Podcast: Play in new window
- Concerned FED Is Back To Quantitative Easing
- Buffett Ratio Blowing out All Past Peaks
- Send Questions To [email protected]
“We have it on good authority—this is directly from the president of the Federal Reserve—this is not QE. This is not even monetary policy. I don’t know what it is if he’s doing it and it’s not monetary policy But by implication, you and I are patsies. We are expected to take his word for it. We are expected to take the word of Powell, Brainard, Barkin, as they did an about face in the fall of 2019 and juiced the system and said, ‘Nope, not QE. Turn and look the other way. Move along.’
“I would suggest to you that perhaps the FOMC is looking into an unknown hole—unknown to you and I, not to them—within the financial markets. And I think they’re attempting to preemptively fill it, getting ahead of a market vulnerability, a deleveraging event which can only be engaged proactively rather than reactively. I do think the stakes are high enough in this particular cycle that if they are trying to recover credibility and are not acting on a proactive basis, they’re in trouble already.” —David McAlvany
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Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany.
Just as a reminder, please send us your questions for the upcoming question and answer programs that we’re going to have over the next couple of weeks. Send that to [email protected]. Dave, all I can think this week is the quote from Star Wars where it says, “These are not the droids you’re looking for.” Are we really seeing QE or is this what we call not QE?
David: Yeah. A rose by any other name is a rose. Fed action to close out the year is raising eyebrows around here, both in terms of the recent repo market activity and the newest round of QE. And I think, Kevin, you have to watch what they do as much as what they say. And if you have to choose, then actions, that out does the word games that they play.
So US Banking System got a $5.2 billion boost via the overnight repos, that was earlier this week. That easily ranks in the top 10 for liquidity injections by scale since Covid. Last week as well, we had QE resumed very shortly after the QT program was shut down. So for the record books, for the history books, both of these were Q4 events, 2025. And not-QE is how it’s being discussed. Not QE, just like the past iterations of QE were not QE.
So this version is called Reserve Manager Purchases. That’s the acronym. Everything’s got to have an acronym. You know that. RMP, framed as very distinct from monetary policy. Definitely not monetary policy. It’s merely reserve management of T-bills to the tune of $40 billion.
Kevin: Okay. So $40 billion, but it’s not QE. We’re not injecting this into the system. It really smells to me like it’s sort of elitism saying these little people will not understand.
David: Mohamed El-Erian, he commented that the distinction tends to evaporate the closer you get to those in the fixed income markets. To many there—he’s referring to the fixed income markets—40 billion in central bank purchases is 40 billion in central bank purchases. So yeah, you may say it’s not QE, it’s merely reserve manager purchases. And even the smartest guys in the bond world are like, “Come on. Come on, really?”
Kevin: Yeah. You and I have talked before, Dave, when somebody has to write a 600-page book to try to convince you of their point, oftentimes they don’t have a point and they’re trying to hide something. I think a lot of times you can read in the first three or four pages of a book what the whole book is about. So I do think that there is an elitist attitude toward, “Hey, you people will not understand, but we’re going to do this anyway.”
David: Yeah, I agree. There seems to be a concede amongst very smart people that you can define reality as you like and then offer unique insights and understanding into that reality. And you’re maintaining control of people’s fresh-found views—again, sort of the prepackaged conclusions you’re providing—conveniently shaped by the framing and the definitions. Cherry-picking data. Very smart people make those views seem unassailably true. In philosophy, it’s probably working backwards. A posteriori, you’re working off of things that people have experienced and then giving an explanation in terms of cause.
I think Powell is convinced that if he and his ilk say something is not QE, then people will believe it’s not QE, and this has been done before. The last round of QT—again, quantitative tightening—was from October of 2017 to August of 2019. It ended abruptly, and it was followed by $60 billion a month in QE. Thomas Barkin, in October of 2019, said it was not QE because it was about liabilities, not assets. And he’s making a distinction going back to the global financial crisis where they were buying assets, and he’s failing to see that assets and liabilities are actually inextricably connected.
That being said, Barkin says it: not QE, it’s reserve maintenance program. Does that sound like the reserve manager purchases that we’re initiating now? And again, he said it’s not a balance sheet expansion. Powell, October 8th, 2019, said the same thing. His words, “This is not QE.” Lael Brainard said at the same time—again, 2019—”We’re going to have to just repetitively repeat”—that seems to be the phrase of the day—”that it’s not QE.”
Kevin: It’s not QE. It’s not QE.
David: It’s not QE.
Kevin: It’s not QE.
David: Repetitively repeat. Repetitively repeat.
Kevin: These are not the droids you’ve been looking for.
David: Yeah. Powell was speaking at the National Association of Business Economists in Denver. This is also the same timeframe. “In no way is this QE.” The not-QE then ran for five months and added $362 billion to the Fed balance sheet, and all of that was prior to Covid. A lot of people forget that there was a significant issue being addressed by the Federal Reserve. There was a ton of liquidity being put into the system prior to Covid.
Of course, it gets obscured because what is 362 billion in the context of five trillion in fiscal spending? And so the monetary policy which was not monetary policy—merely reserve maintenance program—it got dwarfed and people forget. But the Fed was, behind the scenes, in panic mode due to the disruptions in the repo market starting in September of 2019. So the big question now is, why is the Fed moving into QE today, calling it not-QE? Again, they’re buying T-bills when there are rumblings of concern—only rumblings of concern—in the repo market. Nothing was happening to the degree that it did back in September 17th of 2019.
The fixed income markets, are they not sufficiently liquid with total reserves of depository institutions almost $3 trillion, with the current Fed balance sheet around six and a half trillion dollars? You would think that there is ample liquidity in the current environment. There is no need for reserve manager purchases and quantitative easing in the current environment.
Kevin: Yeah. So if the plane’s not going down right now, how come the pilot and the copilot are putting on their parachutes? So what is the Fed concerned about that more liquidity is needed right now? I mean, I thought we had plenty of altitude—liquidity.
David: Do you remember the Italian boat captain who quietly got off the cruise ship as it was taking on water?
Kevin: Oh, what a shame. Yeah, that was a shameful thing.
David: Yeah, not supposed to do that. But what is the Fed concerned about, such that more liquidity is needed right now? And certainly our past conversations, Kevin: cracks in the private equity market? Is it deals going sour in the leveraged loan market? Is it tightening in the collateralized loan obligation market, the CLO market? Or is it what we do see in real time: pressure on leveraged speculators in tech and crypto? What has Jerome Powell both up at night and out in the public trying to convey yet again that buying debt is not QE? And it’s not, in his view, appropriate to associate T-bill purchases with monetary policy. He said that, this is not monetary policy. Wait a minute.
Kevin: Yeah. So what is it, Dave? Okay. It sounds to me like this is yield curve control directly from the central banks.
David: Influencing any yields across the yield curve is a modern day expression of central bank price stability. Not consumer price stability, granted, but bond price stability. And again, this goes back to the things the way they like to talk about things. Promoting smooth market functioning implies something at the short end of the curve is today not functioning as it’s supposed to.
The reality is 40 billion compared to 362. It sounds like chump change, but it is real money. We need to remember, this is new money being thrown at the short end of the curve following the previous commitments dating to October of this year where all principal payments received on agency paper. Agency paper being your mortgage backed securities and commercial mortgage backed paper. They’re taking the proceeds and recycling those into T-bills in the secondary market as well. So this is a topping off of buying short-term paper.
Maybe they need to reduce yield, the yields in the short-term into the curve via market purchases of T-bills to reduce the interest expense. There is a real issue in real time. Debt is currently rolling over. It has been all year. It continues through 2026.
Kevin: What is it looking like, though, on the longer-dated Treasuries? Because every time they do something with this short part of the market, it seems to be steepening the yield curve.
David: Right. And that’s where they ultimately can’t control the entire yield curve and they’ve got to pick and choose where to be precision-oriented in their tactics. So we’ve seen the fed funds rate come down. If you look at longer data Treasuries, you can see the pickle of the Fed and the Treasury are both in. The Fed initiated a cutting cycle. You’ve got 175 basis points of rate cuts since they initiated this cutting cycle. And yet, go farther out on the yield curve, 10-year Treasury remains 50 basis points higher than when this rate cutting cycle began.
That is an uncomfortable truth for both the Fed and the Treasury. They’re not getting what is needed from the Fed rate cuts to accommodate rolling over debt obligations to longer durations. That forces the market to roll over paper at the short end of the curve. And it appears that there is a bit of disingenuous communication from the Fed on that, yet again. Not yield curve control, not QE.
Kevin: Doesn’t this remind you a little bit of Janet Yellen? She was being criticized by those who understood at the time that as she rolled debt over—the US government debt—she was doing it on short-term paper and everyone was warning, “Wait a second, that’s going to have to be renewed as interest rates rise.” It seems to me like that’s what they’re trying to do now, but interest rates have risen.
David: Well, and clearly Bessent was critical of Yellen in that time frame. You had the opportunity to extend maturities and reduce your rollover risk. You didn’t do it. Now he’s faced with a market situation where he can’t do that. We had the layup. He could have put that ball in the basket pretty easily. We had rates at 5,000-year lows and we weren’t signing on for 10-year paper, 20-year paper, 30-year paper. Corporations were pushing paper out to 50 and 100 years in terms of the duration.
Burlington Northern, I think, had 100-year paper. It seems like in our Commentary, I don’t remember the exact time frame, but even the Argentines were pushing 50- and 100-year paper. We were too stupid not to do it, and now we can’t do it, even though Bessent’s prerogative and preference would be to extend maturities. So you lower the fed funds rate by 175 basis points and you’re not getting cooperation farther out on the curve.
That means the only place that you can refinance your debt is on the short end of the curve. So the fact that they’re piling into T-bills, recycling agency paper proceeds, and taking an extra 40 billion to lower rates, it makes sense. The problem is, they’re not reducing rollover risk at all. In fact, they’re compounding it.
Kevin: Okay. So what percentages? I mean, we’re talking very, very short-term paper, right? We’re talking just a few months? Or how far does that go out?
David: Super interesting. There was a parenthetical note in the Fed’s December 10th communique, “Reserve Management Purchase Operation.” They say this, “In order to maintain an ample level of reserves through purchases in the secondary market of Treasury bills,” and this is what was interesting in parentheses, “or if needed of Treasury securities with remaining maturities of three years or less.” Let that sink in. So it can be expanded.
Right now, the target is one- to four-month T-bills. That’s expected to make up 75% of the purchases; four- to 12-month the remaining 25%; but then they could stretch it out to one, two, and three-year paper as well. So not just bills, but also notes. The farther out on the curve they ultimately stretch, the less convincing it will be seen as “reserve management,” and the more it will be understood by the fixed income community as outright yield curve control.
Kevin: Well, and you’ve brought up before that the bond vigilantes, the people who are out there, especially in the longer-term bonds, once they start to see yield curve control, it really is their recognition that the pilot and the copilot are putting on parachutes. And so there’s a reaction that they’re [unclear].
David: I think of the bond vigilantes as nuns with rulers. They’re looking for an infraction, and they’re going to snap your hand. My apologies to all of the big-hearted nuns out there. Just a caricature.
Kevin: Do they think we’re just missing it, Dave? Do they think that we don’t understand?
David: Yeah, I think, watch what they do as much as what they say. And if you have to choose, as I said earlier, actions surpass words in importance. We have it on good authority—this is directly from the president of the Federal Reserve—this is not QE. This is not even monetary policy. I don’t know what it is if he’s doing it and it’s not monetary policy. But by implication, you and I are patsies. We are expected to take his word for it. We are expected to take the word of Powell, Brainard, Barkin, as they did in about face in the fall of 2019 and juiced the system and said, “Nope, not QE. Turn and look the other way. Move along.”
I would suggest to you that perhaps the FOMC is looking into an unknown hole—unknown to you and I, not to them—within the financial markets. And I think they’re attempting to preemptively fill it, getting ahead of a market vulnerability, a deleveraging event which can only be engaged proactively rather than reactively. I do think the stakes are high enough in this particular cycle that if they are trying to recover credibility and are not acting on a proactive basis, they’re in trouble already.
So September of 2019 and the disruptions in the repo market, which on the 17th of that month spiked from 2% to 10%, cannot happen again without much more significant damage being done to the asset markets.
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Aside by Kevin: Just a reminder, we are going to be doing our annual Q&A programs coming up here over the next few weeks. So please send your questions—if you could, keep them short—to [email protected].
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Kevin: We’ve talked before about bubbles and crisis just being moved, kicking the can down the road. And we had the tech stock bubble, and that moved into the real estate and the debt market bubble that we had in 2008, the global financial crisis. The central banks came in and intervened with extraordinarily low rates, to the point where they were negative. It seemed that we moved into a much, much bigger bubble. And somehow Covid gave us the excuse to push that bubble into territory that we couldn’t possibly recover from. I’m just wondering, Dave, who and what, cumulatively— I mean, if we have a cumulative problem here, who and what can save that?
David: We talked about this in our internal meeting this morning, and I thought Morgan gave a good summary, that the dollar-based system has created a tremendous amount of dysfunction. There’s some benefits to being the world reserve currency, but there’s some drawbacks too. It forces a tremendous amount of debt accumulation and it also encourages deindustrialization. And so there’s good and bad, there’s trade-offs, that come with the reserve currency system. The only way to deal with having too much debt is now to pay it off with cheaper currency units.
Too much of a hit to go the way of Argentina and default. You can do it quietly, a non-formal, informal default via inflation. And that is in fact, if you look at what they’re doing to control yields, run negative real rates—that is, keep interest rates well below the rate of inflation—and you get to win ultimately as you manage your debt out of existence and depressurize the situation.
Kevin: But you have to have time to do that, don’t you? I mean, it has to work over time. And you just now said that there’s a black hole that they’re possibly trying to fill some liquidity into. Do they see something coming? I mean, we’ve grown accustomed to tens of billions and hundreds of billions to the point where we don’t even pay attention.
David: Yeah, even trillions being thrown at the post-Covid market maladies. But go back to December 2008. We’re DEFCON 1. The markets have cratered. We didn’t find a real bottom until March of 2009. And the Fed pulls out the stops, the big guns: $1 billion. I mean, yes, it was the first olive out of the jar, but if you look at the scale of today’s market leverage versus 2008 and 2009, and thus the market’s degree of vulnerability, you can understand why we can’t work with a billion to solve this problem, or even tens of billions. This version, this first olive out of the jar this go round, is a $40 billion olive instead of a $1 billion olive.
Kevin: But you look at the prices, Dave. I mean, you often talk about the Shiller PE, the price/earnings ratio. You talk about the Buffett ratio. We’re hitting all time highs on, well, definitely the Buffett ratio, and we’re close on the Shiller, aren’t we?
David: Yeah. It’s helpful to compare and contrast them. The standard PE has marched over 26. The cyclically adjusted PE, which takes out a number of machinations that the C-suite can do to improve their numbers—I mean, it’s just, frankly, it should be illegal—but 40, we’re over 40, which is near all-time highs.
The Buffett ratio in excess of 221%. Certainly equities are at risk of mean reversion. 221%. Again, we’re comparing stock market capitalization, which is roughly 66.6 trillion, to a $30 trillion economy. And we have never been here before. And yet the debt markets, abused as they have been within the context of shadow lending—talking about private equity and private credit—they’re actually the far bigger concern. When we think about mean reversion in equities, overvaluation in equities, the problems are even more severe. The risks that have been taken and layered in are even more deadly within the debt markets.
Kevin: Well, I think one of the things people like about Warren Buffett is he can sometimes have some fairly complicated concepts that he reduces to just short phrases. I had a whole book of phrases that Buffett would condense, like I said, a lot of complication. But in this case, the Buffett ratio isn’t complicated. Why don’t we think about that for a little bit and let’s look at some history? Because that will put in context how high we are relative to past Buffett ratio peaks.
David: Yeah, then we’ll come back to the debt markets. But the Buffett ratio, again, simply stated, is market cap—market capitalization—of equities as a percentage of nominal GDP. And if you look at 220 relative to the history of that metric, it expresses just how financialized the economy has become. We’re not thinking about the engine of growth. We’re thinking about how you can trade paper and derivatives on that engine. And we’ve really disconnected. GDP—as unhealthy a measure as that is, far less healthy is the financialized side of the markets, which have outpaced GDP considerably, to a dangerous level.
If we were to assume, in the context of a recession, a 10% cut to GDP over several years, that would move us from 30 trillion in terms of our economy to 27 trillion. And let’s also think about a “normalization” of the Buffett ratio. Throw that word normalization into quotes.
Let’s take the ratio back to August 1929. Stock market is bubbling. At that point, the highest it’s ever been. The ratio—again, we’re talking about the Buffett ratio—peaked at 88%. The financial measure of all equities was still trading at a 12% discount to the scale of the engine which was driving the real growth. But let’s imagine what it would look like for the current ratio to correct. For stocks to factor in a move back to those levels, back towards 88%, a previous market peak. We’re not talking about trough levels, previous market peak.
Kevin: You’re talking about the peak in 1929.
David: That would imply the Dow trading to 18,000, not the 48, 49 thousand it’s currently at.
Kevin: Wow.
David: Now, if that seems unreasonable, going to 88% on the Buffett ratio, recall that we hit 70% on the Buffett ratio in March of 2009 as the market hit a bottom there. And of course, many times in the past century, we’ve been between 20 and 50%. So merely dropping to the levels of the 1929 stock market peak—peak of the boom in equities—implies a 64% decline in equities.
If you have mean reversion, it hurts, particularly if you’re a levered speculator. Let’s generously give back the 10% reduction in GDP. No slowing of the economy, a retracement to the 88% level of the Buffett ratio, 18 points above the 2009 level. Again, 88 versus 70, equal to the bull market in 1929, the Dow Industrials would be priced at 19,000.
Kevin: So 19,000, okay, from where they are now, they’re in the high 40,000. That reminds me, you were at the Grant’s Conference a couple of months ago and Pierre Lassonde was a keynote speaker. Didn’t he call for something similar to that as far as the Dow/gold ratio?
David: Within spitting distance. I mean, the comments at the Grant’s Conference: Dow/gold, 1:1—in a ratio, 1:1, with a crossover at 17,250. And at 18,000 or 19,000—given the reversion, if we assume reversion in the Buffett ratio—(again, not to catastrophic levels, to what were previous peak levels, 1929 peak levels)—you’re in the ballpark. You’re within spitting distance of his 17,250.
I know it’s difficult to imagine, and so maybe you adjust your thinking, and we only see a 3:1 Dow/gold ratio. That would imply a $10,000 gold price and 30,000 on the Dow. That gets the Buffett ratio to 100%. 92 is where we got with the tech implosion back in 2002. 70%, as I mentioned, was the low in 2009. Perhaps with massive Fed intervention, we stop at a Buffett ratio low of 100%. That still implies a 38% to 44% correction in equities, a mere 38% to 44% correction in the Dow.
Kevin: One of the things, Dave, that you’ve been concerned about, and we’ve talked about over the last couple of years, is how narrow this market is. When we talk about, say, the S&P 500, what we’re really talking about is seven stocks plus the other 493. Let’s talk about the breadth of the market as well.
David: Yeah. There’s a broad index. Morgan Stanley runs the MSCI Global Index, which is all your equities. The top 10 US listed companies—nine of which are tech, one of which is financial—account for roughly 30% of global equity valuation. 30% of total global equity valuation. It’s stunning.
I suspect that given the terrible breadth in the market, again, it’s a high concentration in the top seven to 10 US listed equities. The next bear market is not the 38% to 44%. It’s 50 to 65% off peak levels. Time will tell. I don’t hope for that, but it’s something that I think is reasonable to anticipate.
Kevin: Well, and I wonder if they’re trying to manage a crisis before it becomes a crisis. You were talking about that black hole. If they see this possibly coming, let’s go back to what the Fed’s been doing, Dave, because if they are introducing quantitative easing again, with all that liquidity that they already have, the trillions in liquidity, something’s up. Are they pre-managing a crisis?
David: Yeah. I think if you come back to the Fed and the bond market, to the degree that the Fed wants to “not do QE” and buy T-bills and notes going forward, Mr. Bond is not going to be happy. Bond market’s not going to like that. First, because the price distortion that results from artificial purchases is in the category of disturbing. The second, because the net effect is inflationary. Economists differ on the cause of inflation. Is it fiscal policy? Is it monetary policy? Is it trade policies? Is it supply chains?
What we can agree on is that we’re not going back to the pre-2019 price levels for consumers. We can point to the impact of Covid, which blended all of those inflationary inputs, or we can consider that many of those factors have been mitigated, and yet the consumer price level remains elevated. It’s not going lower. We’re not going back. Medium French fry for McDonald’s will never be $1.79 again, as it was in 2019. It’s over four bucks today. That’s the new reality. We’re dealing with new price realities.
When you look at gold and silver today, just know that we’re dealing with new price realities. $1.79 to four bucks for a medium fry. Big Mac, 3.99. You going to see that again? Not in your lifetime. Now it’s north of seven bucks. McNuggets, the nastiest things on the planet. My apologies to those of you who are McDonald’s McNuggets fans, but give me some real chicken. I don’t need hyper processed— McNuggets will never see $4.49 again, as they were pre-2019. $7.50 for chicken mince meat, and higher is the new reality.
So we’ve seen 100% to 200%. The increases are stuck at higher levels, and I can’t see that we even need to disentangle the fiscal versus monetary inputs, which is it? It feels like arguing over whether we got punched in the face by a hand or was it the glove that covered the hand? Regardless, you just got punched in the face.
Kevin: Yeah, but I can’t get out of my mind that the fries are outperforming the Big Mac and the nuggets. So I’m wondering, Dave, we do the swaps with gold to silver, silver to gold, platinum to palladium, platinum to gold. I’m wondering if we should start looking at when we swap out of fries and into Big Macs, could we actually compound McDonald’s meals?
David: The real ratio I’m interested in is the McRib to dime ratio. Can I get a McRib sandwich for a single silver dime? That’s going to be a good day.
Kevin: Okay. So the Fed, they’re going to wash their hands of this. A little like the pilot saying, “I’m not responsible for this.” They’re saying we’re not doing QE when they’re doing it right in front of us. And you said this will be actually not just inflationary, but it’s a pushing of already high inflation.
David: Right. When you start getting away from your base number and you’re compounding at 2%, it’s 2% versus the year before, but it neglects where you were five, six, seven, eight years ago. And the compound effect of that small move in the present is a much larger move if you’re looking back at your base years.
The Fed will never claim responsibility for having created too many currency units and for there being too many currency units chasing too few goods, driving up consumer prices. They won’t even claim responsibility for initiating a new round of QE. It’s like they want to claim your face hit their hand and not vice versa.
Kevin: But not everybody’s missing this, Dave. Not everybody’s missing this. I mean, we really have, over the last three years especially, since 2022, we’ve seen the beginning of the end of the petrodollar system and the replacement of the dollar reserve system worldwide with gold. It has to be done in a way that, like the Chinese yuan buying oil and then changing Chinese yuan into gold on the Shanghai Exchange. Granted, it’s a little bit more complex, but we’re living through, in the first time of any of our lifetimes, the greatest monetary change— I mean, if you were born before 1944, the Bretton Woods system was the greatest change in the monetary system, but we’re seeing the end of that, aren’t we?
David: Yeah. This is like another Bretton Woods. We repeatedly discussed, the biggest changes of foot are not just US-centric. Clearly, our policies do have a big effect on the globe, but the biggest changes afoot are the circumvention of the dollar in the global system of trade, which appears to be a form of gold re-monetization. The changes to the global currency reserve system are quantifiable in tonnage accumulation by global central banks.
The system of trade that incorporates gold as a means of net settlement is far more profound in its implication for US dollar reserve holders. Far more profound for the US economy, far more profound in terms of its impact for US clout from a geopolitical perspective.
Kevin: Okay. So gold lasts a little longer than McDonald’s fries. Where do I hedge my money?
David: Twinkies, they have a decent shelf life.
Kevin: That’s true. That’s true.
David: Now, I think gold performance has nearly matched the increased cost of a medium fry. I don’t think that should come as a surprise. What happens next, I think, is going to be very different. The 2026 to 2028 timeframe is nothing short of a revolution in the global order. Fresh challenges to US global hegemony, US Treasury market dominance, and global over-allocations to US equities versus the rest of the world. These trends moving in reverse, what happens next is a scramble for scarce real things.
Forget the repricing of a Big Mac. The next phase is a scramble for resources where scarcity is the fulcrum for exponential growth. And as much as you may have heard me suggest a much lower price in the equities markets, keep in mind the differentiated performance in hard assets, and it is significantly differentiated. Has been for a number of years.
Own scarce things. Sell things that are in abundance. The Kabuki Theater directed by Powell & Company is at this point laughable. Buying abundant scrip and pretending the rest of the world doesn’t see that for what it is, claiming that it’s not QE when in fact you’ve just initiated the next round of yield curve control, yield suppression, interest expense management in collusion with the Treasury Department. The Fed is acting desperate this time long before there are headlines that give them cover to do so, and I think that’s notable. They may inadvertently create the headlines, because after all, the greatest crisis of confidence is when it migrates to the heart of money and credit—that is, government obligations.
Kevin: Something that strikes me, Dave, is that we’re not talking about trying to pick the best investment right now. The days of going, “Gosh, where am I going to make the most money?” And you just comfortably go home, have a nice dinner, and then the next day, where can I make the most money? It sounds to me like this is survival. This is our own survival, making the right decision at this point. Scarce things versus things that are in abundance.
David: Yeah, absolutely. By personality, I have to differentiate from that just because to grow up in the McAlvany household, that was when your favorite movie or the movie that you watched most in the years, Red Dawn. It probably tells you something about how we view or mis-view things, right?
But I would like to say that being a full cycle investor means that you sidestep as much risk as you possibly can, maintain a position that is liquid and reliable and deployable in the future, not deplorable but deployable, and be able to make a lateral move into quality assets when the rest of the world is unable to do so. They were over-committed at the end of a cycle. For you to have pulled back, increased cash, own metals. You’re in a position to be a full cycle investor, to manage through the ups and downs, the ebbs and flows within high finance.
And so gold and silver today a growth opportunity? Yeah, to some degree, but I do see it as you are suggesting, Kevin, as an existential necessity. Watch over the next series of months, even years, watch as the investment community gets in queue, and hopefully you’re already ahead of them.
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You’ve been listening to the McAlvany Weekly Commentary. I’m Kevin Orrick along with David McAlvany. You can find us at mcalvany.com and you can call us at 800-525-9556. And again, a reminder, please send your questions for the Q&A programs coming up to [email protected].
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.
