John, great questions – but I am not sure how I’d even begin to address them all to the degree required in this comments forum (with a word count limit of say 300-400 words)? I’ve done my best to describe the framework’s perspective in this hour-long presentation, some of your questions are getting into areas that would require us to have discussions on a broader array of topics and at deeper levels than what I raised in this presentation though – probably would require another 1-2hr presentation to more fully deepen/build out the paradigm in a way that would clarify the different things that I think you are asking? I struggle quite a bit sometimes in knowing where the boundary line is to providing ‘too much’ information vs trying to communicate an essential understanding of things in a way that will be absorbed and useful to the majority of the target audience - this presentation was particularly difficult for me to figure out in this regard... I also struggle to know exactly who it is I’m addressing with the Real Vision audience generally as it seems to me that the RV audience is broadening out a lot more over the years as RV is becoming more successful & well-known – so a wide spectrum of both sophisticated/experienced viewers and viewers that are newer to the field makes it tricky to position a presentation properly such that the majority will find value. Please accept my apologies for not being able to provide a suitable response to your questions here.

Not to worry, appreciate it's very challenging to articulate, in any forum, let alone 400 written words, in particular given its complexity, and the adaptive nature means describing inter-dependencies in one state might not perfectly explain the system in another state. Look forward to your next presentation.

John - send me an email via my website (www.prerequisite.com.au) and we'll do a phone call sometime if you like

thats not at all what he said.

I believe that was the framework, as per slide 10 in the pres. ignoring such things as discount rates and risk premia although that is baked into the P/E multiple. Thea Causality is also not well covered. are P/E multiples a driver of equities as per the "framework" or the other way around? I guess this is all on a "first principles basis" but still.. My point is this presentation is trying hard to sound much smarter than the very simple arguments underlying it.

This framework is best suited to a multi year timeframe, I have other approaches for a more granular/shorter time horizon (none of which suggest to me at the moment that the broader thesis I outlined in the presentation is really being threatened at all). Always worth monitoring though as it unfolds

Thanks Ryan. With your takeaways, my basic comments if I understand you correctly would be these... 1. I would be very slow at making the assertion that the Fed alone was responsible for creating the situation we have at hand, there's a lot more at play here than just what the Fed have done/are doing - but this is a more expansive presentation in its own right unfortunately. 2. Yes. 3. Yes. I am not sure about '4' and '5' as it is actually a 'deficiency' situation where demand for USD liquidity is greater than effective supply which on a multi-year basis has caused gold to fall and PEs to rise (i.e. yields to fall), its the value of $1USD in earnings (or yield) that is rising in this instance due to the deficiency of liquidity (i.e. the opposite of an 'excess' liquidity situation). 6. I think that the Fed's balance sheet at the moment is only one smaller part of a bigger picture that is affecting these dynamics, so I would be very hesitant to try to assume the Fed reversal of balance sheet might be a/the catalyst for a shift. Hope this helps.

the first few pages of each transcript provide 'highlights' of that presentation. While not necessarily a complete summary, you may find those highlights useful, as I do.

Man does he every say a lot of words with very little meaning. This guy needs to learn the concept of 'economy of words'. I don't know why they keep bringing this guy back. He doesn't share his process (one that he partly stole off Michael Oliver of MSA). It doesn't bother me that he swiped Michael Oliver's stuff, or that his process is proprietary. What bothers me is that he keeps coming on RealVision to 'teach' without giving anything of real value.

your insane mate, if you didnt pull a massive amount from this then you need reevaluate being an investor.

He went into a fair bit of detail into his process in his last contribution here.

In the May 25, 2017 video Daniel W. explicitly references Michael Oliver of MSA, recommends him, and acknowledges the "fantastic job" M. Oliver and MSA does. In that same presentation Daniel W. explicitly states he won't share his process at this time because he has clients who pay him to do this but that he absolutely intends to share his work in the future. (What a difference between "M" and "W".)

Where else could you possibly get such deep insights into the "plumbing" of the supremely contorted financial markets/ systems that we find ourselves dealing with? Among the multitude of 'Aha' moments I get from RV presenters, the greatest of these revelations have come from (in alphabetic-order) Michael Green, Jeff Snider, and Danial Want. And even the (partial) overlap between these three brilliant minds is VERY helpful - it provides a form of triangulation that substantially deepens my primitive understanding.

Hi Daan, in my view, for housing the dynamics I describe in this presentation would merely be quite a distant secondary/tertiary influence as compared to the more primary dynamics surrounding housing related credit flows and income related issues, so I think if you focused on these things (rather than excess liquidity type things) you'd probably end up with better conclusions in a housing related analysis, having said this however, one of the things you'd need to consider re: housing from a global perspective is the capital flow issues that might directly find its way into property, but I still don't really see this in most instances as 'primary' as such. Regarding equities, I'd prefer to be a little slow to draw generalized conclusions about particular sectors etc - lots of weird things are happening (especially with the manifestation of system dynamics into the short volatility regimes in the background). My preference, especially given the limited scope of these comments boxes, would be just to observe that the dysfunctional global USD liquidity environment is causing a 'rising tide' type dynamic in equities generally through a PE type channel, but when it comes to equity sectors, depending on the sector, that's a bigger discussion for another day, I can't think of any generalized dynamics pertaining to particular sectors that I can really concisely talk about here sorry.

Hi Peter, at a circa $100b market cap I think cryptocurrencies etc are just too early on in their lifecycle for an excess liquidity framework as I've described in this presentation to be relevant - maybe well into the future it might be different? Gold by contrast, although it has a market cap of only $7-8t which is still pretty small relative to other markets out there, is a highly matured market/commodity/currency and so from a lifecycle/ecological perspective it is 'stable' and its dynamics are more fully established and absorbed within the broader system, gold is therefore relevant I think to the excess liquidity style framework whether it be against the USD or whatever comes after it in an effective 'reserve' capacity. I look at Bitcoin still kind of like I would a high risk 'frontier' market with quite a lot potentially going for it, with many of the underlying swings still catalysed by capital flight dynamics happening in different parts of the world at different times, and with regards to the broader financial/ecological system its a part of, crypto currencies although having come a long way are style almost embryonic in some regards, for example they have yet to be fully tested and embraced/rejected/altered by governments/policy makers around the world, which will be a major milestone in the future with a significant amount for risk attached to it depending on the jurisdictions in question but will probably not happen until the market cap of cryptocurrencies becomes more meaningful (i.e. much larger). Anyway, this gives you an idea of how I am looking at it at the moment for what it's worth.

The upper panel of the chart on page 9 shows the CAPE ratio (green line, log scale to the right), and in black is the S&P500/Gold ratio also on a log scale (values range between 0.1 in 1980 to a high of about 5.6 in 2000) on the left axis - apologies for not showing the left axis scale on that top panel, not sure how I managed to do that.

This is why real vision is the best.

Yes, absolutely, this is just one example of a framework I look at equities with to try to understand what the underlying realities are likely to be. Another way of looking at it is most definitely through the lens of demographics and flows related to these dynamics. This is a key point - when you look at reality through multiple different perspectives (that are reasonably robust in themselves), and start to 'glimpse' similar underlying realities, then this helps to build conviction that you are indeed grasping the underlying dynamics properly. So a 'confluence' of insight approach I find helps me in trying to navigate markets, but it is key that the ways in which you try to 'glimpse' the underlying realities are reasonably robust and able to be somewhat objectively able to be stated/defined (to minimise bias etc). You also have to be aware of the 'time horizons' your insight methodologies are useful to, otherwise it's hard to reconcile it all in a coherent manner. Like I say, you're not after perfect tools, just 'useful'.

Well said. Since you will be watching the markets from many points of view, I hope you will succeed in seeing the breakdown earlier and avoid the correction. I just hold 50% cash and wait. I only invest my money and actually can live my simple life without capital appreciation. DLS

Funny thing is, 'simple' is the most powerful thing there is. Just got to make sure it's not 'simplistic'. I try to keep things simple, especially in portfolio management, but I try to understand things deeply, in order that I may arrive back at simple. Looking at things from many points of view is part of the process of trying to understand things more deeply, but bringing it back to practical decision making and producing results requires taking very simple things very seriously. You will find that it's hard to understand anything deeply until you've arrived at the simple principles that drive its behaviour. I often tell people about the conservative portfolio mandates that I run is that about 70% of the returns are from basic diversification and a simple longer-term (multi-year) trend following philosophy, maybe 30% of the returns are driven as a result of trying to understand the world deeply.

You are correct that normally when you understand something deeply and can state the case in a straight forward manner, you are there - for the moment. I try to understand Aristotle, Kant and Schopenhauer in this manner. Markets, however, are the resultant of a thousand factors; many of which are not rational and many are always unknown. You are doing a great job as shown by your results, but when crossing the street look left, right and left again. DLS

If the Fed does actually materially reduce its balance sheet, it actually is making more collateral available to be used in the system, the effect on collateral 'values' however is debatable and depends upon the context in which it happens. When it comes to equity prices however, at least according to the earnings/PE/collateral framework put forward in this presentation, the biggest threat to collateral I think is a broader increase in the non-performing loan & asset impairment cycle (of which I suspect has quite a way to go yet before it's done) - at its worst, this could really threaten to overwhelm any further PE expansion. My suspicion is that we are a year or two away yet from a peak in this non-performing loan cycle, but not sure, definitely need to monitor these things to see how their magnitudes interact with other drivers.

If you are unable to commit to the investment field of endeavour on a full-time basis, but are looking to learn about investing generally, I’d suggest you avoid the intricacies of liquidity type analysis, it requires too much background info that might not necessarily appeal to your time constraints? Unfortunately there’s no easy way to learn this stuff – most of what I’ve learned is from running down rabbit holes, reading LOTS of books and then playing with data to test concepts and getting some real-world trading/investing experience (which usually means/involves losing a bunch of money in the early years). Having said this, not really knowing where you are starting out at in terms of experience or knowledge of the ‘investing’ area --- I am going to assume you’re starting from scratch so apologies if it’s not the case (given that you’re a subscriber to Real Vision then it’s obviously not the case, but this might be helpful anyway)... These are the books/areas I’d consider looking at if you want to learn about investing, trading and markets etc... Reminiscences of a Stock Operator (by Edwin Lefevre) and “How to trade stocks” by Jesse Livermore. Jack Schwager’s entire ‘Market Wizard’ series of books – basically this is a great way to get a sense for what styles of investing appeal to you and your personality etc – lots of interviews in these books of great investors of many different styles etc so a good overview of everything. Learn about Warren Buffett & Charlie Munger’s investment methodology & philosophy. Get Michael Covel’s “Trend Following” book. Read John Percival’s “The Way of the Dollar”. Read Anna Coulling’s “Volume Price Analysis” book. Read Harry Browne’s “The Permanent Portfolio” book. Read anything written by Van Tharp on Risk/Money Management. Get “Trading in the Zone” by Mark Douglas, also “The Psychology of Trading” by Steenbarger might be helpful. That will give you a kind of ‘crash course’ in things. Once you’re through all of that you’ll kind of know where to head from there – it all depends on what you’re interested in and your personality and your time constraints. There’s no easy way to learn the game of investing, it takes lots of time, passion, curiosity, patience, mistakes, etc, etc, but if you keep going you’ll get there, and you’ll have found a way of doing things that suits your unique personality and interests, which is key! Hope this helps. Apologies if this was not what you were after.

Apologies accepted . maybe liquidity analysis is a little further down the road and I would be better of keeping my ear to the ground with all the videos on here . Thanks and be sure to keep coming back to rv. Cheers

Perhaps if you want to grow in a liquidity perspective, study Prof. Richard Werner's stuff, and also go back through a lot of Jeffrey Snider's work that's published on his website. Both will give you a broad overview of many things and give you a good start into the field.

spoken like a true gold bug

The mandates I currently run for clients are very much capital-preservation focused with a high degree of resiliency throughout any/all conditions required (whilst compounding returns are a respectable rate well above the higher of interest rates or inflation), as a result we do keep things simple, trying to stick to only highly-liquid, big boring securities that clients can convert to cash even amidst more trying market conditions. We also use an SMA (Separately Managed Account) structure that is transparent for clients wherein they can directly see and own the securities themselves, we also construct them in a way that helps us keep the minimum investment low, in amongst other considerations, we keep it simple and use no derivatives, no leverage and no short-selling etc, just long only dynamic asset allocation --- our aim is that our clients will have their purchasing power in tact when the inevitable recession or crisis rolls around every 7-10 years and in the meantime being able to conservatively compound returns beyond interest rates or inflation in a conservative way. In a year or two we will be launching a more aggressive mandate that basically will be a hedge fund, targeting a higher risk/higher return profile than our existing mandates - in this strategy we'll be using exchange traded options and futures (avoiding the OTC world which largely is just a big bucket shop), so I'm not necessarily morally against derivatives, I just think primarily in the OTC world they've been misused and over-used. In terms of whether the US equity market is likely to remain flat, I'm not sure sorry. Our near-term thesis (say next 1-9mths) is the risks are elevated for a substantial correction in equities, thereafter it's likely that people are going to be surprised at the resiliency of this multi-year uptrend in stocks, albeit driven by some fairly dysfunctional globalised dynamics as explained in this presentation (kind of a wrong-reasons bull market we've been referring to it as)... at least this is the primary thesis, we will monitor information flows and market behaviour to see if it is confirmed or whether the broader system is adapting in some way I previously didn't appreciate etc. Hope this helps.

I actually was asked this question in the comments of a previous RV interview, here was my reply, it still basically sums up my view------ For what it's worth, I loosely see the inverse correlation between gold and the USD being maintained in the years to come. At some point the USD will materially loose its reserve currency status and the 'excess liquidity' framework will need to expand to become less USD centric (I already run such a model, and on an underlying trend basis, problems in non-USD liquidity are still causing flows to the USD rather than gold, this is always worth monitoring but in my view it's still too early to be expecting the inverse correlation between gold and USD to be breaking down yet on a sustained basis. But will see)

I agree with Peter, this presentation could have taken 20-30 minutes.

Good walk through ...

I think he did a great job..

I found it very interesting and a great way for setting up the framework. Thanks Daniel.

You are right - I am a little frustrated/cautious with the conclusion because ultimately it derives from things that are not akin to a sound functioning of markets... when you impede the natural functioning of markets, more often than not bad things tend to happen. We are in a world of all sorts of crazy policies and experiments - and when you try to tinker with a complex system you are likely to have adaptive and emergent responses that are not always 'sound' or necessarily desirable in the longer-run, in markets, this can translate to some quite paradoxical situations. I felt I needed to unfold the presentation cautiously in a 'precept upon precept' type format because I've found with most people this was the only way to do it, so they too could see some of the odd and somewhat counterintuitive dynamics at play in a way that kind of made sense.

Hi Joeri, I like the way you are looking at these things, but wow, that’s a pretty big topic of discussion. I think Prof. Werner's work is fantastic, in fact I've been keeping an eye on his work for the better part of the last 17 years. Trying to define velocity (beyond the conventional stuff around GDP/M2 etc) I find actually gets pretty complicated fairly quickly, and is highly dependent upon the context in which you're trying to refer to a ‘velocity’ concept, and the analytical target for which you’re trying to extract insight for. In my case, most of my studies of banking systems, capital flows and liquidity etc is with a more practical target of tying dynamics back to asset and currency markets/pricing, and so I’ve found I’ve had to develop a more nuanced approach to analysing these things than if I were to just try and target the understanding of say a business activity cycle. For me ‘velocity’ is a very blunt and poor term unfortunately. Velocity is a multi-faceted concept, I find there are many subcategories/relatives to this general concept that will vary depending on your context and analytical target (your measurement approach will similarly vary depending on the context and analytical target)... in different contexts we could be referring to what is effectively a currency elasticity phenomenon wherein we're trying to figure out whether the money/liquidity units are adequately matching economic activity with the perceived gap being loosely reconciled with a ‘velocity’ or demand concept, we have a similar 'productivity' of money/liquidity concept, we have a category that's more akin to a 'circulation' type of concept, and then we have more a nuanced more specifically behavioural money 'demand' type of category --- all the same/similar, but different, depending on the context. In some contexts, yes, I’d argue that an assumption of velocity being ‘constant’ is indeed valid – but depends on what you’re trying to analyse and derive insight into? Apologies if this is not the response you’re looking for, but these are some of the observations I’ve had in trying to analyse different things over the years, and in the process being confronted with ‘velocity’ type possibilities... I don’t necessarily hold the answers, but for me I’ve found ways of understanding things that make sense to me and empower me to make better decisions in markets from time to time. Generally speaking, if you’re reading Prof. Werner and applying his concepts, I think that will definitely keep you ahead of the crowd.

Hi Gordon, glad you found it interesting. Obviously there are many things that affect the price of any given market, the hardest thing in my view is trying to assign magnitudes of importance to the differing (and sometimes contradictory) possible drivers or influencers... trying to distinguish the material drivers from the less so is one of our main tasks as investors and analysts. The framework I outlined in this presentation is one of the perspectives I use to try to measure and gauge some of the different drivers of the gold price that my studies have found to exert a material influence - but there's never a perfect framework or toolset, but still doesn't mean you can't find/evolve 'useful' ones. In trying to gauge some of the influences I think you're referring to, I try to get a sense for how different market participants who would have different motives and information might be behaving - and by trying to get a sense for their actions (driven by their motives and perceptions/incentives) I try to then gauge when certain underlying factors may be issues or not... but this isn't an easy discussion for a comments box - my last presentation on RV discussed a little of how I try to review certain participants (Speculative and Patient money groups), but in addition to the two groups I profiled in that discussion I also typically try to get a sense for the progression of a longer-term more 'retail' crowd of participants, and also a longer-term more professional 'structural' crowd of participants (which in the case of gold would also include certain bank/CB related actors among others)... between these different groups of participants, all sorts of information is discounted into their behaviours, and so I kind of hope to cast a wide net to being able to focus on a few things that hopefully include many other things. Not sure this is really helpful, but it's kind of some of the things that come up for me in terms of trying to respond to your question - essentially, I try to focus on certain core things, that hopefully sum up many things that I could not possibly hope to well-analyse in detail (this presentation and my last RV presentation are examples of how I attempt this, or at least aspects of it, particularly pertaining to gold).

Unfortunately its hard to list a few simple things to look for as there's quite a few moving parts both on the demand and supply sides of USD liquidity. However, if we step back we can see around the world that stresses are continuing to build within banking systems, particularly in the Eurozone and China, with other banking systems more indirectly exposed to imbalances and latent risks, so on the other side of 'peak stress' (i.e. probably when it more visibly manifests into crises of different forms) you would begin to expect the tide to shift on the USD and Gold (all else being equal)... another way of looking at it is that we are still in a more broadly-defined asset impairment (& non performing loan) cycle globally that has yet to peak, which still could be a couple of years off yet. Alternatively, the FX markets could get ahead of themselves and we see a further strengthening of the USD that gets to the point wherein it is a heightened political issue, and policy turns decisively (with an element of desperation) towards targeting a weaker dollar. Within our research we track all sorts of things in terms of monitoring the different dynamics that we believe are at play, but unfortunately this is subscription-based. We probably may from time to time update some of our broader views around demand for USDs in our Quarterly Client Letters that we publish publicly, so you can freely follow these? As another freely available source to monitor aspects of global USD demand issues, I would highly recommend you follow the articles/research that Jeffrey Snider (Alhambra Investments) publishes on a frequent basis - his work is first class. Hope this helps

Nvm. Just saw the link.

You can skip to the chapters that you find most interesting. That function allows for professional investors to pick and choose while allowing the novice investors to absorb all the information they need.

for you*