In this week’s edition of Wealthion’s Weekly Market Recap, Andrew Brill highlights key insights from our expert guests:
Legendary investor Jim Rogers discusses why silver is a better investment than gold, the rising risk of global conflict, and gives crucial advice to young investors. Rick Rule explains why gold could hit $9,000, while addressing political and jurisdictional risks in precious metals investing. Larry McDonald highlights parallels between the current economy and the 1968-1981 period, discussing inflation, fiscal policy, and the potential market impact of the U.S. elections. Jared Dillian focuses on the Fed’s rate cuts, the yield curve, and commodities, particularly those needed for the rebuilding of war-torn countries.
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Andrew Brill 0:00
The bond market continues to move higher, despite the Fed efforts, and mortgage rates are rising too. If you need help navigating all of this, you can head to wealthion.com/free for a free no obligation. Financial Review. I’m your host. Andrew brill. Let’s see what our experts had to say this week.
Andrew Brill 0:21
Legendary investor and founder of the quantum fund, Jim Rogers joined speak up with Anthony Scaramucci this week. Despite skyrocketing lately, Jim feels silver is a better investment over gold. He also had some advice for young investors this week. Jim also feels we’re on the brink of a global conflict, and discussed what recession signs look like with respect to psychological and fundamental principles and investments.
Anthony Scaramucci 0:51
Jim, Jim, we have thankfully avoided a global conflict. Not that there haven’t been wars, and there’s some wars going on right now, but we have thankfully avoided a global conflict since the Second World War. Assess that for us, are we going to be able to continue to do that? Or do you think global tensions are rising among some of the superpowers? Well,
Jim Rogers 1:13
Anthony, I read the same press you do, and I can see that there are various and sundry small wars. But if you look back in the past, that’s how big wars started. There would be a small war here and a small war there, and people would ignore it. The next thing you know, those small wars turned into big wars today, 1974 1975 look terribly similar to what happened before the Second World War, when all these small countries were hitting at each other, and the next thing you knew, was out of control. Now I hope it’s not out of doesn’t get out of control again, because if we have another war, oh my gosh. But you know as well as I do that we have a war in you, in suit of Ukraine right now we have a war in various other places. So, I mean, I am not not saying, I am not optimistic that we’re going to avoid wars. Certainly in your lifetime, we
Anthony Scaramucci 2:14
never know this, sir, but over the course of your career, what are some of the things that prick that bubble, we never know exactly what it’s going to be. I’m not suggesting that, but you know, you when you feel the euphoria, what are usually some of the psychological things, or some of the fundamental things that change direction?
Jim Rogers 2:35
Well, what always happens is everybody gets very happy. Many new people get drawn into the markets. Lots of you know young people, they call their friends and say, I’ve discovered this new thing called the stock market. And it’s fun. You can make money, and it’s easy. It’s easy to make money, you know. And we’re seeing a lot of people now talking about how easy this is to make money, not just in the US, just about everywhere. Look at Japan. Japan market was down for 35 years. That’s not a typo. 35 years now it’s making all time highs. So just about everybody in the world has joined in now. And Anthony, who knows what’s going to happen, but I’ve been around long enough, or have read enough to know that when everybody is making a lot of money and everybody’s piling in, it usually means things are going to go bad soon. Now I have not started selling, sure, not yet, because the madness doesn’t seem enough yet, but I am certainly very worried. I so my shares in many countries, I’m not sure yet, but I’m looking and
Anthony Scaramucci 3:46
watching, if you were talking to a young investor, and we get a lot of young investors on here, you know what? What cautionary tale would you tell them, or what advice would you give them? From your perspective, having gone through all of these different market cycles, Anthony,
Jim Rogers 4:04
that’s remarkable. When I was 27 I knew everything in the world too. We were the smartest kid you’d ever seen. I was
Anthony Scaramucci 4:15
Yeah, and I had my come up, and shortly after, I had that brilliant thought about myself? Well,
Jim Rogers 4:20
I did too. I one point, I did a genius move. I tripled my money when everybody else was losing their shirts. Needless to say, I knew I was the best there was, and six months later, I lost it all. So the market has a habit of teaching what you don’t know, and that’s what I would say to new investors, young people, as you mentioned, be very worried, be very careful. And what I learned was, while I knew a lot, there was always something I didn’t know. And the thing I didn’t know at that time was much about trading. I knew about fundamentals. I could do great research, but I didn’t know. About trading and the thing that I learned, I assumed everybody knew what I knew. I found out very quickly they didn’t, and it cost me money, because they invested on what they thought and what they knew. So my advice to everybody is, please don’t listen to other people. Don’t listen except maybe Anthony, don’t listen to hot tips. Avoid Hot Tips and invest only in what you yourself know a lot about now, Anthony, I tell some people this, and they said, Well, that’s boring. And my advice is, be boring. If you want to be a successful investor, don’t worry. Be boring and you’ll probably be successful. It’s so
Anthony Scaramucci 5:40
funny you say that, sir, because I was in the UK talking to a group of young people, and I said, this is how I made my money. I put a little bit in the market every month. I put it in a couple of diversified things. And I never look at it and people say, Well, you didn’t trade the oil market. You didn’t day trade this or day trade. I said, Well, no, I did. I did do all of that until I got my face blown off, and now I don’t do that anymore. But my question, sir, when you think about the United States, a country that you and I love, we have this unconditional love affair for the United States and our system, there’s things that I’m worried about. I’d like to get you to react to sanctions us using sanctions all over the world against our adversaries, tariffs, the trade the impending or potential trade war that we’re having right now with some of our most important trading partners, including China. And so the question is, around the yuan and the US dollar, what do you think that relationship is going to look like over the next decade? Well,
Jim Rogers 6:43
you bring up some remarkably insightful points, unfortunately, because the world is changing and those things are possible. Flash points, no question about that. I own some room. Maybe I own the one as you mentioned, but I’m not buying a lot more right now, because history shows that when you had two top powers and one stable or stagnant and maybe even declining, they have often clashed. That’s what history shows. I’m not suggesting America and China will be at war, but they have often in the past, done so just because politicians always want to hit somebody else and show how tough they are. And conceivably, that could happen, and we’ve often had conflict between two countries that are on top, and I don’t know why Washington thinks they have to control the world. I don’t know why they think they have to put sanctions on everybody. I don’t know why we have to have trade wars, but somebody in Washington thinks that’s good. Anthony, you know, the United States has been around since 1776 in all but 19 years since then, we have been at war with somebody. Has been a small war, big war, some war, somewhere. Now Washington seems to like war. I don’t particularly like it. It doesn’t do us any good. But conceivably, if America and China work together, as we did for 20 or 30 years, China made a lot of money. We made a lot of money. Everybody would be better off, but for some reason, somebody gets angry and starts slapping other people. My view is that America and China could make fortunes together, as we did before. I hope that happens again.
Anthony Scaramucci 8:42
Let’s go to some ideas. I know that you like silver right now more than gold and some other precious metals. So give us your thesis there, if you don’t mind. Well,
Jim Rogers 8:51
I always here’s some right here, just to prove it to you. But I mean, you know as well as I do that gold is making all time highs, and silver still down 40 or 50% from its all time high. Now they often move together. They move in tandem at times. So in my view, buying something that’s down 40 or 50% from its all time high is better than buying more gold. So it’s that simple. I know from history, and you too, that the world is going to have problems again of some kind, whether we like it or not, and when the world has problems, I mean, Anthony, I’m an old peasant. I’m going to backwards of Alabama. I know when there’s a problem, it’s nice to have some gold under the closet, or in under the bed. Have some silver in the closet, because no matter what, many people will turn to gold and silver in times of turmoil. And me too, I hope I’m smart enough never to sell my gold and silver. I’m Hope I’m smart enough to buy more in the future, not so much as a hot investment idea. Know, but as a weight of its insurance, it could be a hot investment idea, but it’s certainly insurance, if nothing else, gold
Andrew Brill 10:08
could head to 9000 according to Rick Rule this week, he discussed being bullish on gold or focus on preserving purchasing power. He also assessed political, technical and jurisdictional risks for investors.
James Connor 10:26
So anyhow, we have a lot to discuss and a lot to sell or break. Gold is up on the air, silver is up. Uranium, it’s almost up, and the s, p is up. But I want to start with gold, and I have been overweight gold myself now for the last three years, and it’s finally starting to work out. It’s up 30% year to date. It’s outperforming the s, p, what are your thoughts on the gold price here? Does it keep going? Or should I reduce my exposure?
Rick Rule 10:51
I think gold keeps going. Whether or not you should reduce your exposure really depends on you. I’ve said on your show before that I own gold because I think it might go through 2700 or, for that matter, 3000 I own it because I’m afraid it’s going to go to nine or 10,000 Will it do that in lockstep as a straight line? No. If you’re a trader, if you’re somebody who’s afraid of volatility, if you can’t afford to remain long, by all means, take trading profits. That’s not how or why I own gold. I own gold to maintain my purchasing power. By my measure, gold didn’t start moving three years ago, gold started moving in the year 2000 if you look at the 24 years that we’ve been through, gold has increased in price by about 8% compounded a year for 24 years, gold has maintained my purchasing power, which is precisely why I own it is the pace of the escalation the gold price picking up Yes, and in the face of political pressures on the Fed to lower their interest rate, which is a different way of saying devalue the yield on The US Dollar. Should gold continue to accelerate? Yes, if all other things remain equal again, though, your technique with regards to gold, your strategy with regard to gold, will relate more to you than to gold. I
James Connor 12:12
saw you do an interview recently, and you were talking about Mexico. Mexico is the world’s largest silver producer, and it used to be very pro mining in a very mining friendly country, and it no longer is. In the last 10 years, it’s really gone socialist. And what are your thoughts on Mexico? And in terms of an investor, do you still invest in in silver equities?
Rick Rule 12:34
I do. If you’re going to be in the silver business, you’re going to be in Peru and you’re going to be in Mexico, rough countries. The third country is Russia, a rougher country. I have found in my career that while political risk is real, technical risk is more real. I would have, I would rather have a great deposit those who are stealing, than a crappy deposit that wasn’t worth stealing in a good country. And Mexico, as you say, is deteriorating politically I have found in Mexico, and I’m no expert, but I have found a lot of support for mining in the regions where mining occurs. And I would suggest to you that the opposition to mining occurs more in the center, but more around the intellectual leftists in the party in power. There are other problems in Mexico, however, in Sierra Madre Occidental, where we think of as where the silver mining districts are, and those are sociological problems related, in particular, to Narco trafficantes, narcotics traffickers in English. And those problems aren’t going to go away. If you are going to be a silver speculator, you are going to have to be in Mexico if you want high quality deposits. And if you’re going to be in Mexico, you have to deal with the political problems, and you have to deal with the sociological problems. I’ve been dealing with them now for 30 years, and they have occasionally caused me heartache. Certainly they have caused me to experience fluctuations, drama, if you will. But I need to say over time, being invested in Chile and being invested in Peru, being invested in Argentina, in the silver space, has been extremely rewarding to me. I look back at silver standard resources, financed at 72 cents, hit a high of $45 declined a lot since then, what down to 12 or 15 from a 72 cent base. It doesn’t feel too bad. The same thing with Pan American Silver. You, if you are really, truly going to be a silver investor or a silver speculator, you have to accept the political drama. You also, when you look at Mexico, have to listen to what the President Elect has had to say, rather than the way that she has quoted. She didn’t say that she would ban open pit mining. She said that open pit mining had to have the local community support in the communities where it exists. I believe that local power brokers. Will probably try to manipulate the circumstance a little bit so that they can gain personal advantage from politics in Mexico. But I don’t believe that communities where the alternative to employment in the silver industry is growing rice and beans in the desert will continue to be anti silver for any substantial period of time. I mean, I guess what I need to say is, if you’re going to be in the silver equities, and I am, you have to swallow twice, and you have to accept the political risk, and you have to accept the social risk. If you aren’t going to do that, you are going to be involved in silver exploration in jurisdictions that are geologically marginal compared to Mexico and Peru.
James Connor 15:44
So you bring up a very good point, that is jurisdictional risk. So as an investor, what do you suggest to people who are trying to they want to invest in mining, but at the same time, maybe they’re very concerned about investing in certain countries in Africa or certain countries in South America, and of course, there’s, you know, I could name a dozen companies, YPF energy in Argentina that was nationalized, golden oil assets in Venezuela, cobre Panama, in Panama, just in the past year. How do you as a investor handicap this risk, this is going
Rick Rule 16:16
to make me very unpopular with your listeners, particularly American and Canadian listeners. But so be it, the most dangerous government is the one that’s closest to you. Excess profits tax. United States was de facto nationalization. They took away half the net present value of your oil stocks in Alberta, when the gas, when the gas price increased, the Conservative Government of Alberta doubled the provincial royalty on National Natural gas that was nationalization the Prime Minister of Canada, Justin Trudeau, suggesting that there’s no business case for Canadian natural gas when the gate price at ACO is a buck 50 1000 Canadian, and the landed price for the same BTUs in Tokyo Rotterdam or Shanghai is $10 where it takes $2 to get it from Alberta to Rotterdam. That’s all political risk. That’s all political risk. The question is, what are the real risks, not the perceived risks, and what is the cover charge? How much do you have to pay for the equity to expose yourself to the risk? I don’t think there’s any good jurisdictions in the world. Suppose that you had made a discovery in northern Ontario in the ring of fire, a good cobalt, nickel, uh, chromium discovery 20 years ago. And suppose that your discovery had been stuck in permitting for 20 years as a consequence of political and First Nations dispute. Would that strike you as political risk? Suppose that you would add a natural gas centric portfolio in Alberta 20 years and the gas price, as you expected, went up and the Alberta government proposed to double their theft. Would that be political risk? So political risk depends a lot. The next comment will make me unpopular too, but folks like you and I tend to believe that money stolen from us in English by white people, according to the rule of law, is somehow less gone. It isn’t political risk is real, but it occurs in hues and in languages that we don’t always respond to equally. I think that people are more afraid of risk that they don’t understand and risk that they don’t identify with than they are other risk. One more time, the most dangerous government that you face politically is the government that has the most control over you. So if I lived in Ontario, I would be much more afraid of the Ontario government and the Canadian government than I would the Mexican
James Connor 18:52
government. I’m not sure if I would agree with you on that point. No requirement you
Rick Rule 18:57
know when I look at countries around the world in terms of money in money out. Now I’ve taken some risks. The country that’s treated me the best money in money out was Congo, the country that’s treated me the second best money in money out of Southern Sudan, both war zones. Now, I went in at an extremely risky time, but if you broaden that a little bit, the country that’s treated me the best, money in money out. Third place is Chile. When I look at the place that I suffered the biggest personal loss as a consequence of political risk that was on vice Pro resources in the People’s Republic of California, imagine that you were a shareholder of BHP in Rio Tinto, and you had discovered a deposit in Arizona, in the USA, in the central valley, surrounded by copper mines. Suppose that this deposit was a billion and a half tons of copper, bearing or grading one and a half percent, three times the average grade worldwide. And suppose that you had been stuck. In a permitting morass after discovery for 26 years. If you discount your cash flows at 8% for 26 years, what happens is that the entire net present value of the discovery by the time you produce it is gone. And people tell me that Arizona isn’t politically risky.
Andrew Brill 20:21
Hi everyone. I’m one of your hosts here at wealthion. Andrew brill, in these weird economic times where the market is up, then it could go down. A lot of people calling for a correction. Some people think it’s just going to keep going up. But if you need help being financially resilient, head over to wealthion.com/free. And we’ll give you a free, no obligation. We don’t expect anything from you. We’ll just help you evaluate your portfolio and let you know what we can do to help. Again, head over to wealthion.com/free for a free, no obligation, portfolio review, and let us do the heavy lifting for you. Best Selling Author Larry McDonald stopped by this week to talk about his new book. In it, he drew the parallel between present times and the period of 1968 to 1981 the market conditions and what investors should lay out for he also questioned whether or not the market was pricing in a Trump election victory and what will happen to fiscal policy under Kamala Harris or Trump presidency? He also entertained the question of a black swan event with respect to private credit.
James Connor 21:34
And so you’ve been on the road marketing your new book. How do you listen when markets speak? And you’ve been all through North America, all through Europe, and I’m curious, what sort of feedback are you getting when you speak to individual investors? What are they most concerned about? Well,
Larry McDonald 21:49
we’re really fortunate, because the thesis of the book comes down to the questions I get the most here. It’s like, okay, are we really in this multi polar world? And that’s one of the main core thesis tracks of the book. So think about from 1968 to 81 it was a multi polar world, more global tensions and different, totally different portfolio construction, the power of labor. Labor unions were more sustainable, more powerful. So you know, a lot more sustainable inflation forces coming out of the Vietnam War. You had a lot of fiscal spending from the Great Society with Johnson. It’s so the similarities, the questions that I get, the similarities between, say, 1968 to 81 to now are just off the charts. And, you know, unfortunately, portfolio construction today is really looking backwards at like, if you look at the average portfolio in America today, the families all, everybody’s 401, K is really designed for 2010 to 2020 portfolio in the point that we make in the book is you really need to start thinking About a 1968 to 81 portfolio.
James Connor 23:01
And can you elaborate on that? What exactly? Why do you think there’s similarities between 1968 to 81 and now?
Larry McDonald 23:09
Well, the biggest reason is, as you can see, of late government, you know, the government, largess and money printing, the great society were coming out of that incredible period of big over what we call fiscal overdose in the 60s, with the Vietnam war. Wars always bring out Neil Ferguson. I sat down with Neil Ferguson with the book, and he’s probably the most famous financial historian, but he makes the point that, you know, wars are just really typically bring on sustained inflation forces for multiple years. They just don’t go away. Obviously, we had COVID But now we have like, labor unions. We have oil prices that are higher because of that multipolar world where tensions in the Middle East. Right now, the debate is, you know, not when, not if, but when does Israel strike Iranian oil assets or nuclear power assets or nuclear weapon assets. So it’s really a much different world today, and but that, if you think about the portfolio construction, by the time you got to 1980 81 the debt, say, say, the portfolio. So the S p5 100 was essentially 50% yes, the S p5 100 construction was 50% energy, materials and oil and gas, 50% five zero. And when we started to write the book about a year and a half ago, in recent years, we’ve got down to 12% for those groups.
James Connor 24:41
And if this scenario plays out the way you envision, what does this do to the S P? The S P continues to make new highs every other day. Where do you see the S P going? Well, the S
Larry McDonald 24:52
P, you know the Trump administration, the Think of the 2616 election. So the S P was down for. Percent into the Trump win, and it was flat for 18 months before so think of 2016 we were flat for 18 months, and we were down 4% from the summer into November. Here, the s, p is up here, over here, almost 46% so we’re up 46% into the election. And so what’s happening is you can see in a lot of these Trump trades, you can see in the regional banks, a lot of these Trump trades are up a lot. And so the markets this time around is pricing in a Trump victory of some kind. And so because of that, and because of the fact that we’re running into this fiscal crisis in the first quarter. If Trump wins, he’s going to most likely take the pain similar to what Reagan did. So when Reagan did in this kind of same environment inflation, he took the pain early. And there was some really tough period. Reagan was elected, 8019 8081. Was tough. 82 is tough. But by 8384 they took the pain and Reagan was able to be reelected in almost in a landslide against against Mondale in 1984 and it’s a very similar situation where, because the Biden team, like I said, they want to win the election, so they’ve juiced fiscal almost up to 2 trillion a year with rate cuts, with the China stimulus, you know, with higher energy prices and problems in the Middle East, all of that feeds into the sustained inflation. Trump will try to do something in the new year to handle this crisis. We have real crisis coming in the first course. So stocks, stocks get hammered between now and, say, April, but then, then over the course of the Trump administration, most likely there, there’s a deregulatory regime, there’s a tax but I don’t think they’re going to get away with the tax cuts, with the $35 trillion debt hole. But overall, there’s, there’s a much more favorable backdrop, backdrop to Trump over the course of the of the course of entire four years administration. So you could have, you know, a big move down, the big move back up. If Kamala wins, the problem is, and here, here’s the thing, if you’re, if you’re watching us right now, if Kamala Harris wins and she doesn’t have the house, in the Senate, especially the house, then it’s a big fiscal cliff, because the Republicans will really enforce austerity onto her. Like, and it’s not fair, and it’s just classic, like, all of a sudden the Tea Party people are going to come back. But you saw today this week, Paul Tudor Jones, it’s one person after another is talking about this reckless, UNSUSTAINABLE fiscal path in Washington, and it’s Republicans and Democrats right. But Kevin McCarthy literally pushed forward this debt ceiling agreement too late in the summer of 2022 that expires in the first quarter of next year. And so we’re going to have, there’s no question if Kamala Harris wins, and she doesn’t have the House and Senate, which is, I think, likely if she if she wins, then you’re talking about a huge fiscal cliff. And all that means is, when you’re doing $2 trillion deficits every year and all of a sudden wash, you know, the house forces you back to 800 billion, there’s a massive amount of fiscal cut in spending, and that’s a big hit to the economy in the short term, and that creates a big, big downdraft.
James Connor 28:27
Quite often, when we get a significant correction or crash in the markets, it’s because of something no one saw coming. It’s like getting broadsided going through an intersection, and you lived through the oh 809, great financial crisis. And during that time period, in 2007 it was the collapse of a Bear Stearns high grade structured credit fund, a couple of funds that no one even heard of. They were relatively small too, but that was really the first sign that there was trouble coming. Do you think there could be another potential Black Swan event happening right now? And if so, what would it be? Well, in
Larry McDonald 29:04
private credit, it’s a real mystery meat sandwich where, if rates are low, there’s a lot of private credit, private equity, private private transactions have been done the last like five years that were done at really horrible prices. And same thing commercial real estate. But as the Feds promised to cut rates, and they cut rates 50 basis points, I think the Fed knows this, by the way. I think it’s very obvious. The Fed is worried about a crisis there. That’s why they’re starting to cut. But if inflation doesn’t allow the Fed to cut anymore, and if inflation keeps rates up here, you’re going to have a big default cycle in private credit, and potentially that’s going to leak over to public credit as well. So your private credit, so you want to look at your black stones, you know, your what we call the business development companies. You want to look at those stocks, because they’re great, they’re going to be great canaries in the coal mines, because you. If there’s a problem in private credit will show up there first. But I think that’s like, it’s when you talk to it like, like I said, most of our clients are institutional investors, and you talk to them about where, you know, there’s an old saying we talk about my first book and buffet Buffett’s. Buffett’s famous for this statement, but he calls it mark to model, and then, I’m sorry, it goes starts of mark to market. So most, most public companies have to mark their most, most banks have to mark their bonds or their assets to market. When a company gets a little leeway on that in an illiquid place like Clos or something like that, collateralized loan obligations, they can mark to model. So you mark to market, Mark to model, and then the last stage is Mark to mint. So it’s the three M’s, and that’s where private credit is right now this, if you talk to anybody that really knows anything about credit markets, I think you know, 40% 30% of the private credit market is marked to myth, and that’s where you get a real nasty crisis that’s out there. If the Fed can’t get rates down, the Fed needs to get rates down 100 basis points in the next year, or there’s a massive credit crisis.
Andrew Brill 31:17
Jared dillian, author of The Daily dirt nap, expressed concern over the impact of the Fed’s rate cut and what their next move might be. Jared also spoke about the yield curve and the future of bonds. He also touched on commodities and what might be a good investment due to the rebuilding of war torn countries. Jared, what’s your take on the economy right now. It’s, it’s, you know, with all the economic data, the Feds trying to get inflation under control, but it’s kind of stuck doing well,
Jared Dillian 31:49
yeah, I you know, the economy is not weak. You know, I think the Feds made a mistake that, I think they saw a little bit of labor market weakness and they confuse that for overall economic weakness, which we don’t have any. You know, I’ve been flying all over the place the last couple of weeks. Airports are just insane, just full of people. Can’t find a parking spot. You know, the TSA lines are out the door like it’s so we don’t. We don’t have a weak economy at all. And you know, just for perspective, the Fed cut 50 basis points with unemployment at 4.1% now, if you think about this, you know, back in 2000 during the.com bubble, which was the hottest economy I’ve ever seen in my lifetime, unemployment got down to 3.9% so we’re point 2% above that, and they’re cutting rates 50 basis points. It’s insanity. And all the economic data since then has been uniformly positive. It’s been uniformly positive. Now you could make the argument. You could say, okay, monetary policy was a little restrictive. Real rates were two and a half percent. We have to get real rates down to 1% and that’s fine, but I think that inflation hasn’t really gone away. People still have an inflationary psychology. If you’ve seen some of these labor negotiations with Boeing and the Longshoremen and stuff like that, they’re demanding just exorbitant pay increases to keep up with inflation, so that inflation expectations are grounded in people’s minds. So, you know, I think by doing this, I think by cutting rates 100 or 150 basis points, especially going into the election, I think they risk sparking off another wave of inflation, that’s what I think.
Andrew Brill 33:42
So the next Fed meeting, as we know, is the day after Election Day. Any clue? What you think is the Fed stuck? Have they backed themselves into a corner, saying we need to continue the easing cycle? Or do you think they might look and see who, although I’m not sure that we’re going to know who won the presidency the day after election day. But do you think that they’re gonna say, You know what, let’s cool our jets and leave things where they are?
Jared Dillian 34:08
I think they’ll cut 25 I mean, the thing is, about the Fed as an institution is different from what it was 30 or 40 years ago, like the Volcker fed. I mean, if you go back and look at, you know, a chart of the Fed funds target rate when Volcker was chair, you know, the Fed would cut rates and hike rates, then cut rates and hike rates. You know, the some people call Volker the idiot in the shower, right? Because you’re in the shower and you’re like, too hot, too cold, too hot, too cold. And he was like, there. So the Fed is different now, like they get on a cycle, they get on a path, a predetermined path, and they cut or hike rates for a while. So they’re on a rate cutting cycle. I think they think this is going to continue for a long time, like six months or a year. So I think they’re going to cut rates after the election. And I think they’re going to cut in December, and by then they will have cut 100 basis points, and we’ll see what happens in the new year. So the
Andrew Brill 35:09
yield curve at this point hasn’t it was inverted. It’s kind of flattened out at this point, right? And so it’s not, it’s still not behaving. And it’s very, very strange that they cut interest rates and mortgage rates go up. But the bond market hasn’t done what everyone thought that would do. Either,
Jared Dillian 35:30
no, no, it’s, it’s totally misbehaved, and I’m here for it, by the way, Stan Druckenmiller said that he shorted bonds the day of the Fed meeting, you know, either, like, that’s, you know, that’s what he said. He shorted 30s the day of the Fed meeting. He says that short bonds is 20% of his portfolio, and getting bigger. So, yeah, I think, I think that, you know, to me, the 30 year bond, when it was trading at 396, I think that was incredibly mispriced. 30 year money at less than 4% going into an election where you have two candidates, where you’re going to have mounds of issuance like that didn’t make any sense to me. So,
Andrew Brill 36:12
so the twos and 10s are up higher than they should be, also, right now, right?
Jared Dillian 36:16
Yeah, yeah.
Andrew Brill 36:18
All right. So you so, so are bonds a decent investment right now? Is that something that you’re looking at the short term or the long term? Well,
Jared Dillian 36:30
you know, they’re better than they were a couple of weeks ago. But no, I think, I think you’re going to get 10s out to four and a half, four, six. I think you’re going to get bonds out to 5% so you know, if you’re looking at 30 year bonds, just you’re probably looking, in price terms, at another eight to 10% decline, probably about 8% so, yeah, I mean, it’s better than it was before the Fed Meeting. But I, you know, I wouldn’t, I wouldn’t buy bonds with your money.
Andrew Brill 37:05
So the 10, so the rate, the bond curve is, the yield curve is going to continue to be inverted if the 10s are going to go above four, and that means mortgage rates are going to continue to go up. Yeah,
Jared Dillian 37:16
yeah, which is kind of interesting in the housing market. You know, in spite of that, continues to do well. You really haven’t had any pullbacks in price. You know, transaction volume is down. There’s not as many transactions. But yeah, the housing market continues to be strong. I think, I think it will continue to be strong, really, no matter what happens with rates. Unless rates get, unless you get 10 year notes out to like 8% or something like that. But, yeah,
Andrew Brill 37:44
what about other commodities? Are there any You had said that commodities were stagnant? What? What? What else you know? What are the commodities you’re looking at? Obviously, there’s oil and that that has puzzled me over the last few weeks, anyway. But what are the commodities Do you think? Or where do you think commodities are going?
Jared Dillian 38:03
Commodities are going up for sure, super bullish oil in particular, has been puzzling, like you said. You know, I just saw a research piece on oil this morning, basically projecting that demand is at all time highs. The Saudis are projecting lower demand. I don’t, I don’t understand it. You have this constant geopolitical risk, which is always present around Israel and Iran. You know, basically, you know, oil is trading 7071 right now. And the reason we’re down here is because, I guess there was, there was a headline that Netanyahu said that they wouldn’t strike Iran’s oil facilities. That, to me, seems insane. I think, of course they’re going to strike the oil facilities. I think they’re trying to DECA ran or in the whole world, you know, the whole idea of the Israeli military actions is that they’re a surprise. I don’t think they would tell you in advance what they’re going to do. So, yeah, I’m, you know, I’m bullish because of geopolitics. I’m bullish because of demand. Yeah, we’ll see. You know,
Andrew Brill 39:15
yeah, eventually they’re going to have to rebuild everything. Obviously, Gaza is going to have to rebuild. Ukraine is going to have to rebuild. And it’s interesting what’s going on in Ukraine right now with, you know, possible peace talks, but every all these areas that have been decimated are going to have to rebuild, and they’re going to need commodities to do that, yeah, especially,
Jared Dillian 39:37
especially copper. That’s a big one. That’s gonna be, that’s gonna be a big one. I don’t, I don’t really have a view on copper at the moment, but yeah, thank you
Andrew Brill 39:49
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