Tuesday, May 21, 2013
* Transcriptions provided by Climate One at the Commonwealth Club are provided as convenience and reference only. Please listen to the audio before quoting from the transcript to check for accuracy.
Greg Dalton: Welcome to Climate One, a conversation about America’s energy, economy and environment. To understand any of them, you have to understand them all. I am Greg Dalton. Today, we’re discussing personal investing in a volatile and crowded world. Burgeoning middle classes in China, India and other emerging countries are increasing global demand for food, energy, water and consumer goods.
In March, China’s grain imports hit a record high. In fact, China’s growing appetite is pushing up food and energy cost and ruling world commodity and equity in markets. Add in massive public deficits in the United States, political and fiscal turmoil in Europe, the Euro’s destabilized climate and another two billion people on the way and the investing horizon looks kind of hairy especially for young people. Over the next hour, we will discuss what to do with your money and how individuals and communities can be more resilient in the face of what’s coming our way.
We are joined by our live audience at the Commonwealth Club in San Francisco and two professional investors. Chris Martenson is a futurist and author of the Crash Course and Tom Van Dyck is the senior vice president of RBC Wealth Management. Please welcome them to Climate One.
(Applause)
Gentleman, welcome and thank you both for coming. Let’s start a little bit with your personal stories. I’d like to know how you got into the investing in the business that you are in right now and Chris, let’s start with you. You have a corporate job and then you had quite a fundamental change of career and lifestyle. Tell us about that.
Chris Martenson: I did and it started with a healthy dose of self-interest. It was 2001, I was watching my portfolio get eviscerated. I started asking questions to my broker that they were less than satisfying the answer and I started digging into the economy, and within about a month, I scared myself silly, looking at what I now realized were really quaint deficits and debt levels and all of that. That was my entrance, I fell down this rabbit hole of data around the first TD economy and then when I understood what was going on with energy and the environment, I decided that the lifestyle I had, this corporate existance, I had five bathroom house on the coast of Connecticut. I realized that it was a very unsustainable life, and I wanted to change that, so fast forward, I now live in a much smaller rural community, a very nice community. I raise chickens. I have a garden. I have a lot of sustainability. I have resilience in my life around energy, food, my finances, and –
Greg Dalton: And home school your kids?
Chris Martenson: Home school the kids and so here’s – I guess I can summarized it in one sentence. We cut our standard of living in half. I think we doubled our quality of life.
Greg Dalton: Interesting. Tom Van Dyck, tell me – you’ve been involved in social responsible investing for a long time, how did you get into it?
Tom Van Dyck: Right, I have been doing it since 1983. I got into the area by dealing with nuclear power to raise more to close down nuclear power plants back after The Three Mile Island Accident because at that point, it seem clear to me it was clearly the most expensive way to blow water on the planet. And there was much more economic ways to do it. We are just a little bit more clever about it. So I moved from east coast to the west coast because they reward failure here and they are interested in new ideas, and actually talking about the solutions rather than debating the problems. Because you don’t need to debate with the rank catches a problem or whether, you know, spending money at war, billing up deficits to three trillion dollars, and flushing the wrath of capital, down at war, where you get nothing in return. So, moved out here to discuss the solutions and started doing social responsible investing, and I have a garden, solar panels in the house, so 100 percent off PG – and I got the money every year, so they don’t pay enough for my solar that I produce. I am paying three cents a kilowatt. So we need to get meter in that so that we can actually get paid for the solar power that we are producing at peak hours and they are making 25 cents per kilowatt hour, so they bill it from us. Alright, so the wind sustainability is the way to go and I think, you know, the bay area kind of represents that because we have a intensive export and the idea as east, so California being the large economy that it is, if we can get the ideas passed in California and embrace, then we can push the change east. And so --
Greg Dalton: And we are getting there – some of those things there – Chris, you’ve talked about how the narrative is broken for young people these days. We just heard sort of your personal stories a little bit. How about young people today who are looking at the future with personal and national debt. Talk about the narrative there that’s emerging from them, how it’s broken.
Chris Martenson: I think we are asking by we, I mean, my generation above. We are asking young people to step in the story that really fundamentally doesn’t make sense. And it goes something like this, work hard, go to college, come out with that, maybe go to graduate school, and when you come out of that, you are going to come into a very uncertain workforce where we don’t really honor long-term commitments anymore. You are kind of on your own. Oh by the way, there’s a huge debt load that you are going to have to pay back and here’s your crumbling infrastructure to go along – sorry, we didn’t invest it well. It’s not a really compelling narrative. I was asked recently by a high school teacher who said, “My kids are a lot more apathetic, why is that?”, and I waggishly said, “Because they are smart,” they are looking at the future and they are saying, “I don’t see a place for myself. I don’t see myself in that narrative, that feels good.” And the thing that bothers me about that is that we have so much that they could step into that would feel good if we just had the story right. So where our story is broken as we are saying listen, what we are going to do is extend any resource, any amount of money to get our economy growing again and the way we do that is we have to funnel money into our capital markets into our banking system because that how we’ve traditionally done it. Instead, I think we should be saying, “Wow! Here’s a future we can clearly see we have resource constraints, meaning we have to use what we have more wisely, a little bit shephard it more carefully, we have an energy story that just begs to be treated with the utmost care, respect and intelligence so that we can bring to – we have technologies right now that we can employ, that were not employing, and I think that really tells me that we just have a story that isn’t the right story.
Greg Dalton: And how to change the story? Let’s get both of you, you know, okay, that’s the story, how does the story change?
Chris Martenson: One person at a time.
Greg Dalton: Right, you change – Tom?
Tom Van Dyck: I think they know that people under the age of 35 have a lot of power. I mean, there are more people under the age of 35 voting than over the age of 65 in this next election. So they know, they need to be empowered to know that they can actually take control of their destiny by voting who they want in power to help set those standards both representatives, senators and president. They also vote with their dollars every day, with what they buy. So when you go buy a product, you are actually telling that company, “I support the way you make that product.” I looked, you know, extended producer responsibilities and say, “I support that. I support using recycle products.” So they vote with their dollars, and then they vote with how they invest. You know, what kind of companies they support, what kind of companies they invest in. That’s the other way of voting.
Greg Dalton: But we saw what’s occupied, there’s a lot of people who don’t have money to invest, they don’t have jobs, they think the system is broken, they want to rather than work on the inside, they want to bang on the outside.
Tom Van Dyck: And that’s fine. Because it’s a frustration with what I think Chris pointed out, that you are taking the money, you tax their money, and they are using it to bail out banks who decided to leverage rather than lend, okay, and I think the baking money is to go back to lending, and so people are saying, “You can take all these tax payer money, what do we get for it?” You know, why don’t we get a mortgage right down so that we can then stay at our homes longer. Why don’t you give money to regional banks so that they can actually lend more as opposed to the large multinationals. Why is it that in the S&L crisis, the 1990s we saw Charles Keating and a bunch of people go to jail, we saw nobody go to jail, in fact, what we’ve seen is potentially, you know, CEOs of some banks coming back for large pay raises which the shareholders are now saying, “Hey, wait a minute. We don’t think you are entitled to do that. Because you didn’t really earn that over the last year, two or three.”
Greg Dalton: There was a story in the New York Times recently about some of the former head of, was it Fannie Mae and Freddie Mac who stood on the board of Goldman Sachs, right at these people who were in very much involved with this or still in on board – its kind of running the show.
Tom Van Dyck: But the key is the people can take that back. The occupied people, I think, represent that, and they can now vote and take somewhat control over where what’s going to be happening for their futures. And that they need to be empowered to take action. I think apathy is where they can go, but that’s not going to them any good.
Greg Dalton: So Chris do you think change will come from within the system, from outside the system or both?
Chris Martenson: I think it comes from the bottom up and that’s why I’ve spend all of my time really working at the grass roots level as much as I can. It’s my point of view that politicians tend to follow more than they lead and as soon as there’s a ground swell, enough political power to do something, I think we’ll do the right things. I am concerned that our current trajectory says that if we leave it up to our political leaders alone, what we’re going to do is – we’ll have to get into crisis first. And then when the crisis is obvious, they will start doing things, but you know, Greece is my model for this. Four years ago, Greece had all kinds of opportunities and options and things that could have done. Today it has far fewer options, a much poorer set of solutions that they can apply because it’s broken at this point in time. Waiting until the crisis is upon you, is a tried and true method, but when it comes to waiting for an energy crisis to hit you, I think that’s when it’s just too late. So what I like doing is working at grass roots and here’s a great thing, there’s so many positive stories happening at the community level, individual level where we see a whole entire communities coming together to take their own destiny in their hands as much as they can. And that in many respects, just reflects the sort of the national vacuum that we have.
Greg Dalton: So you think what’s happening in Europe now will come to our shore?
Chris Martenson: Absolutely. It’s a mathematical certainty at this point.
Greg Dalton: And how will that play out, I mean, are we going to become Greece?
Chris Martenson: Well, it’s going to play on the bond markets first, right? This is why I spend so much time looking at the economy. Because we get some of our earliest first reads there. You know, I get into people debates a lot, and some people say, “Wow, you know, look at all these reasons why it’s not here,” and I said, “Well, let’s look at the price of oil for the past year,” there’s a sign there, it’s very powerful. Just anytime you fill up your gas tank at the Petrol, notice what’s happening on the dollar signs going by as you are doing that. This tells us something about where we are in the story. And we have a situation in the United States right now where we are clearly on an economically and fiscally unsustainable course. Fiscally at the federal level, but even at the state level, we are seeing this as well. Those are really obvious clear signs. The extent to which we are thinking, “You know, we’ve always sort of skated by. This has never really been a problem in the past, you know, it’s been a problem but we’ve gotten pass it.” That might be true. I think we have to open a dialogue to at least ask the question, what if that’s not true this time? What if something is fundamentally different and how will we want to be positioned if this does come to our shores. We should be having these conversations right now.
Greg Dalton: And it’s not happening because of political sort of morass in Washington also is another reason?
Tom Van Dyck: One of the things that can happen is actually is Germany and the ECB is funding Greece right now. And I brought this up --
Greg Dalton: The European Central Bank--
Tom Van Dyck: The European Central Bank and they are basically bailing out Greece. What they could do potentially is put on their loan requirements, say why don’t you do – in California we have something here called the million Solar Home initiative. Why do you put solar panels – start doing more building efficiency because there’s going to be this oil ripple that you are talking about -- it’s going to hit the Greece economy so that once this stop contracting and actually maybe start growing that they will be hit with, so why don’t you start doing more solar, more renewable energy, more building efficiency, and start to prepare for that – where are they going to buy that from? You know, who installs more solar than anybody else in the planet?
Chris Martenson: China?
Tom Van Dyck: It’s actually Gre-, it’s Germany has more installed solar than China does at this point but China produces more solar than anybody else in the planet –
Greg Dalton: But China makes the panels whether they go--
Tom Van Dyck: The Greeks actually – the, Germany actually installs it. So in Germany produces a lot of it because they had the leading feed and tear situation. So they can be selling into the Greece market as they make their economy more energy efficient for this next ripple that’s coming and put that as part of the loan. We just need to take a crisis, you don’t waste the crisis. So we should take it and try to be innovative about it and come up with solutions that can actually get growth, reasonable growth or sustainable growth in the economy rather than just straight austerity where everyone remains unemployed and there are cut, cut, cut, cut. You know, you have to come up with some more creative solutions from that perspective.
Chris Martenson: And this is an excellent point because there’s so much we can do like solar thermal panels, 1970s technology, to box there is water and the sun hits it and heats the water. This is a great thing, we can do it, it makes economic sense, it makes national security sense, it makes climate sense, it makes all kinds of sense and we are not doing it and the reason is – why?
Greg Dalton: China is doing a lot of solar thermal. There’s in that --
Tom Van Dyck: Yeah and that’s where Chris is right. They are doing more solar, they have solar PD for Germany, but --
Greg Dalton: But why – if things are economic – why aren’t we doing it? Are we stupid?
Tom Van Dyck: Well, I mean, -- well California has done some things. I mean, the California’s credit, right? I mean, there is some things that we have done. We decoupled the utilities from – you have to build a power plant to make a profit, right? We said, “Okay,” back in the 70s we said, “No, you know we can actually encourage California consumers to go out and buy more efficient appliances, more efficient, refrigerators, you now, washer-dryer, and instead of spending $800 million bucks on a new power plant, you can spend that $800 million in rebates that go back to California citizens and to use less electricity. So they use less electricity, okay. You are built then we need to PC to regulate – will allow your cost of kilowatt hour to go up. So, we will still be paying 50 bucks, 100 bucks for electrical bill, but we’ll be using less electricity, in that way, the utilities can still make money and it’s called negawatts as megawatts, you can do it through efficiency. How many utilities in the country are actually decoupled?
Greg Dalton: Not very many. And that’s one California trend that’s hasn’t gone national as many as some others. So Tom, it sounds like you really see clean energy as a solution as a growth engine, but Chris you are not so sure about renewable. Do you think they are not always economic? They don’t scale, that they may not be quite the engine that Tom has said, is that fair?
Chris Martenson: Yes, so, I don’t think we have an energy crisis right now. There’s a lot of ways to make electricity. A lot of the alternative energies when we talked about them are really ways to make electrons, electricity. What we are facing is a liquid fuels crisis. When we look at the world oil data right now, conventional crude plus condensate which is the stuff that comes out of pipes and we know we can track it really easily. That’s been in the narrow five percent band of production for the past six years now even though the price in response should be -- the market pressure should be saying, “We should be producing lots more of these today than we used to be producing and the price should be a lot lower.” And that hasn’t happened. So it’s going to take a long time before any combination of alternative energy can make a significant dent on how we tend to use our liquid fuels. So liquid fuels, this is how everybody in this room, and all of us and myself, everybody got here, this is how our food gets to --
Greg Dalton: Wait, wait I got an electric car, it didn’t get here that way.
Tom Van Dyck: Well, that’s a great point Greg, so how much is transportation? Chris, of the oil usage, how much is transportation? Why fish out the transportation from a petrochemical module to an electron?
Chris Martenson: So right now, 95% of everything that goes from point A to point B does so because of liquid fuels from petroleum.
Tom Van Dyck: So if we did shift transportation to a non-hydrocarbon, and let’s say electricity, then that would have a huge impact?
Chris Martenson: Whatever huge impact and – but this is a time problem and it’s a scale problem and it’s also a cost problem. So, here’s the time issue on this. If right now, magically we said, “That’s it, we’re only producing electrical cars.” GM somehow magically they have all the lifting that they need and we’ve agreed to a lot of plans, and tonight, starting tomorrow, the only cars that can be purchase in any show room in America, in fact, globally, is an electric car. How long before half the fleet has been swapped out by normal mechanisms? We are not saying you have to trash your current car and waste the capital, but when it wears out, you buy an electric vehicle, and the answer is going to take 10 years to swap out half the fleet. So that’s the time problem on this. The scale problem is we don’t know if there’s enough lithium in the world that can be mined fast enough to create that many batteries, right now, using existing battery technology. And then the cost is going to be extraordinary. So we can do all those things but my point is we really should be doing that in a more urgent, more focused way starting a few years ago, but right now would be a good time as well.
Tom Van Dyck: So now would be a good time given where we are, and yes, it would have been great to do it back in the 80s right? When we first had the energy crisis.
Chris Martenson: That would have been a great time, absolutely.
Greg Dalton: And working here is the peak oil question. That’s hotly contested. Some people just, I just mentioned it to someone recently – he just rolled his eyes and scoffed at me like, were you – you’re a flock. You’re one of those fools who believe in that theory. So every time someone says peak oil, there’s a huge discovery off the coast of Brazil or there’s something else. Or unconventional pricelines comes into the market and there’s other forms of liquid petroleum that comes into the market. So every time someone says peak oil there’s more supply found or created somehow.
Chris Martenson: Yeah, and this is a – there is a lot of complexity in this story. But really, peak oil is about flow rates. This is the most important part. So, the Bakken Fields, it’s pretty big in North Dakota. So, the Bakken has a shale plate. It’s about 10,000 feet down and you have to drill all the way through that and then you drill a horizontal well about two more miles and you frack it. And you get things, oil coming out of that. For each of one of those drill pads that I just mentioned, 10,000 plus two miles, 10,000 feet and two miles, those average out at about 150,000 barrels per day per well. Okay? We consume about 18 million barrels per day right now of liquid fuel and in order for the Bakken Plate really give us the flow rates we need, we’re going to have to drill hundreds of thousands of wells. That’s fine. We can do that. But eventually, we’re going to discover, even that plate will play out. Right now, the world is losing about four to five million barrels per day of production from existing fields. That’s the decline rate. So, the world has to create that amount of new production off of the Bakken, off of the Tupi salt fields off of Brazil, off of the tar sands out of Canada, we have to create three to five million barrels per day in order to just stay even and then on top of that, we would you know, create more to create the growth that we want in new world economy. So right now, what we’re seeing is that everything we’re doing and it’s beautiful and it’s technological and it’s creative and if you have a chance, go visit one of these drill rigs. It’s incredible what they do. They can hit a dinner plate from up top all the way down there. It’s amazing and we’re just not seeing the flow rates coming out of this that we need right now and again, I just revert back to, look at the world price for oil. It tells us everything we need to know about the story.
Greg Dalton: And which I think is another point which is that all of the easy to get light sweet crude has been found. The stuff that we’re getting now is dirtier, more expensive, harder to get and that’s part of the upward price pressure you’re talking about.
Chris Martenson: Absolutely. Saudi Arabia always comes out, “I think we’ve got another three million barrels per day at spare production.” And it’s true, they do have spare production. It’s in these fields that they found in the 50’s and 60’s and they mothballed because it’s nasty, sour oil and they just didn’t want to deal with it. Yes, they can go back and open those fields up but it turns out, the world doesn’t want that stuff right now. So, Saudi Arabia can pump all the heavy sour at once and they world will say, “We’d really like that light sweet because that’s what our refineries are tuned for.” So, we’re also facing within that peak oil story is that it’s a question of flow rates and also, the quality of the grades of oil that we want.
Greg Dalton: And Tom Van Dyck, you would say, even if we can get this stuff, if we burn it, we’re in trouble.
Tom Van Dyck: Yeah. I would say that we can’t afford to burn all the hydrocarbons that we have. So, we should start converting the economy immediately to something that’s much more sustainable that we can leave to our descendants. You know, and we have to rely on innovation to allow that to happen. I mean, we have, you know, with an iPhone, we have more innovation that what, you know, went to the moon in 1969 as far as computing power goes. I mean, they were doing that by math. You’re the scientist, right? I mean, it’s much harder. I mean, now, so we have to continue to rely, we have to rely on innovation to make this come about. So, the kind of things we need to back are situations where you say, “Okay, we’re going to back technologies that’s no carbon output, there’s cradle to cradle design so you have actually have the idea of you know, full cycle. So you have all the cost and all the externalities priced into the product. Because you know, we don’t, it’s not, it’s not a free market when pollutions are subsidy. Right? I mean, you have, you have situation where a coal is burned to produce electricity and then you know, the National Resources Defense Council just did a study that came out today that said, “Oh, just when utility has twice this coal plants as during last year, it killed 3,000 people. It caused one million manned days, in work days.” A million days of work. If you rippled across the people that got sick, 20,000 asthmas, bottom line, you can get the report from NRDC. So there’s actually this costs that comes from burning coal. But does coal pay for that at six cents a kilowatt hour? No. That’s not really internalizing the price of coal. So is that a free market? No. That’s a subsidized market. So, to have free market, you need to have cost price integration. And that’s the one thing that I think is sustainable investment and environment social government pushes for is the idea that look it. Capitalism does two things extremely well. It exploits. It exploits natural resources in labor, in human capital. Okay? And does it incredibly well. But it also is the most innovative system out there when it comes to entrepreneurial and solving solutions. But you need to define the playing field of capitalism with regulations to create innovation. And right now, what’s happening is, the regulators are bought and paid for by various industries that want to monetize certain assets, they have capital investments and that they can’t monetize. They’re not going to be able to fully depreciate those assets. Because depreciation of those assets means that depreciation over descendants and the kind of environment that they’re going to inherit. So we need, we need to have that the regulators actually be free of that capital so they can regulate to allow innovation take place ‘cause innovation will create jobs and make things more sustainable and more efficient. And then our system can actually do what it does best which is innovate. ‘Cause if you don’t innovate, you die. You can’t protect these old, out-dated technologies. They’ve tried that for years. But you have to allow innovation to take place and what’s happening is we’re not allowing it to take place. It’s coming up the engine of, the creative engine of capitalism.
Greg Dalton: You mentioned descendants. Chris Martenson, you mentioned, when we spoke earlier, I guess it’s Saudi saying that, “My grandfather rode a camel. I drive a car. My son rides in the plane. My grandson will ride in a camel.” Are we headed for that kind of decrease in real income in wealth? Shrinking of the American standard of living?
Chris Martenson: It’s—yeah. The back of the future situation. It will be if we’re not careful. And I’m worried that we’re going to default. So there’s two concepts I’d like to tease apart. Prosperity which is, what I think we’re really after. Everybody says, you know what, what I’d like is I’d like my children enjoy a prosperous future. I think that’s embedded in that saying you’ve got there. And without care and concern, you might end up finding yourself right back where you started, with decreased prosperity. But what we’re chasing is growth. And for a long time, those two have come together. But they’ve been co-incident. It hasn’t been a cause of relationship. And so you can easily have growth that steals from your prosperity. I mean, we can think of these massive sprawling slum cities that exist in some parts of the world. They are models of growth but they don’t have a lot of prosperity. And so what really prosperity is, is the natural capital is the source of all capital that there is. And we can put our human inventions and inventiveness on top of that but once we understand that that natural capital’s being depleted, it’s like a principal balance of bank account and we’re going to draw that down. That’s fine. You can do that but while we’re doing that, I think we should be building something with that capital. If we’re just squandering it, what we ran the risk of, I think is living out that story you just came forward with where we will find ourselves with declining living standards, we’ll be confused as to why it’s happening, we see the world of central banks just dumping money into the world economies like crazy, trillions and trillions of yen, euro, dollars and still the world isn’t, isn’t sparking back to life and part of the explanation for that I believe is in the energy story looking at where we are with energy cost and until we understand that, that we have this incredible equipment of capital that was given to us in the form of hydrocarbons that we can use however we want, it’s time to understand that we have to begin using those really wisely with an eye towards the future, with towards what we’re leaving behind rather than just saying, “Well, let’s grow as fast as we can with this and then see where that gets us ‘cause I truly believe that story is in much, not the way anybody in this room wants it to end.
Greg Dalton: Chris Martenson is the author of The Crash Course, an investment advisory. We’re also here with Tom Van Dyck, senior vice president of RBC Wealth Management, I’m Greg Dalton. Tom, your comments or reactions to that? Do you agree?
Tom Van Dyck: Yeah. I mean, I think, the point is, we need to, we need to innovate. And I think we need to, we need to look at becoming more sustainable. And as I’ve said, I think zero carbon, cradle-to-cradle, job creation domestically, you have to have the commodity being free or relatively ubiquitous like solar or wind where you can actually export an idea and you don’t have something like uranium getting pushed up in price, oil getting pushed up in price but you have something that can be used and exported. Okay? And if you, you know, so we could be exporting this technology that we’re developing here in California and in other parts of the United States but predominantly here. And then we could export a sustainable growth from that perspective. An interesting thing.
Greg Dalton: Do you think growth will be lower in the future?
Tom Van Dyck: I think growth is going to be lower for a while.
Greg Dalton: A new normal?
Tom Van Dyck: Yeah. I think there will be a new normal. I think we need to need to come up with more creative ways. For example, a carbon tax, which Australia passed last year, 25 bucks a ton. Now, if 25 bucks a ton enough of a tax on carbon to get any innovation? From the people that I’ve asked who run the European market, no. I mean, you ask people, what’s the dollar here?
Greg Dalton: $50 often.
Chris Martenson: Yeah.
Tom Van Dyck: That’s, that’s the number. 50 bucks a ton. So what if you started the carbon tax at 25 bucks a ton, you increase it five bucks a ton for the next 25 years. What business doesn’t like is inconsistency of regulation. They can deal with consistency. You say, here’s what it could be. You can model that, you can start, you know, working in a business around that. You can start dealing with your supplies accordingly. You know, you can let various investment banks do the derivative products around the tax increases or not making the entire 50% themselves and setting the market price and makes it way too volatile for business to deal with.
Greg Dalton: The way that California is approaching this is with the cap and trade system.
Tom Van Dyck: Right.
Greg Dalton: Do you think that can be gamed?
Tom Van Dyck: Yes.
Greg Dalton: All day long?
Tom Van Dyck: Yes.
Greg Dalton: But we’re still going to do it.
Tom Van Dyck: I—here’s what I think. I think that, where is the current California market trading right now?
Greg Dalton: It doesn’t’ exist. They haven’t really started trading.
Tom Van Dyck: Right.
Greg Dalton: Right, yeah.
Tom Van Dyck: It’s going to start next year. But they’re – you know, when they were originally talking about that, they’re talking about you know, escape, escape valves at 14 bucks, you know, ton. And it’s not going to get to the price, we’re going to get this innovation that you need. There’s, if you ask an economist, what is the most effective way to price carbon? There’s not one of them that will not say, that tax is the most efficient way to put a price on carbon.
Greg Dalton: Right. But no politician—
Tom Van Dyck: But they say, “Oh, but it’s not politically viable.” That’s doesn’t mean you shouldn’t do it. I mean, half of the things, you know, some of the things we’re talking about now, it’s like, well, it’s not, they’re not politically viable. Well, but they make economic sense.
Greg Dalton: So what I’m hearing you say about California’s cap and trade system is the worse cases, the price won’t get high enough to –
Tom Van Dyck: To create innovation.
Greg Dalton: Innovation, right. But it will be gained.
Tom Van Dyck: Well I don’t, I’m not going to say that. You know, strike that. So there’s a potential for it to be gained. There’s a potential for it to be gained.
Greg Dalton: Too late.
Tom Van Dyck: There's a potential for it to be gained and that’s what I worry about. Because we’re, with a price and a tax, you can do a derivative around that tax and had your, your portfolio of what you’re looking at the hedge without having to set the price. Let the derivative set the price. So I think that there’s a potential for, a potential gain. Hopefully, they won’t be getting – I think there’s a potential for it. I would rather the price to be set by a more economic way of doing it which is a tax and then have it be increase so business can plan for that. And adjust their flows accordingly to make themselves more sustainable.
Greg Dalton: Chris Martenson, how should hydrocarbons should be taxed? Should it be taxed or should it be cap and trade?
Chris Martenson: Well, I think, you know, let’s go back to the early 70’s. So we have this geopolitical oil shock and in our country, President Carter puts a cardigan on, says, you know, “Houston, we have a problem.” And exploded out of office, we go to Good Morning America, we buy us CDs and here we are. I skipped a couple of steps. And in Europe they said, “Oh, this is real.” And they put a very high tax on their petrol and that was to shape behaviors. And so if you go to Europe, now, you finally have about half the energy per capita, a very high quality of life as far as I can tell every time I go there. My cellphone works everywhere. I love that feature of it. And what happened with that high, high petrol tax was it, people bought smaller cars. They live closer to where they work. They made decisions around how that cost of, of that, of that fuel was going to impact their lives and adjust it accordingly. So, when we fast forward to this part of the story that can, there’s absolutely no question that people responds best to economic incentives. Right? So to me, it would be the price of the fuel. The higher the price of the fuel, the more people will shift towards using less of that, and whatever way that means, buying more efficient vehicles, investing in technologies that can promote efficiency at reduced cost.
Greg Dalton: But cheap gas is an American birth right. It’s an entitlement.
Chris Martenson: That’s one story. That’s a good one.
Greg Dalton: And we act as though cheap gases are entitlement. If gas goes up 25%, people would scream and politicians are running to different – it’s a different story here.
Chris Martenson: It is a different story. So in my view, this, the price of energy is going to go up no matter what. To, in 1998, we hit an all-time low in the portion of disposable income in this country that went towards food and fuel. And it clocked in a load about 14%. A much more average long term historical norm is north of 30% and many countries is 50% or higher. So I think that one way or another, we’re going to face higher food and fuel cost that are going to be intending on people’s disposable income and that’s going to shape all kinds of things regardless of what we do. My message is, “Well, hack it off in front of that.” Let’s make a future shape by design rather than disaster.
Greg Dalton: So let’s talk about resilient communities. That’s a term that comes up these days with sort of buying local, eating locally. You know, are there examples of communities that are looking at long global supply chain fueled by cheap fossil fuels and say, “Hey, there’s a different model. We’re going to have a more localized resilient models.” Is that happening?
Chris Martenson: Absolutely. It’s happening all over the place. It’s an incredible thing to watch and the thing I love most about is that many people, sometimes, are propelled into this by, by circumstances saying, oh, I’m a little concerned about where the world is heading and here’s the way I can regain some of these local control over, might be food. And what they find, what I found and – is that, when you start regaining these controls, you start farmer’s markets, you know where your food is sourced, you actually have a relationship with the person who’s growing your food, happened to be a bright shiny young couple and you feel good about supporting them and there’s all these other benefits that accrue and number of communities that I’ve had the pleasure of seeing this evolved with over the years, they look on it now and they say, “Why weren’t we doing this anyway? Thus just, it feels good. It makes sense.”
Greg Dalton: We are the grandparents.
Chris Martenson: It’s economic sense, I have higher quality food, why weren’t we doing this? So, these crisis, if what you don’t do is look at the opportunities to really improve things and that’s part of the story I really liked. There’s a lot of improvement happening right now and it was necessary and I think, overdue.
Tom Van Dyck: And it pushes, it pushes localization too with the idea of carbon taxes. Obviously, you don’t shoot the heavy stuff over from China because all of a sudden, it’s going to cost more money. So what do you do? You ship the lightweight stuff, silicon chips are dropping and becoming more and more efficient ‘cause that’s, more is lost. So if we’re looking to finance something, you know, they should have Morse law of efficiency. They ship it over and then we assemble them the way, a company right now is doing that in Richmond with solar. You know, where they’re assembling them in a plant over here in Richmond and they’re taking it over from Manila. So you can then have jobs locally and you have you know, that tax could actually help with that. The localization, more organic, employs more people, you know, to be more, more localized to your grass roots effect is definitely, you know, the more sustainable way to do.
Greg Dalton: It’s easy to say – in San Francisco, we have a moderate Mediterranean climate and we’re on the coast. Can you do this in Ohio? Can you do this in the heart land where they’re not as close to food sources or not the same year around?
Tom Van Dyck: That will change soon.
(laughing)
Greg Dalton: We’re going to start growing specialty crops and then, rather than wheat, you know.
Tom Van Dyck: Well, I mean, if you listen to vice-president Al Gore, if you’ve seen his recent speech, I mean, there’s a whole modeling of what happens to you know, this whole temperate zone that we’re in a way, ends up moving and –
Greg Dalton: Oh, that’s interesting. Yeah. Okay.
Tom Van Dyck: So, a good idea, if we continue along the path that we’re doing, which, and then Chris would say were, some of that’s already going to happen. There might be some more moderate weather in Ohio that they can plan around.
Greg Dalton: So, let’s talk about climate impacts. There’s going to be less water. We’ve talked about rising food cost. I mean, how is climate change, the disruptive climate going to impact financial markets and impact the things we’re talking about?
Chris Martenson: Well, the food story is really interesting when we look at it globally. Supply and demand has always been really tightly balanced and there was a number of period of years recently where we were actually drawing down on world grain stocks. And then last year, it was actually a pretty bad year. Ukraine caught on fire. Australia flooded in this you know, once in a century or maybe longer kind of a flood situation and that really unbalanced supplies. So I mean, the food story is interesting because food costs are one of the most tightly correlated cost structures you can see with oil. So if you put up the price of oil and then you say, well, I’m going to overlay this with the price of, world price of food chart, they’re almost identical. And the reason for that is that there’s an enormous oil subsidy baked into the price of food. It’s you know, we’ve heard the—the old fathers, 10 calories of oil baked in every calorie that makes it to your plate. That’s more or less roughly accurate. So the more the oil prices go up, the more food prices are going to go up. And with that of course, you know, maybe we’ll see more planting but right now, the world has pretty much has every arable acre under production. So, we’re looking at that and meanwhile, the U.N. says, “Oh, yeah, by 2050, we’re hoping to double food production in the world.”
Greg Dalton: And going to cut down the Amazon as part of it.
Chris Martenson: Right. So, that’s really tall order and, and there’s water issues baked into that. There’s fertilizer issues, there’s fuel – there’s a lot of very big, very big issues in this. And so, that too says, well, here’s something that we really should step back, take a look at, ask the question, are we going to do this in the most cost effective or the most resilient way? Cost effective is very good but it tends not to be resilient. And you know, and that’s, we have a very cost effective farming system right now. It’s not terribly resilient.
Greg Dalton: So, what does an individual investor to do in a situation like this? Invest in gold, invest in food stocks, energy stocks?
Chris Martenson: Individual – this is easy for the individual. First thing you do is you invest in yourself. All right. I advise people to get out of debt at this point in time and if you can, to every extent, if you have that luxury, get out as much debt as you can. Second thing, invest in yourself. So right now, you can – the average home in the northeast, if they, investments that we called air ceiling, we’re just trying to plug the holes. So you’re, you know, heat and cool isn’t heading into the atmosphere. That doesn’t honor why, about return on investment of 18%. So, let’s go over to Wall Street for a second. Tell me where you can get a guaranteed 18% return on Wall Street? Right?
Tom Van Dyck: Energy efficiency is a great way to go.
Chris Martenson: So that’s an investment people can make. Insulating has a very high RI like 10, 12, 15%. My solar thermal panels have a return on investment of at least 11% but if the life, if it last for 25 years, who knows, there might be 100% return. It’s incredible what, what is available there. The third thing I advise people to, after you sort of investment in your local infrastructure with great returns, economically, provable, good returns, giving you greater resilience too because you’re less, less exposed to rising energy cost. I advise people to get into some gold at this point in time. Simply because with the Central Banks doing across the world, we’ve seen this experiment before.
Greg Dalton: Now, do you mean gold mining stocks –
Chris Martenson: No.
Greg Dalton: --that actually take physical possession, you got this safe in your backyard?
Chris Martenson: Yes. And it’s right near this patio of – I was hoping to turn it into garden space and it’s buried. So uh —
Greg Dalton: So you can’t, you can’t find it? But the idea is, is there a difference between owning the tangible asset and the companies that extract it?
Chris Martenson: Yes. Because the company that extract it are exposed to all kinds of other risk that are too numerous ago, there’s geo – you know, we just saw a bunch of gold mines get nationalized or exposed to energy costs. There’s all kinds of other exposures there, that’s a different story. I mean, tangible, physical gold that people can hold. And that’s simply because of what’s happening and physically and monetarily in the world. There’s a very compelling story around that.
Greg Dalton: Tom Van Dyck, I know you can’t talk about specific companies but talk about sectors, what individuals can do to sort of be more resilient in some of these stocks we’re talking about.
Tom Van Dyck: Well I think getting in proper asset allocation for you know, risk and return you’re looking to take, is the key to from the stand point of being able to make that happen and I think the idea of overlaying environment and social and government factors on the management teams that you’re looking to employ because you know, investment really is the economic expression of your thinking from that perspective. So you want, you want to have companies that have strong, you know, do they treat their employees as assets or costs? ‘Cause when you think about, company treats employees as assets is going to be a company that actually is going to end up, what, making more money because when treat your employee’s cost they’re going to take days off like nice days like today and do an Occupy demonstration. They’re going to you know, they’re not going to be, you’re going to have inconsistent in implementation of business plan because you have what? Job turn over. The number one cost the business – the main cost of business is job turn over. So we trim assets, you get more productivity if you have sick days, same thing with sustainability. The idea that you’re using natural resources which are becoming scarcer and they’re going to continue to become more scarcer, more efficient use them, or wisely, you’re recycling them. So you may not even be able to move to use new natural resources and for example, we threw away our very inefficient economy. We threw away 25,000 aircraft worth of aluminum in our aluminum cans every day and every year into the dumps. We don’t use it. Twenty-five thousand airlines worth of aluminum in cans. We use, for the electrons, we produce in electro plants, what do we actually end up using? What percentage? It’s like 40 or 50 percent. So we produce electrons but we send them and we don’t utilize them. So we’re very inefficient. So, from the standpoint of looking your portfolios, management teams, they can actually take advantage of that inefficiency and innovate and use productivity and look at that. Those management teams are going to outperform, management teams that don’t have those practices. The other thing we look at is, diversified boards. The idea that if a board is more diverse, you actually end up, in fact, culvert. It’s when investment group just studied the other day that said if you put one woman on the board, you’ll actually increase your return, you know, by 15%. Okay? So, and it is a study. You can, you can check it out. So the idea, and why does that work? Well it works because what you’re doing is you’re identifying higher quality management teams and when you invest and not gamble in high frequency trading, you actually needed by-management teams that have this kind of higher characteristics. They’re going to beat their competitors. You could always cheat the system and exploit your cost and externalize your cost up the balance sheet for a short period of time. And then what happens is, you’ll get regulated and something will happen. You’ll get fined, you’ll get a strike. What we find actually, is companies have generally have weaker practices in the environment and social government factors probably also have weaker balance sheets. So one of the reason why they’re cheating and externalizing the cost is they can’t afford to do it the right way because they know the capital on the balance sheet to make them stronger competitors.
Greg Dalton: Tom Van Dyck is Senior Vice-president of RBC Wealth Management. Our other guest today at Climate One is Chris Martenson, author of The Crash Course. I’m Greg Dalton. We’re going to put that audience mike here and invite your participation. Uh, we ask you if you’re on this side to please go out that door and around rather than crossing in front of this camera. So, you can go out that door. The line starts with Jane Ann, our producer right there and then we encourage you to join the conversation with one brief, one part question or comment and I’ll be pretty crisp about keeping it to that one-one part and thanks and we’ll get some moving on that. While that’s happening, I want to ask Tom Van Dyck whether carbon risk is fully captured and disclosed in today’s markets, equity markets in particular and dept markets for that matter.
Tom Van Dyck: No, no. I think that, I think that’s one of the things that people, you know, there are certain non-profit groups that are out there, where like, carbon disclosure, projects is out there trying to gather information so that it urges companies to report on, you know, what their carbon risk is. In fact, part of green wave that the California and public employee retirement system did was, one of the legs was, one leg was environmentally screened, now it’s portfolios. The other one is a billion dollar in clean technology, private equity. The third one was looking at the idea of global reporting initiative for the SNP-500. So they understood what their carbon risk was in their portfolios. Callipers and Callisters are actually looking at this as a critical component to evaluating the risk in their portfolio. That’s the other thing that environment and social governments factors identify is risk and risky behaviors. And so ultimately, the capital markets, I said, they’ll go down the alley of exploitations as easy as they’ll go down the alley of innovation of sustainability. What you want to do is, they’re like a dog chasing a bone. If they can make more money going down the way of sustainability, they’ll go down that alleyway. Okay? So that’s what we need to have happened. And regulations can make that happen by internalizing those costs. They’re now being externalized.
Greg Dalton: Let’s have our first audience question. Yes, sir.
Male Speaker 1: Chris, I think it was around March 14th, there was a spike in interest rates treasuries, actually, all bond categories and I thought, “Hmm, is this the beginning?” And it turned out that that reversed and rates went back down again. How do you see things falling apart in the bond markets?
Chris Martenson: Well, so right now, we have to understand that the bond markets are some of the most heavily influenced markets in the world. We know that the European Central Bank is stepping into Spanish bond auctions. We know that the Federal Reserve has been running something called Operation Twist where they’re specifically, you know, taking on long-dated treasuries. The Federal Reserve bought a little over 60% of all new issuances of federal debt last year. And so that’s a very heavily influenced market. So when you buy bonds, when somebody like the Federal Reserve prints money out of thin air or the electronic equivalent and then buys bonds, what they’re doing is, they’re raising the price of those bonds which drives the yield down because prices and yields of bonds are in the see-saw. When one goes up, the other goes down. So right now, you know, once upon a time, the bond market used to be heavily feared by politicians because, because it would, the bond market has more power than any other market out there to set behaviors. And so right now, the signaling mechanism from the bond market has been completely decoupled from the bond market because we have the federal reserve printing money out of thin air and then buying those bonds. So right now, I would suggest that the information we’re getting from bonds is not accurate. It’s not good. It, we’re going to have to read, you know, it’s really noisy data. We’re going to have to squint out a little bit knowing that prices for bonds are higher, yields are lower and I’m going to put airports up right here with my fingers then they should be at this point in time.
Greg Dalton: Thank you for that question. Yes, sir. Let’s have our next question.
Male Speaker 2: Thank you gentlemen. Chris, I read your book, Crash Course. Great work. Tom, I love your thoughts on investing. My question is, I have a 401K plan that rolled up a couple of times, currently in my control. For the last six to eight years, it’s been largely flat. What asset classes as initial investment should I be investing? And gold has come up, you know, done some gold assets. Is there any point in it? And how can I come to you, how can I as an individual, figure out which management teams are actually sustainable offwriting and how can I approach it as an individual? Thank you.
Greg Dalton: Tom Van Dyck?
Tom Van Dyck: There’s something called – well, for you, you have to decide what’s appropriate for your risk and return levels on your own personal perspective with the professional but there’s something called the social investment forum that’s out of Washington D.C. that you can look at, there’s some members that are part of that and they have like a list for money managers specifically that used environment, social and governance factors. And that would be probably the best place to go online to check that out.
Greg Dalton: And as far as flat returns, the decade was kind of flat for the SNP like it was in the 70’s and if, the slow growth hypothesis is true, there’s going to be more of that in the future. Right?
Tom Van Dyck: Potentially. I mean, you know, if you look back in time, you know, Chris says that—
Greg Dalton: The old days are getting –
Tom Van Dyck: The old days are over but it has been the worst, one of the worst times from the last decade perspective for return in equities over the last, say, since the depression. And that was the time, the 30’s was probably the worse period next to this one where you have more time frames where the, the equity market was slightly down and flat on a 10 year rolling back basis. So, if you believe progression to the mean, then you said maybe the next 10 years might not be so bad. Now, do you need excessive growth to make that happen? You know, we’ll see. I think innovation and sustainability will help.
Chris Martenson: Well you know, one model for this is Japan which didn’t just have a lost decade. It had couple of them. And you know, the stock hit a peak, I think in ’89 and it’s nowhere close to that peak in this point in time. And so, what they did was, they got themselves extremely overleverage. They didn’t allow the bad banks to go under. They didn’t allow the bad debts to get wash away. They just tried to cover it up and ride it out and Japan had a number of things in its favor. Being, net export is positive, high saving nation, all of these things that the United States doesn’t have in its assets, tool kit right now. So there’s a chance here that we could be facing a similar situation because we had extraordinary levels of leverage and we haven’t allowed those to deleverage. We’re not, we’re not taking these prices to deleverage. We’re just sort of cooking them along and floating this whole piece. So that’s one of the elements that I put into my zero growth or worse, maybe even negative growth, hypothesis is to say, here, the peril is to Japan. There’s something to learn here. Plus, on top of this, we have a couple other things we have to factor.
Greg Dalton: Let’s have our next question for Chris Martenson and Tom Van Dyck.
Male Speaker 3: Hi, Dr. Martenson. My big issue has been mainly with infrastructure spending and going forward what we do. You’ve talked about electric cars. But what about electric rail? California’s investing high speed rail. What do you think of the prospects for a national program of electric rail lines, some high speed, some, just electrified.
Chris Martenson: Well, politically, I don’t think the prospects are very good right now. If we look at the total amount of federal spending that’s actually going towards anything that I would call electric transport, it’s less than .1% of the total overall budget proposed for this next year. It’s a tiny, tiny amount. It’s not credible. So the, you know, California is talking about a high speed rail link. It’s relatively short. You know, it’s just a tiny one. It’s going between a couple of, couple of two locations. Uh, what were, what you’re talking about is we need an infrastructure of this. Meaning, we need these things to be going pretty much everywhere, more or less like Europe does. I would be actually more in favor. I know that high speed trains are, they’re sexier and they get more attention. But honestly, I think you were right in talking about just normal, conventional low speed, you know, those are easier to build, cheaper to maintain, all kinds of things. They’re just a lot easier to go along with. So, we absolutely need to think about the most cost effective ways to begin moving things from point A to point B. And water happens to be the most cost effective bar none by a lot. So, let’s get the barge systems going again. Let’s move things as much as we can by ship. Second is rail. And if we could reinvigorate that and I fear a lot of people, say, well you know, rail is really hamstring. There’s, how are we going to build all these rail lines everywhere? A lot of the old lines have been decommission and there’s imminent domain thing,] and I was at a conference where this guy, a little while ago he said, “Only, we had large flat you know, paved paths that we’re going for all the places we wanted to go. Only there were. You know, and so the question became, what if you took one lane of a highway and said, well that’s now, that’s a rail bed. What would happen in that case? I think there’s, you know, really, non-standard “solutions”. We need that kind of thinking now and we need to get serious about it.
Greg Dalton: They tried that in Miranda and boy, it’s a decade’s long fight to get that up and running. Let’s have the next question, please.
Male Speaker 4: Hi, Chris. I used to work with Matt Simmons and so I’m very familiar with the peak oil argument. And one of the things we’d always hear when we’re discussing peak oil is when you look at oil price and gold, it’s actually pretty low. What are your thoughts on that? A lot of people think that the price of oil is strictly monetary inflation phenomenon. And secondly, when you touch upon the world dollar oil standard, what’s your thoughts of that going forward?
Chris Martenson: Right. So, I, I do have an exit strategy. Well, I got into gold about a decade ago and my exit strategy is when, the things that I care most about is prices in gold start going the other direction. So right now, everything is going in my direction. So, number of balances that it takes to buy a house, that’s been declining. So I love that chart. The number of barrels of oil that you can buy with a single ounce of gold, that’s been going up. That’s going in my direction. The food cost, price in gold. So what I’ve done in my mind is I decouple the dollar price of gold. Everybody quotes that. You know, 1,600, 1700. Those are meaningless to me. What I care about is what’s the cost of a college education in gold? What’s the cost of oil, you know, having all the basic things and there, we just got, if you look at the price in that direction, say, obviously, this makes sense. It’s – the charts are still good here. The petro dollar was an extraordinary stroke of genius. ‘Cause right around the time that the world went on a floating exchange rates standards, started August 15th, 1971, slammed the gold wind, there was no longer gold convertibility for dollars. Broke the Brenton Woods agreement. Right around that same time, the world went out of petro dollars standard, meaning, that any country that wanted to buy oil had to do it in dollars. So even as recently as last year, China wanted to buy oil from Venezuela, they have to cough up dollars and conduct that transaction. Now, Venezuela could turn their dollars into anything they want but the point is that, if you enforce a system where two countries need dollars in order to conduct trade in oil, they need dollars. So actually, the United States has been an extraordinary export nation through the whole period of time, we’re bemoaning our manufacturing lost. We’re exporting dollars like crazy. And it was a great, it was a great gig. The risk you’ve surface is that, if that ends and there’s already signs that that is ending, with the brick country starting to conduct bilateral, non-dollar denominated trades, specifically around oil too and energy, that that really, ultimately exposes a very large weakness for the dollar, it’s a source of concern because there’ll be a lot less demand for dollars internationally when there’s a lot less demands for those, obviously, the dollar may fall in value at that point in time, from a supply and demand stand point. So that, that model which got put in by Kissinger really was the architect of that. It was a stroke of genius. That’s coming to an end at this point. And that’s what we’re looking at.
Greg Dalton: Let’s have our next audience question. Yes, sir. Welcome.
Male Speaker 5: Hi. So, my question is to, where the solar panel discussion that we had earlier on in the dock, so I think Tom mentioned that Germany is the largest installer of solar panels and they could be exporting that degrees and installing it in, have a more, you know, have an economic engine going there. But you also mentioned that China is the largest producer of the solar panels. Or at least, came out from the discussion. What stops country from China, going their own and installing solar panels all over its country rather than exporting all the solar panels that it manufactures? They’re building coal power plants at a non-precedent rate and they’re burning more coal than the U.S. right now. Why wouldn’t they, why wouldn’t they sort of exporting the solar panels and install it in their own country and turn it into a solar based energy system rather than a coal base energy system?
Tom Van Dyck: Yeah. I think that, I think that’s a great question. I mean, because of the manufacturing of about 20 to 30 billion dollars they put into this whole industry, the price of solar’s drop from basically 350 a watt to a dollar a watt since ’08 to now. So, getting all sorts of efficiencies caps in solars, seeing the price drop, battery storage, so everything seems to be dropping which makes it way more competitive, from you know, a fossil fuel generation perspective. So that’s the good thing about them doing it. Yes, they should do some more internally. There was actually a great McKenzie report on solar that just came out this month. It’s called the darkest for the dawn and it talks about how there’s going to be these exponential increases in solar usage because of the fact that the price is dropping and becoming more efficient. So, you should look at that. I think, you know, China should do that. China’s looking at hoarding all sorts of different resources I think is they’re trying to deal with their population. So, hopefully, they turn more towards solar than towards to certainly burning coal because if they turn towards burning coal, unlike in this country where it seems like we’ve actually stopped the 150 coal fire power plants that were on, in the blueprints, you know, a few years ago. It looks like we probably stopped them all from happening which is great. China needs to do the same thing.
Greg Dalton: China brings two points together. We’ve had people here recently who said, what China’s doing is converting U.S. dollars into clean technology at a very fast rate perhaps for some of what Chris and Tom talked about. Let’s have our next audience question. Yes, hi.
Female Speaker 1: Hi. Um, I’ve been an avid reader of um, ChrisMortenson.com for about two years and very honored to be here. I’ve got a question regarding student loans. I have trepidation about going into draft school because I don’t want to be carrying in, carrying a debt and many of my friends have student loans and it would take about four to five years to pay off. Would you suggest rather than paying it off and start buying tangible, you know, tangible assets four to five years from now, when we’re free of debt or would you suggest going into credit card and using a credit card to buy tangible assets and I’m balancing, it’s a timing issue, I feel. My secret fear is that, five years from now, for example, when I’m completely debt free, I’m able to buy gold. The gold, the price of gold would be so high that we won’t be able to obtain it or we should capitalize on what’s available, the price that’s available now. Rather than waiting five years.
Greg Dalton: Good question. Thank you. Using credit cards to buy assets or to buy –
Chris Martenson: Hold on. Let’s rewind to the beginning of that question because, because getting a degree can be a form of investing in yourself. One of the, very active conversations at my website is around what sort of skills would people want and sort of, if you’re going into, there are a lot of extraordinary opportunities coming. And there are others which I think are going to be slightly less, less obvious and maybe declining overtime. So, student loans right now are one of the hardest questions to answer because it is, in this country, for whatever reason, it is the only non-dischargeable debt that we have right now. It’s not dischargeable through any process of bankruptcy through any of the active code right now. So, when you get a student debt, it’s a very serious sort of a, that’s a marriage of a sort and going into that can make a lot of sense. And so, the first question to resolve is, you know, does this make economic sense or, lot of studies that came out recently that said, the return of investment of certain degrees is demonstrively negative and has been for a while. For other ones, it’s very positive. So, I would start there with some of those studies. Make sure, you know, the is a marriage you want to get into. To go into, to take credit card debt, to speculate commodities, no. No. Not, not when you’re struggling with the student debt question. So let’s just put a bullet in that one for now if we can.
Tom Van Dyck: Yeah. And President Obama just announced today, he’s not for the increasing of student loan percentages and they go three in change, seven in change. And Romney quickly backed that. That seems to be an issue that republicans and democrats can agree, that if you got a burrow, you should do it cheaply, lower interest rates.
Greg Dalton: And so, our next question is for Chris Martenson and Tom Van Dyck.
Male Speaker 6: Hi. So, there’s been a lot of discussion about kind of the political economic incompatibilities with implementing any said changes and you mentioned like grass roots movement which historically worked usually only when it is so bad that everybody feels it and then you’ve said that we respond well to economic incentives. However, we’re not economically sensible meaning, I could buy a thermos and always make my own tea but yet, I, end up buying both. The thermos and make my own tea but simultaneously, I still do the convenient thing. I still do the economically non-intelligent thing. And so my question is, we leave in a sniffy and kind of logos here where we believe that growth is unlimited and that, ideals are strongly set and that we deserve what we attain and we shouldn’t have to worry about consequence. I just saw a debate with Neil deGrasse Tyson and a conservative and no amount of evidence was going to convince that conservative that Climate Change is real. In fact, he actually said, “Over the past five years, it’s actually demonstrated to him that climate change isn’t real.” So, how are you going to make this, you know, obvious incompatibility, how is that going to go away? Until it’s too late or until it reached that point where everybody feels it.
Greg Dalton: Thank you.
Chris Martenson: So how do we, how do we actually get grass roots change into rational direction? We know people are predictably irrational. Because a branch, that’s a title of a book from behavioral economics and it’s true. We’re predictably irrational. And, and marketers know this and exploit it and politicians know this and exploit it and it’s part of our human landscape and that’s just, I think an OK thing. I think that the success that I’ve had in helping to push the narrative is really by stripping out my own emotions as much as possible, taking my own beliefs entirely out of the story as much as possible because the facts alone can be very compelling but we’re not having a discussion about facts. We’re really, having a discussion about beliefs, that’s the heart of it. And it’s really important, I think to understand this if we want to effectively start communicating this new story, this new narrative because we can’t come up with a narrative that says, this is about loss. This is about a decline. This is about, you know, wearing hair shirts and eating our spinach. That story doesn’t play, never has. Instead, we have to, you know, the story that started to surface a little bit earlier about these communities or getting involved in this and go, “Hey, wait a minute. This is fun. It makes sense. I like it. It feels good. It’s economically okay.” We need to start illustrating that story and that’s why in my own life, you know, every single thing that I’ve ever advised anybody to do, I’ve lived and done. It’s important for me because I think I have to be the change I wish to see. It’s essential. And so I’m not waiting and neither are millions of other people waiting to see this above the fold in the NYTimes waiting for the T.V. where the president read it off the teleprompter and say, this is, this is what we’re doing now. Say, no, this makes sense for me right now today. Because there’s choices today that matter and I truly believed that in 10 or 15 years, this is a really exciting period of time to be alive. History’s going to look back at this moment and say, :”What were you doing?” And I’m really happy to be saying, “Well, I was doing as much as I thought I could. Or I did what made sense and this is something that truly, I think we have to model it and without any expectation, even the people are going to follow us, you just have to do what you think is right and do it to the best of your ability and trust that, that’s enough.
Tom Van Dyck: Right. It’s like, the people lead, the leaders will follow. Small group organizing is a great way to get involved in these communities, go get involved in something that’s doing something sustainable. Take over your local PUC or something. You know, to local school district, something to help push the sustainability and model what you want to do. It’s all about stewardship. The CEO of RBC Wealth Management wrote a book, John Taft, about stewardship and his answe as to the financial crises is, we have to be better stewards for what we’re doing and what we’re looking out after and that’s ultimately, I think when we all have to take accountability for.
Greg Dalton: Tom Van Dyck is Senior Vice-Present of RBC Wealth Management also at Climate One today is Chris Martenson, author of the Crash Couse. I’m Greg Dalton. A full podcast of this program and other Climate One programs is available for free in the iTunes store. We have a couple of minutes left. Let’s try to get through the remaining questions. Yes, sir. Welcome.
Male Speaker 7: All right. My name is Christian. I have a quick comment and question. So the problems were related to innovation and from the sound of it, maybe creating more jobs for the future generation has – there was no mention as how that may be stopped from, you know, those same jobs created from innovation being outsource because this is quickly, they’re being created, they’re being outsourced. And thanks for NASDA and you know I think I heard that Jim Rogers and a couple of other people of the mine that, whether it’s a good or service, it’s a privy test, currently, we’re—the items made, whether they’d be in Brazil. ‘Cause that would help bring back some of the jobs if you have those taxes high enough, where the good is actually created. And so –
Greg Dalton: We have, we have to wrap up quickly, so let’s leave it there. If we can –
Male Speaker 7: Quick, quick question. This is very important. Sorry about that. It’s for Chris and that’s relating to the Rivers Market. Dilan Ratigan commented that it’s about $750 trillion currently and there are some estimates through shuttlesteps.com, John Williams that $1.4 quadrillion dollars, what impact do you think that’s going to have on the world financial markets if that falls apart.
Greg Dalton: Thank you. Chris?
Chris Martenson: Do we have time for this?
Greg Dalton: Real quickly, yes.
Chris Martenson: Um, so uh, in – what was it. About five or six years ago, Warren Buffet bought a company. It was a reinsurance company and he just wanted the reinsurance business but it have these derivatives wrapped into it. The company have 14,000 derivatives in its portfolio and he felt, “Well, I’ll just sell these off.” It took him six years. I don’t think he’s completely done with it yet. And she said, “Nobody understand these things.” So, when you mention a number like $750 trillion or quadrillion or more, we don’t understand – nobody in this world today understands how these derivatives markets are all fully interlinked because they’re traded over the counter, they’re very complex. Each one is an extra ordinary document. They’re traded amongst in the cross parties and you know, I think that saw the answer to this where, where the European markets looked at the opportunity that just had about 78 billion of credit default swaps on Greek debt whether they’re going to let that trigger or not and for the longest time, they fought having that triggered and this is just $78 billion. They were afraid to see what would happen. After months of wrangling and walking that down and understanding the counter parties, they let it happen. And nothing, you know, the sun rose the next day, it was fine. But the derivative markets is a big giant scary unknown because frankly, I don’t know of anybody who really understands that entire market because I have trouble finding anybody who fully understand a single contract, let alone the entire hairball of them. So it’s an unknown. And in fact, creates fear and uncertainty.
Greg Dalton: And we have to end it on that on a certain note. Thanks to Chris Martenson, author of The Crash Course and Tom Van Dyck, Senior Vice-President of RBC Wealth Management. Thank you for coming and thank you for listening for Climate One today.
(Applause)
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