The School of Hard Knocks (My Multi-Billion Dollar Mistake)

My Multi-Billion Dollar Mistake: A School of Hard Knocks Story

How YouTube and China shut me down! (And the 2 lessons they do not want you to know as a result.)

I am 100% furious... again!

YouTube banned one of my videos. My team is working on getting it back up but I thought I would write a blog about what I learned because it the lessons are so important and because… I control my blog, YouTube does not.

[NOTE: We just got Robert and Marin’s video back up on YouTube. You can watch it here: https://www.youtube.com/watch?v=dJGUhWq7Efk]

Recently China just did a similar thing and banned my book “FAKE” because I told a story they did not approve of. Interestingly, that story is also in the video that was removed.

So, I am going to start this blog with the story about China and my gold mine. Let’s see how they try to shut down my own blog.

My "School of Hard Knocks" Story

Between 1996 and 2012, I had a partner, a real teacher, named Frank Crerie. Frank was about the same age as my rich dad and my poor dad. Frank had taken a number of gold and silver mines public through IPOs (initial public offerings) on the Canadian and U.S. stock exchanges.

Our biggest acquisition was an old mine in China. We got the Chinese mine for “nothing down.” The agreement was that the Chinese government would give us the mine if we would raise only by taking the company public on the Toronto Stock Exchange. Which we did.

The good news is that we found gold, a massive deposit. Millions of ounces, “proven.” For about a year, we knew we were billionaires.

you learn from your mistakes, and it just might be your biggest lessons come from your biggest mistakes

Then one day, a government official notified us that the Chinese government was not going to renew our business license. Today, that mine is in the hands of friends of the Chinese elites, who are billionaires. Later in this blog I’ll explain the “excuse” they used to steal our mine and our billions.

That is what I call a real education. But I always say you learn from your mistakes, and it just might be that your biggest lessons come from your biggest mistakes. I had a billion dollar mistake but I never learned the billion dollar lesson from it… until now… because I just Marin Katusa and he is the man with the plan, AND the answers.

Let me tell you real fast about Marin Katusa…

He's the bestselling author, New York Times bestseller of the book “Colder War”. At the young age of 27 he quit being a calculus high school teacher, and helped co-fund and build Canada's third, largest copper mine. Over the last two decades, Marin's become one of the largest financers of publicly listed Canadian companies by raising over three billion dollars in financing debentures and debt. So he's a pretty smart guy.

But he’s still a teacher at heart so he also created a newsletter where he teaches his amazing strategies for investing and he shares with his readers the exact investments he is getting in so they can too if they choose. He is a true entrepreneur at heart because he is not afraid to share his knowledge. He is a generous man.

And he taught me two HUGE lessons.

The School of Hard Knocks: Lesson One – Our Dependency

Europe and North America are dangerously dependent on China and Russia for some of their most basic and important needs. If you look at the UK and Germany you see that over half of their natural gas and energy supplies were coming from Russia. And Canada and the U.S. are no better. When you look at uranium, for example, one in every 10 homes is powered by former Soviet uranium mines. At one point, more American produce uranium was owned by Russians than Americans. So even the mines in America were controlled by Russia.

We are talking about our energy supply. Without energy we are powerless and yet we turned over that control to our biggest competitors.

The average American doesn't know this.

The dynamics are even worse than the picture I just painted because a lot of the money being made was then used to fund the ANTI-development our any project that would create energy independence. We were paying to keep ourselves in a weak and subservient position. Guess what? Nothing has changed.

Right now Russia and Saudi Arabia are doing the same thing to the U.S. regarding oil. Basically they started an oil war to kill U.S. oil mining and innovation as well as oil production. We're at war right now between Saudi Arabia and Russia and our fracking system. As the two oil powerhouse countries continuously drop the price of their oil it has become so cheap that it is cheaper to buy their oil than to mine our own oil through fracking. The result is all fracking has shut down, jobs are lost, and we are back to relying on these two countries for our energy. We basically sold our independence.

A very important concept to understand here is that this is not capitalism. In capitalism the better less expensive product should win as the market determines what it wants. It is business versus business and may the better business win. That is not happening here. What we have here is American businesses competing with nations.

The Saudi Arabia and Russian setup is obviously supported by their government. Think about what a private company in America or Canada has to do to get drilling permits for oil. There are huge environmental hurdles and government politicking to overcome. Now, what does getting a permit in Saudi Arabia, which is Saudi Aramco, look like? They are truly (though they try to cover this fact) controlled and supported by the government. The exact same thing is happening in Russia. How can the free market compete with a completely government subsidized business?

Let me give you one more example of the U.S. selling its independence to our biggest competitor… Generic prescription drugs.

Prescription Drug Dependence

Most people do not know this but all generic drugs are all produced overseas, primarily China and India. We don't even produce aspirin here.

We can no longer make penicillin anymore. We cannot make the other antibiotics that you give to your children or grandchildren for ear infections. We can't make the antibiotics you need for pneumonia, strep throat or sepsis. We cannot, or are not allowed to, make our own medicines.

Why is that? Because China came in and undercut all the producers in the United States. Our last plant closed in 2004. That is when China's dropped their drug prices so low that is destroyed the entire industry in America. The pharmaceutical industry is still alive and kicking in America but the chemicals, the raw materials to make the drugs are completely controlled by China.

Take this coronavirus situation. You have a lot of very sick people and they need basic medicines. They need sedatives. They need antibiotics. If they get secondary infection, they need medicines to raise their blood pressure and so much more. But we do not have the ability to manufacture these drugs here. Instead we rely on China and that brings two concerns: Supply and Quality.

Right now there are more than a hundred countries with coronavirus, and we all need the same drugs. All these drugs all come from China. Which is interesting since that's where the coronavirus seems to have started.

Supply

The “Supply” problem is that at any moment China could say, “Hey, play by our rules or we're not going to give you drugs.” And they've already threatened that. They have said it publicly during the pandemic. Two months ago they issued a statement in through their state run media that said – I’m greatly paraphrasing here – “that we can cut off your supply of medicines and throw Americans in a sea of coronavirus.”

This is a preview of what bio warfare could look like. And if you control the antidotes, the medicines and the personal protective gear, then you are in a really powerful position and the rest of the world is at incredible risk.

Quality

Let’s talk about quality. Look at the testing kits that China sent to the U S. They were giving inaccurate results. They sent us masks that didn't protect people. So is it intentional or poor quality control?

If we were discussing true capitalism this would not be an issue. If your quality is bad then you go out of business. But this is Nation version business. No business can compete with China and so there is no competition and thus no need for quality. And, since China keeps selling the same flawed products, I think that is proof that it’s not an accident.

In 2007 and hundreds of Americans died from contaminated blood thinner that China sent to us. Was there any recourse that would do anything? Nobody went to jail. No apology. We are so dependent on China that we are at their mercy.

Keep reading because lesson 2 is going to take this a situation a huge, unpredictable step further.

The School of Hard Knocks: Lesson Two - Shadow banking

Let me start by defining what the shadow banking system is. Marin Katusa really helped simplify this complex beast. I’ll start with swap lines and how they were created.

The 1913 reserve act that Congress passed created swap lines by accident. It was never meant to happen. The shadow banking evolved as a short term solution that really got out of control.

Something else happened in 1913… the Federal Reserve and the I.R.S. was created.

Basically, a swap line is a lifeline. Think of it as an unlimited line of credit. The Federal Reserve grants unlimited U.S. dollars to its friends. Not just the Federal Reserve. There are currently 15 central banks around the world, working under the Federal Reserve, that have been granted swap lines, or the ability to grant unlimited credit in U.S. dollars. These banks are in the countries of the U.S. allies.

What is crazy about this is that the Federal Reserve does not need to get the U.S. President’s approval. Or the Senate’s approval. Or the House of Representative’s approval. Nobody’s. Now, the swap line nations that have this lifeline, they have to agree to the terms and conditions. Essentially it's America saying, “Hey, you're our ally. We'll back you.”

Let me give you an example: the Bank of Japan. Their central bank doesn't have dollars. So the Federal Reserve Central Bank lends them U.S. dollars. Why do they need to lend them U.S. dollars? So they can pay us back from previous loans, and we only accept U.S. dollars. And this is where the scheme comes into play through Shadow banking.

Shadow Banking

Shadow Banking is basically the “friendly agreement” with our allies to supply them the Swap Lines. These loans can be seven day loans or 84 day loans. Now here is where it is interesting. When you look at the interest rates being paid, you’ll see that they are not getting paid back. They're just rolling these over and over and over. So they take a seven day, they rolled it over to 84 days and they just keep compounding. The Federal Reserve says, if you're short of U S dollars, we'll create a swap line, a lifeline, a line of unlimited credit.

Why is this a big deal? Remember earlier I said that lesson 2 is going to take this a situation a huge, unpredictable step further. Here it is.

Let me give you an example of the unintended consequences and serious implications here by using the Airplane manufacturing companies Boeing and Airbus. Boeing is a U.S. company. Airbus is a French company. President Trump has taken great efforts to help subsidize Boeing  because it's one of the biggest companies in America. They employ a lot of Americans and are an important cog in the U.S. logistics machine.

President Trump is propping up the company Boeing. But, at the same time, almost $200 billion is going to the European central bank. Why does this matter? The European central bank then takes those U S dollars and subsidizes Boeing’s biggest competitor, Airbus.

This is where the dynamics get really crazy. This creates a situation where the American people are funding the cannibalism of their own industry. Marin Katusa explains that if Trump really wants to make America great again, he has to close these loopholes that the fed has unintentionally created because it was never intended that way. And it is not just France’s Airbus.

Mexico has a swap line. Canada has a swap line, Australia, Sweden, Norway and more.

Think about the impacts of this unlimited credit in U.S. dollars. There's over 80 countries and many are asking for these swap lines. But, you have to agree to the terms and conditions. This is the power. These swap lines are America’s big geopolitical stick. Over the next five years these swap lines are going to be the biggest stick that the American foreign policy can use because of the shortage of U S dollars globally.

Now we are getting to the part where I understand why my Chinese gold mine was taken from me. The American allies get swap lines. Do you think Russia or China are going to get a swap line? No. They don’t want to put up with the terms and conditions that come with the swap lines. Terms like, you cannot nationalize companies owned by U.S. citizens, for example.

Now, when you look at what's going on in any part of the world that is producing gold, silver, and natural resources, you start to understand why countries are stealing mines and resources from foreign owned businesses. Zambia, for example, has declared that gold is a strategic asset. From a government standpoint it's the purest form of money. They are practically forced to nationalize the mines.

Let’s use Indonesia as another example. In Indonesia there's an American company. It's probably the best copper company in the world called Freeport. Freeport has one of the largest gold, silver, and copper mine in the world. This thing is massive.

Indonesia keeps changing the rules. We want more royalty. We want you to build a smelter here. We need to take a larger percentage of the mine. Then, once they pillaged as much as they could, they desperately need a swap line. They agreed to the terms, the conditions with the American government. The American government agrees because of the geopolitical importance of Indonesia in the “competition” with China.

This is the model to Turkey is going to follow. Argentina is going to follow. They're going to steal as much as they can, but still keep the mine alive. The investors in the mine get screwed.

Now, these countries do not just nationalize a mine. They first create a reason to nationalize a mine that the rest of the world will accept. If you look at Argentina, just recently, the environmental minister of Argentina openly stated that the Canadian, American and Australian companies aren't taking care of the water and environment to the standard that they would. Sounds good doesn’t it? But, the truth is these companies are the best in the world at the environmental standard. This is the exact excuse China used to take my multi-billion dollar gold mine away from me.

It still hurts.

Summary from my "school of hard knocks" story

But now I understand the Who, the What and the Why. One major thing I learned from Marin Katusa is to never invest in a business in countries that are doing the mining or do not already have swap lines. Swap lines are what keeps the investors safe. Now, I do not know if that lesson is worth losing billions for, but now I have a better idea of how to invest to get it back.

If you want to learn amazing investing advise from Marin then click the banner below. He is an excellent teacher and provides a newsletter that lets you know what he is investing in if you want to follow his advice.

Original publish date: August 03, 2020