to think very practically. I mean, first of all, this
goes back to Boy Scouts. Be prepared, right? Let me just say this. Cyber risk is a huge risk. GRANT WILLIAMS: Yeah. SIMON MIKHAILOVICH: World
War III, to the extent– and I know this a
very loaded term. We’re potentially in the
middle of it already. Just because we
don’t recognize it because the buildings
aren’t being blown up doesn’t mean a war
is not underway. A German strategist von
Clausewitz from 18th century defined the war is continuation
of state policy by other means. OK, so in his time, it meant
cavalry and burning the crops and whatever. Today it’s a trade war. We’re in the middle
of a trade war. We’re in the middle
of a currency war. We’re in the middle
of cyber war. Whatever happened
with the elections, we’re doing the same thing
to a lot of other people. The fact that the city of
Atlanta recently was attacked, and all of its debt is
being held at ransom. I mean, you cannot, as
a reasonable person, 100% rely on cyber networks
being completely operational and up to snuff at all times. GRANT WILLIAMS: And
now, everybody’s ground zero Facebook is out. I mean, that’s the
one system people have totally relied on
because they’ve given their information to that. It sounds asinine, but I’ll
make a very serious point that when Facebook turns out
to be a danger to people’s privacy, and that
should be a wake up call that these things are real. SIMON MIKHAILOVICH: It is. I don’t know if it will be a
wake up call to the millennials because they have
grown up with this. They don’t value,
necessarily. privacy. But in financial affairs,
I mean, think about it if you don’t have
cash in the pocket. What was happened here, a
hurricane in, what is it, 2012, right? GRANT WILLIAMS: Yeah. SIMON MIKHAILOVICH: Yeah. We were together in that. I remember you got
kicked out of your hotel. GRANT WILLIAMS: I did. SIMON MIKHAILOVICH:
Anyway, so everybody who lived below 30 whatever
4th Street essentially lost– they couldn’t go
up the buildings. You know, they couldn’t
get back to their apartment because the elevator
didn’t work. If you’re in the 34th
floor, you can’t get back. Of course, you can’t get
money out of the machine. You couldn’t get gasoline
because the pumps below the stations didn’t work. I’m. Not talking about Armageddon. You just have to think
about how would you operate in a degraded
cyber environment? How would you operate in a
degraded financial environment? How would you operate in
a degraded communications environment? Not Armageddon, but
infrastructure sometimes fails. So you have to think about this. So for example, people think
I need to have gold coins. OK, gold coin right now
is $1,300 some an ounce. All right? So each one-ounce coin
is a $1,300 bill today. Where are you going
with $1,300 bills to buy your milk and cookies? Right? Doesn’t make any sense. So right there, for
people who think or for people who want
to have some reserve to pay for expenses, god forbid,
and this is a very extreme situation, not as likely
as a financial debacle of which we’ll get to next. How can I operate? Silver dollars. Because today, silver dollar
is, what, $17, $18, whatever, dollars. OK, so it’s a $20 bill. So maybe it’ll be a $50 bill. It’s manageable. $1,300 bill, which is the
coin, could be $5,000 bill. It’s not feasible. So right there, instead
of hoarding gold coins, or you can hoard some gold
coins for like bigger purchases. But for everyday, you
should have silver. It’s common sense right there. Now, in terms of
wealth preservation and bigger, larger amounts
of money, say $100,000, for people who have
that kind of money, you have to think,
what are the risks? And how am I going to use this
if and when the time comes? So for example,
one of the answers to those questions
that I referred to earlier, German Central
Bank, they actually made some very good points. They said, well, obviously,
it’s for emergency. It could be used as collateral. Gold could be used as
collateral in case of emergency to borrow against, right? And it can also be sold
for different currencies for which purpose, it should be
stored in different locations. So they explained why they
store gold in different places, because it could be mobilized. And not just converted back
into their own currency, but if it’s held
in other countries, it could be converted
in other currencies. So for an American, for example,
if you store gold in the United States, aside from logistics
issues as to how you’re going to be handling it if you
want to store it personally, the only exit through
that is through US dollar. Well, it so happens that the
dollar may be problematic. I mean, we may have
a currency change. And you may not want to
get back into US dollars. You may want to get into
a different currency. Well, you can’t do this inside
the United States, right? So that’s why, for
example, the Bundesbank prepositions, if you
will, some of its reserves in different locations. Now, another common sense. Think what the
intelligence agencies do. I mean, they have safe
houses in different places. Why? Well, because when they need to
operate in a different terrain, they need to have
resources locally. That’s not the time to be
wiring the money from here to there because you may
not be able to do that. It’s also not the time to move
gold across borders because you may not be able to do that. There are storage facilities
in locations that, I think, don’t make a lot of
sense, because they’re either isolated, they’re
islands, or let’s say in Utah. There’s nothing wrong
with the state of Utah. But there’s not exactly
a vibrant market for gold bullion in Utah. And so if you need to monetize
that or change it or move it, I mean, it’s very
far from everything. So that doesn’t
make a lot of sense. But at the same time,
places like, say, Switzerland or
Singapore are the world hubs of bullion commerce, where
there’s a tremendous amount. They’re smelters. There are traders
who are not banks who are commercial traders. I mean, they’re major
jewelry supply chains. They’re places where you
can monetize an easily exchange your gold in
the case of emergency. I’m just giving
you the framework of how you think about it. So you have to think
what can happen? And then you have to
think when that happens, what, actually, am
I going to be doing? So what if I have it on a app? Well, OK, these
people have millions of customers on an app. I mean, are they going
to be able to help me in my situation or not? So, yes. Today, no problem. But what happens when
10%, 100,000 pick up the phone to say my app doesn’t
work, and I want my gold. GRANT WILLIAMS: Yeah. SIMON MIKHAILOVICH:
Then what happens? Who is answering
100,000 phone calls? Those are the types
of simple things. And then we’ve talked about
this before, you know, your property rights. Of course, trust is the
most important thing. As my lawyer has
always told me, I can write you a good
contract, but if you deal with the wrong
people, all it’s going to give you
is a good lawsuit. You don’t want that, because by
that time, you’ve lost already, right? So the first thing
to do is you have to invest in due diligence. You have to understand
with whom you’re dealing, and are these
trustworthy people? Are these people high integrity? Are these people of character? And will they be there for you? Or at least, you don’t know
whether they physically can be there for
you, but will they do everything that
they can to be there for you when the time comes? Or are they fair weather friends
like the institutions are? They’re there
therefore you as long as it’s convenient
for them and as long as they’re making money. I mean, look at the business
models of the dealers, of people who deal in gold. Most of the business models
are based on transactions. If you don’t transact, you’re
not a valuable customer. I mean think about that. GRANT WILLIAMS: This
goes back to your story with the bank in Switzerland,
which is the same principles SIMON MIKHAILOVICH:
Of course, of course. Look at Facebook. If you’re not paying for the
service, for the product, you are the product. GRANT WILLIAMS: Right. SIMON MIKHAILOVICH: Right? So for example, there are
all these cyber platforms that are now rising up with
the gold blockchain and gold connect. And they somehow, it’s all free. Well, it’s not free. I happen to know that storing
gold costs money, that ensuring gold costs money. So if you’re being
offered a free service, how is that working? Who is paying for it? Well, they’re trying to
defray the cost of all that through the transaction volume. Is that going to work or not? I don’t know. GRANT WILLIAMS:
Well, this is it. We don’t know. And the technology
is changing so fast. And all the changes are
optically, at least, designed to make things
easier and cheaper and better for all of us. I mean, we’ve kind
of got used to that. Every technological innovation
makes things better and easier and cheaper and more seamless. But this is different. This is different. This is not buying
fake farm animals. This is not a shuffling things. This is that reserve at the
base of your wealth pyramid that you really
shouldn’t want it to be easier and cheaper
and more seamless. You want it to be secure. And if there’s a cost to that, I
think it’s Stella Artois beer– reassuringly expensive. SIMON MIKHAILOVICH: Yes,
reassuringly expensive. That’s right. GRANT WILLIAMS:
There needs to be a cost for preserving the
one thing you can’t afford– SIMON MIKHAILOVICH: Free
insurance is worthless. GRANT WILLIAMS: Right. SIMON MIKHAILOVICH:
It’s as simple as that. Free insurance is worthless. You have to pay for the service. You don’t have to
pay through the nose. It doesn’t mean that people
need to steal from you or take your money and
promise you things, no. But they’re actual
real-life costs of services. And if you are not
paying those costs, then somehow
they’re being hidden into what you’re not getting. I mean, it’s as simple as that. And again, going
back to the Facebook example, if you’re not
paying for a product, you are the product. You’re the fool. There’s no other way around it. So in looking for
the solutions, I think people need to
look for relationships. They need to look for
structures– legal structures that keep them compliant. That’s very important. This is for US listeners. US regulations about
FATCA regulations and about reporting precious
metals are ambiguous. They’re purposefully,
I think, ambiguous. It says, for example,
that you do not have to report gold held
offshore if it’s held directly. It is purposefully not
explained what that means. So it could be interpreted,
and is interpreted by people who provide
services, that if the gold is in your name, and it’s in
the warehouse somewhere, that it is held directly. But reasonable people can have
a different interpretation. They can say directly
means if you’re an American who
happens to live abroad, and you happen to have gold
in your sock drawer, well that’s directly. But if you’ve given
it to somebody else to hold on your behalf,
well, that’s not directly. That’s through somebody else. And so these rules will be
interpreted sometimes later. And it will be your burden. When people use some
kind of tax deduction that’s a little ambiguous,
in the accounting world, they say, we’re going
to take a position. We’re going to take a
position that this is how we interpret the regulations. Well, guess what? If you get audited,
it’s incumbent upon you to prove that your position
is correct to the IRS. The burden is on you. So you have to think about that. So compliance is very important. Trust is very important. Location is very important. And thinking through
who will be there to provide you the
service when the phones at these mega
services, behemoths are ringing off the hook? Is there a physical ability
to service the clients and to be there for the clients? I mean, those are
the types of things that you need to think about. And yes, it’s a reserve that
not just can protect you in terms of your wealth,
but it can create multigenerational wealth. Because my background is
in distress investing. And if one thing I
learned is that access to liquidity in the moment
when people have no liquidity is priceless. I mean, this is
when you buy things for pennies of their
intrinsic worth precisely because
99% of the people haven’t thought of what you
and I are talking about. 99% of the people
never thought of what you and I are talking
about in every situation. So that’s what creates
an opportunity. So I see gold not only
as a panic type thing where the Armageddon, I see
it as a strategic liquidity reserve that can A,
help you survive, but it can also make you
much wealthier than you are by giving you options
and opportunities when other people have no
options and no opportunities and are forced, down the path,
of selling off what they have just to meet their obligations.