Episode 102 - The Gold Standard with David McAlvany
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David McAlvany is the CEO of the McAlvany Financial Companies – International Collectors Associates and McAlvany Wealth Management. He is a featured speaker on national television and radio programs including CNBC, Fox News, Fox Business News, and Bloomberg where he analyzes major events and their impact on the global economy and financial markets. David shares his story, discusses the importance of precious metals and reserves, and explains how Faith Driven Investors should think about these assets.
All opinions expressed on this podcast, including the team and guests, are solely their opinions. Host and guests may maintain positions in the companies and securities discussed. This podcast is for informational purposes only and should not be relied upon as specific investment advice for any individual or organization.
Episode Transcript
Transcription is done by an AI software. While technology is an incredible tool to automate this process, there will be misspellings and typos that might accompany it. Please keep that in mind as you work through it.
Henry Kaestner: Welcome back to the Faith Driven Investor podcast. I'm here in our virtual studio and sweet with William Norvell William.
William Norvell: Greetings, greetings. Love the changes we've made at the virtual studio lately. It's looking, looking fresh.
Henry Kaestner: It maybe, maybe it's the same bookshelf, but you're looking good. You look like you're headed into a weekend with Alabama Crimson on. Is that right? Or is that
William Norvell: kind of what happens around weekend time for me? No, no. It's a blend, but it's Alabama Red Alabama.
Henry Kaestner: It's not Stanford.
William Norvell: It's not real. No, it's crimson.
Henry Kaestner: Okay. All right. That's good enough. So before we get into, we've got a really cool podcast guest today, we're going to talk about a topic we've actually never talked about precious metals and what that looks like. And so I'm fired up for this for a whole bunch of different reasons, which will become manifest shortly. But before we do that, William, this is not the only podcast you have done, and we've been remiss in not mentioning a really good work that you had put out there in podcast land and to share real quickly with the FDE audience. What did you do? Why did you do it? Keep it to two minutes or less, as you have done with each of these podcasts, which is really cool. I mean, I can do a podcast episode this like two minutes long. So give us a description.
William Norvell: Podcast episodes are a lot shorter than my typical overview of my podcast, but yeah, now I appreciate that. Yeah, so Phil called the God to personally go through a journey to understand humility just as season of my life, where I just felt like I wanted to see what God really says about that. So I put together 50 really short devotionals and a 50 sounds like a lot, but they're all less than five minutes. And I basically just read a passage of scripture and a couple of different translations and then have a couple of quick commentary. And then actually, I leave the last ninety to one hundred and twenty seconds just for reflection on what God might be saying to you through that podcast. So five seasons each goes through a different topic of humility and how we can play that out in our lives. And yeah, it was useful to me and thought maybe somebody else could learn something from it. You get a lot less of me and a lot more of the Bible, which is probably a great podcast.
Henry Kaestner: It was awesome, so I've been blessed by it. Thank you. I think that our listening audience can be blessed by two as a will by our guest today. OK, so I'm gonna set this up a little differently than we do. We are going to talk to David about his background, how he came to faith, how it informs what he does, and there's a bunch of things about how he has a culture and his company, I think, are really worth exploring. But this podcast came out about a little differently than most do, and it came out of a source of almost like a mini debate. OK, so I'm I set the stage. All three of us, William David and I attend something called the Christian Economic Forum every summer, and it's a great blessing. Chuck Bentley, who's been on the program, is such a great leader, such a great guy. The conference is unbelievable. It's just really some of the great thinkers from around the world, and it's just awesome to go to. So a great friend of ours named Tom Darden led off and had encouraged Chuck to say, You know what? We had these great presentations, but let's have a little debate. Let's get a little contentious. Let's go ahead and look at some issues that maybe there's a we can have a healthy debate on. And so Chuck said, you know, in the next seventy five minutes, we can have this kind of debate atmosphere and let's talk about some of the things maybe we disagree with a little bit. So he had a couple of speakers up and he or one of the speakers offered up this question how might you as a Christ follower hedge against inflation? Which is a great question. It's a great question. Some of the panelists, some of the people then offered up some answers came from the perspective of cryptocurrency and then also precious metals. And so I felt compelled and challenged by Tom, who would say, let's go ahead and have a healthy debate about things. I felt compelled to go up to the microphone and ask this question. And what I had offered up was in a world in which most Christ followers are not investing in their assets in a way that participates in underlying ministry. And by that, I mean by investing in real estate assets where there's a corporate chaplain that might ministered to the people in the community or into private equity or venture capital, into faith driven entrepreneurs and expanding the work they do and creating redemptive products and services and things of that vein, things that you'd be relatively familiar with if you've been listening to podcasts. I said, if that's the case, should we be really and we're looking at precious metals and cryptocurrency, should we be instead asking about how do we take our portfolios and hedge against inflation? Should we instead be asking, how do we take our portfolios and hedge against Judgment Day? Now again, if you've been listening to podcasts, that's not language. I use a lot, but I wanted to go ahead and play ball a little bit and be somewhat, you know, kind of throw in a kind of a debate form. And my commentary came across and it was meant to come across as offering up that there wasn't a lot of spiritual immigration in precious metals or cryptocurrency with the underlying assets, and therefore a Christ follower should underweight them and shouldn't focus on them as much. So at lunch, David, today's guest came up to me and very, very, very thoughtfully and very gently helped me to understand. That there's a lot more nuance there, there's a lot more at work there, there's a lot more redemptive purpose to precious metals than I had seen. And there's a viewpoint and a perspective that as I heard it and as he walked me through it, I'm like, That's really helpful and instructive. And I still, to be clear, still believe that crossfire is this incredible opportunity to participate with where the underlying assets proclaim God's love and sovereignty and create redemptive price and service and things like this. And yet David's perspective and his background and his expertize are super important for any Christ far to consider. And so, David, we're going to do solidify. Typically, we start about the background of a gas and we're going to get there. But let's get right into it and talk about what did you come up with to me at lunch and say that made such an impact on me?
Speaker 3: Yeah, I think one of the things that is helpful in we can look at this from several different vantage points is to see gold as a reserve asset. And you know, is it something you're speculating in like cryptocurrencies or are you thinking that it's going to buy it at one acts and it's going to be 10x tomorrow? It plays a very different role within a total portfolio. And one of the things that I wanted to visit with you about there in Colorado was this idea of gold being on a par with what we have incorporated into our other life in other areas. So for instance, you're married, man, you understand that there's a need for relational reserves and not a perfect husband. You may not be a perfect husband, perfect father. I certainly am not a perfect father. And in the continual investment sex that there is an excess reserve such that when there are relational drawdowns, you're not taking the account negative. You know, that emotional reserve relational reserve biochemically were the same way you can throttle your body and biochemistry to a certain degree. But when you deplete your serotonin levels to a certain level, it's game over. You're talking about some clinical issues which have to then be treated. So whether it's serotonin or cortisol, you bring things down to a certain level. You get to a critical point and you can't recover. It's the same with countries when they're running foreign exchange reserves, you end up seeing currency crises, in particular countries where they run their reserves so low. Then all of a sudden external pressure emerges. They don't have the resources to deal with it, and it's game over. The Asian contagion that we saw late 90s was a perfect example of that, where Vietnam and Thailand came under intense pressure because their foreign currency reserves diminished to the point where they now had a currency crisis that followed. So reserves as an idea, I think, is where I would want to hang my hat with metals. And we do this to a certain degree. Already anybody who from a financial perspective, from a personal perspective, has an emergency fund has done that. Maybe you've got a month's worth of expenses set aside or three months worth of expenses set aside, and that's your kind of personal cushion. Why do we do that with our company as well? I think gold fills this role within a total portfolio as a reliable reserve. You look at the history of gold, it's really just money. That's what it's been for five thousand years, and it happens to be something that has a stable value through time versus any paper currency, which frankly, the history of every paper currency to this point has been experimental. It's genius inspired. And then all of a sudden it blows up. You know, we've been doing this for three thousand years. The first paper currency was the Chinese. So the question is, do you want your reserves in something that is intrinsically worth the ink and paper it's printed on or representative of time and a very laborious process to actually get it out of the ground? So this is like energy in a packet. You have that reserve because there's times in life where you need the reserves. We know that from an emotional, cyclical standpoint, that's why we need emotional reserves when it comes to a business cycle. Sometimes things are booming, sometimes things are moving higher and it makes sense to have leveraged portfolio and there's benefits to that. There's other times where the market's moving against you, and you may either be in a position to play the patience game because you didn't have enough reserves and now you're just sitting there waiting and saying, I hope I get back to break even someday. Or you have these reserves which allow you to lower total volatility and over the course of time, actually improve returns. So looking at gold as a portfolio allocation, it plays that role as a stable reserve and it's intended to be put to use at some point. It's not a debt asset. It shouldn't be thought of as a good asset. And I think that's the indictment that, for instance, Warren Buffett has certainly laid at the feet of gold. His father was a big proponent of gold when he worked in the Senate. But Warren had no interest in it, in his view, would be, Look, I want companies where you can see things being produced, culture changing, and I like the products everybody needs those products like. That's an investment that I think can move forward through time. Gold said that asset would be his opinion. My view is that he appreciates the value of reserves, too. He's currently sitting on a hundred and forty four billion dollars in cash, just as Apple sitting on $240 billion in cash and liquid assets. The question when you're looking at cash in liquid assets ends up being denomination, denomination, denomination. We take this for granted in the US because the dollar is relatively stable. Maybe it's not so much this year, but that's no big deal, really. If you go to Brazil or in recent years, Argentina, where the annual inflation rate is twenty five to thirty five percent, a few years ago, it was as high as 45 percent in one year. You're basically cutting the value of your savings in half if you leave them in something that would be considered a cash reserve. So the denomination question becomes an issue, and I'm not pretending to be a currency expert where, okay, I don't want to be in dollars. Should I be in Swiss franc? Should I be in yen? Should I be in euros? What I'm saying is that for 5000 years, a reliable store of value savings and actually what was considered money up until 1971 on a global basis was gold. So it is a reliable reserve. The need for reserves, I think that's where it kind of speaks for itself. We know business cyclicality. Sometimes you need it and you're glad when you have it. That's one of the things that I think we learned from 2008 and 2009. The global financial crisis did not start out as a, you know, liquidation of companies because they were under duress. It started out when Lehman and Bear Stearns left and they didn't have enough in capital. It was a liquidity crisis before it became a solvency crisis and arguably the weeks leading up to the solvency crisis, they would have said, We have ample liquidity. We're fine. Liquidity disappeared. And that's when things began to snowball in 2008 and 2009. So reliable reserves is an issue, an asset that is outside of the financial system. So essentially you're removing it from counterparty risk. These are the aspects that make gold a solid reserve. I mean, I think that's a part of what we talked about.
Henry Kaestner: It is. And so I'll tell you how I'm applying it. I don't want to put words in your mouth, but I'll tell you how I'm applying it. You can tell me if I'm thinking about the right way, and that is that there are going to be different faith driven investments I'm going to get excited about in a year's time, 18 months time, twenty four months time and what I need to wrestle with. And maybe this be interesting to actually talk about just a little bit and get your take on. But generally, I don't know that I want to be 100 percent invested right now in illiquid private equity and all its investments. I want to be able to have some money that's available if I see a compelling opportunity to give, for instance, because I think that this is the broader stewardship. If there's, you know, a calamity or some place that is clearly that God might have my capital deployed in a way that advances kingdom philanthropically, I need to have some liquidity or, as you would say, reserve if there is a Great Kingdom investment opportunity, same type of thing, say, 18 months or 24 months. And I think that it maybe we'll get this in the second again about, well, what is that right ratio? You know, Tom Darden, who we had talked about before, who had introduced this kind of concept of a healthy debate is famous for being completely deployed. He's always completely deployed now. He has a diverse portfolio where he has one hundred plus private investments, and in any given year, two or three of them are coming due and having a liquidity event. So he tends to have some level of liquidity just by virtue of the fact that it's very diverse. And yet he would probably also say that he never really manages for liquidity because he'd rather have those assets always deployed, always working towards those things that Warren Buffet would say. I don't know that I'd go to that extreme. And I, for instance, would like to see some percentage of. Available to be able to honor a guy's car and see some of the opportunities, but am I getting it that the right way and that that is something that if OK, Henry, if that's the case and you want to take 10, 15, 20 percent of your portfolio and have it in reserve to be able to answer God's call and see opportunities? What I'm suggesting to you is that precious metals is absolutely a place that you might keep that and maybe you keep it in cash. Maybe you don't, but you should be thinking about precious metals in that regard. Am I getting it right?
David McAlvany: Yeah, I think you are. Because again, what you're doing is you're setting the mindset of this should be put to use. And I think this is where it when you look at the parable of the talents, you can see someone who had no intention of putting something to use. It was strictly buried versus someone who had every intention of having a resource and putting it to use. And my suggestion is that the multiplication factor this is perhaps a I'm not a theologian, so feel free to critique this, but the multiplication factor that you see in the parable of talents, it can happen a couple of different ways. You buy an asset at one X and it goes to 10x because it was a great growth prospect, opportunity, et cetera, et cetera. Or you buy an asset at One X. That's trading at a fraction of one X. In other words, you're trained to understand the value and what real value looks like. So if that's a 100 acre farm or 100 shares of General Electric or a private equity venture where you say this is really priced attractively, I should be doing something about this where value gets factored in in a major way. Well, the point is putting it to work opportunistically, which is, I think where you're hitting the nail on the head, yes, you want to be able to have enough liquidity that you can deploy opportunistically. We have a really interesting situation now because ordinarily a business cycle ebbs and flows. If you look back, say, two or three hundred years even stretching back into the British mercantile history, you had about a three to five year business cycle and they were many booms and busts. Nothing really catastrophic. But, you know, 60 and 94 was the creation of the central bank, the Bank of England. We had our central bank kind of catch its legs, the second iteration in 1913. This was the second central bank of the United States with the first one down. But what has happened is we've basically said we think we can manage the business cycle more effectively. There will be no more declines. There's no reason for us to ever have a recession. And so there's a certain presumption that now exists within the central bank community. That is, if we push this button, pull that lever, we'll never see a recession. But what it's done is it's extended periods of growth, but it's also made the down strokes much more catastrophic. When they lose control, they really lose control. And so I think we're in a different environment where the opportunities could arguably be better. Having liquidity available your question and maybe I'm running ahead, so feel free to rein this in. But your question of kind of proportionately what that would look like. I know much of the discussion you have is around Faith Driven Investor and it takes you to the private markets. If I looked at the backtesting in the public markets, which is where I can get pretty decent data going back a couple hundred years, you would look at a ratio of about seventy five twenty five seventy five percent allocated to assets that are growth oriented. So in my case, that would be capital markets, the equity markets that the S&P 500 did, that would have it. Seventy five twenty five is an interesting mix because three quarters of your allocation is oriented to growth, but with 25 percent allocated to gold. Any major down stroke if you're doing an annual rebalance once a year annual rebalance Any down stroke in the market means you're putting that liquidity to work at much lower numbers, and your return to full value isn't that long. Patience game of equities are down 30 percent or 60 percent, or, you know, we had tech stocks in 2000 2001, down 80 90 percent, right? It's not the Long March back to break. Even you were able to redeploy on a lot more at a lower number, and your recovery cycle is that much shorter. So if you're looking at total returns, that's 75 twenty five mix. Even though you're taking 25 percent horsepower out of the growth equation, over a 50 100 200 year period ends up being a superior rate of return, a more aggressive growth portfolio because you're avoiding the major down strokes. Or I should say the down strokes are less impactful. That makes sense.
William Norvell: Now that does. That's really one of the things you just mentioned was a long time horizon. I want to dig into that for a little bit from a Faith Driven Investor perspective. You mentioned 10, 15, 20 years. How do you think about that? You know, you've been investing a majority of your career in life. How do you think about that from a faith perspective? Do you have, you know, but. It's a twenty five year horizon and buckets of one year horizon, I mean, you know, we've got a lot of listeners that are brand new to this and figuring out what this could look like in their life. Do you have a year philanthropic budgets and 20 year philanthropy? I know that's kind of a broad question, but I'm just curious your overall perspective on portfolio management from a faith driven perspective.
David McAlvany: Yeah, I mean, I think your reference to buckets is helpful because there is no single asset class that is deserving of 100 percent of your time, attention and resources. I look at precious metals is one of many investments, and there are specific ways to utilize precious metals effectively. Right. So that's one bucket and there's different in that market. There are arbitrage opportunities and an ability to compound ounces in a very compelling way. So even if you said, well, it's just sitting there collecting dust. No, no, no. I would tell you that after 50 years of being in the business as a family, they're very productive ways to turn a thousand ounces of silver into 2000 ounces of silver without adding money to that portfolio or gold or what have you. So management style within a bucket is also important. First bucket precious metals. Second bucket cash. The third bucket real estate. The fourth bucket stocks and bonds in the fifth bucket would be sort of private assets that could be private equity and alternatives. It could be a business that you own and control. So not everybody has the fifth bucket. If you're talking about an entrepreneurial venture, but you might have that fifth bucket if it was in the adult category, where again, it doesn't fit the traditional daily traded stocks and bonds, cash, precious metals or real estate. But there's ways that as a steward, you can engage in harness income and growth within each of those buckets. And that's where, you know, appreciating what value looks like, deepening your understanding of the dynamics that drive each one of those asset classes. Some people choose to have one focus on one asset class. I think the best way to approach stewardship and wealth management across multiple generations is to say appreciate the value that each of these buckets can provide. Precious metals will never provide the same kind of income component that say a commercial real estate portfolio would have right, and there's risks and potential pitfalls within commercial real estate that you are not going to have within multifamily or single family. I mean, to all that complexity is a part of our ongoing effort to understand and make wise decisions in each of those areas. Diversification I take is a given, with each of those buckets being an opportunity to learn and to grow and to come alongside experts who can shorten the time frame, step in the learning curve and help us get farther along in terms of the progress of stewardship.
Henry Kaestner: OK, I want to go backwards here a little bit. This is kind of the Upside Down podcast interview because at this point in time, some people may be asking Who is this guy? And this guy's an author and is a podcast as he owned
William Norvell: a gold ETF. Does he want to invest in it?
Henry Kaestner: Yeah, that's right. Yeah. Where is this going? So David, I want to start from the beginning. We're going to come back up. There are the questions that we want to ask about this, but why don't you tell the audience about who you are? Let's go through an autobiographical sketch. And if you don't mention the whole part about the triathlons and the podcast, then I'm going to ask you about them.
David McAlvany: Well, I mean, for some people, the autobiographical sketch can be put into a paragraph. It took me about fifty six pages. I wrote a book, If
Henry Kaestner: you don't have that much time.
David McAlvany: I know, I know. The Intentional Legacy was a book that I wrote in 2017, and it's a very personal look at what goes into managing resources where we've basically redefined a balance sheet to save their spiritual aspects of the resources that we're managing. There's emotional aspects, and that's a resource we have to manage. There's interpersonal and relational capital that needs to be managed well because the reality is, you know, and I know we've all met people who have vast resources of money, and yet there's pockets of poverty in their life and you can say, well, they didn't do a really good job managing a relationship with a brother or a father or a grandfather or an uncle. And you can see sort of the unwind of that aspect of their life. So to me, managing resources is really important. I could only approach the topic of legacy from a very personal perspective. And so the intentional legacy starts with sort of our family dysfunction and the things that we've learned about our best attempt to do a better job at managing resources. And so I mean, we could start anywhere running away from home at age 14, living away from home for a year at a boys home, really finding faith at age 16 and allowing the pendulum to swing from agnosticism to really concerted effort to make up for lost time. Yeah, I don't know many 15 16 year olds who are dead set on reading everything that Dietrich Bonhoeffer has ever written and diving into spiritual formation. And sort of. The classics of Christian Faith. But that was me at age 16, looking back with some regret at an early age, saying, What have I done? What am I doing? What is meaningful to me, looking forward is very different than what I thought was meaningful. Just a few years ago. And so the recapture took me to studying philosophy theology at Baylor. And, you know, just to sort of fast forward
Henry Kaestner: how long have before. If I do want to fast forward, I want to get there. But I just have to reflect and just acknowledge the fact that that is amazing. And maybe it's just because I'm the father of three teenage boys, none of whom I'd like to think. Maybe they know who Dietrich Bonhoeffer is. But reading everything he's written and making me think that and I hadn't. That's amazing. That's incredible. I mean, that's really so you're looking back with some regret on lost time when you were 16 years old.
David McAlvany: Yeah. And you know, the advice my dad gave me was study finance. Study business is very practical. You need to know something about marketing. And he just says, I mean, he was engaging with the world and giving me advice that absolutely made sense in terms of professional operational place in the world. But I was still trying to unpack Who am I and what is this all about anyways? So for me, bipolar was this perfect place to ask big questions and to be mentored by men and women who had razor sharp minds and soft and tender hearts. And Henry and I experienced it by all has informed the way I pray for my kids every night, which is that they would have strong minds and soft and tender hearts. And that's because that's what I saw with these people who had a passion for the gospel and seeing God's kingdom come. But these were no slouches when it came to their professional credentials. Their ability to engage the content matter that they were responsible for winsome, severe even. I mean, they took it really seriously, and I loved it.
Henry Kaestner: What a great commercial for a great university. Gary Lindblad runs a program there for business, and he's just an amazing guy. He is incredibly winsome. I don't know if you know you must know Gary. Gary just is led in 80s rock band and has music videos out there. His yet they're fun part about him, but he is a deep thinker, passionate about his craft and loves the Lord and just makes me want to spend more time with him. So I'm a big baseball fan too.
David McAlvany: Yeah. You know, you graduate with a degree in philosophy and you don't have sort of a stack of offers. Actually, my wife graduated with a degree in philosophy, and she did have a stack of offers, including from Goldman Sachs. Maybe it's where you go to school as well. Boston College is slightly different in terms of pedigree than Baylor,
Henry Kaestner: but Bill is yet in there,
David McAlvany: so formation was absolutely critical. That was the big benefit to me of being at that place. You know, fast forward to joining our family business in 2003. I spent some time working at Morgan Stanley. And, you know, between a variety of start ups, including Restaurant Lunch with my brother in law like this is all sort of post-college leading into twenty five newlywed learning. All I could about Wall Street and the things that my dad originally said, you know, you should take an interest in this. I think you'll find it very intriguing how finance ends up being this hub where everything from international relations and public policy and economics and it all comes together in the market mechanisms that are pricing assets constantly and taking into account the new information that you're getting from all of these various sources. I think you're going to find it interesting, and it took me years to come back around and say, You know, my dad's pretty smart. He's right. It's really interesting. It's fascinating. So that's the world that I'm engaged in today. We have an asset management company that focuses on hard assets like infrastructure and specialty real estate and precious metals and global natural resources. We have the precious metals brokerage company, which my parents started 50 years ago, and I manage both of those businesses. What drives me every week? Henry is doing what we're doing right now. I've done a podcast for the last 15 years every week, and the Mac Mini weekly commentary is a place for me to continue to allow my curiosity to just run free to ask questions that I don't have an answer for, and to explore and to discover all the things that I wish I had known. 15 and 14 and 12 and 10 and even last year. So I think one of the things that I love about finance in the markets is it's constantly humbling.
Henry Kaestner: Yeah. So tell me. So I just want to go back in one thing and look at if I think about the opposite of precious metals brokering precious metals investing. I think about investing in in a restaurant. And I'm wondering if you have because I do, it's a leading question. I'm curious if yours is the same. I wonder if you have a favorite movie about investing in restaurants or the restaurant business.
David McAlvany: Favorite movie about investing in restaurants with the restaurant business.
William Norvell: The esoteric question part of this is yes, that's right.
Henry Kaestner: That may or may not. Take it to the final version.
David McAlvany: Yeah. I got a love, there's so many movies that I love about food.
Henry Kaestner: Yeah, you have babette's feast and oh, it's amazing delegates
David McAlvany: mean and Babette's Feast is is is phenomenal. I think one of the things that I like about that, it's feast as you get to see someone who loves taking care of people and looks at their skill set and says, This is how I care. This is how I love. So to me, one of the things that's so gospel centric about that movie is that she's doing the essential translation, the essential translation of what am I supposed to do with my life? Well, OK, God's given us a certain amount of DNA hard coding. I'm inclined to be a certain person, just like William, just like Henry is, and we get to express and bring glory to God through the things that he has hardcoded into us. And so you see the chef create something of beauty, and it's a celebration of these are people who never spoke. You know, you've got this whole town that they don't get along this, but she's bringing peace and she's an emissary of love and servant hood, using her skill as the best way to facilitate change in this community. It's beautiful, beautiful. You could take that and say, Yeah, but my skill sets differ and I could never fix that face. No, but you can set a different table in a different context and you should Amen.
Henry Kaestner: OK, so that's great one. That's not what I was looking for, but that is it is a great one, and I may submit that that's actually better than the one I was thinking about, which is big night featuring Stanley Tucci in the restaurant business. This rivalry between these two Italian restaurants and one wants is passionate about their craft and doesn't want to cut corners, and the other one is all about glitz and just about marketing and just the rivalry between the two. I think is fascinating. OK, but what kind of restaurant did you have?
David McAlvany: It was a fondue restaurant.
Henry Kaestner: Oh man, I love until we just did a Faith Driven Investor event in Zurich last week and coming off the heels of five Faith Driven Entrepreneur meetings in Romania, which were amazing. Unbelievable. The night before the Faith Driven Investor event in Zurich, our host Thomas Winkler, took us out to a local fondue place, and I may have had, without exaggeration, three and a half pounds of fondue. It was awesome. I think there must be some margin in that, though, because they charge us a lot of money for what I thought was just Emmental, our cheese and a little bit of white wine. But maybe the margins aren't as big as I thought they were.
David McAlvany: No, the margins are OK. What we loved was it was an expression of our family. This is something that we've been doing since I was. I mean, for every year, I can remember we do a fondue feast every year and, you know, to have people come and be a part of that at our dinner table and to be able to open a bottle of wine and sit there and relax and talk. And I mean, it's a very entertaining meal because there's a lot going on. We do the cheese fondue. We also do the meat reckless and we've got chocolate fondue. So it's a multi-course thing that takes three or four hours. So it's the conversation, it's the activity, it's the matching with sauces. And I mean, we just have a great time with it. But it's an anchor to relationship. And for us, having a restaurant that facilitated that for other people was amazing. I managed the front of the house, he managed the kitchen and to sort of literally set the table and have people just enjoy themselves for three or four hours. This is common in Europe, but we're in and out in 30 45 minutes max. That's the American style. And to try to sort of refashion how to celebrate one sitting a night max two sittings a night where you've got the place just to sit and relax.
Henry Kaestner: I was talking to somebody yesterday who was talking about his time in Israel and how he learned about Shabbat. He was an investor in Taiwan from the HTC family. Super Guy really serious about his Christian faith guys degree at Fuller and as a technology investor in crypto and blockchain. But he talked about the formative experience in his faith and that he's trying to replicate in his family of Shabbat because he lived in Israel for a while doing some technology investing and just the three hour intentionality of what Shabbat means for Orthodox families and the beauty that happens around the dinner table and talking about faith. And, you know, no technology, no phones and just a focus on faith and food. And that's a it's a beautiful thing. I did not think we'd be talking about this on today's podcast.
William Norvell: So this is not in the show notes no, but movie recommendations coming soon from Faith Driven Investor babette's feast. Big night. Now we got some good ones. Indeed. Well, actually, that's a perfect tradition. One of things we did want to talk about. We'd be remiss not to David. So you've been talking a lot about gold. You know, we're all quick hit people. You know, we're all trying to make money, right? So some of our listeners are, too. We'd love to two part question one. What's the future of gold prices right now? How do you think about that? And to how do you think about what people are calling digital gold the big? Coin and crypto revolution, but bitcoin specifically and we've had a great guest, Jimmy Song, who came on, you know, just to talk about bitcoin specifically because I feel like that's one of the few cryptos that is be talking about a store of reserve, right? That's one of the few that people are comparing in that way. Do you buy that? Do you not and not like, are you putting a buy recommendation on it? But just how do you think about the new concept of a digital bank? Well, the story value is that real? Not real? Yeah.
David McAlvany: So let's start with the second part and then go back to the first. With cryptocurrencies, you've got something that is incredibly innovative. Blockchain technology stands to be integrated into a lot of different economic spheres, and it's working its way in as we speak. You know, there's years of development and decades for it to continue to mature and have an impact. We've seen it in Eastern Europe, where governments have decided that they don't want their records changed. They don't want history to be fluid if something has happened. They want those documents to be immutable. So the blockchain has allowed for Eastern European countries to lock in time. What has happened and I like that there'll be other iterations of that. You was smart contracts and a whole host of other things. What I would say is that it's primarily served as a vehicle speculation to this point. And as it matures, it may have other features to it, but it still is functioning largely as a speculation price goes up, the price goes down. When the price goes down, enthusiasm wanes when the price goes up. Everyone's a believer. So there is that dynamic afoot with the cryptocurrencies not to take away from their long term trajectory, but in the short run, they're primarily a vehicle for speculation. And in that sense, there's at least one big contrast with gold. Looking at the gold market and looking how gold is priced and where, I think it's going to be priced in future years, I think this ties to where we're at in a number of cycles. We've had a 12 year growth cycle in equities. That's been helpful. But now you look at things like price to sales, price to earnings. We're now in the nosebleed section. So from a valuation perspective, I think gold is relatively cheap compared to bonds and stocks and is going to have significant growth relative to those two asset classes over the next two to three years. Again, I mean, look at something even like the buffet ratio. We talked about Warren Buffett earlier. Buffett ratio takes all stock market capitalization and compares it to GDP. We're now at the highest level we've seen in the history of the US markets, where the engine of growth that is GDP is now a fraction of the size of this speculative representation of the growth. So in past market cycles, it's peaked at about 180 or 210 percent of GDP. That is stock market capitalization of GDP. We're currently at 322 percent, a stock market capitalization to GDP. This is the most stretched in terms of valuations we've ever seen. The stock market, so arguably the energy change out of equities will promote safe haven buying for gold, just as it will safe haven buying for treasuries and other safe haven assets. But I think that is a big play for growth dynamics in the gold market within, say, a 12 to 24 month period of time. Add to that the layer of fiscal and monetary policy largesse, which would have people saying Is there ultimately consequences to running our debt levels to twenty eight trillion dollars? Thirty five trillion dollars, fifty trillion dollars? I mean, just pick a number because under modern monetary theory, the number can be any number and we're not supposed to be afraid of it. So that number is likely to grow as it was growing under the Trump administration. It's growing under the Biden administration. It doesn't matter who takes over in two years or four years. The trend is radical fiscal policy and monetary policy largesse. There's discussions among the whole cohort at the Fed. They'll trim things back, be less aggressive. I think what they will find is when they actually do that, the consequences into the marketplace will be so grave that they have to come right back with more quantitative easing measures and again, more monetary policy push, which has significant currency market implications. Right. So currency market implications, a devaluation of the dollar as a result of fiscal policy largesse and monetary policy largesse also has on the other side of the equation, in implication for gold at much higher prices. Price for inflation If we wanted to bring history into this price for inflation, gold should be right around twenty $800 an ounce. That is its inflation adjusted price. When a market moves to extremes, you can see that not on a sustainable basis, but you can see something go to say to two and a half times its inflation adjusted price. If I had to pick a cap, I'm not going to give you a timeframe for this, but I think the cap on gold is probably five thousand an ounce. That's twice its inflation adjusted price. And at that point, you've been through a speculative push, not sustainable. I think we ultimately come back down and settle into a new generational sort of flat line or plateau between 2500 and 3000 at or above whatever the inflation adjusted price is after this next major move. So that's a little context. I do think gold has some upside. Silver is kind of a different animal. It is considered a monetary metal in its past, but it's taken on so much of an industrial component in its uses and everything from cell phones and flat screen televisions to nanoparticles and biotechnology. That it kind of has a foot in both worlds is a monetary metal and is something that has very practical uses and is being used up. If gold has decent upside from a growth perspective. I think silver has phenomenal upside, but it's a different animal too, because it has that characteristic where if you got into a slowing of the economy, one of the major sources of demand can diminish, and so it doesn't necessarily have to follow in lockstep with gold. I've probably spoken
William Norvell: behind. That's great. That's great. And you know, and for reference, if you're listening and don't know the price of gold, gold's about 7500 right now, give or take. So when you're talking about that, and like I said, this is not a stock picking podcast, but I'm curious because it is a little esoteric. I don't think a lot of people own goal, but I mean, if you watch any CNBC report, you hear this passively said, Hey, five percent of your money in gold, you hear Jim Cramer, you hear other people say that there are so many financial instruments in the world. I am curious, is there a in your particular opinion for a retail investor who says, who's listening? Yeah. You know, two or three percent in gold, I'm convinced to look into that. Is there a better or worse way to purchase the asset?
David McAlvany: Well, there's definitely better and worse ways to provide.
William Norvell: I figured.
David McAlvany: Yeah. I mean, you know, right now there is such supply constraints in the physical market that certain products you have to pay 30 or 40 percent over the spot price. And I'm thinking of like an American Silver Eagle, it's a bullion coin. And yet, because there's not much supply and demand is fairly robust, I'm not going to pay 30 percent over. I wouldn't touch that with a ten foot pole. Right. So there's there are ways that you can definitely go the wrong direction. One of the things that we did a few years ago and this is, I mean, full disclosure, this is a point of personal self-interest. A few years ago, we launched a program with the Royal Canadian Mint called Vaulted and Vault. It allows you to buy a fraction of a kilo bar or an entire kilo bar. Kilo bars about 32 ounces of gold. And the platform is digital. You can go online about two weeks. You'll be able to go to the App Store and download the vaulted app, and you can treat this like a savings account, but it's denominated in gold. The benefits are you're getting the economy of scale off of the kilo bar, right? So you're not paying high premiums. The commission structure is crushed. We've taken out the middleman. We're buying gold directly from the Royal Canadian Mint. So the economics are brilliant, but you have an allocated gold position, which you can take delivery of if you want. On the other hand, if you don't want to bother with it, then it's there in digital form and you can buy it and sell it and get liquid in two days. So better liquidity than your T plus three transactional settlement on a security like a stock or a bond. Better liquidity than that. But in a denomination going back to what we talked about earlier, a denomination that you may want to have a part of your cash in, so easy to buy, easy to sell, inexpensive, reliable counterparty Royal Canadian mounted to crown property in Ottawa. And that's an easy way vault at that time. That's an easy way to own the asset. Some people would say, No, I'd rather have it in my physical delivery, or can I hold it in an IRA? All of those are options with different cost structures, different limitations. But you wanted something simple. That's the vault
William Norvell: itself. Yeah, no, that's great. And anything can go on the web now. And so I assume the app's going to function like Coinbase or something where you've got things going on and you can buy a $500 worth of gold and you have a wallet in the portfolio.
David McAlvany: Yeah. And I mean, what inspired this was having kids who like that elected on gold too. And like, all right. Well, it's seventeen hundred bucks. Just wait a while, you know, you can save for a while and they always bought silver because it was cheaper. In this case, you can spend $5 if you want to spend five dollars on gold. Essentially, what it has done is it's democratized gold ownership, and it's no longer sort of you have to have lots of wealth to own it. Know if you wanted to nominate a part of your savings and something that is helpful on the inflation front serves there as a reserve asset is incredibly liquid. I mean, think about this the whole process of owning gold, having something shipped to you and then you say, Well, I want to sell it. It's two weeks, three weeks. By the time you ship it back, lock in a price. Have something wired back to you. We've basically taken all of the complications of owning metals and eliminated them.
Henry Kaestner: How about the you probably get this a lot and I know so little about the market, as evidenced by, you know, my questions on this podcast and before. But what about the exchange traded funds like GLD or other things where it pros and cons of perfectly adequate?
David McAlvany: I mean, you know, some would say, well, there's not gold there. That's not true. I mean, if you want, you can print the bar list and know how many bars are in something like gold or silver. It's fine. I do think that there may be issues down the line. This is a future tense concern, not a present tense concern. By the way, we own those ETFs in our asset management company as a part of our cash reserve. So I don't object to them, but I do think that in the future there may be issues with them. They're buying gold off of an exchange and the initial purchases are made in the form of futures contracts. Those futures contracts then sell within a certain amount of time, and the gold is moved into the GLD custodian accounts. There are circumstances in which there's no more gold on the exchange to purchase, or there's 10 people who've bought the same ounce of gold sitting on the exchange. And now the question is who gets the one ounce? And so it remains to be seen how GLD insult being. The exchange traded products will operate under difficult market conditions under normal market conditions. They're just fine on a normal market conditions. They're just fine, which is why I'm not worried about having them as a part of the position. But I do think that if you're looking at gold from the standpoint of sort of an enduring asset or a ballast asset within a larger portfolio, maybe you want to take physical delivery of it. Maybe, yeah, I mean, there's a variety of boxes that you personally may want to check, and in light of those boxes, then you're going to look at a particular product that fits your needs. And that's, you know, that's worthy of conversation. Not not today, but I mean, it's worthy of thinking through,
William Norvell: gosh, amazing, amazing tour of the world here. I feel like we covered a lot and we just got started. So like, I have 10 other questions on intentional legacy, and we'll obviously link to the book and then people can read more about that. We'll obviously link to your podcast if they want more commentary from you on things that you're seeing in the world. But unfortunately, we have to wrap this episode, and the favorite way we love to do that is to see how God's word transcends our guest and our listeners. And so we'd love to invite you to share a scripture or story from the Bible that may be coming alive to you right now could be something you read this morning could be something in the season you've been meditating on, but we're just always amazed how God's word is alive and well and transcending his people daily until it invites you to do that.
David McAlvany: There's a number of mornings where we'll get together as a family and I'll share something from scripture. And honestly, I just open and start reading and then just allow the spirit to kind of guide the conversation in the early chapters of acts. This was from last Friday in the early chapters of acts. You have something that I think is it's just beautiful. You've got a doctor. It's assumed that Luke wrote both Luke and acts, and it's a doctor's observation. Two disciples walk into the temple. I think this is Chapter five, and there's the man who's been paralyzed for 40 years and he asks for some money and he's like silver and gold. I don't have. But in the name of Jesus Christ, get up and walk. And what I wanted to convey to my. Kids, was that God's appreciation of time and flexibility in terms of engagement with time is on display here as much as it was at the wedding of Keener as much as it was in the first chapter of Genesis. You know what we understand about Genesis? Clearly, some people think that that's seven days and other people think that it's a lot longer period of time. All I know is that God, in his infinite power, has the ability to work with time in ways that are amazing. Wine is an amazing thing. The fermentation process, what goes from grape juice to something that has an expression of terroir and has beautiful nuance. He resolves in a second at the wedding of Cana and Luke. Only Luke, a doctor, would appreciate that this guy who is healed in front of the temple gets up and not only walks but is leaping. Have you guys ever broken an arm or had, you know, something where you weren't able to use your muscles for a long period of time? This is a guy who for 40 years has never used his legs. He doesn't know how to walk. He is leaping. He has musculature, which in a second is me. To me, it's so beautiful because in our lives, we're concerned about these events or this having to happen or our time friends, or maybe even think about retirement marking things out according to our sense of time. And we forget that God in his sovereignty and in his great love and compassion. Can turn water into wine and compress time in a beautiful way. For just joy and celebration or God, and his compassion can take this person who's never walked before and say, not only will you walk, but you will leap, you will jump. And you'll do it with muscles you never had before. And so I just I love the idea that time, you know, legacy is something that's important to me, and I'm making decisions that maybe have an impact, hopefully have an impact 20 years from now, 100 hundred years from now, 200 years from now. And we have our concept of time. But we do need to keep in mind that kingdom time can be very compressed and being sensitive to the decisions that we make and how they fit into God's time and God's plan. You know, I think that's what I would leave with you is that passage and acts just as a wonder in terms of our concept of what are we working with here?
Henry Kaestner: Amen What is terroir
David McAlvany: here was the unique expression that a particular patch of soil gives the grapes that grow in it. So if you're on the valley floor in Napa, this is an old river valley. It's rich soil, and it gives a unique characteristic which is just flat rich. If you go to Howell Mountain or go into the hills 700 to 1000 feet higher, those vines struggle to even survive. They send down their roots hundreds of feet just to get a little bit of water, and the grapes express the ground that it's grown in. So if you've struggled, the grapes express it. If you haven't had to struggle and it came easy. The fruit expresses it. Terroir is the unique expression of that soil in that particular grape.
Henry Kaestner: I would now use our three times to the rest of the day
William Norvell: and word of the day. Word of the day is there to say, everybody knows if you've got the park that's going to circle back to the chosen somehow. But I will watch this episode. I'm going to go watch this episode again tonight in light of what you just shared because I'd never noticed it, but they do a beautiful job. It's like season two, episode four or five somewhere in there of the man who Jesus heals to walk and they tell his whole back story. As a child, they tell you, No, it's fictional at that level, but that scene, when he is healed and he is jumping, and I never thought about it from the way you just said it, though, I was like, Yeah, he should have had to start walking slowly or something and like, No, it was immediate. And that's how it
David McAlvany: gets to Luke. It's important to Luke because as a doctor, he's like, No, no, no, you don't get this. This doesn't happen. It just doesn't happen. You don't get to leave.
William Norvell: There's no rehab. It's just immediate, right? And gosh, you know, if you want to see a visual representation of that, it's it's beautiful how they portray it.
David McAlvany: The Chosen.
Henry Kaestner: OK, David, thank you. You've blessed us. I'm so grateful that you came up and talked to me at that lunch after the morning episode. I'm a richer man for it. Definitely. Figuratively, maybe literally. You know, you think you made a good case for gold? So just grateful for you as a brother and Christ, somebody who would take time with our audience to share with us all about a whole bunch of different things and just can't wait to have you back.
David McAlvany: Well, thanks. It's great to participate in a broader conversation, and I'm excited about what you guys are doing. Thanks for inviting me in.