Podcast: Play in new window
- German Borrowing Costs Surge
- Trump Calls Tariff The Most Beautiful Word
- China Says: “You Want War?… Fine”
“We’ve often noted the migration of crisis from financial and economic to the political and geopolitical realm. We should not forget that the largest buyers of gold today are acquiring it as a strategic allocation, not merely as a trade. In a disrupted world with changing associations—very fluid loyalties—control is important, autonomy is important, agency is important, insurance is important.” – David McAlvany
Kevin: Welcome to The McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany.
David, we’ve been doing this a long time—2008, on—this commentary anyway. The company’s been here since 1972, so we’ve seen an awful lot, but think about the last few years when America was paying Europe’s bills, and the handouts were coming out quite a bit. We were scratching our heads going, ZIRP, zero interest rate policy. If you were a German or if you were a European, you really didn’t have to pay interest on your debt, did you?
David: No. And that is quickly changing. You know, the speed at which things are changing reminds me a lot of where we were, March of 2008, so 17 years ago. As we get to our anniversary this month, it is fascinating, the quantity of information, the complexity of how things are occurring, trying to wrap our minds around them, get our arms around them from a market’s perspective is one thing, from an economic perspective is another, from a political and public policy perspective, yet another still. And in terms of international relations, trying to weave all these things together, it’s just flat complicated.
Kevin: When we were first starting this program, it was following Bear Stearns coming out and trying to offer debt into the market and then pulling the debt back off. Something very similar happened this week, didn’t it?
David: Yeah, we were alive when Bear Stearns was an entity. There’s some people in the markets today that probably don’t even know that name—unless they’re interested in the history of the global financial crisis, then they might have some historical reference, but no experience. We have a lot of mile markers in our company, and I go back through— Sometimes I can tell where we were at in a period of time by the bars that we’re looking at. For instance—
Kevin: You’re talking about where they serve drinks?
David: Oh, no. I mean, I have Silver Bache bars. B-A-C-H-E. Bache was a Wall Street firm that is no more. We have Gold Credit Suisse Bars. 20 years from now, people will be like, “Who is Credit Suisse?” They’re gone, too. Over time, there is an evolution, and it is very Darwinian on Wall Street.
Kevin: That’s such an amazing metaphor, Dave, because the gold and the silver that those bars, actually, those imprints on those bars, the gold and the silver, has just been going up. But a lot of those places have just disappeared.
David: Yeah, I love the story that they tell long after these firms, very established firms, have gone away. You think, “Well, they must not have been anything significant.” Anybody remember Barings?
Kevin: Yeah.
David: Known as the sixth great power. I mean, in terms of importance in the world scene. I mean, it’s just another bank, just another failure. And these things-
Kevin: And it failed in a day.
David: These things happen, and I do feel— Obviously the dynamics are different. We’re not talking about mortgage-backed securities, asset-backed securities, CLOs, CDOs, but we are back to a market where leveraged loans are selling off and credit is being— I wouldn’t say we’re moving towards any degree of panic, but there’s pressure developing within the corporate credit markets.
And last week, to your point earlier, the European bond markets are reflecting the German commitment to spend, and prices of European IOUs uniformly sold off last week with yields rising 40 to 45 basis points for the week in terrifyingly fast fashion. In fact, it wasn’t just German bunds, it was all your peripheral European countries moving in lockstep.
Kevin: Well, it’s the realization that the United States is not going to pay all those debts anymore.
David: Which is what we talked about last week. We suggested—a day before it happened—the fiscal rules would need to be reconfigured. Nothing has been finalized, but Frederick Merz’s whatever-it-takes fiscal spend is starting out of the gates with 900 billion euros. And that put everyone in Europe on notice that the staid, miserly, fiscal hawks of the past several decades there in Germany have been displaced by desperate circumstances foisted upon them, not by Russia and Ukraine but by the Trump administration.
Kevin: By Trump.
David: “It’s not our problem,” is what we got from the Oval Office. And what we suggested last week is, as the baton is received, taken, there would have to be a major realignment in terms of their fiscal spending. I suspect this was according to the White House playbook, voluntary acceptance of military spending to deal with an existential threat. That was a lot of what we talked about last week. No existential threat, no fiscal expansion. No handing of the defense baton across the Atlantic, no ownership of regional defense to the degree desired by the White House. “So un-embracing a porcupine is always more of a challenge than embracing one,” my dad was fond of saying. The Oval Office effectively leveraged the Zelensky dress-down as the unofficial recruitment of continental finances for European security.
Kevin: You know what this reminds me of? I have a first edition, Dave, back from, it’s 1898, of the Rough Riders book, Teddy Roosevelt, and the intervention against Spain, basically with going into Cuba. There was a feeling in America back then that we did not want to be a world superpower or a policeman of the world. That was a huge breakthrough when we actually did fight in Cuba, when Teddy Roosevelt led the Rough Riders down there. But I think we still have a little bit of that in us as far as, yeah, we’re a superpower; we don’t want to be the only one.
David: Well, seen through the lens of influence—soft power. We are now disrupting decades of efforts to be an empire, but to be an empire by other means and under less obvious guise. We’ve always been reluctant to own the singular superpower role, which opened to us in the late eighties and early nineties, 20 to 30 years past the global reversal of European colonialism. If you go back to the fifties and sixties, whether it’s the Caribbean islands or African nations, everyone is moving against the European nations to say, “We want to be autonomous and on our own.” There was not a lot of interest in the US in ruling and in reigning. More of our focus was on influencing, on prompting, on shaping, on manipulating, and biasing change according to the post-war, Cold War, really, Washington consensus consistent with liberal democracy as they like to call it.
Kevin: Well, we did it with an awful lot of money that we didn’t have, Dave. That soft power actually came with a lot of soft money, and Trump is hardening that up. I mean, think about USAID right now, how much was USAID pushing out into that soft power manipulation that’s just going to be withdrawn?
David: Billions. So that’s where everyone who is in the international community is shocked. What will we be on the other side of this? And shocking to global sensibilities are the efforts to walk away from those soft power commitments. If you think of USAID, as of this week, Rubio has said 83% of funded initiatives are over, kaput. Rubio announced the remaining initiatives will be absorbed into the Secretary of State structure of organization and accountability.
And so this era of soft power through non-governmental organizations, nonprofits, has defined US policy efforts in recent decades to influence elections, to prompt social change, to shape the benchmarks for social and cultural values, to manipulate educational standards, to bias the information flows coming from research institutions towards consensus-only views and subtly dictate who would stay bankrolled and fully funded in our sphere of influence.
Kevin: Let’s don’t forget, and it’s also to make the politicians who do distribute those funds very, very wealthy in the interim.
David: Yeah. What some have called pop-up NGOs, literally nonprofits that come into existence so that they can be bankrolled with very little vetting, but they’re funded and ready to go. How much leakage exists in a system like that is probably unknowable, but it is to the current administration like a sieve, ripe for grifting and graft, and as such it’s now dead in the water. So recipients who’ve been on the other end of this are, unsurprisingly today, they’re mourning the loss of access to billions of US taxpayer money, and it is a global lament.
Kevin: I was looking at that lament when Trump was talking to Congress, whenever they would show Pelosi or some of the people who were actually just really working their dentures back and forth. You’re not against necessarily these institutional changes, but he is breaking things at a very rapid rate. There will be unintended consequences.
David: That’s right. And I think we do a lot of good in the world, and I think there’s going to be some loss associated with some of the gains that are made. If we save money in lots of places, we may look back and say, “We did miss an opportunity here and there.” I’m not sure what to think of all of Trump’s proposed institutional changes, but the unending flow of funds to unaccountable agencies spread all across the globe, I’m all too happy to see it halted, to see it repurposed.
Kevin: Well, and that should be bipartisan. We should see, on both sides of the camp, the people happy about their funds actually being distributed correctly.
David: No, but that’s not the deal. You go to DC, earn 130 to $150,000 a year, and you retire with tens of millions of dollars. And if you think the math doesn’t work, it doesn’t—off of your salary. It does, off of pimped—shall we say, influence. So reflecting again on the last several weeks of Trump administration actions and the global reactions, it reminds me of a person considering a divorce who does their best to ensure the divorce occurs, burning bridges and boats to set the course and to guarantee that the desired outcome is the only possible outcome. Everyone comes to agree that there is no way forward. And yes, Trump has a little experience with that.
Kevin: Yeah, well there is, as we’ve seen with friends and family, sometimes there’s this shock when divorce papers are actually served, and it’s like, “Wait a second, this could be real.” And I’m thinking about what Bessent said this week of the Treasury. He said, “We’re now going through a period of detox.” We’ve had a government that’s intervened on the market. Last week, you said we’re putting in a top on the stock market. I think you are right, but there was always this assumption that we would have a plunge protection team, that whoever was in office would want to save the market. I don’t know that they’re sending that signal right now.
David: Yeah, the president’s working group on financial markets is on hold, otherwise known as the Plunge Protection Team. And Bessent’s comments are pretty critical because he’s basically saying, “Wall Street, sorry, you’re going to have to experience a little bit of pain.” We may in fact have a recession. Those are not words that they’ll use, but detox and a corrective phase or whatever.
Last week’s drama was felt in the equity markets. And I think that set the stage for this week’s early declines. In point of fact, we’ve been putting in a long-term top in equities, we’ve been trying to, since early 2022. Efforts to reflate the system via monetary and fiscal policy have forestalled an inevitable retrenchment.
And I say it’s inevitable because markets are, after all, they’re cyclical, and you know you are at the end of a cycle when you’ve reached peak greed. The everything bubble is symptomatic of that. When valuation levels are not justified by either current or future projected cash flows, it’s the end of the line.
As we often describe, a financial structure can be unstable and it can crack under its own weight or it can be triggered by any random cause. And I think in this case it is a set of new policies which stir sufficient uncertainty so as to cause speculators to second-guess what they previously considered the inevitability of success. So you’ve got tech and AI and crypto, the embodiment of speculation, modern-day versions of sophisticated gambling, they’re under acute pressure. And other than spirited rallies to try to break this downtrend, I think we’re going to see lower prices.
Kevin: Do you think that’s going to be a crash?
David: A serious correction if not a crash, and I think that has begun. Far from over and you know that by psychology. The psychology of the market is given to extreme excess in both directions. These are what we’ve described as the errors of optimism and the errors of pessimism. You’re overly optimistic at tops, you’re overly pessimistic at market bottoms, which is why mean valuations are a reference point. They’re never a destination. You don’t get to fair market value, you get to undervaluation at the end of a cycle just as you were at overvaluation previously.
Kevin: We talked about that realization hitting that things are going to be quite different going forward. Dave, I’ll bring back a memory for you when you were young, when the Berlin Wall came down. You’ve always mentioned to me that that was such a shocking experience in your life, but that was a major redirect, and it involved Germany.
David: The Pomona Fairgrounds. I mean people probably remember where they were when Kennedy was assassinated or whatever the event may be, and you just, it’s marked in time.
Kevin: The Challenger, when it blew up.
David: Yeah, I remember watching it from a hotel not far from the Pomona Fairgrounds in California, watching the television screen. The wall was falling. Well, German borrowing costs surged last week by the most in over 30 years. Deutsche Bank describes the German fiscal proposal as, and I quote, “One of the most historic paradigm shifts in German post-war history. The speed at which this is happening and the magnitude of the prospective fiscal expansion is reminiscent of German reunification.”
Kevin: That’s a profound statement, Dave. What’s occurring with German borrowing costs? Deutsche Bank is basically saying it competes with German reunification.
David: But that’s what we were describing last week. There has to be a shift, there has to be an expansion fiscally, they have to start paying for things that we have been paying on their behalf. And that’s where Trump is saying, “It’s yours now.” So yes, the bond markets across Europe, not just in Germany but across Europe, took notice. And while we suggested it would happen last week, we certainly didn’t think it would happen last week.
Kevin: It’s happening quick, isn’t it?
David: Yes. So we know crisis shifts and speeds up time. You know the ECB lowered rates 25 basis points.
Kevin: Talk about not reading the room. The ECB is lowering rates when bond rates or German bund rates are going up almost half of a percent.
David: Yeah, “We’re loosening financial conditions,” says the ECB. It’s time to start loosening financial conditions. The bond market had other reasons to move in the opposite direction. And yeah, you’re right, tightening financial conditions almost two times that of the ECB’s efforts to loosen—reminiscent of the bond market if you go back to 2024 here in the US, post-September. The Fed is aggressively lowering rates, but the bond market instead of a hundred basis point drop actually adds the other direction.
So last week was wild and wooly. Currency markets rallied globally as the US dollar fell 3.4% for the week. That’s a big move in a given week for the most important currency on the planet. And frankly, that helped keep the wheels from coming off. You had a rise in rates, but if you had had currency weakness in those same markets, you’re talking about the kiss of death. At least there was an offset to rising European yields last week. Again, this is the increase in European currencies.
I think we had some of the Scandinavian currencies up four to six percent, and many, the euro included, rallied. But the dollar decline, if you’re coming back to this side of the pond, the dollar decline is symptomatic of liquidity issues emerging in our financial markets. So that’s important to keep in mind.
Also, the yields moving higher in unison across Europe helped keep spreads from rising. And that would have been something that was also terminal in nature. When bunds diverge from peripheral European yields, there’s more pressure on the leverage speculator. So that too was a helpful dynamic holding panic at bay in the European markets last week.
Kevin: We’ve had extremely concentrated trades in our market. I mean, we were seeing 70% of all of the S&P 500’s volume going into just seven stocks. Those concentrated trades, though, while they’re going up, it actually just is a momentum trade, everybody gets to play that game all the way up. It’s like grabbing a sheet on the bed and just pulling it straight up at the point. But what happens when that concentrated trade becomes a concentrated trade on the downside?
David: Yeah, I mean that’s where volatility in extremes causes a rethinking of risk, and it does require repositioning. The Financial Times noted by the end of trading on Monday that hedge funds were in what we would describe as deleveraging mode. It’s just a fancy way of saying they’re panicking. Panic mode, coping with forced liquidations. They have to de-risk.
Asset allocators in recent quarters, and this is really just for performance reasons, have been forced to overweight the most popular trades, otherwise they’ll underperform the benchmark indices. So they overweight tech, they overweight AI, the Johnny come late to the crypto party crowd, they all felt last week the blunt force of declines. And that followed through into this week as well.
Now what could happen of a positive nature over the next week? You’ve got options and futures expiration only about 9 or 10 days out. That may provide relief if you’ve got financial firms attempting to unwind those hedges, get a rally started, and get us back above critical levels.
And by the way, that is one of the most notable things, we noted the Dow/gold ratio into the fourteens, breaking lower, which is a positive sign for gold, negative sign for the S&P and Dow. But all your major indices are now trading below their 200-day moving average. I’ll just say that again, all of your major US indices are trading below their 200-day moving average.
The S&P broke below, closed below, its 200-day decisively. And now we wait to see if we end up with a two-day close below those levels. Anytime you’ve got a two-day close below those levels, it portends a cascade to lower levels, or what you think of as a nasty bear market.
Kevin: Well, you know, I brought up Bear Stearns early in the program, and we talked about that, but it was a bad day back in 2007 for Bear Stearns to go and try to sell debt or borrow money. And we’re starting to see right now, this week, these guys who need to borrow, they were like, “Well, I don’t think we should go out there this week. Let’s hold back and see if things change.”
David: Yeah, this week was the first time we’ve seen a considerable increase in stress in the corporate debt markets. Equities are one thing, but when you’re not able to finance and borrow, it becomes an issue for your liquidity. And when liquidity becomes an issue, now you’re talking about real issues. So high yield and investment grade debt, both showing signs of stress. Credit default swaps increasing in price in those areas. And again, when the bond market gets concerned, everyone should be concerned.
Acute stress, no, but the cost to insure against default in those markets, definitely reflecting—well, we had relative calm last year, but those costs are turning up, and that’s a factor you want to keep your eyes on. This week, dozens of debt funding deals put on ice, not a favorable time to be raising money in the debt markets.
Kevin: So let’s talk about the FAANGs. The FAANGs have been where everybody’s been “making their money.”
David: And that’s what we’ve been warning is when the generals are wounded, the troops scatter in disarray. The New York FAANGs index was off as much as 6% on Monday after a terrible week last week. And this is just your over-owned themes becoming more vulnerable, particularly when they’re over-owned names bought on margin.
I think we mentioned last week the margin getting to almost a trillion dollars, nine-hundred and… I’m dyslexic, it could be 36 or 63. 900, and let’s give it the benefit of the doubt, 36 billion. A lot. A lot. Also noteworthy, and this was just a tidbit from the weekend, Hong Kong margin debt levels also tipping towards 300, $350 billion.
Kevin: Wow.
David: Significant margin in lots of places. Retail buyers invest on hype and maintain faith a lot longer, not believing that they could have been wrong unless losses are too great to bear. It’s the hedge funds who will de-risk and de-leverage a lot faster than retail investors because for the most part, they do maintain risk management rules. So this week we’re not seeing retail capitulation. We’re seeing retails saying, “Look at the dip. It’s time to buy,” while your institutions and hedge funds are being forced to lighten up a little bit.
Kevin: In December, Dave, you turned 50 years old, just to remind you.
David: Oh, thanks.
Kevin: And we talked about Wealth of Nations because you got Wealth of Nations, a copy of that going back a ways, but I want to go back to Wealth of Nations now. It’s been three months since we’ve talked about it. I can’t believe that. But in 1776 when Adam Smith wrote that book, he warned about tariffs. Now we live in a day and age where people are either pro-Trump or anti-Trump, and that seems to be coloring and flavoring everything they’re thinking. But if we just step back and take an objective look at tariffs, what are your thoughts right now, Dave? Because it’s happening really, really quick.
David: Well, “the word tariff is the most beautiful word in the dictionary,” to quote Donald Trump.
Kevin: I don’t know if that’s true, is it?
David: I disagree strongly with that. The Oxford English Dictionary, with over 65,000 other options, most of which Donald Trump has never heard of, don’t make the list. If you’re interested in that, and I would encourage you, if nothing else, on a Friday night, watch the movie The Professor and the Madman, or read the book, The Meaning of Everything. It’s the story of the Oxford English Dictionary, and it tells about how all of these words were gathered together and the history of the words, the meaning of the words. And tariff does not, in my mind, make the list. It’s not the most beautiful word in the dictionary.
The average PhD is thought to have a command of about 5,000 words in their vocabulary, a fraction of the 65,000. And even if it was 5,000 instead of 65,000, tariff, how does that make the top? It just doesn’t. Freedom: I think that probably better captures the American dream, and it does so so succinctly. Conceptually, it has greater importance to our history and the history of the west.
Tariffs are however, the greatest stimulus for angst amongst our trade partners. And so it might be, not the most beautiful word, but the most damaging word in terms of how people are viewing us and we’re viewing them. We have to, as our trade partners, consider a vastly different landscape in 2025 than in previous years, even in recent decades. So what we have is the market responding to tariffs, and the markets don’t know what to do. They don’t know what’s next. We’ve got countermeasures from China and Canada, to a lesser extent, Mexico. They’re coming back. Canada’s retaliatory measures include their 25% tariffs on exported electricity and they’ve got aluminum and steel on a short list to be increased over the next several weeks. Trump basically says, “Okay, fine, you’re going to tax our electricity, what we’re going to do is we’re going to double the tariffs on aluminum and steel to 50% going northbound.” This is the world we now exist in, tit-for-tat, escalation. That is the reality in a trade war. And there’s pockets of vulnerability. And it doesn’t matter that those pockets of vulnerability are isolated. It’s the uncertainty of what’s next that I think has the markets very, very much on edge.
Kevin: Well, it’s like war with very, very blunt objects. Remember when the knights used to fight with swords that didn’t cut? They just absolutely bludgeoned somebody to death. If you go from 25% to 50% on a tariff, there doesn’t seem to be any science in that. That just seems to be a blunt instrument.
David: Yep. And I think ag is in the cross hairs here in the US. Prices are trading lower on the threat of a supply glut causing great anxiety for US farmers. They’re basically facing the potential loss of end markets. It’s going to be problematic unless the US government plans to buy the excess. That’s ag.
Not all commodities are trading in unison. Ag is lower. You’ve got corn, soybeans, and wheat. They’ve given up all their January and February gains. Still, year to date they’re trading better than oil, which is negative, down almost 7% year to date. Natural gas moving the opposite direction. Energy is bifurcated. Natural gas is 22% higher since January 1. Gold obviously is an exception, too. Gold’s higher by 34% over the past 12 months, 10.9% year-to-date. Silver also higher, almost exactly the same, 34% over the last 12 months with year-to-date gains of 12.9%. So you’ve got different messaging, pockets of vulnerability and an expression of anxiety showing up in the gold and silver market, not as a liquidation, but as a safe haven.
Kevin: It’s important to really stop and take a break here and say, “All right, who is buying and why on the gold market?” Dave, your family has had this business for 53 years. So you have seen different types of gold buying. There’s speculative price gold buying, there’s fear gold buying, there’s geopolitical hedge gold buying. The speculative buying, even though the price has risen, what, 34% over the last year, you don’t have the speculative buyers in gold. This is almost all geopolitical hedge. These are strong hands, like you brought up two weeks ago.
David: Yeah, gold has been reacting as a geopolitical hedge and haven for investors. That trend is set to continue, with greater destabilization—both in trade and in other spheres. You can take this quote and interpret it as you wish, but this is from the Chinese embassy here in Washington DC—and again, interpret this as you like, “If war is what the US wants, be it a tariff war, a trade war, or any other type of war, we are ready to fight to the end.”
Kevin: Strong words.
David: Very. And we’ve often noted the migration of crisis from financial and economic to the political and geopolitical realm. We should not forget that the largest buyers of gold today are acquiring it as a strategic allocation, not merely as a trade. In a disrupted world with changing associations, very fluid loyalties, control is important, autonomy is important, agency is important, insurance is important.
Kevin: Yeah. And what would also validate that, the US Treasury has always been a flight-to-safety type of thing too. There are times when we— A couple of years ago, we started buying Treasuries because of the interest rates, not as a flight to safety. At this point, people are fleeing to Treasuries again, more because they’re a safe place to park money.
David: Yep. So you’ve got rates coming down as people are buying and pushing the prices up. In the past five to 10 trading days, I have seen just that—Treasury trade as a safe haven, as asset allocators look to defray portfolio risk and move to a cash equivalent.
So short-term Treasuries, taking no duration risk, not playing with credit risk, these are the important diversifications as investors are de-risking. And I think it’s also interesting to see ETF flows on the increase for GLD and SLV. It’s interesting to see a difference in trading dynamic. Even though there is real concern in the equity market, there is now a significant divergence in performance between your precious metals miners and gold and silver in general contrasted with the downtrends last week and this week in the broader equity market.
So there is a differentiation, at least at this point. We recognize there’s still a vulnerability, particularly with the miners, as they tend to be owned by the hedge fund. So if deleveraging continues, we could see some pressure there.
But if you’re going to de-risk, if you’re going to focus on short-term Treasuries, you want to own precious metals. Position conservatively in liquid cash equivalents; lighten your tech, AI and crypto positions on any bounce; lighten your S&P exposure on any bounce. And just note that there are some macro themes that we don’t know how they will play out.
The American exceptionalism in the form of US equity out-performance, that in the rear-view mirror is likely to have set the stage looking ahead for an extended period of relative under-performance—that is in US equities—relative to global equity markets. Too many people are assuming past is prologue with US equities. There is a valuation problem, we know that, but there is now a growing global resentment problem as well.
Kevin: A good example of that, Friday night, we went out with some friends of ours, and one of their boys that they raised here in the United States now lives in Canada. And we asked, we just said, “What do you guys talk about right now?” Because he’s up in Canada, and he’s not necessarily liberal, but the rest of the world right now does not see Trump necessarily in a positive light.
David: Not at all. I mean, if you look at Trump’s speech last week, there was a notable contrast between the view of the American public and the rest of the world. And for the proxy, I’m using the CNN poll of people that had a very positive or somewhat positive reaction to Trump’s congressional speech. 69% in the CNN poll were in that very positive or somewhat positive.
Kevin: That’s a CNN poll. Isn’t that amazing?
David: Right. That’s right. And that wasn’t even as strong as the CBS poll, which was giving a 76% approval rating for Trump’s speech to Congress.
Kevin: It was a heck of a speech.
David: Now if you look at the November vote, okay, it’s closer to 50/50 suggesting that half the nation hates the job he’s doing. But CNN and CBS, I mean, we’re not talking about Fox and Newsmax. Following the speech, you even have David Axelrod—you remember, the political advisor for the Obama administration—criticizing the Democrats for their behavior at the speech.
My point is that change for the rest of the world is terrifying, and change for a good number of Americans is, too. And while the changes proposed may end up as flaming failures when implemented—and that remains to be seen because I mean obviously re-engineering the global trade system and converting an economy to being driven and dominated by government spending really at the margins, consumers still an important component but government spending is where we’ve leaned in heavily. Converting that towards private sector growth comes with massive implementation and execution risks. It’s not clear that they will succeed in their goals and aspirations. And there are, at least according to those polls, a large number of Americans that do welcome it.
Kevin: Sure. We’ve been talking to Neil Howe, Dave, fourth turning types of talks, and we’ve said it could break one of two directions when you go through the fourth turning. You can either go toward more socialism or communism, or you can break toward more of a private free market. Well, the steps that are being taken right now could be very, very painful for all of us, but it gives me hope if this is the other side of the fourth turning.
David: Well, you mentioned Bessent’s comments that we’re now in a period of detox. I think that’s as clear as you’re going to get from any administration official that we will be in recession this year. That won’t come as a surprise to them. It’s going to be a painful surprise for both the retail investor who was assuming that we were going to have really healthy positive GDP growth and earnings priced to the moon. Everything was going to be fine. 401Ks, were going to continue to multiply, et cetera, et cetera. And there is this pause in economic growth, and I think according to the officials, then a resurgence of growth.
Of course, that’s an X factor. We don’t know. We just don’t know. But the pain that comes in the equity markets is really, really curious because this is a period of time where, as we talked about earlier, the plunge protection team might not be willing to step in straight away. Of course, if we had a 4,000 point drop in the DOW tomorrow, would they be inspired? I think they would. I think that kind of panic would be—
Kevin: But it’s unknown, isn’t it?
David: It’s unknown. So what are the thresholds that lead to intervention, or are there any thresholds at all in this particular period of time? There are so many things in flux that I think you have to assume uncertainty is what is entering the minds of not only the investing public, but the global community as a whole. And that uncertainty is sufficient, I think, to define both the course lower in your financial assets and higher in your hard assets, particularly gold and silver.
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You’ve been listening to The McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany. You can find us at McAlvany.com and you can call us at 800-525-9556.
This has been The McAlvany Weekly commentary. The views expressed should not be considered to be a solicitation or a recommendation for your investment portfolio. You should consult a professional financial advisor to assess your suitability for risk and investment. Join us again next week for a new edition of The McAlvany Weekly Commentary.
