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Wealth Secrets

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Wealth secrets professional investors don’t want you to know

As the saying goes, actions speak louder than words.

Who cares that Warren Buffett spent $560 million buying gold or gold mines? What’s really important is what Warren Buffett sold in order to buy the gold mines.

Warren Buffett dumped all of his airline stocks and a huge amount of his banking stocks including JPMorgan and Goldman Sachs. So the question I am asking Rebel George Gammon (my favorite “Macro Addict”) is, “What does that mean to me and the Rich Dad community that Warren Buffett is dumping airline stocks banking stocks to buy huge stakes in the Barrick Gold company?”

What are Warren Buffett’s moves telling us? George Gammon says that what is important to watch are their (Warren Buffett) moves, not what they’re saying about them.

As a reminder, Warren Buffett is the man who once said:

“[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

What makes this interesting and worth commenting about is that that same man recently sold a lot of stocks to buy gold. It’s clearly a signal to investors, but what is it signaling? Are we seeing a wealth secret revealed before our eyes?

That is why I’ve asked this question to George Gammon, who is arguably one of the best educators of the economy and central banks, I’ve ever come across.

Wealth Secret #1) Dumping Banks

George really focused on the fact that Warren is selling banks. This is probably because Warren expects the Federal Reserve Bank to forbid interest rates to rise even though inflation is increasing. This is very damaging to banks because when the banks get their loans repaid to them, they are being repaid in dollars of lesser value.

To simplify, as inflation increases, the dollar buys less meaning the purchasing power of the dollar has decreased. So when the banks get repaid by these “weaker and cheaper” dollars they get screwed. They loaned out a strong dollar and got repaid with a weaker dollar. And since the Federal Reserve Bank won’t allow them to increase interest rates, the banks cannot make up for the difference.

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So what Warren has done is sold his assets that are at risk when inflation hits (bank stocks) and buying assets that increase with inflation (gold mining stocks). To understand this better, you need to know that gold is a hedge, or insurance, against inflation. As the dollar gets weaker, gold traditionally gets stronger.

Here’s the kicker… this is not a Covid-19 problem. George reminded me that the United States has 26 trillion dollars in debt, going back to 2000. This is fairly new but not “Covid-19” new. From 1776 to 2000, the United States racked up about 5 trillion dollars in debt total. But, in the last 20 years the U.S. government has tacked on an extra 20 plus trillion dollars in debt.

Consider that debt is simply the result of our overconsuming. That is what debt is. Debt is taking consumption from the future and placing it into the present. Put another way, we’ve over consumed as a country for literally decades. At some point in time the only way that you can meet an equilibrium point is if you under consume by the same amount or more that you over consumed.

How does a government get out of that mess? They can tighten the belt and cut way back on spending but I don’t see that happening. No politician would stay in office if they tried to do that. The public would boot them out.

So with no cut in spending, the government must inflate the debt away. Basically, they would be paying back the debt with cheaper dollars.

But there is another reason for dumping bank stocks. As the economy crumbles more and more people are going to be unable to repay their bank loans. The bank is going to be left holding the bag.

Wealth Secret #2) Dumping Airlines

The reason Buffett is dumping his airline stocks is fear of an overreaching government exercising too much control. The government, with their Covid-19 restrictions, are dramatically limiting the number of passengers that can be allowed per flight.

Buffett sees that flights right now are often less than a quarter full increasing the pressure of airlines to make a profit with already thin margins. They don’t make much per flight. Only three or four seats, out of hundreds, provide the profit. Airlines need volume flights if they are going to make any money. So with an increase in the number of these flights being three-quarters empty, airlines have a real problem. So I think Buffett is seeing the long-term problems as governments get more power and become more willing to continue with these lockdowns and draconian measures.

The Government’s Wealth Secret: Print more money

With the demise of the economy and the pain the banks are feeling, the government will be left with no choice but to increase our national debt and without a legitimate way to pay it back. With fewer people working, there are fewer taxpayers. Less tax payers and more debt create a monstrous problem. The government only seems to have one answer… print more money. This “solution” of creating money out of thin air leads to huge inflation.

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This “solution” from the government leads to hyper-inflation, which leads to an entire currency collapse where the dollar loses all its value. There is really only one “good” solution. The answer is we need to produce. We need manufacturing. The alternatives are hyper-inflation or go to war. And if history is any indication, the government will choose inflation out of those three options.

Robert Kiyosaki’s Wealth Secret

What can the average person do? Let’s look at history again. Going back to the early 1970s as an example, you see a rotation out of financial assets into hard assets like gold and silver. Look at the stock market crash of ’72 to ’74. Then look at the huge commodity boom in the 1970s. I think Buffett is recalling the lessons learned during those times.

George told me that is how he is positioning his portfolio. I’ve been a “gold and silver bug” for half a century. There are no certainties, but if you look at the probabilities and you understand what’s going on, the shift from stocks and financial assets into gold and silver appears to be the most likely outcome.

I would also add Bitcoin and certain cryptocurrencies to that list, though I don’t know if George agrees. However, when all things are considered, when you look at the amount of government debt we have, and you look at how much deficit spending they’re doing right now with the stimulus packages and infrastructure spending, including everything else that we see in the news right now, wealth secrets from wise investors include buying assets outside of the Federal Reserve Bank and government’s control.

What does that mean?

At the time of this writing I’m buying gold, silver and Bitcoin. But that’s me. Like everything else in life, there is another side of the coin. Charlie Munger, Buffett’s 96-year-old partner, says, "I wouldn’t hang out with a bunch of gold bugs." And Buffett (90-year-old) said gold “has no utility”. Of course, both are now $560 million into gold. And, Paul Tudor Jones, another old finance guy, just came out in support of Bitcoin. My point is, even the old guys are changing their minds. And that is why George Gammon says to watch their actions and do not to listen to their words.

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George also pointed out that they are investing like he does. They are not only buying gold but they are investing in the mining of gold, as well. So why is that different? Because when gold goes up, gold miners go up a lot more.

For example, let’s say the price of gold goes up by 100% from $2,000 an ounce to $4,000. If that happens, most likely the gold miners would not go up by 100% but rather 400%. There’s more leverage in gold miners.

Actions speak louder than words

I spoke earlier about the airlines and how the fear of Covid-19 is causing incredible unrest in the industry. I don’t like to say it, but I believe we’re going to see a lot more political and social unrest. There’s going to be a lot of volatility in the developed world and that means it’s good for gold.

This includes hyper-inflation where gold also performs incredibly well. This results when you have a loss of confidence in the dollar and the entire economic system. So unfortunately, I expect to see crazy inflation. I expect things to get worse not better and that is especially true with fiat currencies.

Again, my solution is to own hard assets. George and I both like commodities right now. We think they’re extremely undervalued and provide extremely good value. In addition, we like things like agriculture, oil, copper and uranium. I don’t know how you can dismiss gold and silver when they have held their value for over 5,000 years. Bitcoin is super interesting as so many people around the world, including China and Venezuela, where they have lost confidence in their financial systems, are embracing it. The really cool thing about Bitcoin is you got a fixed number of units at 21 million, and I would argue you’re going to have fewer and fewer units because people always lose them. This is great because there cannot exist inflation where there is a fixed amount of an asset.

George Gammon’s Wealth Secret

What George is doing that is so brilliant is buying the producers of the commodities. He does not buy the commodities themselves. He and his team buy the shares of the miners, the drillers, the farmers of commodities. Why buy the commodities when you can leverage the gains exponentially from buying the producers? If you want to invest with George and his team click on the banners found throughout this post.

I am convinced this is the most exciting time ever to be alive. There are wealth transfers everywhere you look. From stocks to metals to cryptocurrencies and more. Formerly, wealth was transferred from the poor and middle classes to the wealthy, but if you are educated and if you are bold, you can be on the receiving end of the wealth transfer.

Remember to watch the actions of the big players more than you listen to their words. Thanks for your teachings George Gammon.

Original publish date: September 16, 2020

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