good afternoon and welcome to capital account i am more and lister here in washington d.c. and in greece striking power workers off you by a government building but the crisis does not begin to end there today in germany a bond auction failed a third of them had no buyers the euro zone credits of cult swaps meanwhile rose to a record for some countries and in the western world of a heavily indebted nation the real question is are we all greeks now well eric fry editor of the daily reckoning says that's the case we will find out why meanwhile i

have a little trivia for you what does the u.s. assassination of suspected militant anwar out all of and a federal raid of gibson guitar have in common with this former reality show. we will solve that puzzle for you and find out why an investor who's thought of the u.s. housing bubble has his eye on this connection now and we have a little thanksgiving cinderella story for you even though income inequality we know has been going up in the u.s. even though social mobility has been going down is there are still some rags to riches stories to be found they just might not be about people we'll explain but let's get to today's capital account.

all right at the top of the show i asked what these things have in common let me remind you of on the assassination of the u.s. citizen a muslim cleric and we're all in yemen you see him there a federal raid earlier this fall of gibson guitars headquarters when the justice department shut down production and confiscated imported would there and i also brought the m.t.v. reality show laguna beach well add a couple to this list add to that protesters pepper spray down the line by police and occupy protests at u.c. davis you saw it right there at this almost nine hundred pound blue fin tuna fish caught on accident and seized by environmental police put those all together

and we have quite a puzzle for our guest or prides of put together he's editor of the daily reckoning if you don't know what you should it's a daily economic newsletter widely read all over the world more than five hundred fifty thousand subscribers it's been online since one nine hundred ninety nine and eric as for him he called the housing market crash predicted the collapse of lehman months before it happened and has been predicting a greek default and the broader girl's own crisis for nearly two years and almost most importantly he rarely does t.v. interviews so let me just say that this is a real treat for although it is very nice to have you in los angeles today nice to see you pleasure to be here commercial or of course ok so let's start with that puzzle that i just set up all of these things we have the gibson guitar raid we have the nine hundred pound fish we have laguna beach which is where you hail from right now and a couple other things what is the big connection here. well that's

a lot of puzzle pieces and actually you know i'm not sure where those all together because i like coming along at the very end and putting the last piece in our lab ready that's kind of hard work yeah well basically i think what we're seeing are expressions of government overreach expressions of governmental incompetence and that that expression takes all pariah forms so for those viewers who are not familiar with it with these various expressions of government overreach we have everything from the rate of tips and guitars which which was conducted without any due process we have the conversation of this too in a couple days ago or you know where the the agents of government are basically pursuing a fire ready aim strategy to go on is the ancient idea of the constitution of due process or or civil liberty before all other

considerations now we have as a government that has begun to consider civil liberty as an inconvenience sort of nuance and do we know better so right down the line that we are seeing government behave in a fashion that says we know better when in fact they don't and that you are saying that. they mean a i had i'm well i you know you write about the economy you've been writing about finance for a really long time a lot of these examples you know that the police playing down students at u.c. davis peaceful protesters and kind of federal grades are at like you said a third a liberties issue so how do you see this is impacting business and impacting the economy more broadly. actually question so. you know we've always had expired forms of government brutality or regulation or there's always been some kind of problem that have annoyed with the citizenry so in some ways this

is not necessarily a news story and only becomes a new and important story if it looks like it is a national expression as opposed as opposed to an extreme outlier so we could look for example to nine hundred sixty eight riots in chicago and say ok that was an outlier it was a riot and we didn't express the the government. the government power coast to coast it was just an outlier but now it looks like you're saying in a in a variety of agencies f.b.i. cia i.r.s. t.s.a. ogg on the line down to the local police force a a kind of. brute force militarization. again we no past policy that has become almost an shrine so what that means is that

for the guy who's just trying to make a buck who's just trying to operate a business he doesn't know what the real law is he doesn't know if the real law is the one that is written in the missile codes or the real law is what some government agency feels is the law of the moment right and so we've seen over and over and over is government agencies. in the name of the law breaking the law because as you pointed out was something that your ego leaves entrepreneurs and most businesses throw up their hands say i don't know what i can do i don't know what the real laws or and i want to get to that a little bit with dodd frank later but i want to ask you because you predicted the housing crisis the housing bubble and you said well we talked about it last you kind of saw it happening all around you you saw all of these signs and you describe the trying to talk about now with the federal overreach without even happening at the local level that is what you see is the big trend now but what do you see as kind of a kin to the housing crisis and the housing crash in this situation that you are

noting now. well. i think i got lucky on the on the housing. crash to be able to to see that developing and why i was lucky is that i was one of those people who was who couldn't afford his mortgage because in any way i was one of those people who who couldn't believe the credit the bank would extend to me not just once but in multiple beef eyes and and it and so i was sitting there i felt like with the front row seat to see to see the system that made absolutely no sense and i was recently well off and i thought ok well if i'm a guy who can receive credit like this that i shouldn't receive how many millions of others are there out there and once you see it happening for yourself and you start looking around. you know you can see i'm a mess in the making and that's exactly what happened in in the housing crisis and why i was able to see it developing in this in this situation where there's the i'm

seeing this expanse of government power in a very very very frightening way that it began a few years ago in the in laguna beach where i saw expressions of government power that you would never it's a paradise there you would never imagine that in the middle of a paradise you're going to have. you know i don't want a great detail but you're going to see so many expressions of of of government excess right and times you know what is i can't get a housing crisis has already think people are going to lose their homes and that's what is going to lead. they're going to lose of they're already beginning to lose that which is the frightening thing it isn't just you know i am not this is not an a.c.l.u. thing i'm not i'm not saying oh gee you know look we we should be rebelling because someone lost liberty what i'm saying is that we are seeing a slow encroachment by the government a slow usurpation by the government of

a variety of activities liberties that used to belong to private citizens private enterprise etc as that encroachments continues it's not all bad it's not even it's not even mean spirited it's not it's not intended to be bad but as the government increases its its grasp of how the functions that used to be private and used to belong to citizens. so the entire economy becomes sluggish. it's like. a cult like the frankenstein phenomena you're now there was you wouldn't hire frankenstein to go watch your your child was your work you wouldn't hire him sue it's to grow a hot house orchids is good at certain things the right they're good at force the good coersion they're not good at nuance the government. shouldn't be the one who's

trying to redistribute wealth the government should be the one who's trying to figure out which tune is to pick which goes to large and cetera et cetera that's those are matters for private citizens to decide and for private enterprise to decide and i believe money that the private enterprise and private citizens decide these things in common has become vibrant that's the story of history it's not just a story united states that that's the story of many many nations across many many millennia and era and there's so much more i want to get into you i just have to cut you off for one minute i do want to finish this conversation i just really quickly want to break something down for our viewers that i think you will find quite entertaining as well we will be right back with eric private first that's. all right it's time now for word of the day where i break out a financial term or concept for our very smart viewer but just maybe not have

financial expert not the air ryan audience then today in the holiday spirit it is turkey now we all know what a thanksgiving turkey is and maybe you've heard of this kind of turkey take a listen. you need to see you get to sit with. me you've got to sit two keys if it proves you are. ok we're not talking about a jive turkey we're talking about a different kind of turkey but you definitely don't want to be this turkey and you want to avoid this one let's look at the definition turkey investment turns flame for an investment that yields disappointing results or turns out worse than expected failed business deals securities that realized significant losses and unsuccessful initial public offerings or i.p.o.'s could all be called turkeys now also a person can be called a turkey and we saw this in his seem to love the book he wrote about this in black swan he said consider that the turkey's experience may have rather than

a non-value a negative value its confidence increased as the number of friendly feedings grew and it felt increasingly safe even though the slaughter was more and more imminent consider that the feeling of safety reached its maximum when the risk was at the highest now in this case if you couldn't tell a turkey is a metaphor for the unsuspecting investor one who invests on the assumption that the future is going to look pretty much just like the past did which then turns out to be false because the future doesn't always look like the past and we have seen that time and time again and at thanksgiving for this turkey that is the day of reckoning when the person event with the low probability does in fact happen and whites you out now the theory that investors use it can lead to being a turkey is portfolio theory and it is widely taught in business schools so here's why this is a problem this is what it is basing the assumption on it assumes

a normal distribution for the probability of events and financial markets it looks like this this is the model now this model argue many doesn't reflect reality because as we've seen time and time again as i said there are unforeseen high impact events that do occur and example would be for example did the fall of russia and one thousand nine hundred eight which led to the failure and a bailout. of the multibillion dollar the u.s. had fun long term capital management see this is a problem that a bank that unforeseeable event like that was out here and had such a low probability that they weren't planning on it and weren't planning for this so this is where you see over here financial market panics and it can wipe out ten straight years of gains in a matter of hours because you think your breasts are hedged but they're not because you're not planning on this dramatic event so now that you know what a turkey is now you know why this thanksgiving you really do not want to be one.

and don't go away still ahead on the capital account sticking to turkey's how to avoid becoming one when it comes to the euro zone debt crisis and first your closing stock numbers. into it only which we make it seems do not work to bring justice for a time. i have every right to know what my government would want to know why i think taxes. well i would characterize obama as a charismatic sort. of american exceptionalism. thank . you.

welcome back all right let's switch gears and talk about europe because in greece we see striking power workers occupying a government building the crisis does not end there in germany a bond auction failed more than a third of them had no buyers and reportedly the german central bank had to pick up the slack and so we just see more bad news for the eurozone now eric fry our guest

from earlier editor of the daily reckoning he has already said farewell to the euro in fact he went to europe to do it take a look what he said with the european union there's a good idea or a better idea. which rather as we go forward look at the record. so will we see a united states of europe or in the western world of heavily indebted nations are we all greeks now are we all in this crisis well let's ask eric friday is just the guy to answer that question so eric i want to bring him back in here i want to first ask about that bail bond auction his german auction from today because there's really mixed reviews as far as if this is a big deal or not that this is the worst bond auction that they've had of the failures are investors worried about germany now. yeah i don't they're not really worried about germany i don't i don't believe that. yet but this is certainly as as i wrote last week this is certainly

a new chapter in the crisis and it's and it's a worrisome one. it's one thing that when you have a chronic deadbeats of europe having problems it's another thing when the core of the eurozone is is also having a problem and last week we saw the actually of the last two or three weeks we saw the french ten year bond yield spread over german ten year bond spread wide now dramatically meaning that investors were dumping french government debt and that was really a new chapter and a really scary one because that says look this this problem is now in the core of the euro zone so with today's failed auction i don't know how much more core it could be than ben right there with a german bond auction that failed. and yields spiked as a result of the yield spiked above us treasury

a ten year yield for the first time in a while and so it's a worrisome sign and as you said you can't get more quarried in germany actually want to bring in our producers you need to have seen us because he added i can see about that paris was thinking with a thing about fell bond auctions about two weeks ago roughly we saw the f.s.f. which is the bailout fund for europe issue about three billion euros worth and apparently it had to buy some of that that and it's backstop from the core of europe and it's incorporated in luxembourg so what does it say to you that if this point a luxembourg corporation is responsible for bailing out the entire continent of europe. you don't think that's going to work so well. you know that there. this is this is yet one more expression expression of governmental and plain common sense all of these folks are highly educated they all mean well this is a thirteen year old experiment with a lot of ph d.'s behind it and and what do you have at the end of it you have

something that's that's. the other words governments borrow too much so they should go broke and instead of a letting that happen and letting the private sector do its work all these highly educated people are trying to to meddle they're trying to you know pull money from here and pulling money from there and bail out this and bail out that this is not a this is not a process that will ever work it'll be looked at the can down the road maybe but at the end of the day you're going to end up with a far worse situation you already are than if you would simply let a bankrupt government fail and let new investors come in and and start from scratch just like what happened in in iceland you know they failed grozny and the world was the end of iceland yeah they are. people lost some money and we go to the american and i mean i think if that's what you mean eric when you say that when it comes to

western and out of nations we're all great. that's exactly what i mean we have all made we have all made promises well beyond our capacity to fulfill them and and we have all of their promises well beyond our capacity to fulfill them in any kind of a legitimate back anomic way so the only way out for and for any of us is to print money which is what the united states has chosen to do or to felt now you're the in europe so far they're trying to get this sort of middle road where the germans continue to insist we are not going to we're not going to we're not printing and so far they aren't. but neither are they going to allow anyone to default yet so one of those rows has to be chosen because you know any eighth grade math student could draw the line and simply grab that's not going to work so i predict. i predict a default frankly i don't think the year the germans will buckle and allow the e.c.b. to begin printing euro so i don't think that will i don't rule it out but i don't

get how do you predict a default or to try the idea sorry i'm sorry in favor turkey this takes us back to the turkey idea your definition of a turkey it's really you know if i'm an investor this is for investors standpoint the best trade is just to just to avoid the obvious risk and this is an obvious risk so maybe people are going to stepping in there buying italian bonds at seven percent are going to be heroes make a lot of money. my perspective be so what there's an enormous risk and so the best way to avoid being a turkey is just to avoid what is an obvious risk and europe is full of right now well thank you for that think having left and we're at a time of just really quickly to clarify did you mean a default of greece or a default of more countries. you know i believe they'll be more more defaults than greece do you want to name the first. well i i believe that the greece italy portugal spain will all be stalled

in that in some fashion greece already has we're talking about a fifty percent haircut on their on their debt that's a default. so it's just a question of what forms to take maybe italy doesn't the felt exactly did you get out of the euro and says ok we're not going to satisfy these loans with lira and so we didn't default but it's going to default all right well thank you so much eric fry for teaching us how not to play it turkey it's such a pleasure to see you we hope to have you on again thank you for being in our l.a. studio that was eric fry he is editor of the daily reckoning among many other accolades.

all right so we have gone over the financial turkey now let's talk about actual turkey because thanksgiving is tomorrow so we might as well i'm going to bring in dimitri us our producer and shana donahoe in the control room to help me out here because hey you know what we found out there are still rags to riches stories in the u.s. despite the dying american dream if you look at things like rising inequality and lowering social mobility that american dream just may not apply to animals it may apply to turkeys take a look. good . lord of the world. ok so that was a wild turkey bourbon ad and it wants to replace that beautiful woman who is this spokeswoman with a spokes bird that they get from the white house from the pardoned bird that president obama pardons as tradition they you know offered a sweet job this turkey already gets to stay at the delta you hotel which is very

posh in washington d.c. here is a picture of the shows in turkey so does this show dimitri and shannon that there still is upward mobility it just maybe not for people yeah i think this is a clear example of a very expensive and there's this wild turkey got an opportunity for a luxury so i think that this is a sign of things are looking up for birds looking up for bird santa and a cinderella story. definitely cinderella story for the bird for the rest of its friends not really a cinderella story for them not a cinderella story for them but a good analogy to maybe you know people because for all the stories like this there are a lot more stories where people do not have the. mobile fate of this bird who incidentally i don't think is going to do the wild turkey gig even though it was a sweet one i think he's going to mount vernon now speaking of turkey this one aside most turkeys are getting more expensive so as we see inflation in the economy

we see turkey and place and lucky for us. have slate broke down these numbers to show how disposable income over the last ten years even though it's risen for people the price of turkey is getting higher so basically you can buy less turkey than you could ten years ago so i have we had as matthew yglesias wrote kind of this last decade that showing itself in turkey. one the turkey was taken out of the c.p.i. right along student energy so if you put the turkey back in the percentage of breaking it up as we will see the inflation that's being asked for. you know the cost of living for average americans so i guess the real story here is that turkey has to be put back on the c.p.i. along with food and energy and you'll be able to see what's really going to stop leaving turkey out people it's not turkey that's rising no for everybody it's not that you know everybody can't afford it nice or turkeys because actually there's quite a market for nicer turkeys for heritage turkeys take a look. the paradigm of thanksgiving turkey has really changed because it used

to be a big fat enormous cheap butterball in the middle of your table and you spent the money on the booze and the placemats and now that shifting and the turkey really is the centerpiece of so very quickly heritage turkey in two thousand there were twelve restaurants that serve them now there are over two hundred and this turkey cost four to five times as much as conventional turkey so does this really highlight income inequality in this country about the one percent turkeys in the ninety nine private alternatives then they all go to this employer so you know you would want to as we did say as you so well said earlier one of their or basically there's no good turkey to be except for the one that obama pardoned janet and you have final words i totally want to be. part of it yeah that's a good life is the winner of our show today and we hope that you enjoyed it because that's all we have time for thank you so much for watching all of me on twitter at

more in the store and to give us feedback on the show at youtube dot com slash capital account i'm more in this terror from everyone here until next time have a great night and a happy thanksgiving. that has become normal and global is the creation of the group this system the global food system is not created to feed the people of the world it's created to maximize the profits. gernot trading the actual physical grain your trading promises for graeme to be delivered a monster six months or twelve months or eighteen months in the future. it's always a body like silver or gold that can be here. negotiated and afforded to some degree

. place. water. possibly it's not traded now but it could be in the future for the. future. i asked. him. if. he is going to leave because. if. you.