Hi, everyone. Judge Andrew Napolitano here for judging freedom. Today is Monday, January 29, 2024. Kevin Demerit of Lear Capital is our guest today. You all know that I am a paid spokesperson for Lear Capital, and Lear is one of the principal sponsors of this show. So if you like the show, and I know you do, don’t thank just me, thank Kevin and thank Lear as well. Kevin, of course, is also an american success story, a fabulously successful businessman with a terrific grasp on the economy and the factors that influence it, as well as his thumb on the pulse of the politics that often motivates the economy.

Kevin, my dear friend, sorry for the long introduction, but welcome to the show. Welcome back to the show. Well, it’s always great to be here. Great to see you again. Thank you. Thank you. What is the current state of the US economy? We just went through this crazy period where every time you turned around, the Federal Reserve was raising interest rates, the stock market was up. The stock market is down now.

Something happened after Christmas, and the stock market is shot up like a rocket. What should we, you know, to me, it feels like a little bit of a blow off period. Know, Jamie Dimon came out and look, you know, the economy is scaring me. It looks like we’re speeding towards a cliff. And I agree with them. What it feels like to me is, I don’t know if you remember the cartoon with Roadrunner and Wiley Coyote would run off the cliff and he would just hang there for a second, and then he would flip up his sign and say bye bye, and he would crash down.

And it feels like we’re just hanging off the cliff, and we haven’t raised the sign to say bye bye yet. But personal debt is hitting the roof. Corporate debt has gone through the roof. Credit card debt and bankruptcies are starting to increase, and the layoffs have started to increase. So to me, it just feels like we’re kind of at the end of all the money printing, the benefit we got from the money printing, and there could be some tougher times ahead.

With a potential recession this year, what will push us over the cliff? What will cause the collapse? What will it look like? Will it be housing? Will it be the banks? What’s your feel or fear for that? Yeah. Almost every time we have a crash, either in the markets or the economy, it’s all because of debt. You go back to 2000, and everybody was writing business plans on the back of a napkin for an Internet company.

People are throwing money around. There was a huge amount of debt, and it finally caught up. With everybody, and the whole thing collapsed. 2008, that’s exactly what happened. They raised interest rates a little bit, and that just was enough to kind of crash the real estate market and then all the other markets around with it. So we’ve printed and printed and printed, and we’re living through the benefit of that printing.

And on the other side of it, we have $34 trillion in debt. And now, for the first time ever, a trillion dollars in interest payments alone, we’re having to print money just to pay that debt or the interest on that debt. And at some point, as everyone knows, debt catches up with you. So to me, I don’t know how much further we can go with this debt, but that’s what’s going to take us out of this great economy and into, we got to repay some of the debt and pay the piper.

Okay, when you talk about debt, the debt that will crush us, are you talking about personal debt, corporate debt, or the federal government’s debt? Well, in this case, it’s all three. When you look at personal debt, all time highs, credit cards, all time highs, the default rates on loans for cars and things that we need, those are starting to hit record highs. So from a personal standpoint, personal debt is through the roof.

From a corporate standpoint, you’re starting to see, again some layoffs. You’re starting to see that the debt that they did have prior to the interest rates going higher will now roll over at those new higher interest rates and start to affect profits. We haven’t seen that. Most time you have a three year loan, five year loan, something like that, and those are starting to roll over at the new higher interest rate.

And that’s exactly what’s happening with the government as well. So you judge have all three of those that have an enormous amount of debt. And then you’ve got this catalyst, in my opinion, which is commercial real estate, you just had, can’t remember who it was, but they just came out and said that there would be a trillion dollars worth of defaults on commercial real estate over the next 24 months.

Is that because Covid sent people home and businesses learned that people could work from home, and so there’s vast amounts of empty space in commercial real estate that businesses no longer want to rent. That’s right. So most people have shrunk down their lease base. We have. And at the same time, when you’re going back to lease, the market is so bad that our lease three months ago, I’m back to the lease rate that I agreed to ten years ago.

So the lease rate has gone backwards for me. That’s good for you, isn’t it? Well, that’s good for me. Not so good for the building because the building has 18% vacancy and I’m paying the same lease rate as I did ten years ago. How do you go refinance that building? You can’t. The banks are saying, hey, look, you’ve got to put down more money so that I can refinance your building.

And the interest payments are going to be at a higher rate. I think in the next six months you’re going to see another round of commercial real estate problems. You’re starting to see them already. I’m hearing about them. As we talked about before, I own a real estate company that our job is lending and mostly on commercial real estate, but we do different kinds than office buildings, industrial properties, so on and so forth.

You’re starting to see a lot of that happen already where they show up at the bank and they just can’t figure out how they’re going to refinance that or finance that building going forward. I think there’s going to be real problems in the economy with commercial real estate in the next six to nine months. And how does the federal government make this worse? By continuing to borrow. For example, you have a conservative Republican, hero to many conservatives, Donald Trump borrowed a trillion and a half a year.

You have a liberal Democrat, Joe Biden, hero to left, borrowing 2 trillion a year. Doesn’t that just make things worse by increasing the obligation, the amount that has to be repaid? And aren’t they just borrowing money to pay the interest on money they’ve already borrowed, something that your business couldn’t survive doing. That’s right. So to lower interest rates, they can lower interest rates, but the market really is what’s going to determine what the interest rates are.

And if people around the world start to come to the conclusion that the United States has just borrowed too much, is printing up too much money, then interest rates are going to stay high. No one’s going to lend the government 3% money when inflation is running at 3%. They’re making zero, having to pay tax on it. So you’re actually just going broke slowly. So, yes, the answer to your question is, that’s what Jamie Dime is talking about.

Just last week. We’re on a cliff. If you look at what the chart looks like for government debt, it’s starting to look like a hockey stick. Right? You have a trillion dollars in interest payments, just like you just said. You’re borrowing money to just pay interest. That’s where all the problems start. And it almost doesn’t matter. Kevin. Now the libertarian will come out in me and maybe I can draw it out of you.

It almost doesn’t matter which party is running the government. Both parties enact a budget that has built into it the need to borrow more than a trillion a year. Both parties, liberal Democrats, conservative Republicans, are responsible for this 34 trillion in debt and growing. Agreed? Agreed. And they can’t get away, even if they were responsible from the trillion dollars of interest that the debt is already creating. So they’ve got that problem on top of the problem is how much do we have to borrow each year to function and grow as a country.

It isn’t going to matter if a Republican or a Democrat is in there. This isn’t a four year problem. This is a 1015 20 year problem that we need to start resolving now so that we can continue to be one of the leading countries in the world. Otherwise, we’re just not going to make it. I mean, look, we talked about this on the last show. There’s already countries out there trying to figure out how to get away from the US dollar for this exact problem.

They don’t trust that we’re going to be able to contain our deficit. You mentioned earlier layoffs. Last week, Google Meta, Amazon, Citibank laid off tens of thousands of people, not entry level people, but tens of thousands of people across the board. What is that all about? Well, I think they’re looking forward and they’re thinking that the economy probably is going to slow down. I don’t think, in my opinion, I haven’t talked to any analyst that says, yeah, the economy in 2024 is going to race ahead at three and a half or 4% growth rate.

Everybody’s thinking maybe it would be back down at two, one and a half and could get worse. So they need to lay off people now to get ahead of it. The second reason they’re laying off people with some of the tech companies is because of the AI. I mean, AI is already taking over some of those jobs. So you’ve got two problems, a slowdown in the economy and long term, what’s going to happen with this AI? What’s the economy of California like? I know you’re in Southern California.

I guess the AI crowd is north of you and a lot of people are talking about, I don’t want to get too into domestic politics. The governor of California as replacing Joe Biden on the democratic ticket. Man, if there’s anything that’s more difficult to defend than Biden’s record, it would be the record of the governor of California. But what is the economy like in California today? Well, the economy is know it’s not what is the economy like today? It’s what’s economy going to be like in six months.

Really? The economy is okay today because people have been spending so much money on credit cards and new cars. Some companies have still been able to get the money for the PPE loans and things like that. They’re still working through that. It’s six months from now, I think is where I’m hearing that people are concerned. Again, the commercial real estate in southern California looks horrible. Everybody who has an office building trying to go down and refinance the banks just don’t want to do it even though it’s a good deal.

They just don’t know where the economy is going to be. So they’re not lending, or at least not lending at rates you can actually afford. So like I said, the economy is okay now. It’s not. Now that I’m worried about, it’s the next six or seven months. If war breaks out in the Middle east and the United States is involved in the war and there’s reasons to believe that that may happen, what will that do to the american economy? Not the military industrial complex, but the economy in general, oil, food prices? Well, a lot of times when you look at what happens when there’s a war, right, what are the implications of a war? So you have an economic problem, which is bombs aren’t cheap, so you’ve got enormous amount of spending that’s going to take place.

And you already have 34 trillion in debt. So where are you going to end up? $40 trillion in debt and one and a half trillion in interest. So you’ve got that issue. You’ve got supply chain disruptions, supply chain disruptions like you’re seeing in the Red Sea and Ukraine and Russia, which could push up commodity prices, energy prices, food prices, all the things you actually need. You need to keep warm, you need to have energy, we need to have food.

So from a basic standpoint, war is never good in the long term, might be good in the short term. We used to call it the broken window syndrome. Hey, I’m going to go and throw rocks at a couple of windows, break the windows, and then somebody’s going to have to pay for them. And that is going to spur the economy. War, that usually happens in the first six months, seven months, and then after that people start waking up and saying, how many lives, how many disruptions are we having? Where are the prices of products, goods and services, and supply chains breaking down? And then you have much bigger problems later on.

What happens to gasoline if there’s a war in the Middle east? Just look backwards to 2002 and through those time periods when we’ve had any kind of the wars. You’re at $150 an ounce a barrel for oil. I think oil is very inexpensive right now. And if I had to guess, based on the wars that are already taking place, you’re probably going to look at barrels of oil in the next nine to twelve months.

What is the correlation, if there is any, between the stock market and gold? What happens to gold when the stock market goes up, as it has been doing this month, January of 2024? Yeah. The gold market usually has an inverse relationship. So if the stock market is just on a tear, the precious metals market is either going to be even or down. Quite frankly, you’ve had the stocks up the last quarter around twelve and 13%.

So you would have figured that the gold price probably would have pulled back maybe 5% to 7%. We’ve seen a little bit of that, but what’s really happening here, judge, is every time the gold price kind of goes below $1,950, you get an enormous amount of buying on the central bank side. So the world’s waking up to the fact that the governments are just printing this endless money supply.

But you can’t print gold. So the dollars that are being printed just make the dollars you and I hold worth much less. And the central banks get it. It’s a no brainer to them. They’re betting on gold. So they are purchasing record amounts of gold for the third year in a row and holding that gold price up right above $2,000 an ounce. So even though the stock market is doing well, the gold price is holding up.

If the stock market falls like we saw in 2008, then the gold price skyrocketed from $650 an ounce all the way up to $2,000 an ounce. So if we get another crash in the economy, you kind of put our special report up there. I think you’re going to see gold in the $3,200 range. What did central banks do with gold? Just store it in vaults? Well, yeah, I mean, look, they have a couple of options.

They can go buy treasuries from other countries, or they can purchase gold. Those are the two big assets that they like to hold. So when they’re purchasing gold like they did, well, you’d have to go all the way back 55 years to see the same kind of demand and purchasing that they’ve been doing over the past couple of years. But they typically hold that when they think that the dollars are going to be worth much less, which is exactly what they’re printing.

So they’ve printed up since 2008, we’ve gone from 8 trillion to 34 trillion just in the United States. What would you rather hold? The dollar that’s going down or gold? Because when you put an increased demand on a fixed supply like gold, the gold price should go up, which is exactly what it’s done, up to $2,000 an ounce. And they’re not day traders, they’re not speculators. When they purchase, they purchase for five years, ten years, 15 years, 20 years.

They’re not hedge funds. They typically hold long term because they know that the interest payment at a trillion dollars a year, if we keep on printing that amount of money, that dollar is going to fall. I don’t want to hold that. I want to hold something tangible and that’s held its value over the long term. How do you make money with gold? How does a consumer make money with gold? Well, that’s a great question.

Just like any other investment, it needs to go up in value. So if we look at the price of gold, let’s say we just start in 2000, price of gold was $255 an ounce. Today it’s 2000. If you looked at it over that time, the gold market has actually outperformed the stock market. One reason, because the US government has printed up so much debt that there’s a very high correlation between the government debt and the price of gold.

Matter of fact, it’s 92% correlation to where the debt is compared to where the price of gold is. If you look at the equation, matter of fact, the equation is in our special report that you put up there. So it’s pretty easy. You look at where the debt is, you calculate the equation out for gold, and that’s where the price of gold over some period of time continues to trend with a 92% correlation.

I’d love to go to Vegas and roll the dice and know that I have a 92% chance of winning. So when the value of the gold is beneath the calculated correlation to the government’s debt, buy the gold. When it’s over, don’t buy the gold. I don’t need a crystal ball. I just need to understand that I need to wait some period of time for the gold to catch up to where the debt mean.

Can you sell gold? How do you sell gold? Well, you can sell. It’s literally the most liquid asset in the entire world. An ounce of gold here is the same price as an ounce of gold in China or in Europe or wherever you go. The ounce of gold is worth an ounce of gold. So it’s very easy to sell gold. If you purchase from us, you just pick up the phone, give us a phone call, I’d like to sell.

We lock in the price on the phone with you, and when you send it back to us, you know exactly what you’re going to get before you ever put it in Federal Express and get it delivered to us. Is it better to own physical gold? Or is it better to own some certificate evidencing the existence of the gold in somebody else’s? You know, I get this question all the know, is it better to own an exchange traded fund or is it better to own gold? So I asked the question back this way, if you wanted to purchase gold from me, and I said, great, $10,000, I will purchase your gold, but only 80% of it or 90% of it.

And then I’m going to ship it off to HSBC bank in Europe and we’re going to hold it over there. You’d probably scratch your head and said, what are you talking about? But that’s exactly what you’re doing. When you’re purchasing an exchange traded fund, they’re not purchasing 100% of the gold. They purchase 90% or 95% of it, and they hedge through futures contracts, the rest of that gold, and then they store it over in a different country.

If you purchase it physically, it’s yours. You can sell it anytime you’d like. You can give it to your kids. You don’t have to worry about a third party doing something with your gold. God forbid a bankruptcy like we saw with the cryptocurrency and things like that. If you own it, it’s yours. It’s in your safety deposit box. You can do whatever you want with it. Kevin, it’s a pleasure chatting with you, my dear friend.

I don’t know how we can stop. Well, I’ll ask you, how can we stop the government from printing? It’s built in so many financial obligations, it can’t raise taxes anymore, and we’re on the verge of starting a war. So things look like they’re going to get worse and not better. Yeah, you’re not going to stop the government from printing, but you can stop the craziness in your own portfolio.

You can get educated. Look, you do a phenomenal job on this show educating people about a lot of different things. That’s what we do, right? If they want this free report, get the free report. Look at what the government’s doing with debt. Look at how the precious metals have performed against some of the other assets, and learn how to diversify based on what’s happening out there. We have all these free reports that we give away.

I always do something special for your listeners. So if they give us a phone call or go to our URL that we give out, we’re going to credit their account immediately with $500. They can use it against purchasing gold and getting it sent to them. They can use it with IRA fees if they want to transfer an IRA over into gold. So I always like to do something special with you because it’s always so fun.

So anybody who purchases or calls now will get $500 immediately credit to their account. You don’t have to purchase. It’ll be accredited to your account. And if you want to do business over the next six months, you can use that credit for shipping costs, insurance or IRA fees. Very generous. Very kind of you, Kevin. It’s also very kind of you to be on the show, as usual. Thank you very much, my dear friend.

Yeah, thanks for having me. Of course. All the best. All right. Something different for you about an issue that you all need to know about. What is the government doing to my money and how can I protect myself? What is the government doing for peace in the world? Colonel McGregor at 430 is World War II. Excuse me, is World War three just around the corner? Judge Napolitano for judging freedom.

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