A Chat with Vern
(and a Dip in the Mailbag)
Friday, 1 May 2020
By James Woodburn
This week Greg and I got access to the Insider inbox.
One of the first emails I read was from subscriber John:
‘With due respect your letters are just too wordy. Please keep them brief — right to the point. We only want the crux of what you are about. Cut the words by 50% or more.’
John, today you’ll be pleased to know I’m granting your wish.
Yesterday, I caught up with Vern Gowdie. Vern is co-editor of the great Rum Rebellion e-letter and editor and founder of The Gowdie Letter. He also has a brand-new ‘virtual planning advisory’ service. It’s currently only available to Gowdie Letter readers, but we’ll open it up to other service subscribers if numbers permit.
It was a fascinating conversation. It will be the focus for today’s Insider. I hope you enjoy it.
If you’re a long-time reader, you’ll know Vern regularly gets labelled as being our most bearish editor.
He disagrees with that assessment.
He’s not bearish at all, he says. Nor is he bullish. Nor any label.
He simply assesses the market for what it is…and takes the position that is most likely to benefit his capital.
Right now, that position is cash.
So, that’s where we begin…
There were also a few questions that you asked, which I thought Vern was best placed to answer.
So, Simon, you’ll get Vern’s thoughts on where the US and Aussie dollars are heading…
Carmel, you’ll find out how safe bank-held cash deposits really are…and whether it’s the right time to move into hard assets like gold and property.
And Geoff, hopefully we’ll clear up some of your confusion about what an investor ought to do with the prospect of a deflationary bust looming.
The conversation is around 50 minutes, so I’ve taken the liberty of marking on the video where certain questions and topics are covered, so you can flick to the bits that interest you most. The transcription is also below the video if you prefer to read it.
Or, better still, grab a drink of your fancy, sit back and just watch the whole thing…
|Woody:||Hi. Woody here for the new look Insider. Now, I reckon I’ve got another couple of weeks of claiming the new look while it’s still fresh, but I’m going to milk it while I can. Today’s conversation is with Vern Gowdie, the co-editor of the great Rum Rebellion e-letter and editor and founder of The Gowdie Letter. Also, a brand new soon to be launched to the wider readership, a new virtual planning advisory, which we’ll touch on in a moment. But first, welcome Vern. How are you handling iso in Queensland right by the beach?|
|Vern Gowdie:||It’s tough mate. One day is the same to me. Isolation has been a part of my lifestyle for some time now, so no real change most of the time.|
|Woody:||Same as usual.|
|Vern Gowdie:||Same, same.|
|Woody:||Well, part of the first issue that Greg and I did of the new look Insider a couple of weeks ago is I asked readers for some comments and questions on what’s concerning them, what’s keeping them up at night and what kind of ideas and topics they want us to address. So we had a number of responses. I’ve been steadily going through them and there are three in particular today that I thought I would raise. I figured you’d be the ideal person to comment on them but first I guess, it’d be good to just back up a little bit because I know we’ve had a few more readers on the Insider.|
|Woody:||A lot of people know who you are. Perhaps some people don’t. So I thought it’s probably best to start from the beginning really. Now you’re almost well known here, probably our most bearish editor. How about you start by telling us about how your own personal experience has brought you to this viewpoint today?|
|Vern Gowdie:||Well, I tried to address that labelling of bearish in some recent newsletters is that I actually don’t see myself as bearish or bullish. Just, I take an opinion based on the data that I get, that I have. So if I think things are getting a little bit too optimistic, then I lean towards being, I think we should be pessimistic. But if things are too pessimistic, I’ll be optimistic. But how did I get here? I’m 60 years of age, soon to be 61. I’ve been involved in this industry since I was 27. I started in 1986.|
|Vern Gowdie:||So having gone through the baptism of fire in 1987 and then some tough periods during the late ’80s, early ’90s in the industry. Then the tech boom and bust and subprime and the eventual bust of that, you’d be silly if you don’t learn things along the way. If you naively believe that there’s no pattern here or what are the underlying reasons for all this? That’s what I’ve done over probably more so the last 20 years since the tech boom busted is saying, ‘Hey, let’s look at this a little bit more deeply because it’s a funds management industry. It’s about managing funds on which they get a percentage.’|
|Vern Gowdie:||They are always going to have a more positive view and in the long term, things will go up and that sort of thing. But you’ve got to find out what the underlying drivers that is, is it population growth, in what we’ve seen is a debt growth? What’s actually beneath all this and find out if that’s sustainable? If I’ve been bearish, it’s because of a number of things and we’re starting to see that come on and been unravelling now, is that there’s been an enormous amount of debt that’s gone into try and reflate markets or asset prices and it’s just not sustainable.|
|Vern Gowdie:||Hence, the sheer scale of what reserve bay or central banks have done in just trying to patch up this current bubble. The amount of money that [inaudible 00:04:04] at this and this is only early days.|
|Woody:||You were pretty astonished by the debt prior to the COVID-19 stimulus? I say stimulus because it hasn’t really stimulated anything. Well it has nominally in the markets, but do you want to comment on that?|
|Vern Gowdie:||Actually in Rum Rebellion that’s published on Thursday the 30th April, I actually had a great graph in there or chart from the Dorchester Bank and it shows going back from 1970 to now, this 50 year growth in debt. They also then superimposed on that, these little bar charts of stimuluses for various crisis that have happened since the 1970s in the G7 countries. This last bar chart is like the Empire State Building compared to a house. All the others are like little houses.|
|Vern Gowdie:||This thing is just off the charts because they’ve just got such a huge amount of debt out there and a lot of it’s gone on productively. We’d done productive use. As this bubbled the flights, frantically they’re trying, ‘Who can we save, who can we roll out a $750 billion package to?’ You just see New York State the other day just said, ‘Well, we’re broke. This going to backstop our pensions.’|
|Vern Gowdie:||Everyone’s got their hand out because the whole system is just weighed down with debt. Ray Dalio has just written a great book just recently about the changing world order. He also talks about the end of the debt super cycle, a cycle that begins over 70 years ago in the post-war period. These things happen that they’re decades in the making. So there’s just way too much debt in the system and it has to get out there. That’s why the market action is not reflecting economic reality.|
|Woody:||I was going to ask that because you mentioned your experience in the previous four big downturns. You had your time when you stood in the planning industry and you kind of worked through 1987 to 2000, it was while you were still practicing. Obviously the 2008 bust happened by which time I think you’d already sold your business at that point. Well, the recent crash-|
|Vern Gowdie:||What was happening, so we made positive moves to actually sell our practice because I believe what was going to come would have a detrimental effect on the valuation of practices. That has transpired as what’s happened. If you look at all the recent news about-|
|Woody:||Just out of interest, what did your peers say at that time?|
|Vern Gowdie:||Well, they’re happy to pay the price. So obviously they were more bullish than I was.|
|Woody:||Yeah, right. I was going to ask, I find it-|
|Vern Gowdie:||I was told I was nuts. Why are you letting go of this?|
|Woody:||I just find it to ask…through your experience. I just wanted to clarify something because I know something that might confuse a lot of readers is that the markets have actually rebounded quite strongly since just the crash in March. I think just before we’re recording, I mentioned that the NASDAQ is for example, it is just 1% of its all-time high where it was at the start of the year. It kind of suggests this downturn is short lived, but you’re suggesting it’s part of this big long bust. So I was going to ask how you reconcile the two things?|
|Vern Gowdie:||It’s a chart I’ve published previously in Rum Rebellion and The Gowdie Letter. It’s about the four phases of a market. It’s really a psychological profile because at the end of the day, markets are you and me. They’re based off, so you look a bit the tulip mania, you look at the South Sea Bubbles, you look at all these the roaring ’20s. There’s always a pattern to it because character flaws come out. So we are cautious and then we end up being supreme optimists. Then when the wheels start to come off, we go, ‘Oh no, no, this is just temporary.’ We sort of think, ‘No, no, things we’ll get back to normal.’ Then the thing is out of balance so it needs to fall.|
|Vern Gowdie:||We’re in that sort of denial, return to normal type phase of this psychological profiling. They never ever recover these market. I think the [inaudible 00:08:30] came down from what, 30 to 18, and it’s back at 24 or close to, and it might get back. I can’t see it’ll get back to 30, because markets are based on earnings by a multiple. Maybe call me silly, but I don’t know if earnings are going to be that good in the near term. I could be wrong but shuttering the economy has no effect on the bottom line of companies, but I don’t think I am.|
|Vern Gowdie:||So earnings are going to be down. If you’re going to get back to that price, then you’ve got to have a multiple that’s way higher than what we previously had, which was already historically high. Mathematically it makes no sense. Logically it makes no sense. But then again, markets are emotional beasts. In the short term I think what they say, they’re a voting machine in the short term and a weighing machine in the long term. Don’t forget there’s a lot of day trading, short covering in the market. So there’s a lot of day-to-day action that can make things. But underneath all this is a deteriorating economic picture.|
|Woody:||What are you meant to do? I mean because it’s just kind of human nature to want to do something. You want to do something with your money but you’re kind of sitting out, aren’t you?|
|Vern Gowdie:||Well no, I’m not sitting out, I’m just in a different asset class.|
|Woody:||That brings me to my next question. What [are you] doing with your money right now?|
|Vern Gowdie:||That’s a mentality that again, people think, ‘Oh of course you’re in market. Of course you’re in the bank, you’re not really investing.’ Well, yes I am. I just want to invest in something that doesn’t carry significant risks. Because I think there’s still a lot of risk in markets. I look at Warren Buffett and I think he’s been building up a war chest there. I think it’s about $130 billion in Berkshire Hathaway and he came out last year and he said, ‘I don’t want to have the cash, but I can’t see if I move it out of the bank that a $100 out of the bank and I buy something for a $100, then there’s probably more risks that that’s going to be worth less. So I’m better off just keep my 100 bucks in the bank. As much as I’m like only 1% on it, I can’t see anything else out there.’|
|Vern Gowdie:||I think that’s a mindset that people have that I think the industry has done an excellent job in sort of embedding and people say, ‘Oh, if you’re in the bank, you’re doing nothing.’ Well no, you’re just waiting for the appropriate time to where the equation for risk via reward is in your favour. What I saw was that there was a very high risk in markets and there was no reward. You weren’t going to get rewarded for that risk. When markets are fallen 50, 60, 70%, the risk is out of the market and the rewards are much higher. As we all know you buy low, sell high, but very few people actually practice it or have the patience to wait for those points where that equation is in your favour.|
|Woody:||Or perhaps understand that that can happen within cash as well. I mean, perhaps you can just elaborate. When you say cash, you mean [inaudible 00:11:53]?|
|Vern Gowdie:||Yeah, you’re correct. I moved a substantial amount of money into US dollars in 2012. I forget the year, but we moved about. We were getting a dollar five US for our dollar. To me that seemed like a really good risk trade off. What was the chances of me losing a lot of money? If I was to lose 50% on that tray, on that our dollar, we would have to go to $2.10. That was never going to happen. The historical norm is around 75 cents. So I thought that was very little downside for a lot of upside and that’s proved to be the same.|
|Vern Gowdie:||We bought UK pounds at 63 P and I remember people saying, ‘Oh, you’re stupid, the Brexit, the pounds going to go down to the toilet and da da da.’ I thought, ‘Well, that was the prevailing mood at the time. The overwhelming sentiment was on that side, the boat was listing there.’ Maybe not. As it turned out, it was pretty much the high for the dollar against the pound because again, as you would know, the traditional thing is about 50, $1 buy is about 50 P. So we are at 63 and there’s been times where we’ve been down as low as 30 you may remember in the 30s. You just got to look for these imbalances and where society is at in the mind.|
|Vern Gowdie:||That’s why I love talking to people, just finding out what they’re thinking. If there’s a commonality of thought, I think, “OK, I’m looking the other way.’|
|Woody:||So that’s your strategy, what you’re doing at the moment. But you’ve also got three daughters and I’m sure the vast majority of our readers have sons, daughters, grandchildren, perhaps great grandchildren. What’s your advice to that generation? I’m assuming it wouldn’t be the same, would it?|
|Vern Gowdie:||Absolutely. Why do you want to lose money at any stage of your life? If there’s times in your life you need to be patient, then be patient. But from a very young age, we’ve openly talked about money, business, how we see the world, I guess the economics, politics. We’ve had an open discussion now there. They’re all at different parts of the world now, London, Paris, Sydney. But thankfully, due to the marvels of technology, we speak regularly. Even more regularly in recent times.|
|Vern Gowdie:||So my advice as always A, don’t get into unnecessary debt if you don’t need to. B, when they’re looking around, one was looking around at a house, maybe I said, ‘No, just hold off. I think better opportunities will present themselves.’ We’ve been very mindful about that, they have to live, they should be budgeting and putting away about 10% and they do. So that gives them a cash buffer, which they’ve been very thankful of in recent times. Also, I think from a timing perspective, this couldn’t have happened at a better time for our family because they’re now 26 going on 27, coming up 29 and 30.|
|Vern Gowdie:||They’ve had some life experience. 10 years ago, this would have meant not a lot to them, but they now are out there and appreciating the things that we’ve been talking to them about. Again, I’ve just been saying, ‘Let’s just be patient. Let’s just wait. There will be some opportunities to come out of this.’ The value of what we’ve been talking about is starting to actually either they can physically see it because they also know what some of their friends are going through [it] and some of the difficulties they’ve got themselves into.|
|Woody:||It’s a good point, actually, the founder of Port Phillip actually and a good friend of both of us, Dan Denning, I remember him saying before he went on his travels back in 2014, ‘There is a whole generation of workers in their mid-20s that have never, ever experienced, not even a single core of recession, not alone a downturn.’|
|Vern Gowdie:||Well, and you can really go back and you could even extend that out to the people in their 40s, the official recession we had here was in early ’90s. So even if you were 20 at that stage, I remember being in my very early 20s in the UK in the early ’80s. There was a severe recession. I had no idea. As long as I had enough money in my [inaudible 00:16:31] pocket to go and buy a pint, I was happy. So really, unless you were about 25 in the early ’90s or over, you really never had the experience of it.|
|Woody:||That’s true actually. I was in my early 20s in the tech bust and I’ve no recollection of that.|
|Vern Gowdie:||So if we go back 30 years, really I would say anyone under the mid 50s doesn’t know what they’re paying 17 and 18% interest rates and the pain that caused them and the line-ups at the bank. I remember line-ups at Metway Bank, which is now Suncorp, but fear went round. Rumour went round that it was going and there [were] line-ups. Unless you’ve actually gone through that. There was such a long time between then and now that I think a deal of complacency got in there. I get back to what I said earlier, Woody, people never really, really, and it baffles me to this day, they never understood what that secret of so called economic success was.|
|Vern Gowdie:||All you got to do is get a bit chart and you’ll see that we went from $800 billion of national debt. I mean personal, corporate and public in 1990 to nearly $8 trillion today. Even if you put in there a factoring for inflation and population growth, it’s just been a data thumb. So there’s been no magic. As interest rates came down, people would take on more debt. So there’s been no magic formula to all this. The central banks haven’t managed as well. They have been reprehensibly irresponsible.|
|Vern Gowdie:||Now this is why they’re having to roll out such massive stimulus packages because so many people have bought into this belief of, we can live beyond our means. The problem is, they’ve dragged forward all that money, all that debt has been dragged with all this consumption from the future. Now the future’s coming and I think you’re going to find a very big mismatch between supply and demand. The world is geared up to supply a lot of things, but I don’t know if the demand is going to be there to buy it. That’s why I think we’re going into this deflationary cycle, which is the next phase of all this.|
|Vern Gowdie:||We’ve had the big blow up with COVID and the shutdown and all that, but it’s the underlying psychological changes that will happen from here.|
|Woody:||Well, that’s something we were talking about early in the weekend editorial meeting, wasn’t it? I actually NO, with our great guy, George, our compliance guy. We had a meeting and you were making these warnings way before the COVID crash. But the COVID thing you were saying it’s just [inaudible 00:19:19]. It was coming. Something’s going to cause it.|
|Vern Gowdie:||It’s always something. Is it an Archbishop who gets shot or whatever that trigger is. But the big part, the tinder is there, it’s piling up. It’s a bit like the bush fires. We’re having another royal commission, but they’ve had umpteen royal commissions before and it all comes to the same thing. It was too much fuel. Was it a match, a cigarette butt, a lightning strike or a flame thrower, whatever ignited that. The fact is the fuel was there. You don’t get bush fires in the desert because there’s no fuel.|
|Vern Gowdie:||So the fuel is there, as to what the spark’s going to be and where is it going to be thrown, in New South Wales or Victoria or by a kid or by an adult or by God? Who knows, but it’s coming.|
|Woody:||So that kind of moves us nicely onto what I wanted it to. The reader questions that I thought I’d put to you. Say the background is: a couple of weeks ago me and Greg requested lots of readers to write in what you’re worried about, what you’re concerned about, what opportunity, whatever you want us to discuss. We’ve had an influx of emails and I’d just picked out three that I thought would suit this conversation pretty well. So here’s a question from Simon. ‘Quick question, what are your thoughts within the office of where the US and the Aussie dollar are heading?’ So that kind of follows on from what we were talking about a little bit a while ago.|
|Vern Gowdie:||Well, given that these were impromptu questions, I’m glad you started with an easy one. Those Aussie dollars I bought in 2012, I am still holding them. My long-term belief back then and I am a very patient investor, is our dollar will go under 50 cents. It was always my belief. The reason for that, excuse me, is that in a downturn, and we’ve seen that in 2000 after the World Trade Towers were attacked when there was concern, I think we dipped into 48 since then. In 2008 I think we were down to low 60s, maybe high 50s low 60s.|
|Vern Gowdie:||When the world gets a bit frightened, they run back to mummy. The money goes back to the US treasuries. They want to get back to the safety and nurturing of, ‘OK, if all else fails, the US government will honour my dollar.’ I don’t care if I haven’t earned anything on it, but I know it’s going to be safe. So to do that you have to buy US dollars. If you want to buy US treasuries, you’ve got to buy US dollars. So there’s [inaudible 00:21:52] money comes in, supply demand, dollar becomes and we saw that briefly a couple of weeks ago. We dipped to what, 56 cents.|
|Vern Gowdie:||We’re now back to 65, its come back. But when this next leg in the market comes down that I’m anticipating, I am still expecting will be sub 50 and that’s when I’ll exit that trade, that investment with a 100 and something percent return more than that.|
|Woody:||So look out for the 50 cents level basically.|
|Vern Gowdie:||That’s what I’m patiently waiting for. So I don’t trade, I don’t do that sort of stuff. So if someone’s looking to say, ‘Oh, I’ll getting a 65,’ and my view is, ‘Yeah, will get.’ But like all things when it’s down at 48, and I’m glad I’m going on record here now, if we get sub 50, you’ll have all the economists out there talking about, ‘Oh, we’re going to go lower. We’re going to go lower.’ Because they all hop on the trend. But at that stage, that’s when I’ll be selling. When I hear some mainstream economists talking about [inaudible 00:22:56] it’s time for me to sell.|
|Woody:||Well Simon, I hope that answers your question. We got another question from Carmel that is quite a long one. So I’ll try and pick out the question from it and I might even touch on the background of where she’s coming from. But I guess it relates to having the boss bulk of your wealth in cash in the bank. So she says, ‘Hi guys, many of us who are holding cash in our bank accounts are concerned as to whether the $250,000 guarantee that bank held deposits are safe, will hold water at all in the event of a depression or a fiscal meltdown. Is cash really safe in our banks and if so, for how long?’|
|Vern Gowdie:||The government as everyone knows, we’ve got the deposit guarantee of $250,000 per tax paying per approved deposit taking institution. The question I’m always asked is, ‘Yeah, but is that really going to be the case?’ My unequivocal answer to that is yes. On what do I base that, A, there’s legislation or B, that that legislation limits the pay out of the government to $20 billion per institution. So therefore things like Commonwealth Bank and the bigger banks who have much bigger deposits balances are technically not covered by the legislation.|
|Vern Gowdie:||But I think this recent action by governments has shown us that they will move hell or high water to bring confidence back in the system. Who would have thought there’d be $130 billion stimulus package when we woke up on New Year’s Day? The long answer to this is the government I believe will honour its $250,000 guarantee. It may mean that it says we’ve got capital controls. Actually, you can physically see the 250 in your bank account, but you can’t actually get it, but it’s still there. You haven’t lost it.|
|Vern Gowdie:||Also and I’ve said previously is people say, ‘Oh, the government hasn’t got the money, the banks are this.’ Well, we’re just seeing that they can print it. We’re now seeing they can print it and you’re now seeing that they’re wanting to restore confidence in the system. That’s why they’ve introduced JobKeeper and JobSeeker and all these things, stimulatory measures. So that the social cohesion is still within those. Do you really think they’re going to let the banking system fail, seriously? That they go, ‘No, that’s it boys. We’re limited to 20 billion now. Those people that got my money in Commonwealth Bank, too bad, gone.’|
|Vern Gowdie:||It’s just not going to happen. It’s just not going to happen. Because don’t forget, and I wrote an article about this, companies like Woolworths, this is the [inaudible 00:25:51] have $1.2 billion in cash somewhere. I assume it’s with maybe let’s say it’s with the top four banks. Do you really think they’re going to stand by and let the government confiscate everything above $250,000? Who are they going to pay their suppliers, their leases, their staff? It’s just not going to happen. Even governments move through that now the actions they will undertake.|
|Woody:||Well, there you go Carmel. By the way, she’s [inaudible 00:26:23] certain things about real estate and she’s just wondering whether the priority should be to get the cash into a hard asset. Obviously, this is just hypothetical big picture. It’s better to have the cash in the bank or to put it in real estate. Something which is more tangible and a hard asset or something. I don’t know what you think about property at the moment.|
|Vern Gowdie:||I think it’s all interlinked. What we’ve had it’s been dubbed the everything bubble. So everything about cash has just floated higher. You look at these prices being paid more so in Sydney and Melbourne for properties that are now as a multiple of household income, ridiculous levels, high levels. But that’s been because there’s been the data availability, there’s been population growth or immigration and low interest rates. Again, I think they’ve been priced for perfection and call me silly, but I don’t think everyone who’s lost a job is going to get the job back after this is all over.|
|Vern Gowdie:||So therefore there’s going to be some fore selling. The banks will carry this for a while, but they won’t carry it indefinitely. They’re going to have to make some commercial decisions. I think there’s going to be a flow on effect to the property market. Also believe that initially were heading into a deflationary spiral. The US bond market is pricing it for that with their inflation linked bonds. After three years they’re pricing in zero inflation. So I think as we go through this deflationary period those assets, cash will become worth more.|
|Vern Gowdie:||A dollar in the bank will buy more and more as these assets they use for. For example, at the start of the year you needed $90 in the bank to buy one CBA share. Well now if you had that $90 still in the bank, you can buy one and a half or more CBA shares. If the CBA shares get to $45 or $20, that money in the bank, we’ll be buying much, much more. It’s actually appreciating in value in a deflationary depressionary environment. I think that same will hold true with house prices. What was once worth a million dollars may end up being around the $700,000. So your million dollars in the bank is going to buy you one and a half times more home.|
|Vern Gowdie:||I think there will be a time absolutely to get into hard assets. I think as these negative numbers continue to come through, you’ll see these, I call them numbskulls in the central banks. Because I really do not have any…my respect for them because I think they’ve taken us to a point we should never have got to. But anyway, they will just keep rolling out more and more stimulus, which at some point we’ll buy, it’ll grab. That’s when the inflation could take hold and you don’t want to be in cash. But I think we’re still working our way to that point.|
|Woody:||That’s interesting. So I guess Geoff’s question is the third one. Final one. It kind of touches on all the things we’ve been talking about really, but it’s probably voicing quite a few of the challenges and confusion that many people are feeling right now. So he says, ‘Good afternoon, I’m getting mighty confused about what an investor ought to do to be well placed to exploit future opportunities. Australian government treasuries, cash or gold or maybe US dollars? Is that a sound mix?’|
|Woody:||I guess it depends on the outcome. A deflationary bust question mark is all very confusing. How do you simplify it for everyone, Vern?|
|Vern Gowdie:||Boy, that’s what [crosstalk 00:30:01]|
|Woody:||Is that more of a loaded question than sentence?|
|Vern Gowdie:||No, no, no. I understand the confusion because there’s so many different opinions out there on what scenarios we have.|
|Woody:||That’s just Port Phillip Publishing.|
|Vern Gowdie:||Within our stable. But the stuff I read, you got your institutional economists who are saying one thing and you hear all these different views and and it is confusing. If you’re not familiar with the data or the history, you go, ‘Wow, that sounds like a plausible argument or maybe that.’ So there’s this confusion range. The simple answer is that’s why I’ve stayed in cash is you’ve got four options really for your money, cash property, shares, precious metals and there’s the bond market.|
|Vern Gowdie:||Again, I don’t know if a lot of people understand how the bond market works with the inverse relationship between interest rates and the duration risk and all that. People see fixed interest go, ‘Well, that’s safe.’ Again, you’re trying to simplify things. It’s not easy. So I’m in cash. That’s my simple approach.|
|Woody:||That’s about as simple as you’ll get, isn’t it? Really?|
|Vern Gowdie:||Yeah. Because I just want to see how it all falls down and where the opportunities present themselves. But the model portfolio I’ve got for our family wealth and for The Gowdie Letter and the new service, The Gowdie Advisory is very simple. It’s basically Australian shares index, international shares on an index, real estate on an index fund and gold and cash. Again, it’s not overly complicated because I think the majority of gains you make Woody over the long term of being in the right asset class for most of the right time, that’s why the share trading or buying in and out of shares doesn’t really interest me because I don’t want to work that hard.|
|Vern Gowdie:||Most fund managers, it’s shown over a period of time, can’t beat the index anyway, so I don’t want to overly complicate my life. At this stage I’d tell Geoff, my view is that I’m just staying in cash. Again, I’m running contrary to the stable of editors within Port Phillip Publishing and the [inaudible 00:32:41] and Bill Bonner. I’m a believer the goal is going to get sold off because I think you’re going to see a scramble for us dollars from emerging market. There is trillions of dollars in emerging market debt that is getting hurt and hurt bad. If the US dollar continues to strengthen, they’re going to have to come up with more local currency to buy one US dollar. So how do you get a like for like swap? So gold, that’s [inaudible 00:33:09].|
|Woody:||Maybe a future insight. It will be a debate between you and Shae. I think that’d be a good one.|
|Vern Gowdie:||Yeah, I agree with her that in the long, long term gold will appreciate with the inflation. I just think that and again I’ll go on record here, my belief is that in US dollar terms that the gold price will be moving closer to a $1,000 or below in the next year or two. But having said that, I did buy gold under $1,100 for clients. I wrote about it but I waited for the heat to come out of it from 2011 to 2015 before we did that. We’ve done very well out of that, but I’m actually now looking to exit that trade. So that might just add to people’s confusion because they get the gold up on one side and then you go, ‘Gowdie is saying now he’s getting out of it.’|
|Woody:||Well, I think that was a simple explanation to Geoff anyway.|
|Vern Gowdie:||I don’t know.|
|Woody:||You mentioned your other service that we’re working on. Perhaps we can just finish on talking about that, what it is and how he came about it. I guess it leads nicely onto that really. It’s only available right now for The Gowdie Letter readers, but we’re going to look to open it up on.|
|Vern Gowdie:||Depending on what the membership numbers look like [inaudible 00:34:29].|
|Woody:||Perhaps explain the idea behind it and then how it’s kind of, because we’ve always said The Gowdie Letter is roughly 80% market commentary, the debt bulge and 20% actionable obviously with cash allocations. But this is going to be a lot more solution-based, isn’t it?|
|Vern Gowdie:||Financial planning has been in my blood for a long time and a plan is not just, ‘OK here Woody, get into this market.’ That’s what people want. They want some sort of asset allocation model or that type of thing. But that’s just one facet of it. Yes, let’s say that makes you a whole lot of money, but you haven’t got your estate plan right. The money goes into the wrong hands or whatever or you could have done something different in the self managed super fund with the beneficiary nominations. There’s a whole host of things or your insurances.|
|Vern Gowdie:||I don’t know how, obviously it depends on your individual circumstances, but a lot more goes into a good wealth management plan than just buy this and sell that. I was fielding inquiries from family, friends, and also readers over the last few years.|
|Woody:||But I think they picked up recently, didn’t they?|
|Vern Gowdie:||Yeah. But I gave freely of my time and chatted with people and that sort of thing and there was a demand there I felt that for people looking for more. They wanted to tap my knowledge for guidance. But there wasn’t really a business case there for that because while things are going well, people think the status quo tends to remain the same in the mind. But obviously in the last month or two, that inquiry rate, there’s been two things. One, it’s increased, but two, the questions are now different. What if, what should I be doing? How’s this work?|
|Vern Gowdie:||There’s a whole lot of other questions that started to be raised that were sort of beyond the remit of The Gowdie Letter. Again, there was time and a whole host of things involved that just made it impossible. It’s not possible to answer that. Again, quite frankly, that’s not what the role of The Gowdie Letter was. It wasn’t to provide you with extended financial advice on other areas that you were concerned about. As I said, and I mentioned it to you that this is something I’ve been toying with for some time. It was like a virtual type planning service that I think would add value to people.|
|Vern Gowdie:||Because as we’ve seen with the royal commission and as I know from my time in the industry, there are conflicts of interest. You have institutional ownership or association with financial planning firms and the money tends to gravitate to the institutional owner. When I first started, it was just a cottage industry. There was none of this institutional ownership, but the institutions found that there was a lot of money to be made by having this pipeline from planers to product.|
|Vern Gowdie:||So getting independent, unbiased, there’s no agenda attached to a type of advice. It’s out there, but you’ve got to look for it. There’s few and far between the genuinely fee based advisors who you want to go and see them, they’ll just give you a bill for three, four, $500 for the hour that you saw them. You go away and do whatever you do. You go and implement the product yourself and they get no commissions or clip of the ticket or anything like that. That sort of advice is very thin on the ground. So I always felt there was a need for it.|
|Vern Gowdie:||But it’s like you got to have the right time for these things and it appears now is the right time because the level of inquiries of picked up people are looking for. They want a deeper insight into what’s happening. So I kind of liken it to a sort of the members being sort of in this inner sanctum, where actually all be sharing what I’m doing with our wealth, but also where they can give me inquiries and the research team, we’re going to put together the team. But we’ll start looking into that and then on a fortnightly basis, we’ll have a video hook-up much like we’re doing now.|
|Vern Gowdie:||But they won’t be able to ask questions, but those questions that they’ve sent in, we’ll be able to go and dedicate some resources to finding out some solutions for that in a general advice type environment. You can’t give personal advice because there’s the know your client rule and obviously I don’t know their personal circumstances, risk profiles, but most things in this business are about guiding principles, the do’s and the don’ts. You can then apply that or be given direction on what you should be considering tailored to your circumstances.|
|Vern Gowdie:||I don’t know of another service like this. To your credit, it’s something that you’ve been prepared to come bank because it’s really a brand new, I didn’t even know it exists in the States or the UK, it’s just something that I think there’s a need for.|
|Woody:||Well, I think it’s in a unique project and I really can’t wait to introduce it to the wider subscriber base.|
|Vern Gowdie:||Again, it’s a balance between the amount of members within the advisory service because we don’t want…it’s a balance. That’s why it’s priced at the level it is. It’s as close to a professional service you can get, and you’ve got to respect that.|
|Woody:||Well, that’s great. I think we can end there, Vern. I mean right now the advisory is only open to The Gowdie Letter readers, but we’re hoping to open it out to everyone in early May, depending on numbers, but it’s something we’re really excited about. Thanks for taking the time to talk Vern. Sure, this will be one of many conversations in the coming months and weeks.|
|Vern Gowdie:||I think so. I think the cycle has turned and we’re now going through a period where people are going to have to adjust their thinking. The sooner I believe that, I adjust that thinking, the better they will be in being able to handle the period we’re entering into.|
|Woody:||There we go. Cheers mate. You can get your board shorts back on now and jump into the surf. You’re often in swim.|
|Vern Gowdie:||Sounds good, Woody. Thanks [inaudible 00:41:42].|
|Vern Gowdie:||Cheers. Bye.|
And now, let’s roll up the sleeve, dip the arm in the mailbag…and see what we find…
I said give it to us — the good and bad.
You did that. And we don’t discriminate…
Sent: Sat 18/04/2020 10:35 PM
Subject: Unbelievable Market
‘It is terrific to be able to read all of your opinions to maintain a “balance” with regard to thinking about the market. However, it simply seems to be either the biggest con about to reveal itself or we are just small puppets and simply grasping at whatever takes our fancy.
‘Reason…perhaps the largest financial crisis to engulf the world is upon us with massive upheavals in employment, companies balance sheets and/or survival plus uncertainty and lack of confidence abound…and with probably the worst to come. Yet the Dow and All Ords are roaring back from the massive drop just a few short weeks back.
‘Many have said that it is because it is imperative for this confidence to carry investment forward to recovery. Others state the opposite and believe it is a false bounce and as the world wakes up to the real damage done including the massive debts by governments…then markets can only go one way…and not in the same direction as your age. Please keep this discussion open in your reports.
Ross, your subject line says it all. It’s pretty crazy, right?
Yesterday morning, just before my chat with Vern, I was looking at the NASDAQ. The US tech sector index was at all-time highs around 19 February 2020.
Literally, one month later it’s down 30%.
Yesterday, it’s back up to where it was in December.
In fact, this was the second question I asked Vern. Markets are suggesting the March crash was short-lived, yet he’s sure we’re in the midst of a longer-term depression. How do you reconcile that?
Check out his answer at around 23 mins.
Meanwhile, I’ll be sure to ask the other editors their views.
From: John C
Sent: Sat 18/04/2020 5:27 PM
Subject: Feedback for The Insider: Attention Woody
‘Thank you for your report relating to the new Insider program. It sounds exciting. However I have difficulty in understanding the apparent recommendations from your subscription Editors to buy stocks in the current financial turmoil.
‘In the past 2 to 3 months or so, we heard from James Rickards with his Reset 2020 newsletter followed by his new book Aftermath, and what to do to minimise one’s financial losses before it occurs. That was released before the Covid-19 decimation occurred. We have also been bombarded with Vern Goudie’s analysis and recommendations to preserve wealth, which to me matches up with Rickards expectations of a complete and total meltdown of the financial system. Vern’s material was also released before Covid-19 and continues ongoing.
‘According to James, the Reset could arrive overnight and without any prior warning. Yet none of this information (that I’m aware of) is being referred to by your various Editors when they release Buy recommendations and encourage members to put their money at even greater risk. It isn’t being covered in the risk section of their stock analysis which is the most obvious place for disclosure of this vital information.
‘I can see a conflict of interest here. Your business survives by selling subscriptions. Members renew and new members continue if they are making money from the services provided, which can take many months at least. It is likely that many members do not receive information from either James or Vern and may be unaware that a total financial Armageddon is expected sometime in 2020.
‘Surely these members deserve to be advised before risking their hard-earned money.
Cheers John. Correct me if I’m wrong, but I think the essence of your point is questioning why our editors have differing views…and the confusion that creates.
Another subscriber, Michael, has the same complaint, although he makes it rather more cynically…
Sent: Thu 23/04/2020 8:59 AM
Subject: Marketing Spin at its finest
‘You give that many contrarian views ± property up property down, crash coming, boom still going, next boom about to start after COVID-19.
‘Clearly you guys are always right. I subscribe to your Exponential Investor and to be frank, none are above water prior to COVID-19.
‘Yet you got these predictions right.
Let me address the core point…
Our business is not about ‘balance’ and ‘consensus’.
It never has been.
We don’t hire people with brains in order to tell them what to think so we all can agree and take one position.
We’ve tried to (and continue to try to) build a team of people with their own ideas about markets and making money.
The future is unknowable, so we don’t know who is right. All I ask is that our editors work hard and think hard.
And if you think that allows us to take both sides of a position so that we can always claim we were right, I invite you to spend a week answering my email.
There is nowhere to hide in markets if you’re wrong.
When we publish ideas that don’t pan out, it costs us customers.
The safest thing, by far, for us to do would be to form a consensus opinion that didn’t deviate too much from the mainstream.
But then what would be the point in having an independent publishing business if we all said the same thing?
From: John W
Sent: Fri 17/04/2020 8:42 PM
Subject: biggest joke
‘I think your the biggest joke in the world now you expect me to not see what going on here you suck people in with newsletters you take the money after it always fails!
‘Like free call option you get paid we get a night mare, your disgrace to the investment industry while I was getting my wings I sucked into ipo service late in bull market and was left with disaster portfolio while you scurry away thinking new letter to suck pundits in with this just one many experiences here of total joke, you done over and over again.
‘To the poor investors now your latest trick destroy any alliance value member letters move them over to fat lies I mean fat tails letter then they lose there life time value because with a different company that’s really the same company how fuckin sneaky &I thought Kris sauce [sic] was a rat! But don’t worry will give you a real estate company just before a world recession what a joke, it pissis me off when I see this rubbish longest bull market ever and try sell that shit to people ,no wonder why Asic had a good look.
‘Sam [is] a joke of editor i mean that, these days no recs in biggest margin call ever while on twitter boasting if he had million to invest he be a gizzionare a clown of clowns, boom to bust no more mr nice guy.
‘Don’t even dare write your 2013 write up on btc kris didn’t want a service on block chain because he is clown and Greg the only one with brains it [is] waste of my money and time.
‘You keep reinventing your selves and we keep paying the price its cheap its dishonest and me that pays the price so I gave you letter review on your services.
‘It’s all about your opinions your sales and selling fear. Seeing Greg only one giving out picks in the fall only one while motley played smarter game again, every fall they buy!!!! I wrote email details of all your services I’ll take my own chances with my doe I will never trust this place.
‘Taken along time to work this place out but I know now.’
Hey John. Look. I don’t really know what to say. You’re a long-time subscriber and a serial emailer. In the past you’ve been extremely praising of certain editors. To others, you’ve been extremely rude.
We stick our necks out in this business in way mainstream analysts aren’t willing to do. I believe that’s the great virtue of our business. It demands transparency when it comes to investment ideas.
There is nowhere to hide. When you write every day about financial markets, and when you make predictions and forecasts, you’re going to be wrong or you’re going to be right. And everyone’s going to see it because it’s right there in black and white. We’re prepared to cop anything that comes with that.
And I welcome frank emails. All I ask is that you be respectful. No one here is out to trick anyone. All our analysts and employees work extremely hard. Of course, they don’t always get things right. But we don’t pretend to. We are working hard to re-energise and reinvigorate our publications and services for the benefit of our valued subscribers.
Sometimes (and especially after being in business for 15 years) progress requires change. If that makes you unhappy, then please request a refund: you can do so by emailing email@example.com.
Sent: Tue 21/04/2020 8:44 PM
‘Interesting history lesson of your newsletter business however I hope the ongoing contributions are more concise and with a great deal more substance than your introductory email….
‘Looking forward to seeing what hits my inbox
James, challenge accepted!
Sent: Fri 24/04/2020 12:50 AM
‘Can you tell me your thoughts on resident property, particularly in Perth.
‘Do I buy now, or do I wait? I’m 62, I have cash and no other assets.
Hey Astrid, do you subscribe to any of our free e-letters?
I think you’ll like what’s in store starting today and this weekend, right up until Wednesday, 6 May.
Catherine Cashmore and Callum Newman are ‘taking over’ in order to show readers why they believe the property market is in the midst of a mid-cycle slowdown that will morph into the biggest property boom in Australia’s history.
It’s based on their knowledge of the 18.6-year land cycle.
If they are right, then it’s a buyers’ market…especially buyers with cash. You should check it out.
And if you’d like to get in touch with Catherine directly (she is the most knowledgeable property cycle expert I know, bar none), let me know. She’s no sharp suited spruiker though. She’ll give it to you straight.
Sent: Fri 24/04/2020 12:36 AM
Subject: A quick hello.
‘Dear Woody & Team
‘Hi, my name is Craig Anderson.
‘I am a site manager for a mid-sized Commercial Construction company in SA. I have subscribed to many of Port Phillip Publishing offerings for a few years now and get great information out of doing so, so thank you all.
‘As bad as the current environment maybe with the unfortunate losers of life’s, jobs, wealth and lifestyles due to the Spread of Covid-19 (humanly designed infectious disease). I see it as sobering times for what was out of control society with lifestyles created by debt, encouraged by greedy and incompetent lending. Nature has a way of clearing out the weak and vulnerable naturally. This appears to be having a similar effect.
‘I personally see this as an exciting opportunity to better myself as a person, a husband, a father and someone that is required to be a manager, a support structure, a informer and a leader to so many people on a daily bases. I have furthered my knowledge a lot with the information provided within my subscription. A lot of my day can be spent calming and ensure people that they should not be mislead by mainstream media. A spade will always be a spade and that’s how facts should be presented. A great saying I like to throw around is “Pain is inevitable. Sufferance is optional”.
‘Overall thank you all and keep up the good work.
‘One final comment from me would be, key information delivery is best absorbed by, keeping content interesting and informative with some insight and a little back story as to why, all this without getting to lengthy, finished with the main delivery point or recommendation. I personally find some of the papers a little long winded sometimes (not all the time).
‘Stay safe and thank you
Thanks so much for your words of encouragement, Craig.
I think your perspective is bang on the money. My wife and I were talking about this last Sunday over a red wine and a game of Scrabble.
We are going to look back on this time with fond memories. My daughter is just about to turn 11 months. And the time I’ve spent with her through working at home is really special and will stay with me forever.
There’s something to be said about going back to being resourceful and making use of (and the best of) what you have. Whether that’s deciding what you do with your time at home…to how you cook the food in your cupboard…or whatever.
Sometimes it takes these big scary events to help you remember that, really, the important things are the simplest. And they are right at home.
Sent: Thu 23/04/2020 9:13 PM
Subject: (no subject)
‘Thank you for your introduction to the old but new “The Insider”.
‘I am a novice when it comes to share trading and the financial markets and so I am very much enjoying the advice coming from Port Phillip Publishing.
‘During such uncertain times it has given me the courage to put aside my fear that “this is way over my head” and follow what I feel is sound and sage advice.
‘Thank you for helping me navigate my way through these volatile times.
Jenny, our pleasure. Let me know if there’s any aspect of what we discuss you would like further attention on. I’ll be happy to oblige!
Sent: Mon 27/04/2020 11:58 PM
‘I have been reading and following different subscriptions of yours over the years.
‘Right now I realise it’s extremely turbulent times to be sure of anything. One area of interest I am looking at is the banks, an area I generally shy clear of but with the battering they have received in recent times I’m seriously wondering whether they are worth a closer look at, or is it the belief within your group that they are likely to go a lot lower before they recover substantially?.
‘I am also watch the crypto scene and wonder if they really will take off and leave the banks behind, any thoughts on that?, or are the banks going to morph into a different form of banking and incorporate crypto quietly in the background.
‘Like many I am finding it difficult to know which way to jump, I am sitting on the side lines to a certain extent, but have no doubts that in time markets will change and of course it’s the when is the hard part.
‘I do appreciate the varied points of view you all hold at Port Phillip Bay [sic] Publishing, and the respect you hold for the others points of view.
Hey Pamela. First of all, thanks so much for the compliments. It’s great to hear from readers who ‘get’ why we don’t have a ‘company view’.
The point of our business is not to tell you what to think — or even please you with the ideas we publish. The idea is to challenge you, make you think, figure things out for yourself…and offer useful ideas that can make you safer, smarter or richer.
This comes back to my earlier point about transparency. We don’t shy away from making bold claims, forecasts and recommendations about the investment markets. And when we do, there’s no place to hide, either. It’s right there in black and white, on the internet forever. And we’re either going to be right or wrong. And everyone will see it however it plays out. You can’t get more transparent than that.
On your question about the banks, I know just the person to ask. I put your question to Ryan Dinse, co-editor of Money Morning and Exponential Stock Investor. His big thesis late last year was what he called ‘The Great Bank Unbundling’. Here’s his reply:
‘You’re right to be thinking hard about the banks right now.
‘And historically, at these beaten down prices, they’ve represented a good buying opportunity. I remember for instance how hard they bounced back after the GFC in 2008.
‘However, in this instance I think this way of thinking is a trap.
‘Let me explain why…
‘I spent much of last year talking about a huge trend I saw picking up speed.
‘I called it “The Great Bank Unbundling”.
‘This is the idea that a bunch of fintech upstarts were taking over various functions of the banks — from lending, to insurance, to wealth management, to foreign exchange and everything in between.
‘These disruptors were focusing on one area and doing it much better, using advances in technology, changes in regulations (such as open banking) and focussing on a growing cohort of millennial customers who were important to the banks future profits and far less likely to be loyal to one bank.
‘In the future I imagine a world where you’re your own bank, picking the products that suit you best and managing them through one interface. A ‘pick and mix’ of banking!
‘This is a global trend and is destroying the profits of the “big banks”.
‘To make matters worse, the big banks have a whole lot of legacy issues to deal with right now which is draining their time and resources. Things like dated technology that’s hard to replace, heavily exposed lending books and costly infrastructure like bank branches that are going obsolete.
‘We’re starting to see them cutting dividends and raising capital to try and survive. And in the short-term this might work. But in my view the long-term threat to their business models — the unbundling process — will only keep going.
‘At a deeper level, we’re witnessing a complete re-invention of the entire financial system. This involves new ideas like cryptocurrencies and blockchain technology.
‘All the best,
Hope that helps. And by the way, look out for next Friday’s Insider (8 May) as I’m getting Ryan, Sam Volkering and Lachlann Tierney on a call to discuss the significance of the bitcoin halving the following week.
It has all to do with what he talks about above, and a whole lot more.
Sent: Fri 17/04/2020 9:24 PM
Subject: My thoughts
‘I have been a suburban cricket umpire for some 21 years (about 480 games up all told). About 13 years ago I made a decision — to remain humble, so that I can remain teachable. I applied that to my umpiring, in the hope that I would never get so blasé that I ever thought that I knew everything about cricket!! I am still learning. I try every game to look for something that I have never seen before or haven’t seen for some time. Some games I drive home from the game excited because I noticed some small aspect that I have not seen for a while.
‘I am a public accountant in my mid 60’s. I have been reading your newsletters for some 8 years at least — gradually accumulating knowledge and I thank you for sharing yours.
‘If I can ask that you pass onto your “team” any piece of wisdom, may I ask that you all “remain humble, so that you can remain teachable”.
‘I believe that knowledge is power. It has helped me in my umpiring. I think that you all can benefit from this philosophy too.
Great email, Andrew. Thanks for sharing.
And yeah…our job here at Port Phillip and Fat Tail is to give our guess about where we see the markets and the world is headed next.
But of course, we know that no one can really know what’s going to happen next year or the year after.
What’s that famous saying?
‘It’s difficult to make predictions, especially about the future.’
The only thing we CAN be sure of is that the future will come. And we have to figure out how to be ready for it…how to manage our money…avoid big blunders…and maybe even take advantage of the odd opportunity.
Well, we’ve got a pretty good team here in Australia to help try and figure things out, whatever the future brings.
But I think you nail it on the head. Always remain humble.
I think that’s a good place to end for today.
Keep the letters coming — firstname.lastname@example.org — and have a great weekend.