If you haven’t done so, don’t forget to watch part I of Jim Grant’s interview here: https://youtu.be/LtoCp6Iepqw
In Part II of this insightful conversation with Trey Reik, Jim Grant shares his perspectives on the Fed’s monetary policy, the state of U.S. public credit, and the evolving role of gold in today’s financial markets.
Key Discussion Points:
- The impact of the Fed’s monetary policy and $200B+ operating losses
- How public credit concerns may shape future market conditions
- Gold’s changing market behavior and what it signals for investors
- Why gold stocks haven’t kept pace with rising gold prices
- A discussion on Bitcoin’s valuation and its place in financial markets
Gain valuable insights into monetary policy, asset markets, and investment strategies from one of the most respected voices in finance.
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Jim Grant 0:00
I truly believe in gold as a monetary asset, not as a keepsake, not necessarily as a speculum play thing, although, to be sure, it does serve that function as well, but I believe in it as a as as money that will, if not supplant then at least will keep company with present day paper currency.
Trey Reik 0:30
So you mentioned the Fed cutting rates in September with GDP at three one and the dollar strong, etc, the Fed saw fit to begin to cut rates. Pretty aggressive, 50 basis point cut, and then cut rates 100 basis points in three months and since then, 10 year yields at one point in mid January, were up 120 basis points from first cut. So Goldman Sachs informs us that that is the steepest increase in long rates ever following an initial Fed rate cut. What? What do you think that’s signaling
Jim Grant 1:19
could be a lot of things. One thing, one of the things that might signal is, is, is the world’s mounting doubts about the quality of the public credit of the United States. You know, there’s all sorts of signs of difficulties, nothing we can’t sue out. But the public credit has been an object of neglect. I’ve studied neglect over the course of many administrations, and it doesn’t, doesn’t take care of itself. By public credit, I mean, I mean the capacity of the government to service its debts and good money, and the Federal Reserve is focused on other things, perhaps, than that humble but essential project. As recently as 2020 it was a Jackson Hole, a virtual Jackson Hole. It was saying we have must compensate for shortfalls in inflation with a little bit more inflation in the years that follow the deficit. Wow. Most extraordinary thing. I couldn’t believe it then I still can’t believe it now. So lest we forget, the Fed has committed to creating inflation rate of about 2% so that’s, that’s the baseline. That’s, you know, that’s like a tax and, but, but anyway, that’s the Fed is necessary. Has, has announced its its intention to inflate. And it’s announced, indirectly, its attention, it’s intent, I guess, directly, it’s intention not to press the last mile, as it were, to get inflation rate back to 2% and so, you know, what if? What if this first Trump three weeks, which, by the way, resembles nothing so much as the new deals 100 days in its and its sheer confusion and this, this orientation that is created among the people you know, 1933 the left’s left was jubilant and saying, See, we told you, and the rights hair was on fire. Now, kind of verse that people were shouting at Roosevelt that was undoing unconstitutional things, and indeed, many of them were found unconstitutional. So, it’s so, I am going off on this tangent to the to the cost of the question you asked by 15 minutes ago, trade, but what did you want to know? The,
Trey Reik 4:16
I think it’s fair to say that for me, the Fed’s credibility? Ah, yes, the final straw for me was chair pals 1.4 trillion of QE in 2021 when, yeah, CPI was heading from five to seven, and GDP was six, and unemployment had fallen from 14.8 to five. And yet, you know, we plowed through that one point trillion. We called it transitory. And so, you know, and chair Powell made it even worse by joking about it at Jackson Hole recently, calling it the good ship transitory. My, my question to you is, you move around on the rarefied air. Of New York at the top echelons of of managed money in that type is, is, is the investing institutional public? Are they? Does fed credibility still run their
Jim Grant 5:14
well. Thank you for the conference. I must say that I’m rather more marginalized than that would suggest. But to observe and to read and to listen, I would think the Fed is remarkable and the way it’s retained its credibility. I mean, the
Jim Grant 5:32
Fed is actually broke, if you look at the operating losses, which are now, I guess, 200 million capitals, 43 billion. It’s not just not mark to market, by the way, this just kept his operating losses. Numbers turn up every Thursday afternoon at 430 and the h4 one form.
Jim Grant 5:57
And he might think that that striking fact would be a subject at least of discussion. The Wall Street Journal is touching the 10 foot pole not to leave that hang. The Fed is not operationally broke despite its operating losses, because it has a chip with the Treasury. This is the same Treasury from which it is nominally 100% independent. It’s not, but this is the Fed. I have begun in my advanced age to feel more sympathy with the Fed. Rags on them. Get all this free advice from grants. But you know, they that it’s their own fault because of the remit they have embraced, and they they give us guidance, forward guidance. What? No, no. You know you have to. You can be six months on Wall Street, and you would learn never give the date and the price on any forecast. And I can’t seem to do to follow that simple rule for survival. They we had a conference last fall, and Stan jockey Miller said that what he criticized about 50 basis points. So it’s not necessarily the call, because who knows? You know, the economy could be following the trade right Austrian model, and it could be about rate of rollover. But what he found inexplicable was the the poverty of the of the risk management. They didn’t have to go to 50. They could have gone to 25 and see how the election turned out and done more, done, peeled back, waited for the animal spirits to reemerge at Trump one, that would be a different thing altogether. But no 50. So you wonder about the current issue of grants, which I guess you’ve not seen. It’s called the page one piece. It’s called the question of judgment. And we review the extraordinary things that’s been happening under the first three weeks. Trump, the president. Oh, I just turned heard from the President today. He’s selling a he’s selling a second term Trump executive order pen and I must say, Trey that I reckon him to the most Veno president in the annals of presidencies. I’m trying to think who else would have issued some mean coin very eve of his inauguration? Unbelievable. Yeah. So, so, so the purpose there’s not so much to keep my disapprobation on presidents number 45 and 47 I don’t want to I voted the guy three times, never happily on each any of the three occasions. I don’t want to do that. So I would simply want to observe that a president who can, who can exhibit the kind of questionable judgment that that name going took. Who has withheld or ordered suspended the executive order protection against Mike Pompeo and John Bolton. Because, although Iran has issued death threats against credible death threats against both, he doesn’t want to protect it because, I guess, because they said things that they he didn’t much like, against Donald Trump. So, so he has established a monoculture in the White House. And maybe they do a Bitcoin reserve. Maybe I do a sovereign well. Fun filled with Bitcoin. But I think these things, I don’t condemn everything he’s done, but that’s not the point either. The point is that enough things that he has done fly in the face of bipartisan, nonpartisan reckoning of presidential judgment. Good judgment has to call into question what he will do next. He’ll see you may say anything and do anything. And if that’s the case, then all sorts of tail, tailed distribution, tail possibility, open themselves up, and you have to protect yourself, right? If he is not going to be circumspect, said, says Grants Interest rates, then it falls to the individual invested become rather more circumspect. And this is for survival and possibly profit. But I, I think this is going to be a bull market in circumspection. This just seem like you’re a coward, and that’s good things are going to happen to you.
Trey Reik 11:10
Well, in 2024 obviously, stocks were up 25% second year, plus 20% performance for only the fourth time and 150 years of the you know, little bit surprising that with the dollar, you know, a two year highs and 10 year yields up 18% last year. Stock Market strong, that gold outperformed everything you know, being up 27% surprising. Yeah. And, you know, is it, do you think we’re, we’re at the big one for gold in terms of, you know, moving, say, up past 3000 and,
Jim Grant 11:52
yeah, okay, okay, here we go. Okay, so I called up bill Fleckenstein last week, say end of the week. And I said this week’s be out
Jim Grant 12:07
as the inventor of gold. I’ve been around for what the crypto themes called rug pulls. Lucy, would you hold this football place on practicing my place kicking and just this stuff can break your heart? I mean, 2011 I thought for sure that with the US becoming a split rate of credit, we thought that was gonna be possibility that the world had, at last, figured last, figured out that the United States was running into fiscal difficulties brought on by itself, and that gold was in the way of becoming a monetary asset in the way it had not been Since it was marginalized through malicious intent. Say, I in the 60s and 70s, and then what you got is a bear market. Rip your face off these gold stocks, and we’re down 99% right? That’s the good ones.
Trey Reik 13:14
And I remember the time
Jim Grant 13:17
it’s vividly. I stole this performance. So, you know, I said, we gotta get I said, Bill, we have to get hedged here. And, you know, he said, Yeah, yeah. And I don’t know if Bill did, I dare say he’s a, he’s a professional investor. I am certainly not a professional author and writer. But what I did was to not get hedged, because I thought, I thought that, you know, first of all, I just didn’t get around to it, meaning that something in my subconscious didn’t want to why is that? Well, I believe in gold as a monetary asset. I believe that that the mere talk of the mobilization of what lies in Fort Knox, the somewhat playful. Be careful about musk, because remember the rug pulls he pulled on his fan base, on what he was cited at live. Got them all bombed. Dogecoin then said, Oh, that doesn’t I don’t care anymore with that. So I tried to abstract from Elon Musk saying, what exactly is important. I try to abstract from all that, but focus on the fact that’s the most elegant, functional and efficient and equitable monetary system in the world, with the gold standard, which ended by phases, starting in 1914 in 14 supplanted by a system that is incredibly complex. At one point in 2021 and 22 was predicated on the fact that the Fed that inflation is caused by expectations that. Was the ruling regime when they got onto the transitory, influential bandwagon. So now we have it in we have the PhD standard, which is governed by very intelligent people mobilizing the mathematical models they mastered in graduate degree programs. And so it’s gone from Elegant, efficient simplicity to a most inelegant, complex, I would say, inefficiency. So I truly believe in gold as a monetary asset, not as a keepsake, not necessarily as a speculative play thing, although, to be sure, it does serve that function as well, but I believe in it as a as as money that will, if not supplant, then at least, will keep company with present day paper currency, Not because Grants Interest Rate Observer or Trey, both very persuasive fellows that you really must do this. But because, like all monetary evolutions, it occurs to people spontaneously. What Bitcoin has going for is that people have come to it, that it serves some function, if you want the world, or think it’s great. So I, I think, I think the most efficient price of Bitcoin is zero. However, I respect the judgment of people on mass when it comes to money. But if they say it’s money the windows, it will, yeah, all right, in the eyes of the beholder, yeah, but here we have something with 5000 years of recorded of use case and so anyway, so I guess does This describe a permeable trade?
Trey Reik 17:01
I was focused a little bit more on gold’s action recently, which I must have bet has been as consistent, I think, as I could have imagined. I might even say I’ve been a bit surprised by its resilience. But gold definitely, definitely sending a different signal than
Jim Grant 17:22
Oh yeah, you should wake up in the morning. And if it had been up in Asia overnight, it was gonna be down 20 bucks in New York. That was, that was, that was a certain as could be. It was, it was, it was just as frustrating as could be. And now it’s entirely different entirely. And, yeah, I’m not sure what, what what emphasis to lay on market action. My old mentor, barons, whom I love dearly, Robert M bleiber. Remember him there in Barron’s in the old days. Sure. I learned a lot, so much from him, and he was a great student of market action and market structure. And I dare say that he might have learned a few things from you, Trey, I love your last piece, which talked about structure and expectation and sentiment. But all these things seem, seem definitely and what might be even more bullish is the fact that none of these, that none of the the attributes of a of a forming speculative bubble in gold, have yet seemed to exhibit themselves in the American invest in public, right This, you don’t see it in the ounces, in GLT, you don’t see it certainly and and in speculative sentiment, or at least of all the miners, they still GD X is still at what, 4142 where it was, been forever. You know that was forever. It has not acted as if gold were at highs. Let me put it that way. It’s really Yeah. So the things that in the past told you that things were a little bit getting out of hand, nothing like that. Now
Trey Reik 19:12
I think that in our next meeting, we’ll be talking about gold shares, because, you know, they were the GDX was up 44% in mid October. We for forget that, and it closed the year up only 10% versus gold’s 27 so obviously there’s a disconnect there. I have a theory that rising real rates now sort of pass through gold and hit the miners harder than the metal and the Trump reaction is now behind us. So I truly believe that in the next six months, if gold stays in this range, I think the gold stocks are are going to have very strong period. Do you agree with that?
Jim Grant 19:58
Yeah, no, I don’t doubt that. Yeah,
Trey Reik 20:01
so I think that’s what’s coming. That’ll be fun to watch, Jim, I appreciate your taking the time to visit with us. Always interesting and great to hear your voice. And best of luck here in the first part of the year. We look forward to reading the next grants, and we’ll talk to you soon. Yeah.
Jim Grant 20:22
Well, you’re entirely welcome, Trey. I want to return your rather extravagant commas, Councilman torrents, but these are, this is from the heart and the mind Bristol Gold Group. I believe I’m talking to one of the leading partners of the Bristol Gold Group, does a fabulous job of bringing together all these trends in the gold world and relating them to the world of paper and so anyway. So carry on.
Jim Grant 20:48
Yeah, two peas in a pod.
Jim Grant 20:49
Yeah, yes, sir, blood brothers. Talk soon. Talk
Trey Reik 20:53
to you. Bye, bye, bye. Had
Andrew Brill 20:55
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