 This weekend, we addressed the topic of Austrian investing with Chris Casey, the Managing Director of Windrock Wealth Management. Chris is an investment advisor for high net worth clients, but unlike most investment advisors, he understands and applies Austrian business cycle theory and Austrian economics for his clients. Chris has a degree in economics from the University of Illinois and he's a chartered financial analyst. He's also a frequent writer and speaker on the topic of Austrian economics, appearing at conferences like GoldMoney and FreedomFest and appearing on websites like Mises.org and ZeroHedge. If you're an investor and you're interested in Austrian economics, I'm sure you're going to enjoy our show. Stay tuned. Ladies and gentlemen, and welcome back once again to Mises Weekends. I'm your host, Jeff Deist. Very happy to be talking this weekend with Chris Casey from Windrock Wealth. Chris, how are you today? Great. Thanks for having me on, Jeff. Talk to us a little bit about this emerging phenomenon of Austrian investing. In other words, you know, Jimmy Rogers came out with his famous book, Hot Commodities, which is now about 10 years old, maybe a little more than that. And he's always been viewed as at least faintly Austrian. Peter Schiff came to have somewhere now around the 2008 crash and obviously talking in an Austrian manner about money. We now have Mark Spitznagel who wrote the infamous book, The Dow of Capital, which is very much from an Austrian perspective. And we even have individual investment firms, wealth advisory firms like your own now applying or talking openly about Austrian economics. So I would like to hear your perspective on whether there is such a thing as Austrian investing, so to speak. Well, I certainly do. And you know, first I can comment that I do think it's been growing or the recognition of the Austrian school has certainly been growing within the financial community. I'll give you a couple of examples. One is that, and I'm sure every author has this experience, but if I write an article for the daily blog at Mises, I guarantee I'll get three letters. And each of them I would describe as one is crazy, one is happy, and one is sad. And the crazy one, which I think everyone has experienced, and it's the graduate Keynesian student who's just bitter and is trying to criticize the article. The happy one is just compliments, hey, I love this article. Thanks for writing it. I've been thinking about this and this encapsulates my thoughts perfectly. And the sad one is from finance professionals, whether it's wealth managers or others that are within these large corporations, these water houses, whether it's Morgan Stanley, UBS, what have you, that believe everything that they just read and they believe in Austrian economics, but they can't comment on it and they can't tell their clients about it because it doesn't comport with the story that the firm is putting out there. Those I would describe as a sad kind of response. And I get a lot of those over the last couple of years. Another I think phenomena that you can point to is if you go to social media. So for instance, LinkedIn even, here you have several groups. I know that Mises has ones, I think Friends of the Mises Institute, which has, and I'm guessing it's just shy of 10,000 members. You also have Austrian School of Economics for finance professionals. Here you have thousands of people that are members and it's shocking if you go through the membership role, how many are within the financial community. So I do think it's been growing over the years substantially. And this is despite the fact that a lot of people also want to keep it quiet. So a couple of years ago, I was actually at a Mises event and I met this hedge fund manager and he was just in the Wall Street Journal for having made a lot of money. I won't even comment on what the particular investment was because it would give it away, probably who this individual was. And I asked him, I said, well, you were quoted extensively in the Wall Street Journal and you never mentioned Austrian economics. Why is that? He said, well, I'm not going to mention that. That's a competitive advantage I have. And so based on the last 12, 14 years of what's been occurring in the markets, based on what the authorities have been saying and they've been proven wrong time and time again, I think it really has been taken off as far as the financial community. Well, I certainly get the sense that a lot of people on Wall Street and in the financial industry secretly agree with us, but they make their living off the Keynesian monetary bubble. So it's not at least in a short-term interest to profess Austrianism. Oh, I totally, I completely agree with that. So you're right, I guess there's two camps out there. There are those that just don't know better and have never thought about Austrian economics or understand how they're benefiting from what the Federal Reserve has been doing since August of 2008. And then there's the other camp which knows better. And you're right, are profiting from it and they'll ride this train as long as they can. Well, Chris, we talked to Bob Murphy on this show a couple of weeks ago and he made a comment to the effect that understanding Austrian economics and especially understanding Austrian business cycle theory is necessary to be a knowledgeable investor, but it's not sufficient to be a knowledgeable investor. I'd like your comment on that. To me, that makes a lot of sense. And I think he's right in that it is necessary. James Grant, I remember, had a line he used where you're still with investing, you're still fumbling in the dark, but at least with Austrian economic background, you have a flashlight with you. So you can hopefully avoid the big, heavy things that you could trip over. And it's true. I think it is critical. And the reason it's critical is because it helps you avoid bubbles. I guess there's really two things. One is that it helps you avoid bubbles because you can at least understand what's causing recessions. And when you have a recession, that's the most immediate and easiest way to prick a bubble that's out there. And secondly, the Austrian school is unique explanation of inflation, price inflation. So, Tundra and I realized that no one's concerned about that today because we haven't really experienced or officially experienced significant inflation really since the 1970s, but I think it is something that investors should be concerned about going forward. And with the Austrian school's explanation, I think you can see it coming. You can understand the causes and you can also protect yourself accordingly. So I think Bob's right. It's necessary as a background, but certainly not enough. You still have to have a rigorous understanding as to financial markets and instruments to be able to adequately invest appropriately. Well, Chris, you recently did a great interview with the dollar vigilante, Jeff Burwick's outfit. And I'd like to use a quote from that interview when you're talking about the cluelessness of investment advisors. And you told the dollar vigilante, I cannot tell you how many times I've asked the chief investment officer of a major wealth advisory firm what causes recessions and the response is either we don't know or we're agnostic as to the economy, whatever that means. So I came away from that going, if I asked my financial advisors what he or she thinks about the economy and he said I'm agnostic, I think I would find a new advisor. Yeah, it's funny to say that I always tell people that should be the first question you ask a financial advisor is what causes recessions, what causes inflation. And that statement I made in that interview, that's an accurate statement. I have attended a number of luncheons where you have not even chief investment officers, but I'm talking chief economists from major banks, especially in the Chicagoland area. And if you ask, you know, what causes these, they really don't, they don't know in what's even scarier. They haven't really given it any thought. And perhaps what's even scarier than that. They don't believe they need to. And to me, I think that's just a gross failing. And it's the first question because it's the first question they should be asking what causes these. So that that's an actually that's a completely true statement. And I couldn't agree more that that's the question that everyone should ask their financial advisor. Well, it seems that an understanding of the Fed and an understanding of money and monetary policy is totally lacking amongst investment advisors and fund managers. It's almost astonishing when you think about it. I agree. And it's in that's the spite over the last 12, 14 years of having the markets experience circumstances that we've never seen before. And it's especially pronounced when you consider how the markets have performed relative to how many officials have described the markets or how they thought they would perform. So what I mean by that is you have Ben Bernanke famously saying in O2 to Milton Friedman in a Schwartz. Listen, we think due to you to we understand what causes recessions and we won't have one again. We're never going to have a great depression again because now we understand what causes them. And he said in 08 in January of 08, you know, the Federal Reserve is not forecasting a recession. So you add that with his comments about housing, literally maybe six to nine months right before housing peaked that he just doesn't accept the premise that there can be a nationwide housing decline. You look at even like Timothy Geithner when he famously said, I think it was in April of 11, there's no chance the US can ever be downgraded as far as their AAA debt rating. And then in August of that same year, it was. So, you know, not only have the markets experienced something that we've never seen before, but it's especially pronounced when you contrast it to how government officials are discussing the economy. But Chris, what's so fascinating here is that they are wedded to econometrics and modeling. I mean, this really is their religion. I mean, as you point out the mainstream, they totally missed the tech stock bust. They totally missed the broader equities crash of 2008, the housing bust. But from an Austrian perspective, these were totally foreseeable events. They were in many, many right. Austrians are on record as having foreseen these. You're right, you would think that if I had a philosophy, an economic philosophy, and I experienced these huge errors in my analysis, you would think you'd go back to the drawing board and think, okay, something's wrong here. Let's examine what we should do differently. Maybe there's a different explanation. But you're right, they're wedded to it. And part of it is that they're not even familiar with Austrian economics, some of these major policy makers. It's fairly shocking. Well, you may have heard the old adage, and I ran this by Bob Murphy as well, quote unquote, never invest according to your ideology. And as you know, Austrians tend to have a reputation as perma bears. So I wonder, do Austrian mining investors become so focused on the busts that they miss out on the booms? Well, I think that's a legitimate concern. It's also, well, it's definitely a legitimate concern. When you're looking at the markets and you understand how overvalued they are, whether you're talking about the equity or the bond markets, it's very easy to just say, let's pull the plug, it's gonna crash at any day. But the truth is, while Austrian economics through its business cycle theory can guide us as to knowing what will eventually happen and what must happen, it is true, we can't time it exactly. So Doug Casey is always famous for saying the financial advisory economist Doug Casey, while something may be inevitable, it's certainly not imminent. And so I do think a lot of Austrians miss out on that and go to 50% gold, 50% cash or what have you. And really what they should recognize is that since you can't time everything, it makes sense to still be in the equity and bond markets. We have to be nimble, you have to be careful, but you can't just disengage completely because no one can time anything accurately. Chris, let's say a client or a potential client walks into your office. It seems like people talk about investment returns, net of fees, they talk about investment returns, net of taxes, but you rarely hear people talk about investment returns, net of inflation. Do you find this amongst your clients that people think only in nominal terms? I think most people are conditioned to do so based on the price index levels that we've had over the last 20, 30 years. So they're just not inclined to think in terms of real return. I mean, our clients are because they already understand or at least have a degree of knowledge about Austrian economics and are concerned about inflation. But in general, I think the common investor certainly thinks of those terms. It's unfortunate for a couple of reasons. One is that even with a low level inflation, price inflation, that quickly erodes. Now you're just returns, but your corpus, right? It's eating into your investment value as a whole. And so even at a low level, you're seeing some staggering negative impact. And you know what's amazing is that people are so conditioned right now not to think about price inflation. And part of the reason is you have to go back so far into the 1970s and think about how someone, I mean, I'm 43. And for me, the 70s, I was a kid. So I have vague recollections, but you have to be much older than that ahead to really be affected by inflation in your lifetime, especially from an investment perspective. So people, I think you're right, have just been conditioned not to think that way, but it's absolutely something they should think about because inflation could be far more damaging than taxes and it can be far more damaging, just low returns in general. So I do think they should look at it in real terms. Chris, can you give us your thoughts on housing if you would, have any of the fundamentals changed since the housing crash of 08, at least in the US market? Well, so just to recap what happened in housing, obviously we had this tremendous crash where in some markets, housing prices went down, maybe 80%, but certainly 50% was not unusual. Housing's come back in quite a bit, although it's still probably maybe 20% off its highs back in the 0607 area. And I do think housing could go up for the same period of time, but I do think it is potential, has potential to go straight back down just like it did previously. And the reason being is that housing is really a function of two things, the housing prices, right? It's interest rates level, interest rate levels, and it's also really a household income. So what you can pay and then how much does that payment get you? And if you look at both of those factors, well, they're directly impacted by inflation and the Austrian theory of the business cycle. So the next time we have a recession, interest rates go up, I think housing will be dramatically negatively affected. And remember, household income still hasn't recovered from pre-08 levels, and in recession it's just going to get worse. So you're gonna have these kind of double pincers that are gonna be squeezing the housing markets and it could relate, it could translate into a decline that's even more significant than we previously experienced. So I think it's prudent for anyone that owns a home to maybe go out and get the biggest fixed rate mortgage they can and then invest it in very safe assets, they'll do better than your house. Alternatively, if you don't own a home, don't buy one, just rent. I think that's a very, very smart move in today's market. And you see it right now, buying patterns have changed because of that experience, people are avoiding the buying a first-time house. It doesn't have that same cache that it did for many years, wasn't that milestone in someone's life. So people are looking at renting as a very viable option and I do think it makes sense. Well, it's interesting to note that in some very prosperous countries like Switzerland, some 80% of people rent and the 20% who are landlords are in effect professionals and understand what they're doing. Chris, I will leave you with one last question from your interview here. It sounds like Jimmy Rogers that you are somewhat bullish, at least long-term, on farmland. I'd love to know your thoughts on farmland and America's ability to serve as a bread basket for the world. Sure, well, the farmland thesis really has two points. The first one, as you mentioned, Jim Rogers talks about extensively. So that is simply the worldwide supply and demand dynamics for foodstuffs. And you have the increasing populations, you have increasing populations in developed world. Those populations are always demanding greater caloric intake and the nature of the calories they're eating. So not just more calories, but what they're eating, meaning beef and meat translates into even greater stress on the supply of various foodstuffs. So I think the long-term dynamics are fantastic for farmland. Farmland's gone up quite a bit in the United States since over the last six years. But, and so like any market, it doesn't go straight up. Maybe there's gonna be a cooling period. Maybe it'll continue to go up. I don't know. But I do know that the long-term dynamics are great. In addition to that though, there's a tremendous opportunity, I think, with American farmland, in that if we do experience a significant inflation, I think we'll have a repeat of the 70s. And by that I mean, if we have a price inflation in the US, American farm products become cheaper for foreigners, right? So coronal fetches price in any market and because you have a cheaper price, you have increased demand, you should have an increase in exports. And this is exactly what we saw in the 70s. There was a dramatic increase in exports with these cheaper farm products. And from that, it translates into greater farmland revenue for farmers and ultimately into greater farmland values. So if you look at the 1970s as an example, the CPIU, the Consumer Price Index, went up over 100% in 10 years. It was about 120%. Farmland went up about 300%. So I think it's a great mentally inflation hedge. That's a great way to profit from an inflationary scenario. Well, Chris, perhaps one bit of bright economic news for the US. Thank you so much for a great interview. We really appreciate your time. Ladies and gentlemen, have a great weekend.