Podcast: Play in new window
- If You Own Metals Without Leverage, You Don’t Care If The Paper Rules Change
- Bill King Advice: Stay Liquid & Hedge Liquidity With Gold
- Money Coming In Is Overwhelming The “Silver Rig”
“What was really going on here is this whole fight. It’s been going on since the ’80s, deflation and inflation. What’s the fight? Back and forth here. Who’s going to win? And that’s what the markets are navigating right now. And we don’t know. We don’t know. The deflationary forces are to debt. We know that. And the government tries to inflate past it. And when they can, you get the economy going to stocks or whatever. But now, we don’t know. We just don’t know. So again, and that’s what the gold and silver’s telling you. We’re in a highly uncertain time. Order’s breaking down. Political order, but social order. We see it here in the United States. We got people hopefully saying it’s okay to break the law. It’s okay to storm churches. It’s okay to terrorize people.” —Bill King
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Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick along with David McAlvany.
David, I always look forward to Bill King coming on, but before we do that, how’s your dad right now?
David: Parents are doing great. We’re getting a couple of days with them. And once a year we get together for a few days and really enjoy the one-on-one time. Deep conversations, reminiscences, and of course some concerns about what’s going on in the world. And some of the things that he’s written about for decades in a future tense are now very, very much present tense.
Kevin: Well, and I’m looking forward to talking to him soon too. But today, Bill King, returning guest, we always are looking forward to that.
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David: We spoke last in October. There are so many topics that seem to ratchet up in importance on a daily basis. It might as well have been six months or a year since the last time we spoke. Lots going on. Let’s start with a wide lens on broader macro considerations and then focus in a bit on market minutia.
First thing that comes to mind is geopolitics and policy risks. Could you sort of create a taxonomy of geopolitical risks for us? Where are the most interesting developments at present?
Bill: I don’t know what you could isolate to where, but you’re hearing, and the people at World Economic Forum Conference in Davos began today. But you’re seeing it in the stories and you’re hearing the elites talk about Trump’s blowing up the world order. That’s what’s going on here. And basically, what you’re saying is the European elites are having trouble holding onto their positions of power and order. And so you’re talking about we’re going to sell US bonds. Danish [unclear] today came out. There was a big headline, “We’re going to sell our US bonds to punish you for trying to take Greenland from us.” Well, turns out they only have like $100 million in US Treasuries. You got locals on the floor in Chicago trade more than that in the bond pit. Come on. I’m just one individual. That’s not much. It’s a thousand contracts. Come on, stop it.
And that’s the problem. You’ve got people there, especially in Europe, and they’ve got their issues with the third world migration that’s destroying them. They can’t afford their socialism. And you can’t blame the people for going there if they’re going to give you free everything. And then you’ve got the situation here with China and Russia. You got, with the Ukraine on the door, and Europe can’t decide what they’re going to do about Ukraine except pout and scream and act important.
You got China making deals with Canada, and Canada screaming at Trump, because it has designs on Canada and Greenland. And that’s kind of what’s breaking down here is you had the US and its allies against Russia kind of thing. And then China was in the background, and China got powerful. And now these things are all breaking down. And part of it is this America First concept. We did, for decades, going back to the—
Well, let’s go back to World War I. The US did things there that was a disadvantage to the US in the big picture, to help Europe, and we know why. The cultural ties, the story, blah, blah, blah, blah, blah. And also because the money people in the US wanted Europe as a place to sell products, and that’s kind of blown up. You saw that with the trade. It’s slowly, over the years, especially after the ’80s— In ’87 the US went from a net creditor country, meaning we put more money in other countries and got money out, as opposed to we turned to net debtor where we were giving more money and exports and direct foreign investment to other countries. So that’s almost 40 years ago, and that changed it.
And Trump came and said, “No, we’re not going to do this anymore. We’re not going to be the patsy here. We’re not going to defend you guys. Then you guys take— You sell us stuff and you won’t buy our stuff, and blah, blah, blah, blah, blah.” So all this stuff is coming apart. And against that backdrop, you’ve got the Western socialism is crumbling, including the US. We’re a socialist country. I chuckle if you know you’re capitalists. Really? Go look at our social programs. We’re about to hit 39 trillion in debt, and that doesn’t include the off balance sheet stuff, Medicare, Medicaid. So on and on and on. These entitlements, there’s no telling how big those are.
And you see it in Japan. If Japan made their deal with the people after World War II, we’re going to be an industrial power and you guys will get meager wages, but we’ll take care of you. Jobs for life, all this stuff. And now all of a sudden, you’ve watched over the years how Japan’s debt is, per GDP, is even higher in the US. You see China same way. The debt’s just exploding for these people to keep control of their populations, to keep the socialist game going where we give you benefits and pensions and on and on and on, and none of us can afford it. That’s what the gold and silver are telling you.
And you could look historically. Gold is an okay hedge against inflation. It’s better over the long term than when you see the pockets in history, financial history. Stocks tend to go crazy when there’s a little bit of inflation. You’ve heard that. All the companies can pass on inflation. In fact, the company can only pass on a multiple of inflation, that’s always been the game in here.
But when inflation starts getting out of control and the company can’t do it, then you see gold and silver. That’s why gold and silver have typically been late market cycle plays where you have your normal three, four year economic cycle. At the end where everything is having trouble, the companies are having a little trouble, the Fed starts pumping money to keep the cycle going and people will say, “Well, no, you’re better off being in gold and silver.”
Now, gold really sparkles—and you guys know—when you have a political problem. That’s like, “Okay, we don’t want to hold money. Forget the stock, everything. We got real trouble here.” And that’s what gold is telling you. Silver also, as you know, silver was delayed, but also there’s a more industrial component to silver than gold. That’s why when inflation gets very virulent, the silver starts outperforming because of the industrial component.
Now, of course, with all this AI data centers and on and on and on, they’re talking about the deficit and silver and how that’s one of the problems going on here. So things are just breaking down in the international order. And part of it is people are recognizing you can’t keep going. You can’t keep doing what you’re doing. And that’s what gold and silver—
Now, Trump’s hitting the beehive with the big stick and trying to create change here, and there’s resistance. There’s resistance here in the US. There’s resistance within the Republican Party. I mean, there’s a reason why Trump can’t get anything to the Senate and these guys won’t unload the filibuster because this is their way to stop Trump, is to let the Democrats say, “Oh no, he can’t get 60 votes.” And the Republican goes, “Yes, the Democrats won’t let us vote. We’ll get rid of the filibuster.” “Oh, no, no, no. The Senate, it’s sacrosanct.” But that’s a backdoor way to say, “Nope, sorry, we’re stopping Trump here.” But as we all know, it can’t continue. And that’s what gold and silver are telling you. This order can’t continue. And Europe is degenerating in front—
Canada’s got all kind of problems. Carney is running his mouth like crazy today at Trump up at Davos. He’s a bully, he’s this, he’s that. Macron is the same way in France. And these countries are failing countries. You see what’s going on in their countries, not just the political order, but with the immigration, with their economies, it’s just a mess, just like the UK. I’d say this is probably at least 50 years the biggest international mess that I can remember, maybe even further back than that. Maybe you got to go back to the post World War [II] when you put together Bretton Woods.
And that’s what people claim it’s breaking up. That whole post World War II order, 80 years now, is just breaking up. The system cannot continue this free ride that you’re giving everybody. Can’t keep giving everybody the freebies. You can’t keep doing this government spending. You can’t keep going to your debt markets. People are forgetting that after the COVID, you had the biggest bond market decline, some say in history, some say since the Revolutionary War when all that, the bonds, blew up and whatever. But you killed all these guys, that 38 year bull market in bonds, made a lot of bond kings out there. Everybody’s on TV. They’re smart, making all this money in bonds, and they got their brains beat in for what, two and a half, three years.
So what we’ve done now is we’ve traded sideways in the bond market for about two years or so, consolidating that horrible record historic bear market in bonds. But now all of a sudden, oh, the Fed’s going to cut rates and whatever. Gold and silver are going crazy. And now, what’s going on in the market, the Japanese bond market has been revolting very hard for the last few months. And today, it’s spilled over into global bonds. So now, the US bond yields are breaking out. You got the 30 year up to 4.95, 10 year’s with 4.28. And they’re all breaking out.
You look at the chart, you can see you had this big sideways consolidation and now the yields are breaking back up. This is against the backdrop of the Fed easing. So you got to ask yourself, what’s going to stop bond yields from rising? It’s not the Fed easing. The Fed eases, they are going to go up. It’s going to go up even— Yields are going even higher. It basically comes down, you better start running a sane fiscal policy and that isn’t going to happen anytime until it gets worse. There’s nobody out in—
And we talked this last time about Trump, but Trump’s always bragged, “I’m the king of debt.” He’s not about to rain— He’s trying to run the economy hot and everybody knows it. And that’s the other problem you got. There’s nobody fiscally responsible. Everybody wants to run their economies hot here to keep this game going. And again, that’s what gold and silver are telling you. There’s a real problem in the global system. And that’s the bond markets are telling you that also.
Gold and silver went first. The bond guys have been holding in for a while because you have a lot of bond traders still think, “Oh, central banks are going to ease. They’re going to rig the market.” And they’ve been. They’re going to rig the currencies on and on and on. And that’s why I think you saw the money going into silver and gold because the guys didn’t want to fool with bonds and currencies because their rigged game started going there.
Now, we know gold and silver is a rigged game, but the money coming in would just overwhelm the rig. And of course, that’s led to all these rumors about some big banks are in trouble on silver. So we’ll see how that plays out. When you have these kind of moves, as you guys know, whether it’s silver, gold, soybeans, bonds, stocks, whatever, you get those kind of dramatic moves. Somebody’s in trouble. The laws of probability tell you there’s big people are on the wrong end of the trade, and they’re creating huge losses in the system. We’ll see how this plays out.
David: We’ve got yield curve steepening, not just in the US, but globally. Maybe that’s good for some banks with steepening yield curves, but there’s broader implications for higher long-term rates. Talk to us about the bond market, the stock market, private equity, private credit, and the implications of borrowing costs rising at the long end of the curve.
Bill: Well, the thing is, we’ve just financialized the economy. Everything is financial. What is it? The top 10% in the United States is over 50% of consumption. Where’s that 10% coming from? It’s coming from central bank pumping money and it goes to the hedge funds, it goes into the tech billionaires, whatever you want to call it. So you get these hot tech stocks and that’s where the money’s going. And for all Trump’s talk about the tariffs, look at the manufacturing employment. Is it going anywhere in this country? Are you creating? How many more plants and equipment are showing up here?
If you just work your way through this stuff, as you can see, it just doesn’t add up anymore. When the bonds start rebelling, when you financialize, everybody’s cost to carry, cost to finance, cost to borrow money, goes up. And you could go back and look. They used to talk about the economy. People quit talking about it 20, 30 years ago because it just got too frightening, but it used to be very important. How much debt per unit of GDP.
And people got alarmed when it went through like 120, 140 to 150. Now nobody wants to talk about how much debt you need to generate a unit of GDP. It’s obscene. So when you start raising those costs, you got a problem. Now, everybody’s trying to push their rates down on the short end, but the back-end’s rebelling, and that’s where you got a problem. Your hedge fund, your private equity, you can keep going in and financing on the short end and buying assets and stuff like that. But if you’re an industrialist, you’re building plant and equipment and you’re talking a much longer horizon, you’re talking 5 to 10 years where you’re trying to borrow money, that’s different. That’s a whole different problem.
And as most people understand, is what Biden did and Bessent’s doing for Trump, they’re trying to borrow in the short end. I forget how many trillions of dollars are coming due. It’s in T-Bill because the governments, with the rates steepening, everybody’s trying to borrow on the short end. Well, we know how that ends up, is that they eventually can’t roll the debt because people say, “Okay, I’m not taking T-Bill rates where they are here. That’s it. I’m done.” And then that’s when it hits the fan.
And that’s where the end game starts, is Buffett’s got almost $400 billion in T-bill. And he goes, “No, I’m not doing this anymore.” Or whoever’s taking over for him. “No, I’m not going to sit in T-bills that— I’m just not getting paid for this. I got to do something else. I’m getting killed here.” And basically that’s when your rate of inflation goes above your T-bill rates. You don’t want to just sit in there because you said basically a negative real interest rate on you.
And that’s part of what’s going on with the gold and silver here. Right now, we’re sitting with the four-week T-bill at 365, but that’s about where the two-year note is. That’s very close to that also, in here. You can see the systems being stressed. Trump wants to run it hot. He’s out there trying. “I’m going to do this for housing. I’m going to do that.” Now, all of a sudden, he’s telling people, “Give them a moratorium on student debt again.” It’s just every day coming out and throw something at the wall to keep the game going.
And part of it was the stock market and the wealth effect that the top 10% keeps spending. Everybody’s talking about the K-economy. The top 10% are doing great. The bottom whatever percent are struggling. And then the middle class, they’re treading water, and they’re swimming as fast as they can just to try to stay in place here and keep from drowning.
That’s why I think you’re seeing the political clashes you’re seeing in here too. So, it’s a mess. And the markets are telling you that. It’s crystal clear in gold and silver. Gold and silver do not do this, do not have this kind of move, unless there’s serious problems. Because the [unclear] investment-grade money going in there. Over the years when we’ve talked, all the way back to 2008, the big important people that we talked to, including people that ran big five brokerage firms and industrialist CEOs, I asked them, “What are you doing with your money?” All of them said, “I’m putting some portion in gold, and then I’m putting money with this, or hedge funds, or whatever.” But it all came back to, “I’m putting 10″—and most people were talking, at that time, 10 to 20% is a reasonable amount, depending on how much you have.
If you’ve got 100,000 and you got a billion, there’s a big difference, what you can put into your portfolio as far as gold and precious metals. And those are patient buyers. They go back and look at the gold chart. Get a little panic there in Europe, and gold runs up in 2010 and ’11. Same with the bitcoin. Then, it comes down. You could see it, but you could just see that steady, steady. Since we hit the lows under $300 almost 30 years ago, low in gold, there’s just been steady, progressive buying. And that’s investment-grade buying. They’re taking their time, they’re patient, and they just keep accumulating gold. All of a sudden, now you’re getting more of the public in the last couple of years. You get the momentum buyers in the hedge funds and whatever.
But for a long time, there’s just been a steady buying of gold. And now of course, Bank of England and who was it?, Belgium, who made the lows there in the late 1900s selling their gold out. Now, they’re all buying it back. It’s 10, 15-fold higher because they know. They see Poland’s been a big buyer, China’s been a big buyer. India has always been a buyer, has a special relationship with silver in India. Goes back to dowries for the women back there, and that goes back centuries.
But it’s there. It’s there. You can see it. We don’t know how it plays out because you don’t know how these people react. Politics always has them make decisions that are not always in the best interest, especially in the long term. And eventually the markets force people to make the right decision.
So, that’s what we’re waiting for now. That’s what we’re going through in [unclear] when the markets force people to make the right decisions here.
David: Coming back to the K-shaped economy and the wealth effect, if the top 10% in the US asset holders are responsible for 50% of consumption, obviously it’s important where the bond market goes and where the stock market goes. If they’re feeling blue and not spending, what’s the prop for the US economy, if not the wealth effect?
Bill: That’s what they’re all trying to figure out. Trump, “I’ll do the tariffs, I’ll do this. We’ll replay the ’50s. We’ll start manufacturing and we’ll start getting all this stuff going again.” But I don’t know if that’s possible. That’s the experiment here. How do we get the middle class going? What industry is out there? And people [unclear] for tech, but everybody can’t go work for Microsoft.
This was what happened in the ’90s and 2000. “We’ll just go be an engineer.” Engineers like crazy. And then of course, then when the cost started going up for the engineers, then we started importing them from H1B these guys in from India and even Russia, and people started outsourcing. I know plenty of people on Wall Street first went to India, and then they went to Russia, because Russia was cheaper for computer scientists and on and on and on. And then, it was to learn code. And now you’re saying, “No, we don’t need that because we have AI.”
So everywhere you’re turning where there was going to be some industry that was big enough, broad enough, and deep enough to create huge employment gains for big countries like the US or the EU or whatever, they’re not there. There’s nothing there. We did this in the ’80s and ’90s. We had this whole new tech industry appeared. The personal computer. Everything that we want, that mouse, mouse pads, modems, printers. And then you got the internet. And everybody’s going to design websites and so we can buy. Now, you don’t need that because there’s too many people. Before, be an engineer, go into STEM. Now, no, the jobs aren’t there. Sorry. Look at all these big tech guys, the job creators, are now laying people off. Seriously. You can blame AI, you can blame other things, but you’re just in that point of the cycle where you don’t need it. Just like you didn’t need any more manufacturing workers in the ’60s.
You needed them for 50 years, and all of a sudden, “No, we don’t need them.” And that same thing’s happening in tech now. “Don’t need them, sorry. Don’t need this anymore.” And the other thing, too, happened, as you know, in the ’80s. It’s pretty easy to see the tech. People were creating tech giants in their garages and basements, and we know all the stories.
But the other thing was happening was with the financialization economy, you blew up the financial industry. I remember when I started in ’74 here, it was horrible. Nobody wanted to be in the stock market. There was very few opportunities.
And then next thing I’m in New York because every market started booming there in the ’80s. They were trying to hire anybody who had any experience because they didn’t have people, because the market was so dead for almost two decades. So then all of a sudden, hedge fund. And then in the ’80s, hedge funds and mortgage trading and derivatives exploded, and on and on and on. This created an enormous number of jobs—and then it didn’t. Then, it’s rolling over again.
So you had financialization and tech industry really drove jobs here. And now, what you’re saying, “I thought it was going to be biotechnology.” And you are getting healthcare gains, but it’s on the low end. It’s the healthcare workers. It’s not so much on the top end where you’re going to have medical technology. I mean, it’s there and it’s happening, but it just can’t produce enough jobs for the people that are getting laid off or don’t have the prospects anymore. You’re seeing now with the colleges, how many people say college degrees aren’t worth it. You want to go into debt for 250-300,000? And we’re not even talking to top schools where you got to pay 100 grand a year now. For what? What’s your prospects coming out?
And the politicians know this. They know this. How do they keep the game going? “Well, we’re going to give you more freebies, and we’re going to import voters to vote for us and give them freebies to vote for us.”
“Well, who’s going to pay for the freebies?”
“The wealthy.”
“Who is the wealthy?”
“Anybody that has money.” I mean, this is clear what’s going on. The problem is how does it get resolved? Normally, when it doesn’t make sense mathematically, you’re going to have some kind of implosion. And that’s what gold and silver are telling you, is that the big private money is preparing for an end game that nobody knows what it’s going to look like, but it’s going to be real ugly for people’s currencies and bond markets.
The last time the gold went berserk, right, and silver in the ’79 and ’80, and why the Hunt Brothers were— And I thought it was the end of the world for the United States because what Jimmy Carter was doing, that’s what that was. Yeah, there was inflation and it was virulent, but it was the political side that really pushed the Hunts and those people, and his group, to just go crazy on the silver and the gold. And then Reagan came in and got the US up off its behind again.
Because that’s what people thought. That the people thought with Carter that that whole post-World War II order was just collapsing, and Carter let it. He let Iran go down. Russians walked into Afghanistan, just on and on and on. Everywhere you looked, there was American weakness in there. Well, now you got Trump’s trying to go the other way, and that’s not helping because it’s just too big. I mean, this is just— He’s acting like the little boy with the fingers in the dike. And the problem, there’s just too many holes in that dike for this stuff to hold back. Every day you turn around, there’s a different crisis somewhere.
David: So thinking of the US markets, FAANG leadership and narrowing market breadth have been a feature over the last 12 to 24 months. What issues do you see confounding the AI narrative, and what has been the primary market prop in recent quarters?
Bill: As far as the AI market, it’s been all sizzle no steak so far. And if you talk to anybody that used this in the early stage, especially attorneys, people that have to do a lot of research, and you end up paying a lot of money for associates. You have big cases in law, you got to go do your research, you got to have to do all of this stuff. The AI came back was just absurd. I mean, you’ve seen this where people have gone into court with, “Here, in this case and whatever,” it was made up. It didn’t exist. People remember the WarGames 1983 movie. Oh, we’re going to have computers that can think so we don’t need to have humans. They can make decisions. Well, they’re acting like this is new AI. That’s been going on for, at least four dec— Even longer, about machines will think. That was Terminator, the movie. Machines take over because they can start thinking and become sentient.
Same thing like solar energy. I mean, it’s been around for a long time. It just hasn’t been harnessed. The problem is all you can do with AI is what’s programmed. So if you go in there, and you put in Trump and it comes out, “He’s Hitler. He’s evil. He’s a horrible human being,” and that’s because that’s what whoever programmed it put in it. The problem you have now is—
And Trump made that bet. “We’re going to have all these jobs from AI.” But it tells you you’re not going to get jobs from AI. It takes jobs away. If AI is [unclear], you don’t need accountants, lawyers, researchers, writers, et cetera. You don’t need it. It’s like you have the Oracle of Delphi. You just go there and get the wisdom, and that’s it. But it can’t. It can’t think and it’s not producing. It’s very expensive.
The other problem is it’s energy intensive. And now you got all-time high electric prices. So, that’s why Trump came out last week. “Okay, we’re going to make these guys pay for their own data centers.” Because finally he figured out that this ridiculous amount of energy demands for this and you’re not getting the payoff yet.
Everybody’s trying to find that big industry that’s going to be big enough to give meaningful employment to the masses and justify the system you created, where, “Okay, you want to get ahead? You go to college and spend a gazillion dollars now.” And it’s not worth it. Someone said, “Harvard? You don’t get an education at Harvard, you get connections.” That’s why you pay that money. You can pay that money and get connections to go to the Ivy League.
People have known that, really, for decades, but now it’s out in the open, more so. When everybody got onto this because of the tech boom, and rightly so, from the ’80s, ’90s into 2000, especially with the internet, wow. You saw where the tech billionaires came from, a lot of these guys, whether it’s Bezos or Musk or these guys, and the guys who created Google, that’s where you make your fund. They did. People made tons of money, but that’s over. Now, what do you do with all of these people you put in the STEM? The job, they’re cutting—
All these guys were the guys that were taking all these guys. That’s why there’s this resistance now to the H-1B because the jobs aren’t there. If you’re creating jobs in tech so much that you can’t get qualified computer scientists and engineers, that’s understandable. Now you got a surplus of them. What do you do now? And this is not just the United, this is going country to country.
And you can see it in the poll. The masses are restless because again, this whole post-World War II thing is falling apart. And it was socialism. They could talk about capitalism, and there was some elements, but this was largely the government’s going to take care of you. And the only thing you get somebody now that would come and go, “No, this socialism’s going too far. I’m going to move back the other way,” like Reagan. Reagan, “I’m— Can’t do that anymore, guys. We’re blowing up here.”
Because of the turbulence in the ’70s, they said, “Okay, we’ll do that.” But then as soon as you get Bush in it, you’re going back to socialism in here. What did the kinder, gentler nation mean? What did that mean? Bush I ran on in ’88. “Oh, we’re going to be kinder and gentler.”
“What does that mean? That we were harsh? What was harsh?”
“We didn’t give you enough freebies, basically.” I mean, what does that mean? Clinton was a new way. Remember him, Tony Blair? They didn’t want to come out and say “socialism, right?” That’s a new way, a new way of thinking. And they said, “Oh, it’s like Japan where government works together with industry and we do things.” Well, what the hell is that? That’s basically happy-face fascism. Governments working with industry tell you what to do, and what to produce, and how we’re going to work together, just like Japan did. And of course, they were holding Japan up as a model just as it was crashing and burning. They [unclear] the early ’90s, and by ’95, their stock market lost 80-some percent of their value. And that’s their running to a model that had collapsed.
“Oh yeah, that’s what we’re going to do.” And the only reason they did that because you put government control in. That’s what the climate— Everything is to put government control so we can do something and help people out here.
So I’m sitting here in Chicago, we’re seeing it firsthand. They’re bankrupt. It’s falling apart. And the solution is always, “We got to tax the rich more.” They’re fleeing like crazy. “And we got to give you more. We got to give more. And we got to get more immigrants in here and give them more stuff.” That’s what’s going on.
And that’s why this fight is so vicious in here is people understand this system is breaking down. That’s why you get a communist come in and take over New York. The young people are frustrated, and you got a huge foreign population there, migrant and legal and illegal there. And they’re just, “Yeah, we want this guy. He’s going to give us everything for free.” That’s where we’re at.
David: So liquidity dynamics, I see Dow, S&P, Nasdaq, we’re not that many points off of all-time highs. Markets seem to be amply liquefied. In your experience, what are we looking for to discern a shift in market liquidity dynamics?
Bill: They just keep throwing liquidity. I mean, everybody’s going to run the economy hot because these guys are all out of jobs. Put it this way. If you do a dissolution of the Soviet Union type in Eastern Europe, “Oh, we can’t pay your freebies anymore.” What is Democratic Party going to run on?
David: Right.
Bill: And you got a lot of Republicans that are the same way. When Musk came in, the Republicans wanted to get rid of him just as bad because they couldn’t pay off the donor class, and all the people that eat at the government trough.
Now, people went, “Now how come the Republicans are being this way?” Because they have a donor class and they’ve got friends and family that have government contracts. You see, they’re throwing aid back to all these countries and you say, “How could the Republicans do it?” Because it’s a skim. Because they’re getting money out of it somehow or other. They either get it directly from donors or they’ve got families or friends that do business with the government. Everybody thinks it’s just a donation. It’s not, it’s government contracts.
When you start pulling apart this, look at what’s going on in Minnesota. You got people here that are running fake daycare, fake firms, and now they’re finding it in Maine, all over. Fake, totally fake enterprises that are taking hundreds of billions of dollars of government money in. And now if the people are right, who’s running the operation? And it’s nationwide. And the government doesn’t want to stop it. Why? Because there’s a school of thought here that with this thing showing up in Minnesota, it’s massive fraud.
The people are going, “Why would Kamala Harris take Tim Walz?” And then they ask him, “Why did Kamala take you?” “Well, because I can speak to white men,” and people are laughing at him. Come on. Well, the school of thought now is that he was controlling all this illicit money that was floating around. And when you see that these guys taking the money into contracts are all donating to Democrats, it’s a big laundry machine. Fake enterprises, like the COVID stuff, it’s unfathomable how much fraud was in that.
And the money is just going everywhere. It’s going all over the globe. I don’t know if you’re in China or Russia, Eastern Europe, Africa. This came in here, created fake enterprise. You just got on the computer, put in a fake Social Security, and the money just got zippety-doo-dah over to you overseas. And you’ll never get it back, and it goes on daily. And of course, people in Washington understand that, but they’re getting their cut. But it’s blowing up. That’s what gold and silver is telling you.
And the people on the inside know that. So for a long time you say, I can’t be in cash. I got to be in the means of production—to go real Marxist. You got to be in stocks. This is where we’re going to be. And of course then you had the FAANG stocks. The tech stocks, this is where we’re going to be. And of course, that’s not going anywhere. So the market broadened out, people are running other places, but what do you do? If you got a billion dollars, what are you doing with your money right now? Where do you put it?
David: I like gold and silver.
Bill: Probably some combination right now. You have your gold and your silver. You have probably your real estate, but it’s select real estate. Probably short term government debt. And so you can move and you have some liquidity in there, and wherever else. But that’s why the gold and silver are doing what they’re doing because you’re running out of places to put your money. Safe places.
David: Yeah. Last time we spoke, we’d covered hard assets and a theme that really stood out as an opportunity. October, it’s played out well. How would you differentiate the risks and opportunities between CapEx commodities, energy, and precious metals?
Bill: Right now, it’s hard to quantify the risk because when you look at a stock, you could look at a value. This is historical, what they could do, earnings. You start thinking of prospects, and you can just— Other industries. And that’s how stock markets made bottoms in the past is the value investors, whether it was Buffett or mutual funds and whoever came in and they bought because the stocks were at a good value. How do you put a value on silver and gold?
On my first job on LaSalle St. in 1975, we did a gold bug in that. And the things they used to do, you look at it against money supply, global money supply, US money, against debt, global debt, whatever. That’s about the only way you can come up with some measures.
And if you look at those numbers now, global debt, it’s astronomical. There’s no telling. That’s the problem here. There’s no fundamental value, like in a stock. Because as you know, gold and silver don’t give you a return. A stock, you put money in a stock and it’s an enterprise. It goes out there and it creates income, an income stream. Well, there’s a discount model. The earning discount model, the sales discount model. That’s what drives value—it used to—for stocks.
And of course, you tweak that by what your interest rates are for your return. It’s safer putting your money and getting a return in government bonds or the dividend discount model. You know the whole routine. You don’t have that in gold and silver. There’s no return. It’s a pure store -of-value play. There’s no fundamental return on it.
Now, you could look at it a little bit and you can see like we talk about silver have industrial components. There’s gold and electronics and whatever. And there’s a factor in there, but again, in and of itself, it can’t be compared to a stock or even a bond. It’s a straight store of value, and it’s just pure emotion. It’ll go wherever big private money takes it.
David: When we look at stocks, and let’s say we do use the discounted cash flow model, and we assume pressure on whatever interest rate you’re going to use, you’re arguing for lower prices, not higher prices. Even if Trump wants to run things hot, even if he wants to keep plenty of liquidity in the system, it would appear that you’ve got some bigger issues. He’s trying to control the short end of the curve, but the long end of the curve may end up undermining his best efforts.
Bill: Yep. The problem becomes for equities. See, the market doesn’t know if you’re going to get inflation or deflation right now, but that’s what gold and silver are telling you. There’s going to be chaos. And that’s why you’re looking for a store of value. And of course, certain real estate. Obviously, not big city real estate, but certain real estate, you’re just hiding out.
The problem with the stocks becomes— There’s two problems. Going back to basic economics, Economics 101, or Money and Banking 101, I guess—maybe both. It was the old adage that a central bank can try to stimulate the economy by pumping money. But, as they said, this was the adage. Remember this. You can lead a horse to water, but you can’t make him drink. That’s what has happened. And that’s how our economy worked. If the Fed put too much money in there, the big manufacturers, the IBM, the big industrial companies were like, “I don’t care. I’m not expanding my plant equipment. I’m not hiring people. You can’t make me drink.”
Now, when you financialize the economy, that’s different because when you throw that money in there, it goes into JP Morgan and Citi and Bank of America, Wells Fargo, whatever, Goldman Sachs, they take that money and they go on, they buy stuff with it. Financial assets. Or they’re buying commodities. You get the kick right away in a financialized economy because you’ve got to do something with that money because it’s depreciating. It’s like it’s on fire. If you don’t get rid of it, you’re losing value, some amount of money is going to burn up every day.
So that’s why this game is being played this way. You just talk about the lags, and you remember all these, oh, so our monetary policy had a six month to 18 month lag. Well, why is that? Because as soon as they started, how long was— Business executives say, “Okay, I’m going to go out. I’m going to build new plant equipment or I’m going to modernize. I’m going to retool. I’m going to hire more people.” There was a lag. That’s almost instantaneous in financial markets.
If anybody understands, money comes into the banks and it’s sitting there. They have to do something with it. They have to put it in something. Otherwise, they get fired. So that starts this whole, “What are we going to buy? We can buy soybeans, can buy gold, and we’re going to do—”0
And they’re all hedge funds now because they can put it anywhere. Give it to private equity, we’ll lend it out to the street. So when they lend it out to the street, then the street’s got the same problem. What do I do with this? Because people don’t understand how these big brokers work.
Money comes in and the money just sits there, and then they try to do something with it. They look, are we creating cash today or do we need cash today? If you need cash, they’re out there borrowing it. If you got too much cash, they’re out there spreading it around other places to try to get rid of it. Again, that’s what’s happening with a financialized economy.
Now, where am I going with this? That’s why stocks keep going up. And why bonds for a while kept going up, but the Fed’s going to cut. But now, the bonds are rebelling. We don’t want to hold that money in our bonds. So stocks kept going up. They talk about that reductio ad absurdum. Take the most outlandish, absurd example of something to see where it might go when you’re doing some logical exercise. So if we look at the stocks, if we look at—
Again, the market’s trying to figure out, are we going to get— By running this hot, are we going to get inflation or is this economy just going to tumble into some kind of collapse? If you’re going to look for a big inflation surge, you look at Weimar Germany, that’s the best example we have. A hundred years ago, almost exactly, 2024, 1923-24 in there. If you were in the stock market, you kept up. Whatever the Reich went to, somewhere, how many trillions to— I mean, it was just absurd. You can go look at the numbers. You survived if you were in the stock market. However, you had to sell the stock market right around its high because then it just collapsed.
David: Right.
Bill: That’s the problem with the equity game when you’re playing this debasement trade. And again, you heard that. That was the big vogue term for a while, right? The debasement trade. Dollar’s going down, buy gold, silver, buy stocks, buy the nifty—, buy bitcoin, whatever. Just buy something. Cash is trash.
Again, the most absurd example is Weimar. And you did okay. You kept afloat until if you didn’t get out right around the top. And I can’t remember how many days or points went in there, and then it just totaled. It just collapsed. So that’s the tricky part is you’re navigating a bubble and you got to— When do you get out? And then what do you go into? And that’s what’s been going on for stocks for a long time.
Even some of the private equity guys addressed that. They were talking about— There was a KKR guys were saying, “The thing we didn’t understand, what Buffet understands, how you capitalize your gains.” And they were basically saying, “Well, we buy a company, we dress it up, it does real good for a few years, then we sell it off.” Where Buffett would get a company, just hold it forever as long as it was generating cash, and then just keep reinvesting in cash. But as you know, over the last, 15, 20 years, he did not perform so well. And that’s because he missed out on the big tech boom that was carrying the market. He’s a consumer stock guy.
David: Yeah. 1919 to probably mid 1923, equities kept you afloat. And then the rate of inflation moved ahead of you and you couldn’t do anything about it. So late ’23, early ’24, if you didn’t exit, and you’re right, what do you go into next? Where do you go after riding the equity market?
Bill: Nobody knows how this is going to play. I remember this a good 20 years ago, maybe, sitting down with one of the most famous private equity guys in New York, and we’re talking. What was really going on here is this whole fight. It’s been going on since the ’80s, deflation and inflation. What’s the fight? Back and forth here. Who’s going to win? And that’s what the markets are navigating right now. And we don’t know. We don’t know. The deflationary forces are to debt. We know that. And the government tries to inflate past it.
And when they can, you get the economy going to stocks or whatever, but now we don’t know. We just don’t know. So again, and that’s what the gold and silver is telling you. We’re in a highly uncertain time. Order’s breaking down, political order, but social order. We see it here in the United States. We got people openly saying it’s okay to break the law. It’s okay to storm churches. It’s okay to terrorize people. And it’s breaking down along political lines. And it’s like, “What is this?”
And we’re not arguing tax policy. We’re not arguing how much the tax rate should be or how much fiscal spending or even global warming. We’re talking basic law and order that, no, it’s okay. As long as you’re doing it for our cause, you can do this stuff. Yeah, okay, fine. And they tell you how scared they are. And we see these guys going along with some of this stuff, which is absurd. You know they’re scared and that’s where we’re at, and that’s where price of gold and silver where they’re at.
David: Yeah. I mean, how close are we to civil unrest becoming civil war?
Bill: Oh, you got it. You got it in sectors. I mean, remember they had the riots in Paris? And that’s over a decade ago. They came out and said there’s certain areas police cannot go there. Look at Portland. Look at these cities in the United States. You get the mayors and governors going, “That’s fine. No, no.”
There’s federal law. It would be as if you said, “I’m not paying my taxes.” Greenwich, Connecticut, “We’re not paying taxes anymore.” And the state of Connecticut, “Yeah, and we’re a tax sanctuary. We’re not going to let the revenuers in here. They’re not going to come here and take our stills. That’s it.” And okay, that’s fine. That’s what people don’t understand. Once you say it’s okay to disobey and break certain laws, who gets to say what laws shouldn’t be sacrosanct? Which ones are okay to break? Which ones must we adhere to? It’s already here. It’s already here. And the cold civil war here in the US has gone hot. It’s just there.
Just look at the big cities, it’s there. Again, that’s what gold and silver tell you. This stuff’s all falling apart. Because you’ve reached the limits of decency, or the politicians broke. Again, I can’t believe the stuff these guys are trying to say it’s okay. I mean, you got the guys in Minnesota there, the govern— It’s okay to storm churches. And then the guys twist, “Oh no, the FACE Act doesn’t—” It specifically says you can’t do it, but no, no, that’s okay.
You got judges the same way. Look at the Supreme Court judges, some of the stupid stuff they’re saying. That’s what’s going on. I mean, people got scared in the ’60s with the unrest of that, and that was because we had such a nice orderly world after World War II. This is far beyond what was going on in the ’60s. Now, we had bombings and stuff going on with the radical students and that, there was a little bit more of that violence showing up. But as far as the crime—
But the political, that’s the problem. With these politicians openly inciting violence and the stuff they’re saying it’s okay to do, and it’s okay to ignore laws and we’re going to ignore the laws. And we don’t care if it’s a federal law. We’re going to put you in jail. You get the Jefferies there saying, “When we’re in power, we’re going to put all these people in jail that enforce the federal law.” Just think of that. These things warn. “All you ICE guys, we’re going to put you in jail for doing your job and doing what the law said to do.” Think about that. That’d be like the IRS attorney, every IRS agent, I’m putting you in jail because you took people’s tax returns. No difference.
That’s where we’re at. And you see what’s going with New York with this guy, that’s again the big private wealth is, they can talk and they can whistle Dixie and they can act whatever, but they’re scared. And that’s what gold and silver is telling you.
David: How do you navigate the gold silver market when the rules, at least in the futures, can be changed instantaneously?
Bill: Well, it depends on your perspective. Are you a trader? You worry about it. If you’re levered, you worried about it. That’s why Buffett was never levered with his stuff. And maybe some little here and there, but by and large, that’s with the big private wealth. You buy it, you either have it or you’ve got it stored somewhere, and you don’t care because you’re playing a different game.
That’s the problem, is you got hedge funds, you got the big banks, they’re in here playing, gold and silver, and then you got the speculators in here. I mean, that’s why I think what I did with my stuff is my stuff, we’re with speculation, some of the paper stuff or whatever, I got rid of and I’m just holding the physicals now. And, you know, just hold it because I want silver and gold and see how this thing plays out.
But you’re right. The paper stuff on that can just, as you saw when they did the rates on it, when they changed the margin, it could get vicious. And they will do it. You know that. You see it in the currencies, you see it when they rig the markets. It’s vicious because they’re trying to scare you out. They’re trying to get out. They did it with the silver and you saw how fast it bounced back and went to new highs, because this isn’t just the Hunt Brothers where it was all speculation.
David: No. No, it’s bigger than that.
Bill: This is different.
David: It’s much bigger.
Bill: If you had a little group, there’s some foreigners involved and they were rigging the market. This is far broader. This is far different in here. So, you could see they tried to shake out the gold, silver a few times now. And it’s just keep plodding, because, for reasons we’ve been talking about this morning. And you’re right. You can shake the speculators up here and there, but this is different.
This is the world order is breaking down. And it’s breaking down in China. It’s breaking down. Russia’s got problems now. And that’s what makes everybody very dangerous situations. Europe’s gone. I mean, forget Europe, and so I’m watching these people comments from Davos, they’re all beating their chest. It’s like this Danish [unclear] about, “Oh yeah, you want that market? We’ll show you. We’re going to sell our Treasuries.” “How many do you have?” “100 million.” You mean, 1,000 bond contracts? Come on.
You have locals down there that trade multiples of that by themselves every day. Stop it. And people sense that. People sense that this thing’s falling apart. That’s why you say, “Okay, we’re not going to obey no law. Hell with you.” You’re breaking into, like, the Civil War thing. “We’re not going to obey the law.” You can outlaw slavery, “We don’t care.”
And you say, “We don’t care what your federal law is. In fact, we’re going to go out there and go after ICE agents and break the law.” At least that’s the same thing if you start saying, “We’re going to go after Treasury agents. We’re going to go after IRS agents. We’re going to go after,” you know, whatever. “I don’t want to do this.”
David: Yeah. I think the global nature of the changes, I mean, we’re talking about geopolitics, we’re talking about political issues, fiscal issues, not just with a country, but it creates a demand dynamic for gold and silver, which is far beyond what the CME can manage.
Bill: But it is the politics. Gold is more sensitive than politics. And so that’s the problem you’ve got here, especially in the United States. I mean, you can go on the internet and find that before Trump, you got Obama, you got Clintons, you got Biden all screaming, “You cannot have immigration—” You got Obama bragging, “I deported three million people.” What changed? What changed? Not only to the fact that they changed 180, but now they’re going lawless to do this.
Why? Because they’re scared. Something scared them. Yeah, it might be it’s Trump coming in. “Holy smokes. If people would elect a guy like that, what do we do? We got to ensure our political position.” That’s all it is. It’s the Democrats trying to ensure their political position. And with all this stuff going on, yeah, obviously Trump sucks the oxygen out of every place he goes. But think right now, what Republican leaders are up there speaking out and giving some guidance what to do?
Thune, the leader of the Senate, is he saying anything? These guys are scared to death. They don’t know what to say. That’s like Schumer. Leader of the Democratic Party. He said, “I’m the protector of Israel.” Now he’s groveling to the people that are antisemitic. And everybody knows it. They say, “Okay, you’re afraid of getting a primary challenge.” That’s what’s going on. The politicians are scared to death here because it’s such a volatile situation.
And the wackos are out there. And the wackos got a big megaphone now. You’re seeing it with all these demonstrations. And everybody knows it’s organized. Everybody knows— I mean, it’s like all this stuff going to Minneapolis. The people in Minnesota are going nuts. They’re saying this is basically Minneapolis and it’s something like 60% of the protesters are not from that area. This woman got shot here was recently moved there, but these people were being imported.
It was no different here in Wisconsin where they had the riots with the Floyd riots in there. These people are, a lot of them are professional paid protesters, and a lot of the money is coming from China and Russia and Iran, whatever. Since the Bolsheviks came in over 100 years ago, they were clear that they were going to use race to divide America. Now what they’re doing is they’re using the women.
That’s if you go look and see these out there and people say, “Why aren’t you working?” “Well, this is my job. I’m paid to protest.” “You can see that you’ve got elderly out there protesting, you see them going to the different homes and that paying these people to come out and protest. Who’s funding it?
David: That’s a good question.
Bill: Again, that’s why. I’m sitting here, I’m looking at February gold, it’s up $171 right now. Silver’s up almost 7%. So it’s up over six bucks today. And there’s reasons for that. It doesn’t happen by accident.
And you can get spikes and you’ve seen that. You get a little run that goes for a month or two or whatever, but you’re getting a little bit of the blow-off phase now. But you go back and look at the charts over the last decade, it’s a steady, steady, steady buy.
And I do think that 2008 was a seminal event. It was gone. The Western financial system was gone. And they cobbled together and whatever. And then to get rid of Trump, maybe, they did the COVID in 2020 and they shut down economies, which was even worse than what happened in 2008 to some degree, because you put people out of work and businesses out that could never come back.
And you had people just quit. How many restaurants and small businesses in our area alone where the people say, “That’s it. I’m done. I made my money. My kids don’t want to run the business anymore, so I’m closing the restaurant. I’m closing the shop. I’m closing the printing.” Just boom. And that’s when you see, of course, you see the mall problems now, the strip malls. They’re gone.
Where are we going to get the businesses for gainful employment for people? That’s what’s going on. There’s something has to be done here. And Trump’s throwing everything at the wall, but I don’t think he’s came up with the right mix yet, nor does the market.
David: What do you see developing between here and the midterms?
Bill: We see the chaos everywhere. And usually when you have chaotic systems, you have to say, “What’s going to simmer them down? How do you turn the temperature down to stop the chaos?” And normally it goes until it blows up somehow, and that creates the new equilibrium. And Trump’s doing too many things. That’s his problem. And the people are getting upset. They see all this foreign stuff and whatever and they don’t see, how does this benefit me domestically?
There’s no telling. Again, the population is crazy in some sectors. It’s become cultish. Let’s face it. There’s cults developing out here and it’s totally irrational. And you don’t know how that’s going to play. But what it looks like to me is you’re trying to read the tea leaves here. With all the crime and stuff going on, and we know all the conspiracies and the unconstitutional acts that were done over the last, whatever, four to eight years.
And you have people screaming, “Fire Bondi, she’s not…” I mean, Biden had arrested, you got a list of people that Biden prosecuted, and you’re doing nothing. But when you listen to John Solomon, who’s been very right for 10 years and very connected, he’s saying what’s going on and the reason it’s so quiet is they’re building a massive case, massive conspiracy case against the deep state.
You go all the back to the Russian— All that, all that stuff, Clintons, Obamas, about that whole thing. Those are very complex, hard things to put together. Anybody who’s a prosecutor will tell you that. Very difficult to put together and you’ve got to be very, very careful how you put them together. And that might be, if you’re looking for the midterm surprise, Trump thought you could get the economy going. I don’t think he can do it because there’s nothing organic developing.
It’s all, “I’ll do this, I’ll do that.” Well, you’re basically a socialist, Donnie. You’re either a socialist or you’re fascist. “I’ll buy Intel. No more, you don’t have to pay your student debt. I’ll cut rates.” They should be negative. When stocks go up, we should cut rates more. That’s just stupid, saying stuff like that. That’s counterproductive and destructive.
So the only thing I think that the Republicans are counting on is they’re going to spring this massive conspiracy case against the elements in the Democratic Party, what had gone down. The other thing is when the violence, when they went into the churches in Minnesota and started disrupting, that crosses a threshold, especially with the women. The women are the ones that are going to be determining the election. That’s their swing voters are the women.
The single women vote for Democrats. The men vote for Republicans. It’s the married women, the suburbanite women are the swing voters in elections. And if you get too extreme, don’t know. Again, but this is just such a highly toxic and chaotic brew right now, you can’t tell.
David: Well, like I said, there’s been a lot happening since we talked in October, and we’ll reach out and touch base in terms of market dynamics, liquidity dynamics, again before too long.
Bill: Well, they’re pumping like crazy. And you see that all these guys are in the same soup. They don’t want to stop the game because they don’t know what else to do.
David: As we see some changes within the financial markets, bonds and currencies seem to be more sensitive. Gold is sending a very clear signal. What’s your advice if you’re sitting down with your kids and grandkids? What would you say today?
Bill: You need to be careful. You’ve just got to be careful. You got to be liquid here and you got to have your hedges against that liquidity. And I think I said that the last time. Short term, like Buffett, he’s liquid, but you got to hedge that liquidity. And you do that with gold and silver. Again, that’s what the market’s telling us. That’s what the big private money’s doing. They want to be liquid and they need to hedge against the chaos and possible currency destruction.
Everything’s overvalued. Everything is overvalued because there’s so much liquidity in the system, and you got to go somewhere with it. So that’s kind of the bet here. Short-term instruments, so you can move quick when you have to as you get new information and events unfold, and then you need to hedge against that. Gold, silver, platinum, copper, whatever. Like you said, a real asset.
A real asset in there to hedge the liquidity.
David: Well, Bill, we appreciate your time. Appreciate your insight.
Bill: Sure, sure. Anytime.
David: You bring a real-time trader’s perspective and layer in a lot of historical context, and we’re always appreciative.
Bill: Anytime. Anytime, guys.
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Well, you’ve been listening to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany and our guest today, Bill King. 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.
