Less than 1% of Americans have an allocation to gold today. Andrew Mason, a Gold Specialist at St. Joseph Partners, talks with Sam Wilson about why you need to invest in gold. Gold is money that can’t be destroyed by a central banker or a government policy mistake. Plus, the gold will perform attractively in a portfolio, and you’ll have a positive and attractive return in the environment we’re moving to. Join in the conversation to discover how gold can help you in your finances. Tune in!
—
Watch the episode here:
Listen to the podcast here:
Want Liquidity? Invest In Gold With Andrew Mason
Drew Mason, welcome to the show.
Praise be Jesus, who sends his wisdom. Thank you so much for inviting me, Sam. Hello to all the great volunteers in your home state there.
Drew, tell us quickly, where are you based out of and what has been the highlight of your day?
I’m based out of Philadelphia, Pennsylvania. This is a highlight, for sure. I’ve been looking forward to reconnecting with you since I saw you. I’m pleased to have the chance to share with your readers and talk a little bit about how we may be able to complement some of the things that real estate investors are seeing based on the real estate investors that are coming to us in our business here in 2021.
We keep things light but serious at the same time here on this show. If this is your highlight, maybe I’m going to work on your highlights there. Maybe we can increase what your highlights might be in the future. Thank you so much again for coming on. This’ll be a blast. I’m looking forward to it. Can you give our readers a bio on who you are? I asked these same questions to everybody, where’d you start? Where are you now, and how did you get there? If you can, tell us that in the most succinct format possible.
My business education commenced at Wharton. I graduated from there. I started a company out of the gates myself and it was a complete failure. I was devastated that I had such a great upbringing and education and I blew it. I realized, based on my own dad’s experience, unless I let that failure become something, it’s nothing but a stepping stone for me.
I ended up writing a book about failure and overcoming it, hoping to inspire people who had some difficult setbacks. While I was doing that, I ended up writing what’s called Soft Dollar Research and I cleared it through old firms like Smith Barney and PaineWebber. That led me to a position with the old PaineWebber.
I worked on Wall Street for a little over fifteen years and it culminated in 2008. The honest way to describe it is, I was too weak as an individual to get out of Lehman Brothers when we knew there was a problem. As a result, I was there in September of 2008 and it was incredibly painful, but it was also a blessing and an incredible learning experience.
Failure is nothing but a stepping stone for success.
What was happening to us at Lehman was a microcosm of America and we were closing our eyes to the deaths and all the problems that were clearly going to come back and bite us and it did. That was what led me to get into gold as a career. I have been full-time in gold ever since. I’m using it to help people diversify their wealth and protect their wealth nowadays.
I didn’t know that part of your story was that you were with Lehman Brothers up until September of 2008. We focus on a couple of things in this show. One is the softer skills. You’ve touched on something. I’d like to hear this side of your story before we get into the gold side of the story, which I’m sure both of these have their own intrinsic pieces of it that will be gold. What did you say that you lacked in order to get out of Lehman Brothers when you saw the writing on the wall?
I had conversations with senior management in early 2008 and said, “I am worried about this balance sheet. It’s concerning.” They looked me in the eye and said, “You sissy, get back to your desk. We are the number one fixed-income franchise in the street. We saw J.P. Morgan buy Bear Stearns for $10 a share. What do you think is going to happen to us here at Lehman Brothers? We’re 100 years old.” What do I know? What was happening, Sam, is that they paid us about half our comp almost in company stock and if you left, you forfeited that. Everybody wants to hope and is hoping for a better tomorrow. Especially with those golden handcuffs, we were certainly hoping.
You could have been a ten-year-old with a one-hour course on reading balance sheets, you would have known there was going to be a problem at some point for Lehman Brothers. Rather than moving on and doing something hard, we stayed there to the end with thousands of others. I feel that was such a blessing because now I see the same thing with American investors. We have record leverage, record speculation as measured by futures and leveraged ETFs.
Everybody is hoping good things are going to continue. Especially as you get older and there is more history than runway perhaps in your career. You have to start thinking about, “What if I don’t have another twenty years of fed liquidity to rebuild when I have my personal wealth situated in a way that I can sleep well at night and know that if something happens to me that I’ve positioned well for what’s next.”
The data doesn’t hope. It is what it is and how you interpret it is what matters. The data has no hope whatsoever. It’s interesting to say that we hope even though the data may be saying there’s a problem here.
I want to tip my hat to all participants who are involved in commercial real estate, which has been a great sector to be in. You’ve done very well, made wise capital allocation and hopefully prospered from it. I commend you on your sage decision to focus there. If we step back and you think about all of your basics in real estate, whether it’s cap end, you look at the cap rates, you look at the formulas and how you come up with a fair value, there’s no input into fair valuing real estate. It’s based on government spending.
Once you introduce government spending, you don’t have fair, free markets and then you have this distortion. Government spending becomes a dominant animal and then distortions get bigger. I would say to all your readers, the important question is, why do we have QE? The answer is the government didn’t want free markets, bonds, stocks, and real estate to a price where they naturally would. They’re injecting record amounts of money to prop those markets up. That means people who are buying in are buying at artificially high levels, and we hope it’s going to continue.
I’m surprised, honestly, if Fed’s been able to keep this going and investors have been disinterested in risk management and risk diversification, maybe they can get another ten years out of it, which would be fine if they can. Without a doubt, people need to understand that we are seeing distortions we’ve never seen.
We have 5,000 years of financial data. Obviously, there’s not a daily close going back 3,000 years in China, but if you look at some of the things that have been put out by whether it’s Bank of England or something, the Wall Street investment banks, we have this multi-millennial data set. We’ve never had negative rates on a nominal basis.
It’s highlighting for you how extraordinary this mispricing is. The most important consideration for us recognizing that is portfolio construction. Do you want to have all of your eggs in the basket that’s benefiting from this unnatural liquidity? We have conversations with family offices and say, “I’m diversified. I have ten different stocks.” If we have a severe market correction, 85% of them are stocks that go lower. You and I were talking about when I saw you last that we’ve crunched the numbers.
We have 40 plus years of data on the correlation between real estate, stocks, and gold. Stocks, as well as bonds, are positively correlated with real estate going back to 1972. Gold is inversely correlated to both of those asset classes. I can’t comprehend not having an allocation in one’s portfolio that is defensive at this time and inversely correlated in light of what we’re seeing.
I own plenty of precious metals myself. I don’t disagree, one, because I love being able to touch and hold, which is why I love real estate as well. I love to go out, knock on the building and be like, “You’re real. I can touch and see you.” The same thing with precious metals. I want to rewind that and thought a little bit when you’re talking about the mispricing in the market and these injections of liquidity.
I wouldn’t argue with you that there is certainly mispricing, but I wonder, and the question that we’ve often tossed around on this show is, even if there is mispricing, have we repriced it such that now there is much liquidity that what used to be a $1 million asset is now based upon liquidity/inflation, now it’s a $2 million asset, and it’s never going back to that $1 million mark because we devalued our currency? Have we moved any or is it still approximately the same value relative to how much money there is in the economy?
What I am very cognizant of is I am not the smartest bulb on the shelf. What I take great comfort in are high probabilities. When I can look at data going back to ancient Greece, all that was needed to save an economy was to print money. Ancient Greece and ancient Rome would still be standing along with Weimar and countless other nations.
The idea that this is painless is unsubstantiated in history. What you are articulating is completely supported by history. We’re talking about the compression of value in our currency because of the proliferation of supply of money that isn’t backed by anything. This is not something that we have to theorize about how’s it going to turn out. We’ve got 500 case studies.
Less than 1% of Americans have an allocation to gold today.
When you have 500 or 500 come out the same way, I like my odds and I think, “I want some exposure here.” We see real estate messages coming to us and they appreciate the liquidity of gold. Gold is money that can’t be destroyed by a central banker or a government policy mistake. On that latter point, that’s a great difference between real estate and any other assets in gold.
Real estate dollars probably will grow but we’re coming from a baseline where because gold is inversely correlated to real estate and equities, I would submit to you that it is artificially cheap here. You can see that by who’s interested in the metals right now. No one’s chasing the higher returning assets for a good reason. They’re working understandably.
Having a 0% allocation in this recognition, I don’t think is prudent or wise-looking forward because there’s not another asset I’m aware of nowadays, maybe ever in our lifetimes. We can essentially say the government is subsidizing our purchase of this investment of gold by making it less expensive than where it would trade if there were not subsidies now, versus if I buy equities and buying at a price that elevated from where it likely would be if the government wasn’t in there, spending as they’re spending.
I’ve got a couple of questions on that. You mentioned a term that I don’t typically hear go hand in hand. You said, “Golden liquidity of gold.” Walk us through that.
Real estate certainly feels very liquid now but we know every asset is unique and it’s not instantaneous. Gold trades more on average daily value than the Dowel Jones. Americans don’t appreciate how significant this asset class is. It trades 23 hours a day, 5 days a week, there is liquidity on the weekends. If someone wants to convert their gold into dollars, euro or yen, there is a deep market for it that’s readily available.
I hope that I am not a gold bug. A gold bug is someone who buys gold and dies with it. This is a moment to be a gold bull where we’re looking at this as an asset that’s undervalued, underappreciated, and underowned. When it is appropriately repriced, it will likely come at a time when other assets are marked down and I will have the liquidity to step in and buy whatever else we want to buy as the next cycle begins to unfold.
Gold is not about armageddon. We’ve gone through multiple currencies in this country already through all the nations. We’ve never had armageddon. Gold is about wealth insurance. I believe helping families position themselves to capitalize on the opportunities of tomorrow that the premier liquidity source in history can afford them.
That’s interesting that you call it wealth insurance, as opposed to the armageddon’s potential to trade with gold or barter with gold, silver or any other precious metal. One of the things we’re hearing right now is that in Venezuela, they have gone back to buying and selling things based on gold. How do you compare that with what you said?
There’s a great disservice being done to investors and family offices when their financial advisors frame gold in the context of armageddon. We’ve seen this time and time again. I’m amazed how many sophisticated investors don’t realize that the founders of this great nation insisted that the only money in the country would be physical gold and physical silver.
We got away from that. The founder said that was treason. The reason for wanting it was to protect people from seeing the value of their currencies obliterating, which is what has happened every time a government hasn’t backed its currency by something. It is as simple as saying it’s a little bit like insurance for your home. You don’t want the fire to come, but there’s a chance it will.
In the case of gold, however, the probabilities are almost 100% that it’s going to increase in value. There isn’t any guarantee with gold. I don’t use that term insurance, but in some ways, it has something better than the fact of guarantee that people are limited to deliver on. Gold has this precedent that when there’s stress in other assets, gold thrives. That value in composing and constructing a portfolio is very significant and has afforded people great opportunities.
We were talking when we were together, for example of J.P. Morgan. He could have gotten rid of his gold but as he saw the late ‘20s maturing and debts increasing, he made an allocation and held gold. When The Depression came and there was a problem with debts, he lent his goal to the biggest buyer, the US government. As a result, he was able to craft some very attractive deals for himself.
That is a mentality you want to have going in. You buy gold for defense. Ironically, it has spectacular upside now, in my opinion. You hope with this being your hedge that you don’t need it, but we’re doing it because we don’t want to build our futures on hope because the history and the data says it’s more a question of when that we see this significant revaluation to it.
You can be in a position to scale up your businesses and your assets dramatically. When there’s a liquidity crunch, gold has historically been the greatest source of liquidity. You had the opportunity to step up and buy assets when others are hurting is a de facto type of promise to a portfolio that’s very positive to have in one’s arsenal.
You used the term when which brings up the next question. On a cycle snapshot, are we in the 2nd inning or 10th inning? Where are we in this cycle?
The other thing I hear from financial advisors, it’s too late. Gold’s run a lot. If gold is money like the constitution, the capital markets and the central bank say it is, then you want to look at the price of gold, not in a vacuum. You want to look at it in relation to the proxies for gold to the US dollar and the supply of money.
Gold is money that can’t be destroyed by a central banker or a government policy mistake.
If you look at the price of gold nowadays relative to the money supply, that’s as cheap as it’s been in our lifetimes. We are super early. In my opinion, we saw a generational shift. Most of your readers are probably too young to remember, but in the late ‘70s to early ‘80s, I would argue it was the beginning of this investment cycle where we saw rates and inflation grind lower from the 20% level.
That cycle ended in March of 2020. What happened was in the ‘80s, when inflation was roaring, people thought everything was getting more expensive, “I didn’t want any of my money.” That ended in March of 2020 when everyone said, “The world is shutting down. All these goods are not going to be in demand.” We sold bond yields hit their low.
We are moving in the opposite direction. This is not going to be transitory. This is going to be a long cycle before this plays out again. The cycle that we have lived in, I don’t think we appreciate how atypical it is. We’ve never seen before a nation that had the sole reserve currency of the world hold its balance sheet together when rates were at 18%.
For our entire investment careers, we have been in with a tailwind to stocks, bonds, and real estate, whereas rates and inflation came lower, expanded the multiples. If we are now indeed reversing, this history says it will and coming from this level, it could be a significant move. That is a monster tailwind for gold and a headwind for other assets. Think about it in the ‘70s, we saw the S&P multiple cut in half.
Why? Going back to the basic formulas as you discount the value of those cashflows, if inflation is higher, the value of the cashflow is worth less than when inflation is lower. We are super early. Less than 1% of Americans have an allocation to gold now, which is beautiful. The largest family offices, you look at their surveys of wealth and it’s not even an asset class for them yet.
We’re also benefiting from this incredible tailwind coming together behind gold in addition to lack of allocation is supplied. The largest gold miner in the world is publicly traded. The CEO set of every gold project on the drawing board hits. In the decade ahead, we’re still going to see supply shrink by 30%. Not a whole lot for people to sell, because we don’t have it yet. The supply is very constrained moving forward. Inflation, which is a plus for it and a headwind for other assets. The proxy for gold and it’s not just a dollar now, every major currency in the world is overly indebted.
It can’t afford to pay down its debts without devaluing its currencies. The probabilities are very high here. The gold will perform attractively in a portfolio. We’ll have a positive and attractive return in this environment that we’re moving to. The only wrong allocation to have is what most Americans are doing. That’s 0%. We’re not buying it for armageddon. We’re buying it to position ourselves for an even better tomorrow.
You’ve given some compelling reasons there as to why gold should be held. The one that sums up everything in my mind, maybe at least what you’ve said, is that the price is relative to the money supply. I’m going back to 2013, 2012. Where were we? Maybe in the $1,500 an ounce range. We’re at what? In the $1,800s, maybe-ish now, but yet our money supply is what? Doubled, tripled?
We’re at a multi-decade low here in that view, Sam. When I say gold, I’m talking precious metals, gold and silver. What’s good for one is good for the other, but it’s even more remarkable in silver to the best of my knowledge. I welcome any readers who can correct me. When I go back to the peak of the last inflationary cycle in 1980, and I look at every tangible commodity, cotton, soybean oil, you name it, they’re all up dramatically from the prior cycle.
The only element that I’m aware of that is below its level is silver. It’s 50% below where it traded in 1980. Gold is cheap. Silver is a head-scratcher. You would think it was carcinogenic now, and that’s why people were shunning it. It has the most fabulous end markets you could hope for. It sells into hybrid car batteries, wind, all types of alternative energies. It is used in healthcare now because they’ve learned the incredible properties that Phoenicians knew of silver in aiding and health as an anti-biocidal. Cell phones, computers, the uses of it, it is dirt cheap in relation to the money supply. The risk-reward, given that reality, is compelling.
Drew, time to wrap up here, this has certainly been a blast. I’ve enjoyed it, but before we do that, you said that most Americans hold 0% allocation of precious metals in their portfolio. Walk us through 1 or 2 simple ways to do this without necessarily digging the hole in your backyard and covering up the Ball Mason jar.
The easy way to do it is to buy some of the most well-recognized, easily tradable forms of gold that you can purchase. I would encourage you not to store it in a safety deposit box at a bank. You can google what’s going on at banks from Beverly Hills to all across the country. I would encourage readers to choose an insured vault outside of the financial system that doesn’t lend or hypothecate its metals.
Investors can buy it in their IRAs. What we see some real estate investors doing is peeling off some liquidity, some of them have heavy equity in a property. I’ll say, “I’m going to buy $100,000.” I have some type of allocation to begin to think about lagging to learn more about, and that’s all there is to it. It’s a simple process.
That’s a clean way to do it again without storing physical assets in your backyard and dealing with that side of it. Hopefully, we’ll present some of the protections that these precious metals bring. Drew, are there any other thoughts or anything else you’d like to share with our readers here before we sign off?
We enjoy hearing about other sectors. If there is any interest in learning more, we’ve scratched the surface on what it has to offer. We have a managed fund that we run and we have a website where we have a 24-hour, 6-day a week trading platform. Our website is StJosephPartners.com. We write about the metals. If you’d like to learn any more, we’d be honored to share what we’ve learned with you.
Don’t store your gold in a safety deposit box at a bank.
My last question was the best way to get ahold of you and it sounds like we heard that, which is StJosephPartners.com. Drew, one last question for you. You’ve mentioned some charts, graphs and things like that, are those things can be found there on your website? Can we post links to those in the show?
Some of them are and if there’s anything you’d like to see that you don’t see, let us know.
Drew, thank you so much again for your time. I do appreciate it.
Thank you, Sam.
Important Links:
