 This is Mises Weekends with your host Jeff Dice. Ladies and gentlemen, welcome back once again to Mises Weekends. I'm very pleased to be joined by an actual Austrian this morning. This afternoon for him, Ronald Peter Stofferle, who works in Liechtenstein, but he's originally from Vienna and he's Austrian. And he is one of the four authors of a fantastic new book entitled Austrian School for Investors, Austrian Investing Between Inflation and Deflation. And this is really quite a remarkable book. It is not your typical investment book. It doesn't talk about particular stocks or bonds or movements in a particular segment or industry. This is more of a higher level overview of the Austrian school itself, of money and monetary policy, of business cycles, of some possible scenarios going forward, hyperinflation or deflation. So it can absolutely help you as an investor, but it's not going to give you a bunch of stock tips or something, a.k.a. James Kramer. So I really recommend this book. I read it over the weekend and it's written in a very plain and straightforward style. It's got some great blurbs on the back from Dr. Mark Faber from Guido Halsman, and I think it would make a great Christmas present. So with that said, Ronny Stofferle, thank you so much for joining us. Hi, Jeff. Thanks for inviting me. It's a pleasure being on the show. Well, I'm not only from Austria. I was born in Vienna, but also a keen follower of the Austrian School of Economics that is not taught at all in Austria anymore. So together with my co-authors, we try to bring back the Austrian school to Austria. And as it happens to be, I started investing when I was 14 years old. And since then, I'm kind of hooked by financial markets, anticipating the market, understanding the market, studied economics on the university, didn't learn too much at all, honestly, and then started in a bank as an equity analyst and started writing about gold 10 years ago and read a brilliant comment or quote by a gentleman called Ludwig von Mises. And then it said, as the Austrian economist Mises said, and I said, who's that guy Ludwig von Mises? Then I ordered, like, I think a dozen books on Amazon about the Austrian School of Economics, and that was it. So at some point I became the vegetarian in the butchery in the bank, talking about the gold standard, talking about the Austrian school, about the consequences of inflation. When you're sitting in a bank as an analyst, it doesn't make you the most loved person. And so I decided together with a couple of partners to set up my own company and create what we call Austrian investing. And as we're writing about gold for 10 years, where we're implementing our holistic view, it was also quite normal for us to actually write a book about Austrian investing. And we published it in German first. It was a huge success, really a bestseller in the German-speaking world. We got nominated for the German Book Price Award. And almost one year ago we published the English translation of the book, which is also quite a success so far. Well, let's talk about the subtitle Austrian investing between inflation and deflation, because one of the big knocks on Austrians is that we're so focused on the bust that we miss out on the boom. Can you comment on that? Totally. I think when you're an Austrian investor, there's plenty of opportunities, but also some risks and threats. And of course, if you've got this Austrian mindset, you've got knowledge about the monetary system. So you understand the interplay between inflation and deflation. The Austrian school is not very spread among investors. So you definitely have some sort of a contrarian edge. You understand interest rate and capital theory, which is extremely important stuff like the Kantillon effect these days. Very important also to kind of understand and forecast politics. So there's plenty of opportunities having this Austrian mindset, but there are also some threats because I think many in our camp are very, very sensitive when it comes to flaws in the capital structure. And this leads to some sort of a bearish bias, I would say. And this means that we often miss out investing accordingly in the boom phases, because everybody is waiting for the bust that will, of course, sooner or later happen. It also leads to very extreme portfolios. Many people that would adhere to the Austrian School of Economics invest mostly in gold, silver mining equities and so on. Within such a correction that we're seeing since 2011, of course, that means a huge drawdown to your portfolio. Austrians often become very, very convinced or dogmatic, which makes it not easier as an institutional asset manager like we are. And perhaps most importantly, the Austrian School doesn't make any forecasts. So followers of the Austrian School really were extremely successful in anticipating major moves in the market, but they have often been way too early. So I clearly want to show, and this is what we're also explaining in our book, that when you know the Austrian School, you're not necessarily going to be a successful investor. And I think that's a very, very humble observation. And this is one of the characteristics of the Austrian School that I really like. It's extremely, extremely humble. Well, that's interesting. I had a conversation a year or two ago with Bob Murphy, an economist here in the U.S., and he talked about how understanding economics is necessary to be a successful investor, but it's not sufficient. And I think that's a point you're making here. Let me get back to something you said about the investment world and their lack of understanding of monetary policy. It seems that most fund managers and most investment advisors, they're strictly focused on their return net of taxes and fees. They never seem to contemplate their returns net of inflation. Do you think this is true that they simply don't consider inflation and they don't really understand monetary policy? Absolutely. I mean, you know, most asset managers that are working nowadays, they haven't experienced any major inflation in their professional career. So everybody who has been around in the 1970s, stagflation of course has a different view when it comes to real returns. And I think that what we always emphasize is we're not in a cyclical crisis. We're in a systemic crisis. Crisis probably started in August 1971. Since then we've got a completely unbacked currency and we're seeing massive consequences of that since then. So I think that when it comes to inflation, that's probably one of the most important advantages that you have as an Austrian because monetarists, Keynesians, neocainsians, they don't care about our monetary system. For them it's just, it's basically a given. And we know that this Austrian worldview, it leads to systemic analysis and to the awareness that currency systems that just come and go and can morph into something new over time and that there will sooner or later be a monetary reform that our currency system will probably end up in hyperinflation or hyperdeflation. I think basically every fiat system did collapse because of hyperinflation and not of hyperdeflation. So I think that's a huge advantage that we're having, understanding monetary history. And I think a good economist shouldn't be an economist. He should be well-read in history, in philosophy, in natural sciences in many different areas and the more specialized people become, the less they see the big picture. And this was always a problem that I've had working in a bank. My colleagues, the Economist Department had extremely sophisticated models. The problem was that in regime changes like 2008, they simply didn't work and so, for me, the Austrian school gives you really a big advantage in understanding the big picture. Roddy, let's talk some more about this conundrum between inflation and deflation. Obviously, as Austrians, we understand inflation as a monetary phenomenon. So when the economy is bad, central banks attempt to resuscitate things by cranking up the printing presses figuratively and easing monetary policy generally. However, when the economy is bad, businesses, households, individuals tend to deleverage, they tend to shed debt and they tend to spend less, which is, of course, deflationary in its impact. So talk about this tension between inflation and deflation and how we should view this as Austrians and potentially as investors. Yeah, we coined the term monetary tectonics. We said that this interplay between inflation and deflation, this is like tectonic plates pushing against each other. Above the surface, everything might look stable, but below the surface, there's massive pressure coming. So from my point of view, there's quite a lot of deflationary forces. So basically, if there would be an Austrian laissez-faire approach, the crisis would be highly deflationary. So there would be balance sheet deleveraging. There would be a massive recession and from an Austrian point of view, recession is something normal, something healthy. There would, of course, be massive unemployment, but this would also lay the foundation for a more healthy and stable future. Now, the inflationary forces are basically by government and central banks. So zero interest rate policy, communications policy, quantitative easing, operation twist, currency wars, regulatory stuff and eligibility criteria for collateral and so on. So central bankers and politicians want to avoid deflation, whatever it takes. My friend, Jörg-Güter Hulsmann, said in the Ethics of Money Production, from my point of view, one of the best books ever written about those topics, he said, the harmful character of deflation is today one of the sacred dogmas of monetary policy. And the explanation by central bankers and economists is that in deflation, people just stop consuming. We all know that this is simply not true. We all know that within our monetary system, we just need a general increase in money supply. We need more and more credit growth. And since 2008, we're seeing that credit growth is actually pretty sluggish. Although in the last couple of months, we can see that credit growth in the U.S. was exploding. We've got an advisory board where Frank Shostak, also a contributor to Mises Daily, is a member of and his Austrian money supply is almost exploding in the last couple of weeks. So we are seeing very strong inflationary signs at the moment. And I think according to Rothbard, the first stage is monetary inflation. Then there is asset price inflation, which we had the last couple of years. And the next stage is actually consumer price inflation, what central bankers want to achieve, whatever it costs. So from our point of view, actually stack inflation, a bit like in the 1970s, might be a scenario that is highly likely going forward. Ronnie, there's a chapter in your book called the illusion of prosperity. And so we've been led to believe since 2008, of course, that equity markets were making gains. But I think your argument is that this is not built on any real increases in productivity or new markets or capital expenditures or real earnings, but it's just this sort of monetary alchemy that central banks have propped up equity prices. And that gives us the illusion of prosperity. And it creates what you call a halo effect around certain cheerleaders for the markets. But underneath there's no real prosperity. I think this is really a core Austrian criticism of both fiscal and monetary policy that we are creating a false economy, rather than allowing what you call a curative or restorative recession to occur and then building real economic growth on top of that. Absolutely. From my point of view, central banks are not the solution or the cure, they're the problem and they're extremely aggressive measures that they have taken in the last couple of years. They basically bought time. But we should not forget that simply by printing money, you cannot create any wealth. Real wealth can only be created by entrepreneurship, by appropriate risk taking, by capital accumulation. So at the moment, we're only distorting the economy's capital structure. And this creates this what we call property prosperity illusion. There is some nominal quantitative growth, but the dissolution of the economy's long-term foundation and increasing focus on the short-term and a declining quality consciousness can be observed nowadays. So we are consuming capital. And I think you can make the comparison with a beautiful house. I don't know how you probably have been to Vienna. There's beautiful buildings that were built in a time when the foundations of the Austrian School of Economics were laid by Karl Manger. Beautiful houses, but I think we're consuming capital at the moment. So everything on the surface looks still great, but it's like real estate that you don't invest in anymore. So in the first couple of years, it seems everything is fine. But then you can see that the property, the house, is just getting worse and worse and you're having leaks and it's just becoming a big disaster. So there's still so much capital to consume that it leads to this illusion that everything is fine and everything will get better. But once we arrive at the end of this, we'll see that the emperor has no clothes and that will probably be a time when people who are familiar with the Austrian School of Economics will have a huge advantage to people who think that everything is just fine based on their, I would say, mainstream views. Well, ladies and gentlemen, just consider that. Consider the possibility that there has been no real economic growth since the crash of 2008 or 2009. Or consider that we're just halfway right, that there's only been half as much growth, real organic growth as advertised since the 2008-2009 crash. That's a very sobering thought. Again, the book is Austrian School for Investors. We'll link to it. It was written by four authors, one of which has been our guest today, Ronald Peter Storferly, who comes to us live from Liechtenstein, but originally from Vienna. I think this book is going to make a great Christmas present for anyone you know who may be playing the stock or bond markets. It's really going to change the way you think about your money and investing. But again, as I mentioned earlier, this is not a book that discusses industries or sectors or particular investments. It's not that kind of investment book. It is much more a book about how to think about what governments and central banks are doing and what to do accordingly to protect yourself. So Ronnie, thanks so much for your time. Congratulations on a fantastic book. And we hope to talk to you very soon and have a happy New Year.