EPISODES / WEEKLY COMMENTARY

Trump: Breaking Bad To Remake Good

EPISODES / WEEKLY COMMENTARY
Weekly Commentary • Feb 05 2025
Trump: Breaking Bad To Remake Good
David McAlvany Posted on February 5, 2025
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“If the US is to be the primary winner in the restructuring of the global system, it will come at the expense of our trade partners. Think about China and over a trillion dollars in Treasuries. Think about Japan. If that cycle has contributed to the hollowing out of our US manufacturing base, the course he’s proposing is one that is decidedly dollar negative. So to boost the value of our trade partners’ currencies, to devalue the dollar and rebuild our manufacturing base is a 180 from the conditions that have created our current system of trade and drive our import-export balances to the levels we have. Now, clearly we’ve got trade deficits on a gargantuan scale. I think we’re on the cusp of a major monetary regime change.” —David McAlvany

Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick along with David McAlvany.

Dave, there are times when the guys that we would go to say, “Hey, where is this going to end up?”, like Doug Noland or Morgan Lewis or some of the people that help give us instruction. We go, “Okay, so Trump’s doing this. Where is this going to end up?” When these guys themselves are saying, “Well, let’s analyze it, but I have no idea.” That’s what it feels like right now, that nobody really knows. What does this look like as we recreate the entire financial and economic structure of America?

David: Yeah, the idiom being caught off balance, I think has application because there’s not an asset class that hasn’t been sort of scratching their head, investors saying, “What exactly does this mean and what am I supposed to do about it?” So yes, there is a sense of being annoyed and disturbed and rattled, and we’re seeing that show up in the form of volatility, for sure.

Kevin: And that’s why it would probably be a good idea for our listeners to go back, if they didn’t hear the Tactical Short call with you and Doug last week. It’s not only available in recorded form on our website, we’ll go ahead and put that on the links, but it’s transcripted as well if you’d rather read.

David: Yeah. So if you don’t want to spend two hours, I think— Last week Doug Noland and I recorded the Tac Short call. There is a brief version of it in the Credit Bubble Bulletin from the weekend. So if you weren’t on the call, I insist you take 10 minutes to read this week’s Credit Bubble Bulletin. If I told you your financial health depended on it, would you ignore that? And I do think your financial health depends on it. In the show notes, follow the link and just take 10 minutes, read the first part of the weekly Credit Bubble Bulletin. It’s the weekly. We do a daily as well, which has the news feeds. So make sure and look for the weekly.

Kevin: Well, and just to mention, you’re just about to get on a plane, and I love it when you get a chance to go see your dad, I think he’s going to be 85 in June, and your mom. But just for the listener’s sake, we’re recording this one day early, so anything that we say, there’ll be a little bit of news events that come before the Wednesday publication of this show.

David: Well, the last few weeks, every day there’s been news items coming at us fast and furious. But yeah, you’re right. My dad’s 85 this year, mom is a spry 78, but with a cancer recovery effort still in play there are even more reasons to be with them whenever possible. So if the events in the call today seem different by the time you’re listening, I just wanted you have that context.

Kevin: Well, and so let’s start putting some things in context because over the last week, we talked about the DeepSeek shock. But we’re seeing shocks in a lot of areas: cryptocurrencies, AI, DeepSeek, and honestly a lot of the ramifications from tariffs I’d like to just maybe talk about all of that today.

David: Yeah. Last week was DeepSeek and a challenge to the AI narrative. This week, it’s tariffs on Mexico, Canada, and China. Sheinbaum engaged Trump very quickly, and there’s a 30-day stay of execution. Trudeau, and frankly, every other prospective Canadian leader, there’s an election around the corner and everyone had to flex harder than Sheinbaum or else jeopardize their bid for power in the months ahead. And the off-ramp was fentanyl. Trudeau took it, and he’s promised 10,000 in personnel to the border to stop the flow. So he, too, bought 30 days.

I think when we think of the audience in Canada, it was definitely the Canadian people. They needed to show that they were still in the running—all of the different people who are in line to take on the lead role from Trudeau.

Kevin: So what do you think about this talk about retaliation from the Canadians or the Chinese. Do they have any chips on the pile that they can put in and retaliate?

David: Yeah, for sure. The question is, how much do they want to escalate? And if nothing else, the 25% was a strong shot across the bow. Show up at the negotiating table and be willing to concede because we’re going to ask for more than we need to ultimately land on a number that everyone can live with, not happily. But Chinese retaliation, Canadian, I think those are still to be formalized, but I think we can expect more details within the week. I think we did get Trudeau eating a slice of humble pie and working some things out with Donald Monday of this week.

Kevin: We live in a world of narrative. I mean, all day long we’re seeing stories unfold, we’re telling ourselves stories. Sometimes those narratives are relatively true and match reality, and oftentimes they’re not true and they have to be reconstructed. So let’s talk about the narratives that people have been telling themselves about artificial intelligence, cryptocurrencies, what happened to ethereum over this last week and bitcoin, and honestly, the narrative of this incredible shift that we’ve seen since November when the election showed that the narrative was going to change.

David: You just go back a few weeks and you can see that the primary Wall Street bullish narrative for all assets was intact. That 2025 was going to be as good as 2024. And that’s really not how we started 2024, there was certainly recessionary concerns, and probably 75% of economists polled suggested 2024 would be a tough patch with a recession sure to unfold. And now you’ve got the flip-flop. Almost 100% of economists think 2025 is going to be great.

All right, so Sunday night we have the S&P and Nasdaq futures. They’re down 2% and 2.56% respectively. Ethereum shed over 25%, Bitcoin, call it 5%, XRP, that’s Ripple, was off in the high teens. Gold and silver were off too, but they rallied back to positive territory by Monday’s market open and your pre-equity market currency trading was wild with the Mexican peso and Canadian dollar under intense pressure. And as soon as Sheinbaum came to the table, we had a 2% loss revert to positive territory for the Mexican peso.

Every commentator’s concern from Saturday forward was over a Canadian and Mexican recession. The euro was also under intense pressure with the expectation that the EU was next on the tariff hit list. Commentary was the same overseas, any tariffs would tip the scales and send the eurozone down the recessionary tubes. And frankly, they’re already close as it is.

So last week was the challenge to the AI narrative that overspending on CapEx for AI, capital spending, would pose a real challenge to the supply chain going forward. Volatility was high last week, as expected. The AI names rallied back. We talked about that in last week’s podcast, that that was to be expected. But with a weak Monday open, Nvidia remains under pressure this week, adding another 250 billion to the 600 billion in losses from the previous week. How this week ends, no one knows.

Kevin: And it reminds me, we’ve told this story on the Weekly Commentary in the past, Dave, and I think you and Doug— Well, you and Doug did talk about it last week. There is a good analogy, that time when you were climbing—was it Mount Rainier that you were climbing?

David: Mm-hmm. Yeah. Yeah. So two weeks ago, we said clearly the word for 2025 was volatility. Last week on the tactical short call, I recounted, this was in the Q&A section, a mountain climbing story and the choice a friend made that I made with him. It was a bluebird day, perfect in every way, but we decided to turn back from the peak on Mount Rainier, about elevation-wise 500 feet from the top. Weather conditions were perfect, but snow conditions were terrible, and they were terrible after days of slope loading from wind and fresh snowfall. So we’d been through several days storm, and finally we had a window of opportunity to get to the top. The bottom line for us then, and I hope the conclusion you come to after reading Doug’s comments, I hope they’re similar, it’s a perfect day to speculate. Energy is high, liquidity is ample, but the conditions are rotten and a trigger event could come from anywhere.

And, in fact, we came off that slope and it was within a week’s time that the slope slid and killed multiple climbers. So yeah, it was a perfect environment for all intents and purposes. The environment was beautiful, we had the weather we needed, the window opened, but the conditions were not. And it’s really important to look at the structures, whether it’s the structures of snow or in this case financial structures.

Kevin: Isn’t it interesting in situations like that, I think of Krakauer. Remember Jon Krakauer wrote the book about the Everest expedition, and agreements are made when certain conditions exist or a certain time comes when you’re climbing Everest to turn around and go back, whether you’ve made the top or not.

Now, you guys were 500 feet from a goal that actually cost you a lot of time and money to get up to because you don’t live there, you had to travel up there. So it is, it’s very difficult to shift your narrative. You just don’t want to believe things will change. So I wonder, all these hedge funds, Dave, these people out there that have the liquidity just flowing all the time and are continually having to borrow more to keep things flowing, do you think that they’re going to see that maybe the snow is terrible even though the sky is blue?

David: Yeah, I mean, we had an event back in August which was sort of a foreshock, if you will, a reminder that there is some fragility baked into this current environment we have in the financial markets. I do suspect that leverage players will continue to use any strength in the markets to get liquid and to trim back their exposures. On the other hand, you’ve got tech bulls who are going to fight to keep the momentum going. But hedge funds, the leveraged speculative community, I think they’ve already read the tea leaves. Fragility has already shown itself. We had crypto which cracked on Sunday night, shot across the bow, Nvidia cracked last week, a shot across the bow. Currencies were cracking as the dollar rallied Monday of this week till Sheinbaum and Trump’s meeting confirmed what the markets hoped would be the case, which Trump is negotiating hard, but we should not take him too seriously in these tariff matters. That is the narrative that Wall Street wants to uphold.

But if you read HAI, Hard Asset Insights, if you read that from the weekend, you might think differently. Morgan references a November paper published by Trump’s nominee to be his chair of economic advisors. Kevin, it’s radical. It’s not a nothing burger, it’s the game changer as far as we’re concerned.

Kevin: So for a guy who has not read the 41 pages, have you read the report yet?

David: Yes. Yeah. So 41 pages might be too much for you to read, but there is a remote possibility that Trump and this gentleman, Stephen Miran, have a substantive strategy that requires tariffs on a scale not imagined since Smoot and Hawley. So Rubio is now head of the State Department, he’s on the road.

Looking at the events of the last few days, the fact that the Trump Administration killed USAID over the weekend—or by naming Rubio as USAID chief earlier this week intend to re-engineer it—it says a lot. It says a lot about the changes that we can expect because from the 1980s forward, we were leaning heavily on Joseph Nye’s ideas of soft power and influence, and that has defined how we manage an empire with far more carrots than sticks. I think that’s likely to change. So do you remember the book written, I think it was maybe in the ’90s, early 2000s, Confessions of an Economic Hit Man?

Kevin: Yeah. Oh, yeah, that’s an interesting book. I don’t always agree with everything he said, but this guy, he was in the midst of destroying economies for the, “better good,” Right?

David: But it accurately describes the ’80s to the present, where our foreign policy has been that of a reluctant superpower, and the thematic in the years ahead I think is going to be very different, in part because we’re not wanting to hold onto the same kind of superpower status. Hard power instead of soft power, that is the order of the day, and a contracting of global influence, I think, is inevitable as we sort of pull back from the areas of influence that we’ve sought to maintain with hundreds of billions of dollars. So a shrinking of our hegemonic footprint to prioritize the domestic economy here in the US and the recreation of an industrial base that’s withered over the past 40 years, and certainly at an accelerated pace over the last 20, that’s what’s on tap.

Kevin: Well, and so you think about it, when we think about globalization, what we’re doing is we’re basically saying we are becoming dependent on a lot of different countries and a lot of different people out there to provide us a particular item or service or a good. Globalization, though, the main benefit of globalization, that’s been on the financial asset side, hasn’t it? I mean the manufacturing side, the United States has really paid the price.

David: Well, there’s been many imbalances created by us maintaining the world reserve currency status. And again, I encourage you to read Morgan Lewis’s Hard Asset Insights because he discusses Triffin’s dilemma and how the benefits accrue with this kind of structure upfront. But the problems also accrue as time goes on to the point where it’s no longer sustainable.

So there is a problem with the way our system is structured. We’ll have to see if the restructuring of the system as it is today is done without any hiccups. We’ve got the benefits of globalization, which have been most tangible in the explosion of wealth via financial assets. And if you’re just looking here in the US, the costs have accrued to the middle class, the factory worker, dealing with both technological innovation and an outsourcing of production at the same time.

Kevin: I’m wondering about creative destruction. If you were to sit down actually with Trump and some of his advisors right now and say, “Okay, where do you see this going?” I wonder if they’re not just breaking and remaking, and they would have to admit, “We don’t really know.”

David: Yeah, I struggle to understand the Trump objectives, and because of that, I’m unable to adequately critique the path he’s taking—and taking the world towards. I don’t know the end game. So the state of play is a bit chaotic, it’s a bit discombobulating. The 41-page piece that Morgan referenced provides the best explanation so far, a rationalization and perhaps what is the end game. It would serve as a rationale for actions being taken by the administration, and clearly Moran has Trump’s ear. So at a minimum, read this week’s Hard Asset Insights, it’s titled “The Foothills Of Gold’s Eventual Everest,” and that’s January 31st. There’s a link in the show notes, and also to the Credit Bubble Bulletin. Put yourself on that mailing list if you like thoughtful analysis on our hard asset thesis, I don’t think you’ll be disappointed. Morgan’s our co-portfolio manager for the hard asset equity strategy.

Kevin: Well, and wherever we end up, wouldn’t you basically say this is a restructuring of our entire global trading system.

David: Yeah, and it’s more than just the trading system because that’s what Moran talks about. But Bessent is talking about—this is the new Treasury Secretary—he’s talking about a new Bretton Woods. So we have Bessent talking about a new Bretton Woods, a new monetary regime. Moran is talking about restructuring our global trading system. Reading through the Moran paper is instructive. What he is describing is doable, but with every strategy there are trade-offs. If the US is to be the primary winner in the restructuring of a global system, it will come at the expense of our trade partners, which underscores— I think, again, it’s no coincidence that USAID is being restructured as well. We don’t care anymore, not about the world out there. The focus by this administration is on the US accruing benefits which have been shared more broadly during the past four decades of globalization.

Here’s a quote from Moran’s paper. Frankly, I think it should warm the hearts of gold investors, but it is likely to send fear and trepidation into the hearts of asset allocators in every other asset class. And he says, “If the root cause of dollar overvaluation is demand for reserve assets, Treasury can use IEEPA.” That’s an old law that was put in place many decades ago. “Treasury can use IEEPA to make reserve accumulation less attractive. One way of doing this is to impose a user fee on foreign official holders of Treasury securities, for instance, withholding a portion of interest payments on those holdings.” Did I say this was a radical new course?

Kevin: I’m thinking about that, Dave, because every day I think, “Well, we’re the reserve currency. How are they going to maintain that? How are they going to maintain the reserve currency or the strength of the dollar?”

David: And I’ve always imagined that we wanted that, that we needed to recycle dollars and Treasuries.

Kevin: You’re saying it’s the opposite. It may be the opposite.

David: Yeah, exactly. Right. Our template is not apparently consistent with the new template. We did this in the petrodollar era, and we have been doing this during the trade dollar recycling, with the net results being a vast accumulation of dollar assets and IOUs with our primary trade partners. Think about China and over trillion dollars in Treasuries. Think about Japan.

If that cycle has contributed to the hollowing out of our US manufacturing base, he’s suggesting a change which I never imagined and really have a hard time conceiving as desirable. The course he’s proposing is one that is decidedly dollar negative. So to boost the value of our trade partners’ currencies, to devalue the dollar and rebuild our manufacturing base, is a 180 from the conditions that have created our current system of trade and drive our import-export balances to the levels we have. Now, clearly we’ve got trade deficits on a gargantuan scale. This is what we’re talking about. I think we’re on the cusp of a major monetary regime change.

Kevin: Well, you’re talking about Morgan’s writings in Hard Asset Insights. Morgan’s been talking now for months about this dollar recycling, which was the reserve currency recycling of the petrodollar, changing to gold worldwide. And I know Trump is threatening these BRIC countries saying, “Look, if you want to stop using the dollar to buy oil, we’ll just put 100% tariff on it. But there has been a movement—because Morgan pointed out just about a month ago that the oil trade has gone from 100% in dollars down to about 80% in dollars in just a very short period of time. So are we seeing that the world was starting to sense that they’re going to be moving away from the dollar and into gold?

David: Right. If anyone’s been reading HAI for a little while now, he’s been talking about the net settlement of these trade, not in Treasuries, but instead in gold. So we’re replacing the old Treasury recycling model with a gold recycling model. And lo and behold, we do have central banks adding to their gold reserves aggressively.

In Morgan’s conclusion, if this is the case, then we are merely in the foothills of gold’s eventual Everest. Can the administration orchestrate the perfect omelet for the US economy without breaking a few eggs? And the question is, which [eggs] will they be?

And I can’t help but think of equities, I can’t help but think of bonds. Seeing equities are already at nosebleed valuation levels, it makes sense that risk is concentrated there. Seeing that the credit markets are stretched, it also makes sense that downside risk in bonds is very real. Do we replay the 60/40 portfolio carnage of 2022, or is the sequencing a little bit different? Instead of everything moving at the same time to a similar degree, do we see an equity dip first with the bond bid people move to as a safe haven prior to the reassessment of weakness within the credit markets? We’ll have to see.

Kevin: It’s probably worth going back and talking about that 60/40 portfolio carnage that you’re talking about. When you’re talking 60/40, you’re talking 60% equities, 40% bonds, and moving things back and forth. It didn’t work back then, did it? In 2022, everything got crushed.

David: Well, what happened is all assets became correlated, and it didn’t matter if you were broadly diversified across equities or fixed income. The theory being that if you do keep that balance, you’ve saved yourself a lot of risk. And in 2022, all you did was compound your risk. The 60/40 portfolio, it was like getting the left hook and then an uppercut in sequence. So there was no place to hide.

Kevin: Haven’t we had a concentrated trade though? If you think about it, tech, what was it a month ago? You said that the Seven, the Magnificent Seven were representative of 70% of trading volume over the entire S&P 500. So what happens when the leaders are no longer leading on the upside?

David: And those top stocks represented 20% of global market capitalization?

Kevin: Wow.

David: Absolutely have never seen a concentration in such a few names in the history of finance. So tech has led, and we’ve noted over the past six months that if the generals get taken out, the troops tend to scatter. That’s why Nvidia’s $850 billion dump in value is so relevant. The five-star general may have just been taken out. So will we see Microsoft and Amazon and Meta and the other Magnificents also succumb to market pressure?

Kevin: Sometimes getting old helps, Dave. And I’ll never forget in the 1990s, people were saying, “The Internet’s going to be a really big thing.” And so we had the .com bubble, and the internet became a very big thing, but it was after the bubble popped.

David: Well, Pete Berezin from the Bank Credit Analyst, he does some writing for them, he reminds us of the tech run-up in late ’99 and early 2000. He says, “Just because a new technology lifts productivity does not mean it will lift profits.” The internet is a classic example. The rollout of the internet helped boost US productivity growth by about one percentage point between the mid-1990s and the mid-2000s. However, it was only around the mid-2000s that companies started making serious money from the internet, by which point the.com bubble had already burst and productivity growth had started to go back down. In other words, he says, “The productivity preceded the profits by 10 years.”

Kevin: Wow. And see, that’s the thing. I mean, of course AI’s going to be a factor for the rest of our lives and going forward, but it’s so concentrated right now. Everybody’s just, they’re betting many, many years out.

But let me move back over to Trump because we have deficit problems. We’ve actually used trade deficits to our advantage in the past, what we were talking about with the petrodollar. But with this Trump strategy—and again, I’m not trying to hold you to something because we already said we don’t really know the end game—but it seems that he’s wanting to fix one thing to fix another. I’m thinking of deficits right now.

David: And again, it’s not to say he won’t be successful, but it appears to me like he’s trying to thread a needle in the back seat of a convertible going a hundred miles per hour. Yes, it’s possible, but it’s pretty darn hard. Trump’s strategy appears to be focusing on fixing the trade deficit as a means of ultimately fixing the fiscal deficit.

And the fiscal deficit is something that the bond vigilantes have certainly taken an interest in. With a fiscal deficit of 7% of GDP, it is the highest in the developed world, and I have assumed that maintaining our foreign buyers of Treasuries and keeping them as active buyers on a go-forward basis was necessary. I think that’s still the case, that we need them, but I’m not sure that Bessent and Moran and Trump are convinced of the same.

You would expect the US Treasury to have to offer higher yields on its debt to be able to continue to flood the market with more debt. I’m not sure what creative thinking is happening at the head of Treasury right now, what Bessent will employ, what policy tools he has, but it appears that what he’s doing is highly experimental. There’s room for both the intended and the unintended consequences with new policy. I wouldn’t rule out considerably higher rates in the years ahead, and a dramatic form of financial repression from the administration as they define the winners and losers. And those winners and losers might be both foreign and domestic.

Kevin: So when you’re talking about repression, Dave, you’re actually talking about inflation exceeding what you can earn in interest. And so how can they do this? How can they weaken the US dollar without intensifying the inflation that we’re already experiencing?

David: Well, that’s where I think the US dollar is squarely in the crosshairs, and we thought that that might be something we want to defend against. But if you’re prioritizing trade policy, then a weaker dollar is actually a desired outcome. How you weaken the US dollar and avoid consumer price inflation, that eludes me.

Obviously, the administration doesn’t want higher consumer price inflation—that was one of the things that helped get Trump elected—but it may fit the category of unintended consequences, seeing CPI start a new move higher. Do we get a recession in 2025 in this transition phase as they’re introducing new policies, playing a long game hoping to benefit domestic manufacturing base? Again, it feels like the threading of the needle in the backseat of the convertible.

Kevin: Yeah, going back to needing to offer higher rates to get you to loan money to the government. The past recessions, haven’t we had long rates actually falling? Last few weeks, you’ve said, whether short rates go up or down, the long rate just continues to go up.

David: And I think this is the big surprise in late 2024, to see Fed policy taking rates lower, but market rates going higher. Jeffrey Gundlach notes that in 40 years we haven’t had a recession that didn’t include the long bond yield declining. Don’t count on that now. This time is different.

As you know Kevin, those are very scary words, but we’ve never had a Fed tightening cycle and had a 10-year Treasury yield go up, either. So in Gundlach’s words, “Something is different this time.”

So the normal relationship when you’re in a recession is for people to de-risk and to move from stocks to bonds. But we’re in this new era of deciding whether or not people want to own bonds at all. We quoted from a PIMCO economist a week or so ago, and they basically said, “We’re not buying long bonds. We don’t want US Treasuries that are long dated. We’re not willing to fund that.”

So there is a shift. I think when you start thinking about recession, and we think about the probabilities of that in 2025, we have consumer loan delinquencies on the rise. We have corporate bankruptcies reaching levels not seen since 2010. And so having a recession in 2025, you cannot rule that out. How will the Fed be coordinating efforts in the months ahead? Because you’ve got the Treasury and the White House objectives, which are not clearly going to be in step with the Federal Reserve. In fact, it may run into strong resistance from Jerome Powell.

Kevin: Dave, going back to Doug Noland. This weekend, I thought of Russell Napier when we both read The Anatomy of the Bear. That was such a great book because what he did was, he just sort of locked himself in a room for I don’t know how long, and he just read every Wall Street Journal going back to the 1800s all through the 1920s. And what he wanted to do was, he wanted to analyze: how did that bear market, that horrible bear market after the Roaring ’20s come about? And I think about Doug Noland because Doug comes at it from a little bit different angle. He looks at bubbles based on debt, but if there’s anybody, I guess we could call him the Bubble Master. Nobody understands the history of bubbles like Doug Noland, and I know that this week he talked about the Roaring ’20s being an area of passion of his where he really doesn’t even want to tell you how much time he’s spent studying.

David: Coming to the conclusion that what we have today is the Roaring ’20s 2.0. So going back to Doug’s Credit Bubble Bulletin from the weekend, you have a bloated financial system already on an unsound footing. Today’s Roaring ’20s excesses are the most extreme since that fateful period a century ago. Doug said that. Doug says, “As a student of history and with a meticulous record of bubble growth, how do we know we’re in bubble territory?” Just some factoids from the weekend. He reminds us that this historic expansion of money and credit is the fuel inflating a once-in-a-century securities bubble. Total debt and equity securities inflated 24 and a half trillion dollars, over 19% of the previous year. 58.7 trillion, or 62% over five years, to a record 153 trillion, leaving—and this is fabulous, this is absolutely fascinating—leaving total securities at the end of the third quarter at 522% of GDP. Total securities at the end of Q3 at 522% of GDP, dwarfing cycle peaks of 375% in Q3 2007, and 357% during the first quarter of 2000. Household net worth ended September of 2024 at 575% of GDP—this is household net worth—eclipsing the previous cycle peaks of 488 in the first quarter of 2007 and 444 in the first quarter of 2000.

Kevin: There’s a simple question here. No matter who you are, whether you’re Trump, or— It doesn’t matter. You’ve got to try to either come up with a way of fueling an already overvalued market, or—I hate to use the word, Dave—are we going to have a crash?

David: I think it’ll take a miracle for Trump, Bessent, and Moran to maintain this bull market dynamic or to press it higher. The odds favor mean reversion, it’s a nice way of saying it. The odds favor not a correction, but a crash. The odds favor markets from stocks, bonds, and real estate being caught off balance as our current trade system is re-engineered.

So if Trump succeeds, there’s a lot in store, he’ll be remembered in history. The MAGA mantra will have been a historical coup, right? But the journey from here to there—if he succeeds—the journey from here to there is more than likely on a very rocky road.

There are many things you can get away with in terms of policy implementation if markets remain liquid and function on a normal basis. I don’t think we’re going to have that luxury. We’ve already had the bond vigilantes applying a discipline in the bond market globally, which has been absent from the markets for decades. And you have to set aside the Liz Truss budget debacle a few years back, but we have not seen any real bond market muscularity bringing discipline to a fiscal process in a long, long time. And I think that’s one of the things that’s pushing interest rates higher even as policy rates are moving lower.

We had three central banks last week lower interest rates by 25 basis points. Again, you’re seeing the divergence between where the market is pricing them and where the central banks want them to be.

Kevin: So call me a scaredy-cat, Dave. But if the top guys, even the guys who are making the decisions, can’t really tell you where this is all going to end up, my scaredy-cat move is to step out of the system for just a little while and go into gold. I mean, in 4,000 years, if there’s uncertainty and you don’t know what the end is, gold is always the right answer.

David: Under ordinary circumstances, you can move to cash. But I think you’re talking about a policy deliberation which includes the devaluation of our currency in order to get done what they want from a trade policy perspective. So the foothills of Everest sounds about right for gold as we rewrite Bretton Woods and the post-war trade system we’ve become accustomed to. Maybe gold gets a correction, maybe it doesn’t. But this market setup requires a very circumspect strategy for wealth preservation. It’s not entirely clear who the chosen winners and losers are by this administration.

Foothills of Everest? We shall see.

*     *     *

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.

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