Podcast: Play in new window
- NVIDIA: $3 Trillion In 21 Months
- “This Time Is Different” Is Always The Same
- Jackson Hole Gift Signals September Rate Cut
“Politicians will lay claim to the stock market’s success if they have success on their watch, and they’re blamed by others for its failure. And perhaps it’s more coincidence. Perhaps the trends in play are beyond the ability of either party or candidate to control. Only versions of the outcome exist. So an individual politician in a policy suite may make something a little better or a little worse by the policies chosen. But if markets run in cycles, politicians are closer to being coincidental to that history.” – David McAlvany
Kevin: Welcome to the McAlvany Weekly Commentary, I’m Kevin Orrick, along with David McAlvany.
Well, Dave, last week we talked about a 400 ounce bar of gold being over a million dollars for the first time, but as we speak today, it still is over a million dollars. What are you thinking about gold right now?
David: Well, sometimes you see these price moves and it is a flash in the pan. And when we had the Russians invade Ukraine, the price went higher. The COT reports got very clustered and crowded.
Kevin: That’s the Commitment of Traders when you say COT.
David: That’s right. That’s right. And it was a flash in the pan.
Kevin: Right.
David: I have a feeling that this is a little bit different, and there are a wide array of things that the global audience of investors are looking at and they’re not being appeased. There is nothing. Even Nvidia’s reports this quarter, it’s not enough to keep them from adding to their ounces.
Kevin: Well, yeah, it’s interesting. Nvidia has been sort of an anomaly. I can’t help, when we’re talking about Nvidia, I’m thinking about artificial intelligence and I think a little bit about the history of the computer. Von Neumann during the Manhattan Project and other guys working on the IBM computers that ultimately became IBM computers when they were figuring out how to actually make the A-bomb work.
But Alan Turing was brought in as well, and they said, “How someday will we know whether it’s actually artificial intelligence or whether it’s human intelligence?” And so Alan Turing came up with something called the Turing Test to determine whether a computer can actually imitate a human.
Now my question would be this, though. Artificial intelligence, AI, has caused Nvidia and other stocks to go through the roof. Is there a test like the Turing Test where we can see, are we in artificial valuation territory, Dave, not artificial intelligence, but artificial valuation?
David: Well, of course. And that’s one of the reasons why our conversations with Andrew Smithers have been so important. Go back to the archives and listen to those. Or if you want to make your way to Amazon and order a few books, The Q Ratio, I think he wrote that in about the year 2000, and then a few years after, Valuing Wall Street with Stephen Wright, and they were co-authors. And just a brilliant look at how you can look at 10 or 20 different measures of value and which of those 10 or 20 are the very best in terms of consistency through time, through any cycle. And they land on the cyclically adjusted price earnings multiple and Tobin’s Q, which is just the measure of the value of stocks compared to their replacement cost.
Kevin: Right. Well, and the cyclically adjusted price earnings ratio, a person can google that and just look at the last few decades and just look and see how it tracks. Stock market rises and crashes valuations when they get too high, it always points— That is a good test when I ask about artificial valuation or true valuation.
David: Yeah. Now that is one that’s looking at earnings. If you’re looking for an egregious mark to absurdity, it is Nvidia at price to sales of over 40 times. This week Nvidia reports for the quarter. Why does everyone seem to care? Bank of America study shows 78% correlation between Nvidia shares and the wider market price action.
Bloomberg makes a complementary point. There is no precedent for a company so quickly rising to be a 6% share of the entire S&P 500 index. It’s a capitalization weighted index. And no company in a matter of three years has had that kind of ascendancy, just as there’s no precedent for a company improving its market cap by $3 trillion in 21 months.
Kevin: That is amazing.
David: So the launch of ChatGPT and the 20-month ascent that followed has been nothing short of mind-bending. So there’s a mathematical importance, but I think also important is that mood cannot be underestimated. As goes Nvidia, so goes the market. Maybe it’s not math. Maybe it’s mood.
Kevin: I was thinking, for the person who never got involved with Nvidia, maybe missed the move, that person might be going, “Well, what difference does that make to me?” But the broad market, it’s the broad market at this point.
David: Yeah. On the problematic side, you might think of it as index capture. With the increase in impact has come a broader market which is influenced by the direction of the shares. Of course, it’s not alone if you want to throw in the Mag Seven. Most of those are the people who are buying from Nvidia. So they’re very tightly connected. So correlation, as you well know, correlation is not causation. We’re often reminded of that. But the mood in the market has in recent months been either as manic or as depressive as the shares of Nvidia. As go the Mag Seven, as goes Nvidia—more specifically the spoils of AI—so goes the market.
Kevin: You just now said correlation is not causation. And I remember reading a great article in Foreign Affairs, Dave, that you pointed out a few ago on big data and how it comes to decisions. Now, AI, they’ve programmed some things in that make it look more like intelligence, but it still boils down to correlation of large amounts of data, not necessarily wisdom. And I think about Apple and I think about Alphabet and I think about some of these other companies right now. It’s looking like an anomaly that’s playing into the whole market.
And I wonder if we were to actually look at a correlation of this time is different, what if we actually just measured every time somebody said “this time is different” and then see what the outcome is after that? What correlates to that?
David: With new or fresh late cycle phenomena come the rationalizations for why this time is different, and history is in that context sidelined. It’s considered to be unhelpful, a waste of time. So like Nvidia rewriting the rules, Apple and Alphabet defying earnings gravity, these things should, we’re told, cause us to discard valuation metrics that have failed to capture these company specific anomalies. And again, I come back to Smithers’ concepts in Valuing Wall Street and The Q Ratio. Those are books that are now two, two and a half decades old, and contemptuously, they would be thrown out as inadequate in a big tech era.
Kevin: I remember coming to work for your family back in 1987. And about that time, Wall Street, the movie, came out. I remember Gordon Gekko and Wall Street, and there was the old guy in Wall Street who reminds me of the Smithers in the movie, who’s like, “You guys, you need to know that you’re playing with fire. This time is not different. Every single time you do stuff like this, it turns out badly.” You remember that older guy who was the voice of wisdom?
David: Absolutely. We prefer to exist with the tensions of time lags and allow patiently for the past to emerge into the present. At the end of the day, we’re talking about people doing the same things, and it feels fresh and it feels different because this time it’s a particular kind of chip, but there’s been all kinds of innovations which have captured the imagination of the investing public, and it’s that imagination piece unbound which leads to excess.
Kevin: So this time it may be different for now, but it’s not different for the long run.
David: No, I mean, call it loyalty, maybe more accurately gratitude. There are insights from Smithers that have nothing to do with market timing, everything to do with the best possible analysis on market returns over time.
Kevin: That’s the cyclically adjusted price earnings ratio, and then Tobin’s Q, those two books, right?
David: They remain very helpful and those two measures are very helpful. A few weeks ago, however, you had a Bloomberg article railing against CAPE, the cyclically adjusted price earnings multiple. For those of you who are interested, and if you’re willing to spend 15 to 20 hours reading those books, I think a requirement for those managing money or aspiring to, neither valuation metrics help with someone desperate for riches and on a set timeframe for achieving it. If you’re trying to compress time, this is something that’s really taking time out of the equation.
It reminds me, for anyone who’s done technical analysis, it’s like a point and figure chart. It does capture the movement, it does capture the price, but it sucks time out completely. Time is extracted. And the truth of price relative to earnings, or price relative to asset replacement cost in the case of Tobin’s Q, they stand out, again, from a more limited timeframe.
Kevin: Going back to that 1987 time period when I came to work for the family, I remember the summer of ’87, Fortune magazine had a cover that said, “Are stocks too high?” It said, “This time probably is different.” Now, by that next October we had the largest crash since the 1929 crash. So I guess it wasn’t.
David: Yeah. This is all about movements above a mean and prices that have you sort of on the edges of the Gaussian curve, so to say. Two and a half standard deviations, three standard deviations. When you start talking about the 1,000 year or 10,000 year flood, that’s where you’re talking about a four or a five or a six standard deviation event. It’s very uncommon within markets to see things get to a three standard deviation event. Yet we’re just about there, between two and a half and three, on both of those measures.
Kevin: But Bloomberg is saying it’s different this time?
David: Yeah, I thought the whole article, this is Bloomberg, again, discounting those valuation metrics, served as yet one more attempt to say, “This time is different. This time trees do grow to the sky. And with the advent of radical technological shifts, you have to adjust and accommodate a unique data set.” I think that’s the problem is when you have a unique data set, it may apply during a limited time frame, but it means that it doesn’t necessarily apply across all time frames. So that’s the problem. The long-term reliability of these metrics is not validated in the short run and invalidated in the long run by the flavor of the month technology shifts.
Kevin: You repeat yourself over and over, and I think it’s worth talking about again. What you buy something for is the most important, isn’t it, to you?
David: Absolutely. Overvaluation and undervaluation are the characteristics of market extremes, and those extremes can persist for many years. Your projected future returns, I would argue, still takes into account what your cost basis is, regardless of asset class. I’m saying it and summarizing it differently. Tobin’s Q and CAPE remain valid confirmation tools of when prices are at their extremes.
Does it tell you what you should go out and do today? Nope. Never meant to be a timing tool. Charting the numbers, you can see where you are relative to the mean and determine how many standard deviations you are from that mean. And then you can come up with what your future expected returns are if you are buying low or buying high. Conversely, you could be selling high and buying low. And that actually is the very simple formula for making money in any market, whether it’s real estate, stocks, bonds, cryptocurrencies, gold, whatever.
Kevin: Isn’t it funny though, sometimes we try to find explanations where we justify ourselves even when it makes no sense? Even when we have a history of understanding something’s maybe too high, we justify ourselves. Commentators will do that because, first of all these guys are paid to make a story in the news.
David: It is about momentum. Commentators are seeking, not surprisingly, a way of justifying future high rates of return regardless of the prices being paid for the asset. You can ignore what you’re paying today because it will go higher and higher and higher and higher. The seemingly obvious, “Don’t pay too much,” is ready to be deconstructed.
And I mean, look, Nvidia is now priced at 40 times sales. Its peers are closer to 10 times sales. It is an anomaly. Could you have paid a high price and still made a lot of money in Nvidia? Yep. Is that a strategy which is going to serve you well for the next five years, 10 years, 25 years? I mean, if you want to, you can tempt fate and just ignore the value equation. There’s, I think, three of them that you could put into that same mix, Alphabet, Apple, Nvidia. It’s changing how analysts wish to view the market with unlimited upside.
Kevin: Well, maybe what they’d like to do, and rather than look at the numbers on the market, maybe they should just look for joy. Maybe the market, if Nvidia keeps going up, just like Kamala, it promises you joy. Why look at the numbers?
David: I mean, you’re right. You’re playing a momentum game. What you have is immediate gratification, particularly if you open up your statement or get online and look the next day after purchase and it’s up yet again. And you like that. You like the joy of winning. And if we go back to this cap-weighted thing, mathematical influence in a cap-weighted index is one thing. It’s the mood that is far more interesting because people will always see what they want to see. Be that the boundless optimism or the most extreme of pessimism.
Kevin: Okay, but let’s just go ahead and step back into the old metrics. Let’s just go ahead and say, what if they still do matter?
David: When we bring back the old metrics, I do remember sitting at a hotel in Edinburgh, and I think Smithers might’ve been wearing Harris tweed. This is not like bringing back the tweed and the pipe. This is not our version of a fashion statement or some sort of nostalgic obsession. It’s a reminder of the importance of recurrence. And it’s tied to human nature, it’s tied to instinct, it’s tied to conscious thought and subconscious desire. Patterns recur and some patterns deserve, I think, right now a laser focus. I remain convinced that what you pay for an asset is highly relevant to future returns. And I remain appreciative of Smithers’ insights, never attempting to frame market timing. Again, he’s never made that claim. We as investors are too fixated with short-term gratification and too impatient to allow basis to play its larger part in long-term success.
Kevin: I’ve seen you do this with coins, Dave, when, like the old $20 gold pieces get to be too cheap. Whenever that happens, you go in and you buy them. And you’ve done this with other things. I think about the trip to Europe when you were thinking possibly of buying tweed, not because it was underpriced, but because it was the last of the tweed.
David: Yeah, that is probably an example of nostalgia in backward-looking fashion. My wife and I were on a trip to the Hebrides. This is Harris and Lewis, and we visited the Isle of Harris. This has got to be 15 years ago. And of course we had to visit the Shrine of Tweed. The industry was being dismantled, the weavers told by one American textile giant that their skills were no longer needed. They were the dodo bird of the day. And I have these thought experiments with lots of different things and don’t act on many of them, but I considered my own Jurassic exhibit, a 40 foot container of tweed in every color variation imaginable. I could get it shipped to the United States if my math was right, fillable and shippable, for $20,000 all in.
Kevin: And what would you do with it when it got here, Dave?
David: Yeah. What does one do with a 40 foot container of tweed? Well, I can answer. I don’t know. In part because very reasonable spousal conversations, and again, many of those thought experiments of potential investment opportunities, they’re never acted on. Mostly for good reasons. The death of tweed, as it turns out, was highly exaggerated. It’s not entirely extinct. And I’ve even wondered if that example of tweed inventory clearance is something that happens for every American that walks through the door. They’re told some romantic historical narrative, the 100 year old trade and the pressure that they were under from corporate foreign nationals squelching creativity, ruining the artist and the craftsman, and here are the last remnants of truth making the journey to America in a 40 foot container.
Kevin: You’re the one who saved the tweed.
David: Yeah. Well, I’ve never been back, but I do wonder if the tweed salesman on that day is any different than the Persian rug purveyor who’s going out of business for the 1,000th time and discounting stock to nearly free. Not nearly, close enough.
Kevin: Well, let’s go back to mood, then, because again, politics right now is either selling fear or joy. Fear or joy. But can you really apply mood? How long can you apply that to the market? I mean, Smithers is talking math here.
David: Yeah, and I think that’s what I like about it. It’s math, plain and simple. What is everyone else selling today? You come to the United States and it’s fear of a despot. About that for both parties. That’s what they agree on. And obviously they don’t agree on who is the despot, but that’s what we’re afraid of.
I read from the Peterson Institute’s, Adam Posen, he had a piece in the Financial Times. This is very interesting in light of last week’s move by the Federal Reserve, but he said, we should prepare for a pivot to Fed tightening, not the market’s now 200 basis points of cuts currently expected by the middle of next year, that’s 2025. And Posen’s expression was one of fear, primarily fear of Trump. Not unique. Neither is it unique that there’s fear of outright communism from Kamala being elected. So it’s fear which is prominent with both parties.
Ample literature in the lead-up to the election, which writes in the language of catastrophism, leans heavily on hyperbole. If you’re not afraid, you don’t understand what’s at stake. And that’s what both partisan sides are saying. Fiscal policy in Posen’s view will be a disaster in the US regardless of a Trump or Kamala victory. And on that, I completely agree. As we discussed last week, the math is bleak. But who’s more inflationary? Who’s more recessionary? That’s where all of a sudden you begin to see perhaps a bit of bias peek through in Posen’s writing. I like to borrow occasionally from our friends at Elliott Wave Theorists and just say that too often we attribute cause where coincidence is closer to the truth.
Kevin: Well see, that’s that correlation thing that we’re talking about. If something happens to you and there’s some event nearby, you can possibly think that that’s going to happen each time. You probably know the story of the little girl who’s sitting at the meal with her mom and her grandma and her great-grandma, and she says, “Why do you cut both ends of the meatloaf off?” And the mom says, “I don’t know, that’s what your grandma always did.” And grandma said, “Well, that’s what my mom did,” and great grandma’s there. And she goes, “Well, I did that because I had a small pan.” Well, see, that’s correlation. The ends of the meatloaf don’t need to be cut off necessarily, and correlation isn’t cause, but coincidence, Dave, coincidence is another word that starts with a C and you can mistake coincidence, and I’m thinking politics here. Okay?
David: Yeah. Well, politicians will lay claim to the stock market success if they have success on their watch, and they’re blamed by others for its failure.
Kevin: Right.
David: And perhaps it’s more coincidence. Perhaps the trends in play are beyond the ability of either party or candidate to control. Only versions of the outcome exist. So an individual politician in a policy suite may make something a little better or a little worse by the policies chosen, but if markets run in cycles, politicians are closer to being coincidental to that history.
Kevin: Right.
David: An exaggeration for better or for worse of a particular trend that pre-existed, with causes that are deeper than a politician’s pronouncement of policy objectives. That makes sense to me.
Kevin: Well, let’s just look at that. Okay, going back to 1987, Reagan was president. You had a Republican. We had a stock market crash in October. Then we go to the year 2000. We had a stock market crash, and it was under Bill Clinton, a Democrat. Then in 2008 we had a stock market crash, and that was under George Bush, a Republican. Is there a correlation or is it just coincidence?
David: I think it’s coincidence. When you look at the 1980s, you have interest rates coming down off of the mid-teens and moving towards the single digit, which adds fuel to a bull market fire. And it doesn’t really matter who’s in office when rates are coming down or when rates are going up. There is a price to be paid or there is a benefit to be reaped.
I’m a wholehearted believer in the consequence of ideas. Don’t get me wrong. I think philosophy matters, and I do think that good ideas have good outcomes, bad ideas have bad outcomes, but the complexity of the marketplace can entail far more than the narrow attributions of success or failure. We see this every day. A CNBC market commentator ties into a particular data point and says, “This is why the market is up, or this is why the market is down.”
And if you listen through enough days, the same data point can prove one market direction move higher or the opposite market direction lower. The CNN political analysts ties to a particular political preference. Human events are far more complex than we allow for.
I don’t know that human beings are that complex, on the other hand. And this is where, again, we’re motivated by greed, we’re motivated by fear. If you look at the things that cause individual human action, I think you can actually wrap your minds around that. It’s where you get into a complex system that I’d be careful of attribution.
Kevin: Okay, so let’s talk about expectations then, since we’re talking about human action. Right now, there’s an expectation that there’s going to be as much as 200 basis points cut from the interest rate over the next year. In fact, by middle of next year, I think. Is that realistic?
David: This is, I think, an overshot expectation. Unless the Fed is reacting to a severe recession or a labor market implosion, getting to 200 basis points lower doesn’t really make sense. And frankly, I’m not exactly sure how we justify moving into a loosening mode, at least with interest rates, when we have real estate at all time highs, stocks at all time highs. Look, gold is at all time highs.
Kevin: Right.
David: It’s an odd time to be recommending that we start to loosen financial conditions.
Kevin: Unless you think politically, Dave. You’ve been saying now for the last couple of years, you could expect interest rate cuts going into an election, and we could go back and see that over and over. There’s always an excuse, isn’t there? A justification?
David: Well, last week’s Jackson Hole meeting represents a follow through event from the December 2023 Powell pivot. We’ve had the forward guidance to this point. We’ve been told that we’re going to move towards accommodation. Expectations are now firmly set on 25 basis points of cuts in late September, with rates moving yet lower thereafter.
Kevin: That’s weeks before an election.
David: Yeah, although I don’t think, unless you’re talking about a meltdown in the equities market, that you’ll see the Fed do anything between September 18th and the end of the year, just out of deference for that sort of political confusion. It would be construed as a freebie, if you will, doing a solid for a particular political party.
Although rates are higher than the recent zero rate environment, you just can’t make the case that we have restrictive conditions today within financial markets. Past 25 years, we’ve had 10-year Treasury bouncing between 2% and 5% constantly. The previous 25 years, they were consistently oscillating between 6% and 9%.
The Fed has held rates at these levels in hopes that financial market conditions would tighten, and yet those rates, being at five and a quarter to five and a half, have only limited, have only limited those that are already in too much debt. Otherwise, you’ve had ample access to credit. And you look in the commercial debt markets, this is where it’s not actually restrictive. The S&P is 29% higher than when the Fed started hiking rates. The average single family home is 36.5% higher from when the Fed started hiking rates. It’s gone from $301,000 for the average single family home to $412,000, and that was after a big jump in 2021.
This is interesting. Semiconductor stocks, 100% higher. Nvidia, 700% to 800% higher in this context of rising rates. Equities in fact are flirting with all-time highs as if a rate of five and a quarter to five and a half percent did not matter. And in fact, it doesn’t. Not to the levered speculator. The real issue is what happens next, and I think this is really why the Fed wants to accommodate. They recognize that there is a second shoe to drop within the commercial real estate market, and ReFis are coming hard and fast over the next 18 months. $1.4 trillion in commercial real estate has to be refinanced, and it’s not going to be at the old levels. It will be at higher levels, which make it untenable for owners to keep the properties.
So do you want to see a banking crisis on the other side of a commercial real estate implosion? The second shoe to drop in the commercial real estate market? I do think the Fed is sensitive to that. ReFis, the next few years of government debt, fit the same mold. We talked about that last week. Less this year, next year and the year after than what we had last year, 30% last year. And again, I think it’s 12%, 9% and 7% over the next few years. These are not extreme interest rates. We just have extreme quantities of debt, which exaggerate the impact on any entity which has too much of that debt.
Kevin: So maybe their hand is being forced. And speaking of hands being forced, this is a pretty interesting week of endorsements, isn’t it? RFK Jr. endorsing Trump, who would have thought?
David: It’s a week of endorsements. The fixed income market got the endorsement and permission of the central bank to go lower for the first time in four years. Trump got the double endorsement of RFK Jr. And this was really interesting, the ex Vice Chair of the Democratic National Committee, Tulsi Gabbard. I guess that was actually this week, Monday, but let those two sink in. RFK’s exit speech was fascinating to me. A reminder that candidates can be for something. In other words—
Kevin: Not just against, huh?
David: Right. They can have policies which they think will make the world better, not just a stance of, “We are against this or we’re against that, or we’re against that person.”
Kevin: Yeah. But Kamala’s for joy. She’s for something.
David: I kept on looking, giving everyone the benefit of the doubt when possible. Last week’s DNC in Chicago, policy light, entertainment heavy. I’ve spent time on Kamala’s website. Not even in the FAQ is there any clarification about the issues. This is not a campaign run on issues. In fact, other than the images chosen that represent being pro-productive rights or what have you. There’s nothing. There’s nothing.
Kevin: Yes. But they’re for against Trump. They’re for against Trump, wouldn’t you say?
David: I think a part of the issue is that you didn’t have a primary, so there’s no need for clarification. There’s no need for contrast with your democratically competitive cohort. So what we have is nothing to criticize, nothing to debate. It’s not a race about issues. It is pure and simple about what you’re against. And that would be Donald Trump.
Kevin: Right.
David: Again, this is what’s interesting. It’s not Trump’s view of X. It’s not Trump’s view of Y. It’s a hard no on Trump.
Kevin: It’s not the issues. It’s just no to Trump at any cost.
David: Right. And the news media supports the hard no. The diatribes from Democrat politicians have gone so far as to inflame an assassination attempt. It’s a race about whose story of unfolding fear resonates with the most people before that November election. War has been declared by the DNC, and truth is its first casualty. The GOP stands at the ready to kill truth with friendly fire. It’s not as if they’re playing a game where we’re after exploring what we’re for. We are against the worst-case scenario, and that’s what is being promoted by the media as well.
Kevin: Well, and we’re not hearing any issues. But the other thing we’re not hearing is the 93% of Kamala’s staff that have all left. I haven’t heard any interviews with what they think the outcome’s going to be of her presidency.
David: Well, it really is a vision of defeat for your opposition. That’s what’s in place. Not the same thing as a vision of victory.
Kevin: Right.
David: We still need to see, it remains for there to be some illumination of what Biden’s proposed successor wants to create if given the opportunity. Her detractors can tell you by inference, but it would be nice to hear it from her. What are you for, Mrs. Harris? If joy is your answer, then I suggest you choose another profession. Go plant a garden, snuggle up with a basket of kittens, but don’t run to be leader of the free world. Joy is not a platform. I grant you, Trump is no wordsmith, but at least you know where he stands, whether you like that or not.
Kevin: Well, and the Democrats have to ask themselves, four years ago, how many cast a vote for Kamala during their primaries?
David: It’s a great question. The Democrats were not particularly enthused about her as president four years ago. I think if you count the number of votes she was getting in the primary, it’s a reason why she dropped out. Enthusiasm is merely for the person with a chance at defeating Trump. We know how likable and knowledgeable she is. This was fascinating. An ex-CBS reporter said this, if Kamala Harris’s team thought that voters would find her likable and knowledgeable, they would put her before the public as much as possible before the election rather than minimize her exposure.
Kevin: Yet she has not done a single interview. I mean, are they hiding her?
David: Not a single interview since the pronouncement of Biden, since he said he’s dropping out and Kamala was going to be in. The New York Times, I mean, again, if you think about the source on this, “Joy is not a strategy.” From the New York Times, from Jonathan Turley. I think he’s a more conservative commentator today. A lawyer. Grew up in a very left leaning family. Went to work in the 1970s within the Democratic administration, and he says, “There is no longer a big tent in the party of Roosevelt or Kennedy. The DNC bordered on the creepy as speaker after speaker,” I think he’s talking about the DNC meeting last week, “As they sold the idea that if voters could just swallow the Harris candidacy, they would immediately experience joy like political Prozac.”
Kevin: Oh, joy, joy, political Prozac. I feel better already.
David: On RFK’s way out, he commented about doing as many as 10 interviews a day, and we haven’t heard from her once on an unscripted basis in five weeks. I thought it was interesting. This is not an accident. It’s a choice. Quentin Tarantino and a group of other Hollywood supporters have endorsed the basement strategy. Just let Trump continue to keep the mic, say stupid things, and disqualify himself. Keep Kamala off mic and away from any unscripted interviews till after the election.
Kevin: This is Quentin Tarantino, who, maybe this is too soon, Dave, but he directed Kill Bill 1 and Kill Bill 2. That bullet was awfully close. That bullet was awfully close a few weeks ago.
David: Yeah, I think what has to be the funniest thing, and maybe the most out of touch that I’ve read this week, Jen Psaki, she says that Kamala Harris is as likable as Hillary Clinton.
Kevin: Oh, well, there’s joy. There’s joy.
David: This is her words, “Magical, charismatic quality in person. People say that about Hillary Clinton. Also true, Kamala Harris is as likable as Hillary Clinton.” I wonder if Jen forgot the reality behind those Saturday Night Live parodies. I mean, we’re talking about the Ice Queen.
Kevin: Well, and I don’t even think you need the parodies. All you’d have to ask Bill Clinton is, was she really magical, charismatic, likable? I don’t know. I don’t know.
Okay, so let’s go back to gold because we talked about a 400 ounce bar of gold is still over a million dollars. What’s holding that price up, Dave?
David: I think gold is a beacon of insight and the price is telling you something. It’s telling you about the concerns from a domestic policy standpoint, from a political standpoint, how do we deal with that? We don’t have clear answers, and gold signals a degree of insecurity and uncertainty, geopolitical uncertainty. It suggests that what is happening in the Middle East is far from being resolved, what is happening in Eastern Europe specifically between Russia and Ukraine, very unresolved. So between domestic and geopolitical uncertainty, gold is a beacon of insight. Between the terminal fiscal math we spent some time talking about last week and what remains in play, even with Adam Posen’s comment that it doesn’t matter who’s elected, that part is undeniable. It’s a problem that either party will have to face, both without the requisite tools.
Excessive systemic leverage, we have that within the financial markets. That’s what we began to see unwind with the yen carry trade. More of that to come. Gold is a beacon of insight when it comes to excessive systemic leverage. Then I think the end of cycle dynamics, which are well captured by the CAPE and the Q ratio, again, gold is suggesting to you that we have more than a few hiccups ahead within the equity markets, and perhaps having something outside of that chaos makes some sense.
So beacon of insight in the form of gold. It’s not a question of if, but when, and I think the patient gold accumulator will appreciate, chaos is more often than not a surprise.
Kevin: It reminds me when I talk to clients about the two Ts of investing. There’s timing and there’s trend. Trend is a lot easier to predict than timing. Wouldn’t you recommend at this point, Dave, that if it makes sense going forward, don’t try to time it, just look at the trend.
David: Yeah, the trend is in place. I think we have a considerable upside in the gold market. It is trading at all time highs. I’ve often quoted Rudiger Dornbusch: “In economics things take longer to happen than you think they will, and then they happen faster than you thought they could.” I think that’s the reality both with the price of gold and with some of the economic travails that we have ahead of us. Those are distinct from financial market travails. They can compliment, they can play off of each other, but we have both ahead, and I do think that gold is that beacon of insight as to what happens next.
* * *
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.
