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- Falling Yields Globally May Be Signaling Concern
- Rising Stocks & Cryptos Show Bulls All In
- Send Questions For Our Q&A Programs To: in**@mc******.com
“I think there’s perhaps too many currents swirling together today, just under the surface, to sort out precisely what’s happening in the markets. What is undisputable is that credit markets globally have moved to unsound levels, and a variety of pressure points and vulnerabilities, areas of uncertainty, exist in the spheres of public policy, of fiscal policy, and international relations. And so, on the surface, you have a host of catalysts for consequential movement within the markets.” —David McAlvany
Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany.
David, before we get started, let’s just announce to our listeners that we would love to hear their responses, their questions. Every year, toward the end of the year, we ask for questions. We ask that you keep them short, something that we can actually read in a short way, and then answer. And so we would ask our listeners to just send that to in**@mc******.com, and over the next few weeks we’ll gather those. And Dave, I know you put a lot of time and effort into every question, so it’s very much appreciated.
David: Every year gets a little harder. I feel like it’s a competition of stump the chumps. The questions get better and better, the answers get thinner and thinner. Now, we’ll do our best to put something together that’s coherent and reflective. Thanks for sending the Q&A material over. We’ll do that on Christmas Eve and New Year’s Eve. Just send your questions to in**@mc******.com.
Kevin: Yeah, and just to reiterate, please do keep the questions just to a few lines, because we try to get through everything in several weeks.
You know, Dave, you and I, when we were sitting down—and I love the fact that we have our meetings at Table 30—we’re 17 years in, but they were out of Talisker last night, but we had Lagavulin instead. So we sat down at Table 30, we had our Lagavulin, but I think we both were on the same page. There’s a lot of noise going on right now, and some of it’s information with meaning, some of it’s information without meaning, and it’s an exciting time because there is a change in the wind. But a lot of times when you have changes like that, it’s hard to analyze the data.
David: Yeah. Times we can stretch our limits in terms of inputs, and for the child with Asperger’s, sensory inputs can aggregate and then overwhelm. For the average inquiring mind, my own included, there’s a lot of complexity embedded in price trends today, pick your market. There’s a lot going on. Not all of it is cohesive and coherent. A lot of it is contradictory or at least sufficiently complex enough to keep you second-guessing real hard conclusions. So what we do on a weekly basis as an asset management team, we review—twice weekly, actually—a spreadsheet with over a hundred financial market variables. These oscillate minute by minute, and they indicate all the nuanced shifts within the financial markets. They provide us with a mosaic very much like the tiled art with a million pieces that in aggregate create a theme. And some days the theme is clear. Other days, all we have is movement with the meaning piece remaining a little bit elusive.
Kevin: You and I were talking about Doug Noland last night, that he’s got some disciplines, models, that he follows. That can be very, very valuable in an environment of noise. And I remember, Dave, you and I for decades read a wonderful market analyst named Richard Russell. He also had a model that he used called the Dow Theory, and there were times when he disagreed with what his model was saying, and there was still the human element. In other words, it wasn’t just an algorithm everybody followed. I think Doug and the team do the same thing, don’t you? There’s models that you follow that tell you certain things to do. You don’t always have to react to them, if you think possibly the humanity element, not just the algorithmic element.
David: Yeah, but we are looking at theories of liquidity and credit, and it helps us organize and find meaning in those hundreds of market variables. What is it really saying to us? And yeah, I loved reading Richard Russell. Read him daily for almost 20 years, and looking at the non-confirmations of the industrials and the transports, looking at Dow Theory, which was created by Charles Dow and then popularized by Hamilton, Rhea. These were the precursors to Richard Russell who basically took the theory and put it into practice in his Barron’s articles before he launched his private newsletter.
Kevin: But he wasn’t a slave to the model either. He would say the model says this and I trust the model, but I’m taking a position possibly a little bit different.
David: I have to disagree with this or that. He would have a justification or rationalization for what seemed to be off in a particular period of time, even though the model is most of the time very helpful. Models are just means by which we have explanatory power, and models are inherently inadequate. As much as they are adequate in most instances, they’re not complete, they’re not totalizing. So we respect the models for what they offer, no more, no less.
Kevin: Okay, so the currents right now that are swirling about with all this information in it, how do they fit into the model?
David: Yeah, I think there’s perhaps too many currents swirling together today, just under the surface, to sort out precisely what’s happening in the markets. What is undisputable is that credit markets globally have moved to unsound levels, and a variety of pressure points and vulnerabilities—areas of uncertainty—exist in the spheres public policy, of fiscal policy and international relations. And so, on the surface, you have a host of catalysts for consequential movement within the markets.
Kevin: Don’t you find though that just loose credit, when everybody’s loaning money or borrowing money, that actually makes it very difficult to analyze true data?
David: Well, certainly it creates an exaggeration of trends. I think there’s another undisputable fact, and that’s the Financial Conditions Index—we noted that last week—at its loosest since October 2021, and that’s consistent with the record levels of debt issuance and the general giddiness for risk-taking. As we survey the investment landscape after month-end, without surprise we find that the bias was to the upside in financial assets.
Kevin: Well, and sometimes that can catch people off guard because of course there’s two sides to every market. You’ve got the long side, which you’re betting that something’s going to go up. You’ve got the short side, when people are betting that something’s going to go down. Both sides can be wrong at various times, or they can be right at various times. Goldman Sachs has an index where they measure that, don’t they?
David: Yeah. These are the companies that are most short at a particular point in time. The Goldman Sachs Most Short Index, it rose 13.3%, and that would suggest that you had a good bit of short covering and a lot of activity that was a reversal of speculation in the month of November.
So you had the Goldman Sachs Most Short Index, it rose 13.3, the KBW Bank Index rose 13.6, regional banks in the month of November rose 14.8%, which puts year-to-date returns in financial stocks closing on 50%. NASDAQ Financial Index was up, in aggregate for November, 14.2. Russell 2000, those are your small-cap stocks, up 11% for the month. Value Line, that index, up over 8%; mid caps, 8.8; S&P, 5.9. It was a lot of green in the month of November.
Kevin: Do you think that green, though, is possibly a vote of hope? Look at what’s happened to Tesla and Musk’s connection with Trump. I’m wondering if there are people actually just buying Tesla because they’re happy Trump won.
David: Yeah. Less connection to volume of goods sold and more connection to what’s next, and we do hope that things change considerably. Tesla’s post-election surge puts its market cap at 20 times that of Ford, 16 times that of GM, not to mention the crypto frenzy, where triple digit returns are in play, which for a rate of return, triple digits, that’s enough to make you feel like you’ve missed out, and behavior is reflecting that fear. The nature of speculation is not to ask why, but to ask how. Speculation is an expression of pure pragmatism. How do I get in?
Kevin: Yeah, and it really is human emotion. I mean when we talk about humanity, I ordered the book that you talked about last week, Money: A Story of Humanity. I haven’t gotten it yet, but I know that’s a book that you recommended to everyone.
David: Yeah, I mentioned it last week. I’m 90% through it, and I’ve loved probably 80% of what I’ve read. If you want a review of the history of manias and panics, I recommend you read it. You won’t be surprised to find that innovation in money and credit led to risk-taking, which in turn drives economic growth and speculation, but it always goes one step beyond the precipice. It’s just where the markets tend to go. They pick up a head of steam and don’t know when to stop.
When Aristotle defined virtue as the midpoint between excess and deficiency, he knew that virtue was in fact a very rare commodity. And as the human story is one of wild swings between those poles of excess and deficiency, we’re just not given to stasis. Monetary virtue is as rare as hens’ teeth.
Kevin: Well, it’s actually hard to sit quietly in a room alone. Remember what Blaise Pascal said? He said that’s where all of humanity’s difficulties come from is our inability to sit quietly in a room alone. But you talked about manias and panics. I’ve got a cousin who called me up and he wanted to talk about what’s going on in the markets, and he really did have true fear of missing out. He told me that. He said, “I just feel like I’m missing something.” He wanted to sell some gold to jump into a cryptocurrency, and maybe that’ll work, maybe it won’t. But I said, why don’t you let me send you Charles Mackay’s book that was written back in 1841 called Extraordinary Popular Delusions and the Madness of Crowds. Just read the first three chapters, and then let me know what your thoughts are. And it was interesting. I got a text from him yesterday, and he said, I don’t think I’m going to be selling any gold right now. I think I am doing just fine with what I’ve got.
David: Well, for November, risk assets set new record highs. The bond market, in an apparent show of solidarity to equities, was moving higher in price as well. And this is where a framework of analysis comes into play, because price movement is one thing, meaning is something different altogether. What speculators interpret as a green light—lowering yields on fixed income—bond investors can see as more of a red light. Proceed cautiously or stop, particularly when we’re talking about government bonds. So, major contraction in yields in government bonds for the month of November even as the price of risk assets is going higher, what does that mean? Again, this is the difference between movement and meaning.
Kevin: And so when I had asked if the green light was just hope for, let’s say the Trump administration, that wouldn’t really be applicable, because we’re talking German rates fell, Spanish rates fell.
David: Yeah. German bunds fell 30 basis points in the month; Spain, 30; Italy, 38; Greece, 39. The UK is having their own issues in terms of financing deficits. Even their gilts dropped 20 basis points. The French dropped 23 basis points, which was pretty surprising in the face of political crisis and the possibility of a no-confidence vote. 10-year Treasury yields here in the US, they were flirting with 4.5% earlier in the month, and ended November at 4.17%.
Kevin: Yeah, interpretation is everything. If you’re a stock investor and you’re a bull, you’re going to see that as a reason to just go all in.
David: Right. Stock investors see lower rates as permission to expand speculative bets and increase leverage. Bond investors hear the ringing of a bell as demand for Treasury bonds increases—particularly Treasury bonds.
Kevin: That’s a warning bell you’re talking about.
David: For whom the bell tolls. That’s the lingering concern. Lower rates driven by demand for fixed income can be characterized as safe-haven buying, and again, that’s when it’s in Treasurys. Rapid risk taking is how you might interpret the lowering rates if you’re talking about other forms of fixed income like junk debt. And actually, both are happening at present, so spreads over Treasurys in the investment grade and high-yield categories, they support the Financial Conditions Index data point that conditions are loose and risk taking is at an extreme.
Kevin: And so you wonder why these big bond market moves in Treasury paper are happening at the same time that the equity markets are melting up.
David: So what is the message? Market tops are often characterized by highly volatile and very divergent moves as a strong expression of non-consensus. It’s a bull market, obviously, says the bull. Consumer sentiment is strong, economic growth adequate at 2.8%, interest rates are coming down. So who says valuations are too high? You just can’t bet against American enterprise, particularly if you get a businessman like Trump back in the White House for four years.
But on that point of valuations being too high, we had this conversation in the office today, and of course last week we talked about the Buffett indicator—at 208% currently. Its previous peak was 193% when everything was at all-time highs in 2021. It was of course just before the correction in 2022. But you’d have to go back to prior to the global financial crisis for one of those high water marks, 105%. If you just let that sink in, the Buffett indicator was at its peak at 105% during the mortgage bubble. And take one step further back to the year 2000, the dot-com bubble, 138% was the Buffett indicator. Again, this is comparing capitalization of stocks to GDP.
Kevin: And that’s over 200 now.
David: Yeah, 138, 193, here we are at 208%. And again, the bull would say, “But consumer sentiment is strong. But economic growth is adequate. But rates are coming down. Who says that valuations are too high, particularly as rates get cheaper again? Don’t bet against American enterprise.”
Well, the opposing position is, “Here we are at the front edge of a bear market. Don’t you see fiscal unsustainability? Isn’t political uncertainty an obvious brute fact? What about geopolitical conflict as any one of these things is pending triggers for a recession or worse? Overvalued stocks and poor market breadth lead to underperformance in the years ahead, so you best batten down the hatches.” That’s what the bear would say.
And actually, both can be right. One is right in the present tense reality, the other is dealing with an anticipated reality—that of tomorrow. And I think you know where our bias is. It’s in the latter category. And our case would be buttressed by insider selling, buttressed by a contrarian read on investor sentiment, and in seeing both cyclical and secular price movements which run to excess. And then, like Wile E. Coyote, search for solid ground only to find that momentum took him too far, too fast, over the edge, one step beyond the precipice.
Kevin: Read a book, Dave, I think you read it too, on survival, and it talked about healthy schizophrenia. And a survivor is healthily schizophrenic. In other words, he has a portion of his mentality in worst-case scenarios, the worst that could possibly happen. Then he also has a portion of his thinking in best-case scenarios and dreaming.
I think about the triangle that we do with our clients. The base of the triangle is precious metals. It’s the place you go when you don’t really trust the system. And then the left side of the triangle is stocks and bonds, the right side is cash. If you think about that, you don’t really have to emotionally tie yourself to any one of those sides of the triangle. You can use healthy schizophrenia.
David: Well, I like to think of it as scenario analysis, something that we do regularly as a team, where you look and say, “Here are the variables. If they shift in that direction, the consequences would be this and such.” And so you’re basically playing out possibilities, and even taking it a step further and then assigning probabilities to those potential outcomes. And you are living in multiple worlds, if you will, like the schizophrenic does, only you’re talking really about the hypothetical.
Kevin: Right. It’s compartmentalization in some degree. So let’s go back to dropping government bond yields, because sometimes that can signal danger, like you said, but to a stock bull right now, it signals more credit expansion.
David: Yeah, the French are in a bit of a bind. Bond yields over German yields last week were at the widest spread since 2012. Again, we look at frameworks of analysis, and something that we discuss with Doug very frequently is the migration of issues, concerns, fractures within the financial market from the periphery of the market to the core.
And so this is one of those examples where you could say, “Okay, there’s some stress in Europe.” Now the question is, does that continue to build into something bigger that ultimately affects the global financial markets, not just the European debt markets. French bond yields over German yields, that spread has widened, the widest since 2012. So the gap, the premium that you’re paying on French bonds, is more than we’ve seen in 12 years, and it’s exhibiting increased strain following the prime minister’s proposed spending cuts and tax increases. It’s run into direct political opposition.
Identifying problems, and this is where, again, this is a challenging thing, identifying the problem and solving it—two very different things. Democracies, France and of course most of Western Europe fit this bill, democracies introduce electoral self-interest into every policy choice. And any choice that has a cost is going to be contested by those who have to bear it. So if you’re the one who’s the assigned burden carrier, you’re going to say, “Hey, wait a minute. I don’t think I like that.” And that’s the nature of a democracy. You have a voice. The problem is you get opposing voices, you’ve got political conflict.
Kevin: Well, how do they get away with that, though? Because the Eurozone actually has statutory limitations on spending, and so how do they play to the voting base, basically?
David: Yes. To be a part of the European monetary unit, you subscribe to a set of standards so that everyone is kind of on an equal playing field. Call it a gentleman’s agreement about how you’re going to manage your finances. You’re right. The Eurozone’s statutory limit for deficit spending is 3% of GDP. French are running at a very hot 6.2%. So it makes sense that the Prime Minister is talking about shifting things. You’re going to have to have some spending cuts, you’re going to have to have some tax increases, otherwise, you’re outside of your statutory limits. The parameters, the gentleman’s agreement is being broken, and that calls into question the larger EMU project. If you can just blow past the commitments that you’ve made, what’s the point?
Kevin: Isn’t it crazy though that the United States could not participate in the European Union? I mean, you talked about hot at 6.2% with France. What do we run at?
David: 6.4%, so no, we would not qualify to be a part of the Eurozone.
So if the Prime Minister forces this budget issue, then Marine Le Pen unravels the government this week with a no confidence vote. And so the debt markets are reflecting a yellow light. You see a contraction in yields actually across the board, but even more of a contraction in yields in German bunds, and that’s a signal in and of itself. The debt markets are reflecting certainly a yellow caution, maybe even a red light. There is concern over Eurozone debt and in particular French debt where government yields last week exceeded those of Greece, which is saying something.
Kevin: Yeah, it’s saying something. Okay, when you’re talking to the average guy in the street, and you want to talk about something exciting in the markets, you usually don’t talk about bond yields falling. You were talking about cryptocurrencies, some of them possibly flirting with triple digit returns this year.
David: I know. Yeah. So bond yields moving lower last week, with the exception of the yield spreads between the French and the German bunds. Probably doesn’t grab headlines, certainly doesn’t stir you like Bitcoin shooting the moon, or a small handful of cryptos reaching triple-digit returns—oh, just since Trump’s election to the 47th presidency in early November. I mean, you’re talking about big moves in a very short period of time.
Kevin: But the bond market is huge, and you have, over the last 17 years on this program, tried to teach the listeners that they need to pay close attention to that. But speaking of debt, the yen carry trade is also extraordinarily important, and the yen is rising.
David: Yeah, because when you think about the health of the global financial markets, a part of what appears to be health is activity that is just financed or leveraged activity. You borrow inexpensively in one domain, you take those proceeds from the loan, and you invest speculatively elsewhere, and make the carry. You capture the difference between what you have to pay and the return that you have on your investment. When you combine global yields in decline last week—signaling a version of risk-off—with yen carry trade reversals, where last week the yen moved higher by 3.4%, in a week, that’s a big move.
The Brazilian real down 5.9%, the Russian ruble down 5.2%. It was actually down 7% at its worst. The Argentine Peso lost 3.8%. The Turkish Lira, 3.6. The Colombian Peso— These are all carry trade currencies where you clip a coupon. If you’re going into Brazilian real, it’s because government bond yields there at 14%. So you borrow at 1.2 in Japan, you invest in Brazilian bonds, and you capture the difference between your 1.2 borrowing cost and the 14% on offer by the Brazilian government.
Kevin: Unless you have a currency move.
David: Unless you have to reverse the trend, and now all of a sudden you can see the feet in the sand, so to say. You can see the footprints in the marketplace of speculative money leaving one market and going back where it originally came from. Yen moves higher by 3.4. I didn’t mention the Indian rupee also off 3.4 while the yen moved higher. 3.4. Rupee was actually down 3.3, and the Chinese renminbi down 3.2. So it’s fair to say that not everyone, not everyone endorsed last week’s and November’s equity gains. The movement in the bond market, particularly the government bond market, and the unwind of the carry trade as we got to month end, told you that not all was well.
Kevin: And you talk about mixed data and mixed emotions. We talk about human action. We’ve got stock market gains that look like they are, like you said, green light as far as the S&P, the Nasdaq. Gold actually still, if we ended today, if we ended the year today, gold actually outperformed both of those markets, and probably not for the same reason. People are not buying gold in a frenzy to make money. They’re buying gold more on that yellow light, red light kind of analysis.
David: Yeah. So in the final month of 2024, we’re closing out the year. The S&P, as we begin December, the S&P is up 27% year to date. Nasdaq 100 is up 24.3.
Kevin: Both good gains.
David: Gold remains up 29.6, silver, 30.2, and this is after a sell-off in both of those metals.
Kevin: Yeah.
David: And here, too, is an important shift in sort of the axiomatic relations. Are the metals behaving this well because they’re trading as risk assets, or are they trading in a way that reflects a bigger picture issue, rooted in money? So if we broaden the lens to include money and credit, you could say that there’s a regime change—a regime change in the world of money and credit—led by global central banks, and that could just as easily be the explanation for why gold is moving at the same time equities are, for very different reasons, very different motivations.
One is a de-risking, and the other is a risk-on. The regime change in the world of money and credit— It’s important to remember there’s no eternal incumbent in the world of money and credit. There is only evolution and extinction, a process where you experiment until the point of failure. That is a fact, but it’s also a fact that reflects long periods of time. That’s a process that takes decades, it takes centuries.
Kevin: How about the next four weeks?
David: Well, and I think that’s where anything can happen in the next four weeks. We have an inauguration around the corner, and with it, a fight by large hedge funds to maintain their bonuses on the condition that risk assets cross the New Year’s finish line at current record levels. If they can finish well, they’ll get paid billions in bonuses. But market influence schemes, year-end manipulation, the Santa Claus rally on steroids, I think this year they do have some unusual risk factors to contend with.
Kevin: Yeah, you think? A lame-duck president. You’ve got Bashar al-Assad right now, who is possibly threatened in Syria. You’ve got Putin, who’s got his designs, and actually is being diverted over towards Syria at the same time that he’s having the Ukrainian fight. You’ve got Xi, who has been eyeing Taiwan, and he’s got, what, six weeks now of a lame-duck president? Could we have something completely unexpected happen?
David: And again, you look at the markets the way they’re priced today, and the S&P up 27%, Nasdaq 100 up 24, your cryptocurrencies up 50 to 150%, your bank stocks up 45 to 50%. It’s pricing in a pretty exuberant 2025, right? But you do have Putin and Xi that are in a stronger position to act with a lame duck president, and that’s in play over the next six weeks. Probably their best time to negotiate or to lay the table for negotiations is right now. NATO, Ukraine, Russia, you mentioned Syria, Israel and Gaza. These are all places where I think you can reasonably expect the unexpected.
Kevin: Well, even Zelensky for the first time said he would cede some of the Ukrainian land as long as the rest of Ukraine could be part of NATO. But let’s go to tariffs.
David: Yeah, and the Economist had some great commentary on that, between NATO membership, which is what he wanted originally and what the Russians have protested from the get-go, to sort of tripwire placement of NATO troops within Ukraine, where if you place enough of NATO member troops in country, then your Article 5 gets triggered indirectly by an attack on the NATO troops. So there’s a variety of things that they can angle for, or Zelensky can angle for. But that’s not it. You also have the tariff threats from Trump, you’ve already got the responses by our trade partners, which, can that rattle your risk-takers? To date it has not.
Kevin: Well, okay. As I was listening to Morgan talk, Morgan Lewis gives his economic update at the meetings right before we record, and Morgan was talking about how incredibly off the numbers have been on employment and a lot of the other numbers that have been coming from very liberal government reporting institution. And so we do have November employment numbers. My question that I had as Morgan was talking is, are they going to adjust these things to the point where it makes Trump look like he just destroyed the economy, or are we just going to continue to run on the illusion of the numbers not being right, but still buying and selling based on the illusion?
David: Yeah, if there’s a Democratic Party motivation to pull the rug from underneath Trump, I think that’s a first-quarter event. And if you can forestall, if you can wait on any major economic revisions, you would do that until after, so that you’ve got attributable blame, attributable fault laid at the feet of Trump instead of Biden.
Kevin: So the November numbers could still be monkeyed around, right?
David: Yeah. A November employment number which could sway the Fed, let’s say a really positive non-farm payroll number this week, and then impact rate expectations with sort of notable knock-on effects to risk assets. You’re talking about the dominoes falling. If you’re not going to lower rates because employment numbers are stronger than expected, then the risk assets that have priced in lower rates now have to be repriced, and the expectations then shift to tighter financial conditions instead of the desire for—by the financial markets—desire for looser financial conditions. And that could materialize this week, and define the Fed’s course on December 18th.
This week we had the JOLTS numbers—the job openings numbers—and they do suggest a strong employment report for November. It doesn’t guarantee it, but it certainly, there’s an insinuation there. Perhaps a greater reticence to lower rates by 25 basis points.
And this is where, we’re coming into the year end, and lots of things can happen that are very impactful. Risk assets are geared for that lower 25 basis points. They’re counting on the extrapolated trend of declining rates. A pause could be as offsetting as a hike because it runs counter to expectations. Remember the old “Beware the Ides of March”?
Kevin: Right.
David: It was talking about Caesar being assassinated.
Kevin: Are you thinking December might be the next month that you beware of the Ides?
David: Beware of the Ides of December. Perhaps this is a little bit of a literary stretch, but interest rates surely determine the world as much as Caesar sought to 2000 years ago. March 15th represented a regime change in the history of Rome and a shift from the Republic to the Empire. Here we are talking only of the assassination of hope, a disappointment in market expectations and a form of regime change, which is a dangerous thing for risk assets. Again, if you assume that the new credit regime is to lower levels, and it moves the opposite direction, it’s going to have a knock-on effect throughout the risk asset markets.
Kevin: Okay, so you’re actually talking about drama here in markets, but we’ve got other drama. Let’s move past market drama right now, and we’ve got an amazing pardon that happened in Washington, DC, and it occurred in early December, which makes me suspect. It’s like, why now?
David: I wonder if there’s a few Democrats asking that question. Et tu, Joey?
Kevin: Yeah.
David: So, yeah, the plot thickens in the Beltway, bypassing the Justice Department’s pardon office, providing the most sweeping pardon ever given for a ten-year swath of time covering everything known and unknown, and blowing up the Democratic Party’s rule of law narrative, which was “you got to respect Joe, the guy who’s not going to bend the law for his own family.” And that narrative did just blow up.
Kevin: Does Ukraine have something to do with that?
David: Well, of course, it covers all of the Ukraine corruption tracks on the way out the door. The big guy just ensured that the corruption of the Biden crime family has been enshrined and memorialized. Joe implicitly acknowledges that without a politicized Department of Justice, he, along with his son, along with his brother Jim, and others in the family, would be caught in their web of lies. The response following the pardon was pretty fascinating. You’ve got the IRS whistleblowers that put their careers on the line to reveal Hunter’s tax evasion, and they said, President Biden has the power to put his thumb on the scales of justice for his son, but at least he had to do it with a pardon explicitly for all the world to see rather than his political appointees doing it secretly behind the scenes. Either way, it is a sad day for law-abiding taxpayers to witness this special privilege for the powerful.
Kevin: So this includes a cover-up of the Burisma appointment, right?
David: Yeah. Well, Jack Posobiec points out the biggest issue in play for Hunter and the Big Guy. Joe Biden’s blanket pardon, he says, covers the entire period of the 2014 CIA coup in Ukraine, when Hunter was appointed to the board of the Ukrainian gas company. That means he can’t be investigated for any criminal activity during this timeframe. Are you paying attention?
Kevin: Yeah. But doesn’t this factor into why Trump was impeached in the first place?
David: Well, that’s right. His first impeachment stemmed from the inquiry into Ukrainian corruption, and the link to Joe’s influence peddling via Hunter. Ukraine is to the Bidens like the Epstein frequent flyer list is to the politically connected and the deep-pocketed across the country. There’s a lot to talk about, but alas, no longer.
Kevin: But even the Democrats are upset this time, Dave, even the Democrats,
David: CNN, not exactly a bastion of conservatism, reports, and I quote, “Democrats are left fuming over Biden decision to pardon his son after he repeatedly said he wouldn’t.” And do you remember Nate Silver, the pollster?
Kevin: Mm-hmm.
David: Loves baseball numbers and everything statistical. Traditionally a Democratic voter. And Nate says, fuming over the damage to the Democratic party brand, he says, don’t vote for any Democrat in 2028 who doesn’t repudiate the pardon within 48 hours.
Kevin: I didn’t even know you could do that. So a pardon can be repudiated?
David: I think what they’re basically saying is you need to come out publicly and state your opposition to it, otherwise you’re showing fealty to a system of corruption that is unjustifiable.
Kevin: Either way, don’t you think this affects the confidence in any of these institutions?
David: Well, my primary point in bringing up the pardon is to note that, in a bear market—coming back to the financial markets—in a bear market, trust in institutions moves to a low ebb.
Kevin: And therefore, obviously, the hoarding of gold and silver. All through history, when confidence starts to wane in the institutions, you find— I’ve got a set of books on the shelf, Dave, The History of the English-Speaking People by Winston Churchill, and he writes in one of his books that they found a huge hoard of Roman coins from between 3 and 400 AD there in Britain, and it basically was because there was a lack of confidence in the institution of the Roman Empire at that point.
David: Yeah, it may not be a stretch to suggest that on a global basis, the liberal institutions—I’m thinking of things like the IMF, the World Bank, the Federal Reserve, the U.S. dollar as an institution, because it truly is the world’s reserve currency, even coming a little bit more domestically, our body politic—these things are being discounted and reconsidered in meaningful ways. So perhaps as we look at movement and meaning, perhaps gold and silver are reflective of a souring social mood, where suspicion, and this is particularly the case amongst international investors today, not U.S. domestic investors, but maybe gold and silver are reflective of a souring social mood, where suspicion is more common than trust, and control of resources—direct access and control—reflects an agency preference. They don’t trust anyone. They want more control. And this is in a context where global policymakers are arguably preparing for a different regime.
I think gold and government bonds may be telling us something very important here. And it won’t come as a surprise that risk assets, particularly the equities markets, are going to be the last to take a clue. Risk assets are where the greatest downside now rests, a bull market in real money. What is that? It’s reflective of uncertainties and anxieties under the surface reflective of unknown unknowns. But the real bull market dynamic in gold always reflects fear, which in November was altogether absent. And I assume that the real bull market in metals is now at a very positive inflection point.
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