In this episode, Jason Hartman interviews Stephen Leeb, author of China’s Rise and the New Age of Gold, and The Coming Economic Collapse. The two discuss the demand for real and physical assets, which are currently in short supply. They also look into getting 6.5 billion people into the middle class.
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Welcome to the holistic survival show with Jason Hartman. The economic storm brewing around the world is set to spill into all aspects of our lives. Are you prepared? Where are you going to turn for the critical life skills necessary to survive and prosper? The holistic survival show is your family’s insurance for a better life. Jason will teach you to think independently to understand threats and how to create the ultimate action plan. sudden change or worst case scenario, you’ll be ready. Welcome to ballistic survival, your key resource for protecting the people, places and profits you care about in uncertain times. Ladies and gentlemen, your host, Jason Hartman.
Jason Hartman 1:00
It’s my pleasure to welcome Dr. Steven Levy to the show. He is founder of the lead group, he’s the publisher of investment newsletters and services, including the complete investor leads real world investing the cash cow, the complete investor. And he was named the best financial investing newsletter by the software and information Industry Association in the 2013. SEPA awards competition, he’s chairman and chief investment officer and strategist of Liebe capital. He’s the author of about nine books, he’s got a new one out a second one about China, his last one was very much a revered book. He’s also author of the coming economic collapse, how you can thrive when oil costs $200 a barrel, that one was back before the Great Recession. But his new book is China’s rise in the New Age of gold, how investors can profit from a changing world. And he’s coming to us from New York City. Steven, welcome. How are you?
Stephen Leeb 2:00
Fine, Jason, it’s great to be talking. I wish that were outside. But it’s nice talking at home when they are talking to you. We’re glad to have you.
Jason Hartman 2:10
Tell us a little bit about your new book, and maybe your last book about China, if you would, and why it matters to Americans.
Stephen Leeb 2:16
Well, it matters a lot to Americans, and it could manner in a positive way and a negative way. China has risen as fast as any economy, probably in the history of the world. I don’t think I’m exaggerating
Jason Hartman 2:31
when I don’t think you are either. I think that’s true.
Stephen Leeb 2:33
I think 30 years ago or so, or certainly 40 years ago, 1980. China was a developing country. And basically, more than half the population, the majority of the population was in poverty. Today, China is leaving the developing world to middle income status, and their growth has just been spectacular. And in many ways, I think they’ve exceeded us, I hate to say that, but they have a very cohesive society. And I think it’s become absolutely necessary for us to realize that and stop competing. And to realize that the world is at a turning point 85% of this world right now Jason is developing, which is to say that their income, their GDP, or income per capita, is about 1/9, that of the developed world. In other words are every $1,000, we have an income, they have $100, in income, on average, the developing world, the developing world is 85% of the world’s population. And they have started to really develop thanks to China. China’s set the example, the developing world, to a large extent has coalesced around China, as well as part of Asia. And right now we are in a situation where commodities have become incredibly important. More so than probably any time maybe since the Stone Age. Because in order to develop, you need commodities, and this has been totally overlooked. the developed world, by contrast, is really obsessed with technology. And I think that’s good, because the developing world is going to take a combination of commodities and technology, because no matter how you try to connect the dots with respect to commodities, that is, do we have enough? The answer right now is no we do not. We are really dependent on making technological breakthroughs, to complete this development, to really see a world that is basically living in a standard of living that is, I would say middle class that you know where people can afford to eat, food, shelter, etc. I’m not talking about where everyone is rich. I’m just talking about middle class world, in order to achieve that we are going to, I think have to transition from one energy source, namely fossil fuels to another, it’s going to take tremendous energy to affect that transition, and a lot of other things. But the key here is, we need commodities in a way that we’ve never needed them before. And we also are going to need technology in a way that we’ve never needed it before. Right now our technology is focused on communicating is the two of us are doing right now. That’s great. That’s wonderful. That’s part of it. But we also need material science, etc. And we’ve got to get together and cooperate. That is the basic message of the book. But for investors, the messages own commodities, and especially own gold,
Jason Hartman 5:51
it’s interesting, when you keep saying, you know, we’re going to need commodities in a way we’ve never needed them before. I mean, I would almost think, does that mean a lot? We need them a lot? Or does it mean something else? No, it means exactly what you said. Okay, so we need a large amount of them. But we have, you know, more people, and we’re doing more things nowadays. So that doesn’t come as a big surprise. But it almost seems like and of course, you know, tech is more ideas based than commodities based to some extent, right. So it would seem like our reliance on commodities, even though we need more of them, because we have more people, we’re doing more things, right. So that’s just sort of our proportionate ratio, it would seem like our reliance would be higher on commodities in the past, because the world was a much more physical world than it is nowadays. And I totally agree with what you said, about material science, like all of this technology that we all keep talking about. It’s basically all just communications tech,
Stephen Leeb 6:45
very well put, I agree with you that I was looking for a word to describe what our technology is focused on. And I keep coming up with information technology, I like your word are much, much better communication, focus, Jason, we have needed commodities in the past and commodities were basically at the source of developing about 15% of this world. 15% of this world right now is developed the other 85%, which comes to what over six and a half billion people are not developed, they are living with a income that is 1/10 or 1/9, the income of the developed world, those countries, those 6.5 billion, which is greater than the world’s population, probably 10 years ago, or 15 years ago, they are developing, we have never been in a situation not even close to it, where six and a half billion people are all developing together. So much different need if the need is gargantuan God,
Jason Hartman 7:50
I totally agree with you there. And that’s really interesting. You say that, because, you know, we’ve heard a lot about the rising billion, but it’s really the rising 3,000,000,006 and a half billion, because Are you saying only a billion are sort of in what you consider the developed or middle class world? Or what do you mean by that?
Stephen Leeb 8:09
No, what I mean is that there are high income individuals, high income countries that basically have standards of living that we would call middle class, on average, below that are middle class countries, what the World Bank calls middle class countries have income average income levels of maybe six to $8,000 a year. I think that’s for a family of four, actually, that’s not very much. If you think about it, that is hardly enough for subsistence, I mean, it’s, it’s a little bit more than that. But that 6000, or seven, or $8,000, is going to have to turn into maybe 40,000. In order for a family of four to live in, you know, a reasonable style. So we’re talking about not just 3 billion, we’re talking about probably six and a half billion, and raising their average income to a level where they can enjoy, to some extent, middle class privileges.
Jason Hartman 9:10
So it sounds like a lot of this discussion, or a lot of this thesis is based on globalization and the rising middle class. You can correct me if I’m wrong, but you know, it really reminds me of something I’ve often quoted, which is an article I read maybe 16 years ago, maybe 17 years ago, with Michael Milken and Jeremy Siegel. And they were talking about the rising middle class. And Jeremy Siegel, really sort of was the first person I heard to maybe say it this way that sort of struck me, where he said, with all of these people, you know, and at that time, globalization had lifted about, you know, maybe 250 million people out of poverty, right. You know, with all these people coming into the middle class, there is going to be an asset shortage, where are all the assets for these people to buy, as they have investment income. And so he talked about it, he called it the looming asset shortage. And I think that was a pretty profound insight. And it sounds like that’s what you’re saying to an extent.
Stephen Leeb 10:16
In a way, my wife and I wrote a book in 1999, called defying the market, basically saying that we did not have the technology to serve what the world was going to need, which was developing commodities. Now, I’m not trying to compare myself with Jeremy Siegel. I have great, great respect for him. And I think he’s, you know, done a lot of good work. But I’m not sure what he was talking about when he said assets, if we were talking about financial assets, that’s not the problem right now. The problem is physical assets. The problem, then is shelter. The problem is food. The problem are the very basics of life, that we don’t need so much in this country. I mean, our per capita copper consumption, for example, has fallen in the past 10 years. I mean, we’ve reached a certain level where we’re not just building houses, we have a lot of construction that’s already taken place. China’s copper consumption is slow. But it’s still rising. I’m talking about the countries that instead of having an average income of maybe eight or 9000, or 7000, have average incomes of two or 3000. They need homes, they need infrastructure, and they need the real stuff. And that’s the only thing I was trying to clarify by what Jeremy Siegelman it’s now financial assets, it’s real assets that are right, basically, outperforming right now.
Jason Hartman 11:39
Yeah, bricks and mortar. Right. That’s exactly it. There’s this real asset shortage, you know, that builds the brick and mortar that builds homes? does this translate into higher consumer prices just all across the board Higher, higher home prices? etc? You know,
Stephen Leeb 11:55
it’s a very complicated question, because it really relies, yes, the short answer is yes. The longer answer would involve how we measure inflation in this country, and in the western part of the world. And it’s very controversial. And there are some people that argue that inflation instead of being one or two, or 3%, whatever it is, according to what measure is actually at a much higher level. And, you know, that’s the discussion about what’s reported as headline inflation, right? What you cannot argue with. And I always say, always try and stick in my own analysis to things you can’t argue with. You can’t argue with the price of copper, Jason, it’s over $4 a pound, the last time it was that high was in 2011. And before that, it was never at that I never reached that height in 2008, for example, you can’t call with those prices, you can’t call with what factories are paying for a collection of commodities right now. It’s gone up probably 20 or 30%, in the past year or less, and that is inflation. Now, whether that shows up in the CPI is an open question. It depends how they’re calculated, and the calculations are really arcane, and difficult.
Jason Hartman 13:17
Alright, I would agree. I mean, the CPI is totally manipulated, you know, waiting hedonic substitution. Absolutely. Absolutely. Do you think that these prices are sustainable? Are they a result of the flood of money? the you know, the money creation, the low interest rates, the artificially low interest rates? I mean, are those sustainable, I guess, maybe a way to look at it would be are these prices, these high prices, and Dr. Copper and all the other things, right, look at lumber, I mean, our clients invest in income properties, they buy real estate nationwide, and just lumber price increases alone, have pushed new home cost overall up by like 14% in some places. I mean, it’s it’s staggering. That doesn’t even include copper, and other things in the equation, right? There’s these builders have huge shortages of building materials and are having to pay premiums, it’s across
Stephen Leeb 14:08
the board. And it’s not accidental, because commodities are all interrelated. And basically, what causes that in a relationship is that they’re all dependent on energy. You need energy to produce commodities, you need energy to produce goods, and you need copper to produce lumber I, you know, in some way, you have to make machines that chop down the trees, etc, etc. So there’s this connection between all commodities and your I think your question was, are lower interest rates having an effect? And of course they are. You have, you know, on steroids right now, but you also have up to now I’ve been talking about the inequalities among countries, that the developed world is much better off than the developing world, but they’re also massive inequalities within countries within the EU. West, that point has been made to the point, right. And it’s almost cliche and I don’t think people pay that much attention. But they do pay attention to what Jerome Powell yesterday, said that he’s going to continue to buy interest rates despite the improvement in the economy. Well, it is, in a way ridiculous. But what he is basically saying, I think drill beneath the surface. And maybe this is because we have a democratic president right now, but I’m not sure that it would have been much different head Trump and reelected. He’s saying that the only people that have really been affected by this dramatic recovery are those that are above a certain income level in this country. And they’ve been dramatically affected. I mean, basically, you can pick out
Jason Hartman 15:48
measures, and what you mean to say is dramatically enriched, enriched, right? It’s very, it’s the kantian effect, there’s can’t tell you, there’s everywhere, you know, they’re pumping money, and, and some people are closer to the money, and it’s making wealth inequality, a terrible problem.
Stephen Leeb 16:03
It has become, I think, a real threat to America.
Jason Hartman 16:06
I agree. You’re the middle class has totally disappeared, that, you know, if you want a stable country, you better have a big middle middle class.
Stephen Leeb 16:13
Okay, so well put. And what Pao is saying is that this country is not stable. I don’t care what the GDP figures say, you know, I’m sort of like trying to read between the lines that I know, this hurts you if you’re in the housing business, because you don’t want to see houses go up in price. But you know, in answer to your question, you made a good point, because this is affecting the people that are not in the lower tier, it’s affecting the middle class in this country. If you have to pay another 14%, for houses, basically, you’re going to have to get, you know, I’m going to take that back. Based on what you said, I do think that they’re not going to be high, they’re not going to be able to hide inflation, it’s going to be a much, much more difficult task. I don’t know what they’re going to have to do to keep hiding it. But they’ve been successful so far. But what I can point out Jason, and then I’ll shut up on going on is that, you know, the last 20 years, gold outperformed stocks by 400% versus 200%. Its percentage gain was twice that of stocks. And I’m not I’m talking the s&p 500 dividends reinvested and more than twice that of bonds. So commodities have already been outperforming everything else in terms of assets, whether you’re talking financial assets,
Jason Hartman 17:36
or real assets. So Steven, fascinating discussion, I would definitely love to have you back on the show anytime, because you’ve just got such a wealth of information here. But give us some thoughts on housing to kind of wrap it up for us, if you would,
Stephen Leeb 17:48
well, Jason house is going to be one reason why I think it’s going to be very hard to hide inflation. I think housing prices are going to continue to rise. I think you may have mentioned earlier that lumber prices are one of the commodities that are really rising, that’s going to continue. That means if you buy a house, now, the value of that house is going to rise almost surely faster than the value of the stock market. I think that that’s a very good livable investment livable. And you know, here’s a here’s a way of making money and enjoying your money by living in it. And securing yourself hedging yourself against what I think is going to be a kind of a crisis in commodities. So it’s, I think it’s a great business to be hit next,
Jason Hartman 18:35
you know what I call it, you’ll like the name of it, I coined this term about, I don’t know, 18 years ago, I call it packaged commodities investing, or assembled commodities investing, because that’s basically what it is, you know, people buy a house, and they’re just buying a package of commodities of glass, steel, lumber, concrete, copper wire, petroleum products, labor energy, you know, so it’s really,
Stephen Leeb 18:59
I don’t think you name one commodity, that is not likely to outperform the stock market over the next 10 and 20 years. So if you’re young, or even a middle aged or even an older homebuyer, you’re going to do extremely well, that’s probably an incredibly good, that’s the best consumer purchase you can make. You can’t buy gold in the area in your backyard
Jason Hartman 19:22
and add that to an artificially cheap three decade long fixed rate mortgage, and then add to it that you can outsource the repayment of that mortgage to a renter. I mean, it’s
Stephen Leeb 19:35
almost I’m not just trying to you know, say this but I’m also you’re talking me into looking around for homes to buy. Because I think that that is it’s an incredibly good investment. If you’re looking to sort of hedge and hedge in a big way. I mean, really outperform if you’re looking to see your wealth multiply much faster than inflation, whatever the end figures are and enjoy that multiplication by living in it. I know, again, your phrase was great, I can’t, I can’t quite commodity, packaged
Jason Hartman 20:09
commodities and vestige
Stephen Leeb 20:10
commodities, it’s perfect. And the package that you’re talking about is going to far outperform any financial asset. That will be one way of summarizing my message.
Jason Hartman 20:21
I couldn’t agree with you more. Steven, if you have the time, I’d love to have you back on the show real soon. Because with your body of work, I mean, you’ve just got so much great content, so much great insight, we’d love to have you back on. But we got to wrap this one up in the interest of time, give out your website, if you would. And just any closing thoughts on on the macro picture?
Stephen Leeb 20:41
My website is Steven Lee. Calm and you know, wrapping it up, I would simply say commodities are really the things to own right now. If you want to live a bowl commodity housing, if you can’t beat it, I think that gold will probably be the best performing commodity. So if you want to put the two together, buy a house and buy some physical gold and bury it in your backyard. I’m really
Jason Hartman 21:09
big call that the midnight gardener. That
Stephen Leeb 21:11
night gardener. I honestly think that would be a great approach. And I think at the end of 10 or 20 years, however long your timeframe is five years even you are going to stand in such good shape relative to most of this country. Good stuff.
Jason Hartman 21:29
Dr. Steven Lee, thank you so much for joining us. We really appreciate it. Very good to talk to you. And please come back soon.
Stephen Leeb 21:35
I would love to come back, Jason, and thank you very much. It’s been a very informative discussion for me just talking to you. I really appreciate it.
Jason Hartman 21:42
I do too. I really enjoyed it. Thanks.
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