-back from a U.S. armed and trained Egyptian army. Do they fall in lockstep with the Muslim Brotherhood, or is there some sort of divide and conflict between the Muslim Brotherhood and the old Egyptian generals?

Kevin: I think it is important to note that the old Egyptian army, actually the Mubarak army, was a carryover from Anwar Sadat and the Camp David Accords, so Egypt was taken out of the picture back in the late 1970s. It seems to be right back in the picture now, because now that there is Muslim Brotherhood leadership, it seems at this point Egypt could be a very critical piece in the puzzle.

David: And as far as Israel was concerned, the Sinai was a soft cushion area. There was not much to be concerned about. Of course, the last week or two we have actually had some conflict right there at the Sinai crossing. I think what we should remember is that the other Ben is important. Again, we are really talking about a 60-day period where what could move equity prices and oil prices and commodity prices dramatically…

Kevin: Is either geopolitics or finance.

David: Exactly.

Kevin: Let’s talk about the Federal Reserve, the Jackson Hole meeting.

David: Jackson Hole. The next meeting comes at a very interesting time, and by time we are talking specifically about the seasonality in the equity markets. Seasonality is not just about the weather in this case. Equities are quite different. You have the proverbial rain, if you will, that does tend to consistently drop in the early fall.

Kevin: Right. But if you think about the markets, nobody likes to get wet in the markets. We would like to have the rain fall on the crops, thank you very much. Yet, I think we may even be a little late for that.

David: Exactly. September and October have consistently, over the last 100 years, been the weak spot in the calendar for equity investors.

Kevin: Very bleak months.

David: Exactly, the bleakest months for equity investors, a very high percentage of annual losses coming in those two months. Ben can intervene, even preemptively stimulate. Preemptive possible with Netanyahu. Preemptive stimulation on the other hand, but actually at a very high price if Bernanke is active. The current backdrop of global drought is very significant, because of a lack of literal rain juxtaposed with a potential deluge from the Fed.

Kevin: That sounds like inflation to me, David. We were just talking about the Middle East. The Arab Spring thing came, actually, from food inflation. That is what pushed things over the edge.

David: We saw the same thing back in 2007 and 2008, drought and food prices. The drought, now, has taken corn prices up 42% since their lows in early June, and wheat up 46%, from their lows in the early part of May.

Kevin: So the gluten-free people don’t get off on this one. The wheat goes up 46%, but the corn up 42%. There is no relief.

David: Rice – 15.5%. It is probably the least hit, but those are from levels seen in February and again in June. Soy beans have been the killer. Soy beans are up 52% from the December 2011 lows following a dip in the May to June period in terms of pricing.

Kevin: This is bringing up a point right now. It is causing a lot of controversy that has been there before, but now it is really critical, and that is ethanol. We are taking corn and we are turning it into gasoline at a time when there is not enough corn to eat.

David: It is a doubly negative issue. On the one hand we have ethanol pressuring a major food staple higher in price. On the other hand, secondly, we have ethanol, which increases the average gallon of gasoline, driving up not only the budget line item, specifically, gasoline intake, but subsequently increasing the cost of everything else we consume.

Kevin: I have a question for you. It is an election year. Right now this is very controversial. We are getting into higher food prices. It is going to be corn and wheat this year, it is going to be meat and things like that next year, but are they going to suspend the ethanol requirement temporarily, possibly, to calm this down a little bit?

David: You hit the nail on the head. It is Congress and the Oval Office that are likely to turn away from the issue. Iowa corn farmers are enjoying the steady demand coming from that blending mandate.

Kevin: Sure, it is automatic demand.

David: Yes, and I think, frankly, Congress, the GOP and the Democrats, are looking at it and saying, yes, it is a hot button issue. If you want to really inflame Iowa and make it a deciding point in terms of the election, yes, just go ahead and take away that blending requirement. But what is at stake is foreign policy initiatives, and geopolitical stability. Does it sound strange that satisfying an Iowa farmer could destabilize other parts of the world? (laughter)

Kevin: (laughter) That’s pretty tough.

David: That leaves us asking the question, “Are we willing to add fuel to the flames of social unrest, like we witnessed in 2007 and 2008, or even like last year, with the Arab Spring?

Kevin: We are talking about ethanol and how that would apply to the prices, but the other thing that would affect inflation dramatically right now would be a QE announcement, a Quantitative Easing announcement, and everyone has been looking for months toward this Jackson Hole meeting and the announcement that comes afterward. Are we sensing that there are some pre-announcements coming out?

David: Arguably, the Fed has dug in its heels, and made the point that fiscal action needs to be taken now – fiscal, not monetary. So implicitly, they are conceding that the past rounds of monetary intervention from the Fed have not had the desired effects of either economic growth, on the one hand, or improvements in the employment figures.

Kevin: Just to point out, fiscal change is what comes from Washington. The Federal Reserve, at this point, is saying, “No, we would like to see you actually start paying your bills before we print any more money.”

David: Yes, if you count the jobs numbers, this is where they, and I specifically mean the Fed, are a little bit unhappy. The birth/death model adjustments added 50,000 jobs to the number. We had seasonal adjustments of over 370,000 in the most recent numbers, which implies to us that we are not moving in the right direction. The Fed may want to act because of the jobs numbers, but food inflation and relatively high equity values, at present, argue against it. So they have a conundrum coming into Jackson Hole.

Kevin: And the stock market feels like it is wanting to see quantitative easing. We are already seeing this stimulus thought process. We know the stock market doesn’t rise without it right now.

David: If they don’t get it, if the stock market does not see major stimulus from the Fed, and that is really pricing in 600 billion or more, if it doesn’t get at least 600 billion from the next Fed meeting, post Jackson Hole, I think we are looking at those seasonal factors, the classic September/October decline, being exacerbated by sentiment which says we are not being supported by the Fed when we need it.

Kevin: Remember the stock market crash in October of 1987? What if 1987 had been an election year? Would the president have allowed something like this? We are looking at both sides of the issue, but if we had a 1987 event, which we are set up for if we don’t see quantitative easing announced, then how much power does Obama have, actually, over the Federal Reserve, and one of the Bens?

David: That’s where I wonder if Ben Bernanke isn’t looking at his role as a different kind of kingmaker this year. Not necessarily an Obama kingmaker, but what’s good for equities, very short-term, maybe even an improvement in price for weeks, not even months this time around – what’s good for equities may be bad for global stability, bringing about the riots and political turmoil to rival last year’s Arab Spring. Does Ben Bernanke want to be that kind of kingmaker this year?

Kevin: David, when you are talking about kingmakers, the thing that makes me feel vulnerable at this point is that we have all specialized in our own little area, and we have let the government do what they do, we have let the Federal Reserve do what they do, and the military, and when things start going awry, we really don’t have the ability to take care of ourselves. Right now we are waiting for the government to tell us whether they are going to fiscally improve. We are waiting for Ben Bernanke to tell us whether he is going to print more money. We are waiting, actually, overseas, to see if Israel is going to strike first. We really do have a lot of vulnerabilities politically, and these decisions right now are affected, over the next couple of months, also with the complication of an election.

David: When you look at politics and policy-making, it depends on whether or not you are in good times or bad times in terms of the complexion that it takes on. During good times, we have politics which may seem to be about grand strategies and policies which have complex philosophical presuppositions, and indeed, we have politics of this nature, this complexion, that remain in the ivory tower at all times.

Kevin: The academia.

David: Yes, but Kevin, as you mentioned, this issue of specialization, we live in an era of specialization and maximum productivity. It is interesting, that has created a greater dependency on others for some very basic things, like food, and under unfortunate circumstances, bad times, government policies change and focus on more basic things. That could be food, water, shelter.

We are actually seeing that in China today. This week they are set to release corn and rice from the state reserves to both hold inflation back and decrease the extensive imports of those commodities. They cannot allow for political or social destabilization.

Kevin: Isn’t that interesting? It shows just how nervous they are about what we were talking about a few minutes ago, and that is, if the prices of grains go up, what happens is, governments fall.

David: Yes, and of course, this is to be expected. The politicians get involved, and they try to maintain social and political stability. Under normal circumstances, good times, politicians can be more intriguing in terms of their grand strategies, in terms of their pet projects.

Kevin: Are pet projects a little bit like solar energy companies, things like that?

David: (laughter) But you change to a period of real political pressure and it’s about calming the crowd, or frankly, even controlling the crowd. That becomes the singular concern. Politics becomes just about those basics – food, water, shelter. I think, frankly, we live every day much closer to this tense environment of political self-preservation and social control, a civil society, and by civil I mean a nicely behaving, very civilized society. It is actually a very thin veneer. Underneath it is gross animality, and today, that is the universal constant just beneath the surface.

Really, what we are dealing with is, having spurned morality in the good times, over the last 20-30 years, as both education and policies have spurned morality in the good times, we now have, in the bad times, something that can turn around and bite us.

Kevin: What you are saying is that the government, at this point, and the way the system is designed, really has forced us into specialization. At its most basic, government is to safeguard borders from enemy armies, and maintain domestic peace through upholding the rule of law, but they seem to be doing everything but that.

David: And again, through specialization, there are a lot of things that we don’t do anymore. We are not in charge of the vegetables in the garden, we are not in charge of the beef that we eat. We don’t slaughter it, we don’t raise it. We are responsible for one thing, and one thing only. If you are a salesman, you are a salesman. If you are a teacher, you are a teacher. If you are a trucker, you are a trucker.

Whatever you are, that is what you are, and that is what you do, and it creates a tremendous amount of wealth, but it also creates a vulnerability, because when the system that allows for specialization is compromised in any way, and ironically, it can be something as small as weather, government takes it upon themselves to make sure that social stability is maintained and they fill the gap, making sure that people have what they need so that they don’t lose control.

Kevin: One of the things that your family has encouraged for 40 years is some sort of sustainability of your own family if the system breaks down. We are not talking about red neck survivalism, necessarily, going off and hiding in the woods and thinking that you can completely survive without anyone else. That is not a reachable goal, or even, probably, a sane goal. We are not supposed to be islands, completely. But, as far as just having a little bit of food put aside, maybe some gold put aside, in case the dollar were to fail, and having the ability to do a few things that maybe are not part of our specialization. That seems to be a good long-term goal for every family listening to the program.

David: There is no doubt, we are living today with government that is involved in every facet of our daily lives, and oddly enough, it is not that we have allowed them, reluctantly, to do this, but we have actually eagerly invited them into our lives as we go about our specialized lives, pursuing, frankly, our specialized versions of the good life, and leaving the rest of culture and politics to equally specialized political elites.

Kevin: We are talking about government here, but maybe we are thinking too small. We are looking at the United States, but the United States, itself, right now, is no longer self-sufficient. We have a global economy, and we have interviewed Harold James a number of times, talking about the destruction of that globalism, the good form of globalism where you can actually freely trade amongst each other. The destruction of that comes when you have a meltdown or depression start to hit, and so the sufficiency that we are talking about actually is extra-national.

In that context, we have shipping rates which have remained depressed, we have Britain’s oldest ship-owner, which is the Stephenson-Clarke Company, and they liquidated last week in bankruptcy. This is a firm that has dominated shipping going back to the 1730s. Obviously, though, there have been new players that have come on board since the 1730s and given them stiff competition.

Kevin: We have a shipping company that has been around since the 1730s, from when the British Empire was truly at its greatest, which is now bankrupt. What happened? Was it betting on growth and they got shrinkage?

David: They over-invested four years ago, as did every shipping company, which led to a massive over-supply of ships. They were all betting the farm on Chinese growth.

Kevin: Which brings us back to the fact that you just got back from China, because what is it? Is it growth or is it shrinkage? And what happens in the meantime?

David: That is where we are seeing a litmus test for a return-to-growth thematic or continued constraints on growth. This is interesting. In the tradable goods sector we don’t have enough product being moved at a price that justifies the amount of boats that are out there. They were assuming exponential growth moving forward, and we have actually had a global contraction. They anticipated exponential growth and got the opposite.

We have the same depressed kinds of rates which are killing the Hamburg shipping community. We have Greek, British, German, and Scandinavian firms which have been the hardest hit, and of course, they dominate the shipping sector. As more liquidations occur, the number of vessels that are available at day rates that don’t come even close to covering costs, further pressures the entire industry.

This is a classic case of pro-cyclicality. We talked about that a few weeks ago. These companies were perfectly geared for exponential growth, having massively borrowed to grow their fleets to stay ahead of the Chinese growth curve, and have failed to recover, at least never to fully recover, with the Eurozone issues lingering, with the U.S. consumer still largely absent.

Kevin: David, it’s amazing. You buy too many ships, you take huge debts out to buy these ships, you stop being able to pay for the ships, you go bankrupt. Then the people you borrowed the money from go bankrupt, or have to get bailed out. You have to have a retail buyer at the end to pay for all of this.

David: A couple of things to note there. One, we have consumer credit which shrank from last year to this, by about 31%, so a 9 billion plus number is now a 6 billion number. That is consumer credit, as in credit card usage. The current retail sales figures, though, actually, were a decent number. We have seen the primary improvement in the numbers, but where did it come from? It came from revising the last reported number lower. You lower the last reported number, come out at whatever number it is, and it looks to be an improvement.

Kevin: It makes for growth that maybe wasn’t there.

David: Maybe wasn’t there. And the other thing we need to look at more carefully is that retail sales figures also factor in retail gasoline, the price that you are paying at the pump. That is a major component. We have seen a 17% increase, if you are counting West Texas, as much as a 27-28% increase if you are talking about Brent crude, in terms of an increase from its lows earlier in the year. Yes, we are going to see some positive input in the retail sales figure, but again, that is not consumers going out and doing something like back-to-school buying. This is a retail component that is plugged, or improved, or inflated, if you will, by the increase in the price of gasoline at the pump.

Kevin: David, knowing now, looking back, what went into the consumption of the 2000-2008 period, it was mainly real estate, and people are still waiting for their real estate to come back up. That is not happening here in the United States, but in Germany right now, people are starting to move into German real estate. Are we seeing a real estate wave moving over into the European area?

David: Before talking about German real estate, I think it is interesting that there is stabilization here in the U.S. market, largely because hedge funds have come in and started buying blocks of houses 1000 at a time, diminishing the overhang of unsold or foreclosed homes. The available stock of homes, which was 9 and 10 months of inventories, is now closer to 5 and 6 months of inventories.

Kevin: And you are saying that is hedge fund buying. This is just speculation at this point.

David: Private equity and hedge fund buying, and what they are doing is like they used to buy apartment complexes and set them up as REITs. They are trying to set up a REIT structure for single family homes. Not quite as efficient as a multi-family complex where you have 300 doors under one roof, now you have a lot more lawns to clip, and maintenances issues, which is going to impact their profitability. Nevertheless, it is putting a temporary floor under the U.S. housing market and we are seeing recovery in 5-10 of the major sectors across the country geographically.

Kevin: When you say recovery, we are not talking about necessarily making money, we are just talking about not falling any more, right?

David: I think it is more stabilization than recovery. Stabilization would be the better term. But I would suggest that we have 6-12 months of stabilization before a return to decline. Here is the issue. Interest rates and the cost of capital will always impact real estate, so at whatever level you are today, and that level has been determined largely by supply and demand, and in this case, over-supply and lack of demand, because people cannot qualify for home buying as they could in the prior-to-2006 period.

The next shoe to drop, as we have said before many times, is interest rates. As interest rates rise, even a marginal increase – let’s put it in these terms, Kevin. A $1000 mortgage payment is going to buy you about $200,000 worth of debt. And frankly, if we just go back to where we were in the 2007 period, with mortgage rates at 6 to 6½ percent, now we are talking about $1000 only buying $156,000 worth of house in terms of a mortgage payment. We have a real estate market that is dependent on the cost of capital, and right now we have a free pass. It would appear that we have stabilization in the real estate market, but be cautious. Be very cautious. We have another shoe still to drop, and that is, interest rate fluctuation, on the upside.

Kevin: And interest rates, David, can’t go much lower. The government is giving it to the banks at almost zero right now.

Okay, we have talked about hedge funds buying U.S. real estate. What about Germany? There is money going into German real estate right now.

David: And it is money flowing into German real estate and German bonds. What is interesting is that it is telling us two things: One, that there is a growing number of investors who are looking at a potential return to the deutschmark, and it is not just German liquidity that is prized, although that is certainly part of the equation. If you are looking at liquidity pools, the U.S. Treasury market and the German bund market, these are the two most liquid pools of capital in the world.

Kevin: David, I want to understand what you are saying. You said the return of the deutschmark. The return of the deutschmark? This is a signal right now that, possibly, we are going to see a return of a currency that hasn’t been around for ten years?

David: I believe that part of the speculation on German real estate is in anticipation of some sort of restructuring in the Eurozone. Now, I don’t know that that speculation is going to be proven correct, but there is at least the possibility.

Kevin: Somebody is betting that way.

David: Someone is betting that way, so all we are looking at is the capital flows into German real estate and saying, “What is happening here? And what is the justification for it? Maybe they know something that we don’t. Maybe they are just guessing that they know something we don’t, and we don’t know that they know anything at all.”

There is a second element. We talked about the growing number of investors looking for a return to the deutschmark, there is also the fact that real estate, as a hard asset, is both prized, and in Germany, it is undervalued.

Kevin: You were in Berlin this year. Were you looking at some of that aspect when you were looking around?

David: I always keep my eyes open. I always ask lots of questions. Of note was the attractive values in Berlin versus cities like London, Paris, and a number of other European cities. Flats sell in Berlin at a fraction, let’s say 30-50% less, than those other European cities. So, is it a double-play?

Kevin: A currency and real estate play, basically.

David: Exactly. Strong currency re-emergence, real estate as a diversification, buying a discounted real estate pool, in the context of overvalued real estate in other parts of Europe. We are seeing cash flowing into Germany, with several motives.

Kevin: This week’s Economist magazine talks about something that we really have thought might happen, but now we are starting to see Merkel coming out and talking about how there may be a possibility of a breakup of the eurozone or some sort of restructuring that she would consider, because Germany no longer can handle, on their shoulders alone, all this debt.

David: Merkel, I don’t think, would announce, or pre-announce, an exit, mainly because this would destroy cross-border capital flows, and it would wreck the European banking system. I would still guess, I would still place the bet, that this is brinksmanship. It’s a style of negotiation that is going on that will literally…

Kevin: It will force fiscal change, right? Austerity.

David: Absolutely. Germany is willing to foot the bill, but with conditions, and if those conditions are not met, she is willing to toy with those countries, even to the brink of bankruptcy. She will bring them to their knees, and force them to sign in blood what their fiscal responsibilities will be, before she requires the German taxpayer to be on the hook for what is largesse in other parts of Europe.

Kevin: David, it sounds to me like this is flipping a coin. Anything is possible, but this time there is a likely outcome, if you are leaning one direction or another. What is likely?

David: I have no doubt that Spain and Greece will leave, and devalue. Italy is the one that the Eurozone needs to preserve, and I think that is where they are ring-fencing the risk. They realize there is too much debt involved. Even though Spain has a tremendous amount of debt, Greece is, frankly, irrelevant, in terms of the total stock of debt. They didn’t want to see the first olive come out of the jar, but it is doing that and you can write off Spain, you can write off Greece.

Kevin: Yes, but you talked about Monti actually having some Austrian leanings, and what I mean by Austrian, for the listener who is not familiar, I am talking about free market.

David: Monti has more moxie than many give him credit for. I think that is where we could see some reforms put in place, and in partnership with the Germans, I think they could ultimately pull off a restructuring in Italy, particularly if the Eurozone and the ECB didn’t feel that they were responsible any longer for Spain and Greece.

Kevin: David, I was talking to a client that I have had for years yesterday, and he brought up a really excellent point. We all remember the inflation of Jimmy Carter. We remember the chaos. We had the invasion of Afghanistan. We had high inflation. We had the Iranian hostage crisis, and there is a lot of irony in that when you look at the leader of Iran, right now. But we seemed to be in a similar predicament, to a degree.

Back in 1980, of course, we saw Reagan come in, but it wasn’t really Reagan that changed things, initially, it was Paul Volcker, changing things at the Federal Reserve. He came in and he gripped the market by the throat, he raised interest rates, and it was very unpopular for a couple of years, but ultimately, he did stop the inflationary bleeding. If we had a change in administration, with Ryan now coming in as a possible Vice President, is this something that could happen again? Could we see them raise interest rates, get control of this, and stop the bleeding?

David: On the one hand, you can ask the question, and there is a reasonable argument that you can do that, and they should do that. The issue is, are they able to do it, and what are the constraints? What makes sense from the standpoint of pure economic policy may not be workable, may not be implementable, and the limits really are balance sheet-related. What I mean by that is, today we have 16 trillion dollars’ worth of debt…

Kevin: And back then it was 1 trillion.

David: Exactly. We were just pressing the 1 trillion envelope, and that seemed like an extreme number at the time. Set against our revenues, we can’t cover the nut on 16 trillion dollars’ worth of debt if interest rates are to increase. One of the reasons I have concerns about the structure of our debt is not because it is not considered to be the highest quality in the world, but it is because we have had to shrink our maturities and cluster our debt in a two, three, four, and five-year maturity, in which we have a lot of debt that is coming due in a very short period of time.

Kevin: There is a great point to that. We look at these debts and we think, “Well, it’s like a 100-year mortgage.” But like someone just recently said, “It’s not a 100-year mortgage, it’s a five-year balloon payment.”

David: Exactly. This is where I think we have limits on our balance sheet. To raise interest rates at this juncture would absolutely destroy the U.S. economy. We would have to have tax revenues, not at a 2½ to 3 trillion mark, but closer to a 5-7 trillion mark. Kevin, do you know how bad that hurts? Now we are going back to the pre-Reagan era, 80% plus numbers. We are going back to the pre-Thatcher era of, again, 80% plus, in terms of the highest tax bracket.

Can you believe that just within our lifetimes we had those kinds of numbers, and lo and behold, it took political leadership of the kind that we saw in Thatcher and Reagan to say, “Wait a minute, something’s not working here.” Ultimately, Reagan took tax rates from 80% down to 26%. Radical! Radical! But what did we have in the wake of those kinds of tax changes? One of the greatest bull markets, and one of the greatest periods of growth in terms of globalization and increased global wealth we have ever seen in world history.

We have the French reverting to that already, 75% as the highest tax rate – Hollande. I just want to see how French our president is and see if we can match and raise them one. It seems Francois Hollande would like to go back to that old era, raising the top marginal rate in France to 75%, and he, too, is using the patriotic language of, “It’s your privilege to pay.” Obviously, that’s just an old tactic, but what I think is abhorrent in the U.S. – I can’t speak to the French, I can’t speak to the British, but I can speak to a U.S. situation which I consider to be absolutely abhorrent – is people who get to vote and don’t have any skin in the game. A flat tax would solve that.

I’m not asking for tax breaks for the wealthy, but I don’t want a complete tax break for anyone who gets to vote, because they get to vote their self-interest, which is everything, and then some, which frankly, is what everyone else gets, as well, but they have nothing to lose, everything to gain. I think someone who is a taxpayer has everything to lose, and something to gain. That is why I think we need more of a balance in the tax picture, and something I would like to see in the next presidency, is something closer to a flat tax.

Kevin: David, it is nice to have you back in the studio. In closing, you had shared that it was nice to be back, sleeping on your own pillow, your family was happy to be back from traveling in Asia, but you had some insights, some thoughts, and I think you had mentioned, we interviewed Jim Rogers about a year ago. He wrote the book, The Investment Biker. It’s all about a guy who takes his motorcycle all the way around the world because he didn’t want to just learn what to invest in from a book or from a paper, he wanted to actually go and get his feet on the ground, to get a little bit dirty, and realize that whatever he would be investing in, he would have, like you had said, some skin in the game.

David: There is an incalculable value to being in a place, and seeing things, and learning about small biases that you wouldn’t otherwise understand from just reading in print, whether it is a newsletter or a newspaper, or an article online. I think it is imperative for the investor of today to, yes, read well, but also travel well, and if you haven’t read Jim’s book, The Investment Biker, I think it is a great model for economics done right, certainly from an informed perspective, but with boots on the ground.

Kevin: But it is experiential, rather than just intellectual.

David: Having said that, I am glad to be home.