Economist Steve Hanke says a U.S. recession is almost inevitable, and warns that the Fed, Wall Street, and Donald Trump are all looking in the wrong direction. In this sharp, wide-ranging interview with James Connor, he explains why ignoring money supply is a fatal flaw in today’s policy and why the economy may be headed for a major contraction.
Hanke also unpacks global warning signs: deflation in China, collapsing demand, rising youth unemployment, and geopolitical chaos, all while markets remain near all-time highs akin to the early 2000s dot-com bubble.
Key Topics:
- Why Steve thinks there’s an 80 to 90% chance of a U.S. recession
- Why Powell is ignoring money supply growth, and why it matters
- China’s economic weakness and deflation
- The weaponization of the dollar and its global fallout
- Why the stock market looks like the early 2000s dot-com bubble
- Bond market concerns and real yields rising
- U.S. defense spending: “a black hole” fueling endless war
- Still bullish on gold, and how to track sentiment
- Market vs. macro disconnect: Buffett’s caution is a clue
Volatility got you concerned? Get a free portfolio review with Wealthion’s endorsed financial advisors at https://wealthion.com/free/
Hard Assets Alliance – The Best Way to Invest in Gold and Silver: https://www.hardassetsalliance.com/?aff=WTH
Steven Hanke’s books:
- Making Money Work: How to Rewrite the Rules of Our Financial System: https://a.co/d/6Oip6hx
- Capital, Interest, and Waiting: Controversies, Puzzles, and New Additions to Capital Theory: https://a.co/d/2PuBVMV
Steve Hanke 0:00
I’ve said that probabilities between 80 and 90% will have a recession in the United States, and that in part, is due to this money supply situation. Neither the president nor Paul know what they’re talking about. Monetary policy is not about interest rates. It’s about changes in the money supply.
James Connor 0:27
Steve, thank you very much for joining us today. How are things in Baltimore?
Steve Hanke 0:31
Things are great in Baltimore. How about Toronto? Jimmy, oh,
James Connor 0:34
just amazing. Yeah, it’s gonna be like 40 degrees Celsius this weekend. So what would that be? Oh, man, that’s like 100 degrees Fahrenheit. So somewhat hot.
Steve Hanke 0:45
We’re not gonna make it that high down here, but the weather’s perfect today. After a lot of rain, it’s cleared up, and it’s nice.
James Connor 0:55
That’s good. That’s good. So there is so much happening in the world, and we got a lot to discuss here, both from an economic point of view and also geopolitical point of view. And I want to touch on both with you, but I want to start with the economy first, okay, seeing how money makes the world go around. And we recently had a Fed meeting, and I know you love talking about Jerome Powell, but before we talk about him, I want to read a quote that the President sent out a few days ago, and I want to get your thoughts on this quote. Okay, once again, it was on Twitter or true social. Too late Powell, that’s his nickname for Jerome Powell. Too late, Powell is costing our country hundreds of billions of dollars. He is truly one of the dumbest and most destructive people in government and the Fed board is complicit. Europe has had 10 cuts. We’ve had none. We should be 2.5 points lower and save billions on all Biden’s short term debt. We have low inflation. Too late, an American disgrace too late is his nickname for Jerome Powell. But what are your thoughts on this tweet?
Steve Hanke 2:03
Well, I think neither the president nor Paul know what they’re talking about. Monetary policy is not about interest rates. It’s about changes in the money supply. So they’re just looking at the wrong Gage, and of course, Trump’s view on the gage is he’s a real estate guy. Do you ever, have you ever seen a real estate guy you didn’t want lower interest rates? No, is the answer. So, so that’s how he’s thinking. He doesn’t. He’s a business guy, real estate guy who thinks he knows a lot more about the economy than he actually knows, so that that’s the end of that story. As far as Powell goes, he’s he’s totally off the reservation, because he has, in testimony, actually rejected over and over again the quantity theory of money. Now what that means, in simple terms is he basically is saying that changes in the money supply do not affect economic activity, or they don’t affect it in any reliable pattern or way. And this is just nonsense, utter nonsense. And the reason for that, of course, is that all the new macroeconomic models for the last 30 years have excluded money in the models. They’re post Keynesian models, and they don’t include aggregate measures of the money supply and changes in money supply. So so there’s kind of a theoretical reason for that, and that’s the model part of the thing. And actually it’s just common sense. I mean, if you go out and ask anyone and business or worker and anybody, does the changes in the money supply affect economic activity, they would say, they would answer yes. And if you look, by the way, I’ve looked historically, just as an example of what I’m talking about, I’ve looked internationally and historically, and there’s never been a significant inflation that, and when I say significant, I mean over 4% a year that lasted more than two years, that that was not preceded by a significant increase in the money supply. So if you increase the money supply, you’re going to increase economic activity, and you’re going to increase inflation. But that’s that’s out. That’s out at the Fed. It’s out at the Bank of England, Bank of England, the same Bank of Canada, where you are, same European central banks, the same some of the Asian bank. Central banks still pay attention to changes in the money supply, but, but they’re kind of, in a way, outliers, shall we say? So fuss about the Fed funds rate. People are just looking at the wrong thing. And by the way, the general public and the press are all they all do the same thing because they they’re just singing out the press. The financial press just sings off the same song sheet that the Fed serves up. That’s it.
James Connor 5:34
There’s so much happening in the world right now, especially when it comes to geopolitics, and if you need help understanding how these events will impact your financial future, consider having a discussion with a professional financial advisor. You can find out more information@wealthion.com slash free. Once again, that’s wealthion.com/free now back to the show. And so the last time we spoke, you said the Fed was so far behind the curve, it sounds like you still believe that?
Steve Hanke 6:03
Well, in that sense, Trump, Trump is right. They are behind the curve because they’re data dependent. They have no model for anything. In reality, they’re looking at current data and and the current data, of course, move around and and they, they, they move around because of what happened to the money supply one or two years ago. So, so, so that means they’re, they’re always behind the curve. The only, the only way to get ahead of the curve, you see, is to look at changes in the money supply, and then you know that with a lag of a year or two, you’re going to get changes in economic activity and changes in inflation. That’s how you get ahead of the curve. But, but if you, if you’re not looking at the money supply, by definition, you’re behind the curve.
James Connor 7:04
And the hanky golden growth rate for the money supply is 6% where is it now
Steve Hanke 7:10
we’re a little over 4% it’s, it’s creeping up just a little bit, but it’s, it’s, it’s still very anemic and slow, and its growth. And if you look at the stock of money that’s that’s been accumulated since April of 2022 the stock of money is about exactly where it was way back in April of 2022 so, so there you have it. You you have the setup for what is going to happen later this year. The economy will keep slowing down. We’ll probably go into a recession. I think we will go into recession. I said that probabilities between 80 and 90% will have a recession in the United States, and that in part, is due to this money supply situation, this anemic money supply growth, and this fact that the stock of money has been static for so long. That’s one factor. But then the other big factor is what I call regime uncertainty, and that that is created by Trump trying to change all the rules of the game, and and not only changing the rules of the game, but he, you don’t know where he’s going to end up, like on the on the tariffs, for example, those are big international tax, and we know he wants to increase, and we know that. We know the direction, but we don’t know where the landing points going to be for these it’s all in flux. So that’s one thing. And and geopolitically, we we don’t know whether he, he keeps talking about the fact that he’s a peacemaker, but he keeps funding the war in Ukraine, funding the wars that Israel is in, and we don’t know whether he’s going to actually even become more proactive. The idea, by the way, that the US is not involved in Ukraine or in the Israeli wars, is one of the greatest lies. It’s amazing. These these leaders are like, you know, used car salesmen. They actually can have convinced a lot of people that the US isn’t involved in a war. The US is fighting a proxy war against Russia, who, and this gets into economics and finance. You all, if you want to know what’s going on, you’ve got to know who’s funding, what’s going on, where’s the money come from, and the money and the munitions and the intelligence all come from. The United States. If the United States cut the funding off and cut the intelligence off and the munitions going into the Ukraine and Middle Eastern war zones, the war would stop. So that’s my that’s as an as an economist, that’s my formula for peace. I’m 100% for peace. And the best way to stop a war is to stop funding the thing. It’ll stop in a hurry.
James Connor 10:33
So I want to, before we do a deeper dive on geopolitics, I want to first continue on with the economy. And there was one company that came out this week, and I was really surprised to see the numbers out of Louis Vuitton. I’m sure you shop there a lot, but the parent company, LVMH, came out and they said that the numbers and the weakness that they’ve seen in the last few months is the weakest they’ve seen in the history of the company, okay? And a lot of their weaknesses coming out of China, but through many regions throughout the world, but especially in China, okay? So, so when you see will to do people like when you see the rich not spending you know you have serious issues here. But then another we’ve talked about these airlines in the last few months, every one of these Airlines has come up with profit warnings, and a new one that came out this past week was JetBlue. And of course, that’s a discount airline, so not even individuals are traveling or flying now because of the uncertainty that we’re seeing throughout the global economy, FedEx also came out this week, and they cut their their guidance, once again, citing weaker global shipping. So what are your thoughts about the US economy? What are your thoughts about the global economy and what concerns you?
Steve Hanke 11:51
Well, you’ve given a good summary. Jimmy, I think due to the one two punch is the money supply growth has been very anemic. That that that would have caused a major slowdown no matter what. But then you have all this uncertainty that’s dumped in there, this regime, uncertainty that Trump is dumping into the picture, which is, which is depressing things further. And you hit, put your finger on the rich. As you know, GDP most, most of the gross national product is, is driven by consumption. You know, about 60, 65% and the biggest chunk of consumption is, is actually by people with, with money. It’s not about the little guy. The dominant factor driving consumption is actually the people that are shopping at Louis Vuitton and Bulgaria and places like that. So I have watched that. What’s going on with Louis Vuitton? And it doesn’t surprise me, because it is kind of a leading indicator, in a way. And you mentioned China. Now China is actually in a deflation. The if you look at hankies, golden growth rate. The growth rate consistent with hitting a 2% inflation target in China, it’s about 10% per year, and the growth rate in the money supply is just a little under 8% it’s been very, very anemic the growth rate in the money supply. And as a result, for the last four months you actually have, literally deflation going on in China. I mean, their their consumer price index, it isn’t positive, it’s actually negative. So that so it’s the price level is declining in negative territory. It’s not even declining. Disinflation is where you have the price level declining, but it’s positive. Deflation is where the price level is declining, but it’s negative territory. So they they’re in that deflationary situation. And the governor of the People’s Bank of China Wednesday, gave a speech, actually an interesting speech, in which he basically was going after the United States and the US dollar, although he was it was kind of not, not naming by name, but you can figure out exactly who he was talking about. He was talking about what the weaponization that’s taken place with the US dollar, which the sanctions, tariffs, non tariff barriers. You know, the US complains about non tariff barriers in other countries, but we. Yet we have all kinds of export controls that the US places on trade. So the US is guilty, not only of a lot of sanctions, a lot of tariffs and a lot of non tariff barriers, the US is actually a guilty party and all of those factors. And so he the governor, Mr. Pan, was going on about that and and trying to convince people that really, they should be shifting from the dollar to the Chinese one. He was trying to sell the Chinese one. And by doing so, his vehicle or modus operandi, was to criticize the weaponization of the dollar, which, of course, I He has a point. I agree about weaponizing the dollar. It’s a bad deal. It makes the dollar vulnerable to a challenge from someplace like China, but, but his, his challenge is kind of weak, because the fact is, they’re in big trouble in China. That’s why they’re not selling a lot of these high end goods that Louis Vuitton’s selling. And they’re, they’re in their entity deflation and and the money supply is not growing very rapidly in China, and the governor should basically stick to his knitting in Beijing. And, you know, stop bad mouthing the weaponization of the dollar.
James Connor 16:38
So just because we’re on the topic of the dollar. Let me ask you about it. It’s had a big pullback this year. Is in what I’m referring to, the DXY index. So I think it got up to 108 maybe 110 right now we’re around 9899 Do you think the USD is going to continue to be under pressure? Yes.
Steve Hanke 17:00
So the, actually, the most important price in the world is $1 euro exchange rate and and I think the fair value of the dollar, euro exchange rates between about 120 and 140 and I got up pretty close to one. It’s been very strong the dollar, as you know, for the last few years, it’s pulled back. It’s it’s about 115 today. I haven’t looked exactly, but I think it’s going to move back into that fair value range of 120 to 140 so that that doesn’t surprise me, I and I’m just looking now. Yeah, we’re at 115 three. So if we move back into the, you know, hankies, fair value range of 121, 40. I think I wouldn’t, I wouldn’t be surprised at all.
James Connor 18:08
And so you expressed some concern about the US economy. You think we’re going to go into a recession later in 2025 early 2026 we got q2 numbers coming out here in the next few weeks. It’s going to be quite interesting to see what companies are saying and how the consumer has responded to all this uncertainty that we find ourselves in in the last few months, just given with this global trade war and tariffs, etc. Any thoughts you care to guess where you think the GDP number is going to q2 GDP number is going to come in when we see it next month.
Steve Hanke 18:43
Not really.
James Connor 18:48
So let me ask you about
Steve Hanke 18:49
another the one. Let me just add one thing that has come out in the press that’s actually kind of interesting, and part of the package that you put forward with the JetBlue and Louis Vuitton. Kind of negative, soft data coming in, negative guidance coming in. There’s another big thing that’s very interesting, and that is college graduates in the United States are really having trouble finding jobs. Not not my students, my mine, are all placed top, top jobs. But that, that’s, that’s a little bit i I’m out on the fringe of the distribution, because my my students are always placed wherever, wherever they want to go. Their first choice. You. Most of them on Wall Street. Some, some are going into consulting now, but most of them go to Wall Street now, the youth job thing, college graduates. What’s going on there? This is, this is very anomalous, very unusual. It’s the regime uncertainty aspect of the thing. It. It’s Trump and the regime uncertainty. Because if you have regime uncertainty and you’re thinking about hiring somebody that’s that’s a big investment, because when you hire some new college graduate, you’ve got to train them, you’ve got to invest a lot in human capital, and and people are hunkering down. They don’t want to make investments in human capital or physical capital. And this is exactly what happened, by the way, during the New Deal with Franklin Delano Roosevelt, the New Dealers came in. They wanted, like Trump, change everything, and it scared the pants off of investors, because they didn’t know what was out there in the future. They couldn’t formulate guidance about where things were going to be, so they just stopped investing. So in the United States from 1929 till the start of World War Two, you had no investment. Investment just completely dried up and and what happened? The Great Depression lasted a lot longer than it would have lasted without regime uncertainty, and it was a lot deeper than than it would have been without regime uncertainty. So that’s, that’s another little thing that’s in the wind this, this labor market. If you look at the labor market in aggregate, it, like Paul said yesterday, it looks pretty strong. Unemployment rates, you know, in aggregate, pretty low. But once you start really looking under the hood, carefully at things, you find all kinds of things going on that that are basically negative.
James Connor 21:44
Yeah, and just to your point about student unemployment, so in Canada, our nationwide unemployment rate is 7% within the province of Ontario, where I reside, it’s 8% youth unemployment is 14.1% and so the same thing is happening here. And that’s, I think they define youth as being 16 to 24 so a lot of people coming out of university now can’t get a job. I mean, just think about that’s the 14% that’s a crazy number.
Steve Hanke 22:17
Yeah, it’s a crazy number now. And of course, in Canada, you pointed this out to me. The college education is highly subsidized, so the students don’t have to run up the kind of debt that they do in the United States. In the United States, what if you graduate from college and you’ve got a big, a big debt bill that you’ve got to pay you got, you’re really facing a difficult situation, and psychologically, by the way, it’s very disconcerting, because these young people have been told, Well, go to college so you can get a good job. Then they get out they can’t get a job, so that really bangs them on the head, plus, plus somebody’s handing them a big bill that they have to pay.
James Connor 23:10
Yeah, it’s not a good way to start your career. So I want to ask you about another one of your favorite topics, and that’s Elon Musk, and I know you and him are good friends, but he recently had a comment on this one big, beautiful bill. And I want to get your comments on this too, but he put sent out a tweet, and he said, I’m sorry. I just can’t take it anymore. This massive, outrageous, pork filled congressional spending bill is a disgusting abomination. And then we saw this battle going on between Elon Musk and the president. But what are your thoughts on this one big, beautiful bill? It did make it through the House, and now I guess it’s reaching some coming up with some obstacles in the Senate. But what are your thoughts and what does it mean to spending? What’s it mean to inflation?
Steve Hanke 24:00
Well, I think it’s a big, big, bad bill myself. And the main reason for that, it’s not the tax side of the thing. The tax side is fine, but it’s a spending side. They’re increasing spending, increasing the deficit, increasing the debt. There’s, there’s no, no eye towards controlling government spending. You have a huge increase going into the Defense Department now, the Defense Department that that’s, that’s just a black hole. It’s, it’s a huge amount of money, and we’re putting the money into a department that that’s never been audited. They can’t even audit the thing. It’s such a mess that no audit can be done. That’s it’s the only department, bureau or agency of the US government that’s never been audited, and they’re pumping money in there. My former colleague. And David Stockman, who was this was during the Reagan years. As you know, he was a head of the Office of Management and Budget. I was over in President Reagan’s Council of Economic Advisors, actually right down the hall from Stockman. And Stockman, and I agree with Stockman, is indicated that really the Defense Department the budget should be cut by like 50% instead of adding to the pouring money down the black hole and putting it in the military industrial complex, we should, we should be chopping the thing like mad, and especially, you know, if, if you’re supposedly a peace president, why? Why is Trump pouring money into defense this? This gets back to the same thing I was talking about Jimmy before. If you want to stop a war, and you’re the main one financing it, you’re the main one putting munitions in there. You’re the main one putting intelligence in there. Why not cut Why not cut it all off? The war stops.
James Connor 26:16
So this is a good segue to my next question, and I want to leave economics now and go into geopolitics. And we recently had a g7 meeting here in Alberta, Canada, and I’m not sure if you saw the headlines that came out of it, but there’s still deep divisions within the g7 there was no joint communique, and it really speaks to the issues between the US and also the other members of the g7 but one of the things that came out of this was that Canada pledged $4.3 billion to Ukraine, 2 billion of which was for military aid. And as a Canadian and as a taxpayer like I just shake my head. I don’t know what the hell’s going on we have 7% unemployment rate here, 8% within the province of Ontario, 10% within the city of Toronto, and we’re giving billions, billions of dollars away to some foreign country to fight a war. Well,
Steve Hanke 27:15
this, this is what’s going on. This is a the same thing is going on in Europe. Europe’s bankrupt. The economies are growing very slowly. Productivity is very slow and and they, they’re raring to go. They, they’re itching to go into a full scale war with Russia. I mean, you just look at Germany, for example. Germany is, is just dying to get in a war with Russia, of all things. So, so Canada is more in the, in the, in the zone of the European Zone, shall we say. And, and who, who is leading the charge, really is, is a Labor government in the United Kingdom. Great Great Britain is all in I mean, probably the reason, the reason we had didn’t have a piece quite some time ago, is that Boris Johnson was a prime minister and put the kibosh on what would have been a peace deal years ago to stop the war in Ukraine. So you, you tell me, I mean, if the we’ve we’ve got first rate countries being run by third rate people that that’s really what’s going on. I mean, let’s face it, Canada’s first rate country as far as I’m concerned. But look who’s running it. Look at the United States. Is it any different? We got a bunch of third Raiders that Ted Cruz was it was interviewed a couple of days ago. He’s a senator from, a senior senator, actually from from Texas, and talk it was a Tucker Carlson interview, by the way, so anyone can listen to the thing. So Tucker Carlson asked a few questions about Ukraine, the population of Ukraine, the ethnic makeup of Ukraine, basically where it was and the senator didn’t, didn’t know. So you see, you’ve got people voting on whether to get engaged further in a war in a country that they don’t even know anything about. They hardly know where it
James Connor 29:46
is. Check out that interview. That was a great interview by Tucker Carlson,
Steve Hanke 29:52
absolutely so this get it gets down. What? Instead of going to all these meetings like. G7 and so forth, because they’re flying around to meetings all every all the time they’re meeting with somebody. You should have them sat down with an investigative reporter who can give a good quiz and ask a few basic questions, like, Where, where is Ukraine? What’s the history of this thing? What’s going on? Who provoked who? All they all they would be able to do is go through their talking points and and muddle through it best. Yeah, I would agree 100%
James Connor 30:37
I’m not sure if you saw this, but Zelensky was also invited to the g7 meeting. What are your thoughts on
Steve Hanke 30:44
that? Yeah, why? Why was Zelensky invited? He’s not in the g7 I
James Connor 30:50
he is, he is, I get no idea, like, I’m just shaking my head. He
Steve Hanke 30:55
shows up at all these meetings, passing the begging bowl, fanning the flames of war and and no one says anything, no one, no one asks the question the US, isn’t this strange that the guy is showing up?
James Connor 31:11
Well, once again, as taxpaying citizen of a host country. This infuriates me. I mean, this is not the purpose of the whole it
Steve Hanke 31:19
would be more appropriate if Putin showed up. Remember, it used to be the g8 until the g8 kicked Russia out and it shrunk down to the g7 so I it would be more productive, from a diplomatic point of view, to have a g8 maybe we wouldn’t be where we’re at right now if we had a GA
James Connor 31:45
What are your views on the Ukraine, Russian war? How is this going to be resolved? And does it get resolved?
Steve Hanke 31:51
Well, it’ll be resolved on the battlefield. And they on the battlefield, the Russians continue to keep advancing, and the war is basically destroying Ukraine. So why is Canada financing something that’s destroying a country called Ukraine and and you’re, you’re going to end up, as I say, with the the the the result ultimately being determined on the battlefield. And it’s very clear. I think we had an interview some time ago when I said, Well, Russia has won, and it’s clearly one.
James Connor 32:36
I want to ask, get your views on the financial markets, and I would agree with you, we have all these signs of weakness throughout the economy, yet the s, p continues to be very resilient. And just to recap what we’ve seen in the past year, it topped out in February at 6100 and then in the month of April, we went down to 4800 and here we are. We’re right back to 6000 again. So how do you explain that? And I know from an or an economist, you’re going to say, well, the stock market is not part of the economy, but the way I look at the stock market is it’s a predictor of future events and what investors are expecting. What are your thoughts? Why is the S, P and the Nasdaq continue to be so resilient? Well,
Steve Hanke 33:20
let me put it this way. For the life of me, I don’t really know, but I do know one thing, if I use my bubble detector, and that metric is indicating that the market is in a bubble. We haven’t seen this kind of thing since 2001 where we were in a tech bubble. And you know what happened then? Now? What? What always happens with bubbles? When you get this over height, over valuation, you know, everybody’s all in and so forth, you get a bubble. Eventually, one of two things happen. You either, either the bubble pops or the the air just comes out of the bubble very slowly, so and, and it’s very hard to predict which one of those two mechanisms will occur. They will occur, but it’s hard to predict which one, and it’s also very hard to predict when it’s going to happen. So everybody’s just deer in the headlights, very complacent, not worrying about anything. I mean, who, who in the world, given what’s going on in the world today, could be not worried. It’s amazing. The, let’s face it, the the only old sage who knows what he’s doing is Warren Buffett, and he he cleaned up his portfolio at Berkshire and and got. Things balanced out the way he wanted them and and is setting on a huge pile of cash. Wait, waiting, waiting for the air to come out of the bubble.
James Connor 35:11
Yeah, very good points. And to your point, he sold Taiwan Semiconductor, I believe, two years ago, and he sold down his position in Apple. There’s he’s also got a lot of concerns with what’s happening in Asian, more specifically in China, and this potential threat with Taiwan. And I don’t know if you read this book, but it’s good. There’s a book by forget the guy’s name, Patrick McGee. It’s called Apple in China. Fascinating. Okay, check it
Steve Hanke 35:40
out. I haven’t read it, but I will.
James Connor 35:45
But I also agree with you. I’m very concerned about the S P. I do not understand what the hell is happening here. There’s so much chaos throughout the world, everywhere you go, like within North America, within Asia, within Europe, but yet here, the S P is trading out,
Steve Hanke 36:01
and you have a plethora of companies saying that they can’t, even they’ve stopped giving earnings guidance. You know, even the insiders don’t know what’s going on and the so the but the outsiders just keep piling into the market. So that that tells you a little bit there are all kinds of things that are very strange that are going on so and the level of the market is what the level of the market is, and it’s in bubble territory,
James Connor 36:35
and maybe it just has to do with the fact that there’s still so much liquidity within the system because of all this money Printing that’s been going on for the last few years, trillions and trillions of dollars that’s still sloshing around. I want to get your views on the bond market, because Jamie Dimon recently spoke about he’s very concerned about the bond market. He said there’s cracks forming in the bond market. He doesn’t know when it’s going to crack. It could be six months. It could be six years, but he’s very concerned about it. I think more specifically, he’s concerned about the interest rates associated with the long bond, and the interest rates will are going to continue to go up. And of course, that’s going to cause great damage to the US and their debt levels. They’re already paying a trillion dollars a year in debt or in interest, and that number is only going to increase. What are your thoughts on market?
Steve Hanke 37:27
A few months ago, short term, I was, I was for a trade, not not, not for an investment, but the 10 year, I thought was actually a good buy and to be long. And the reason for that is that bond yields follow inflation, and we have this weak money supply growth, meaning that the inflation will continue to come down, I think. And that means that the bond yield, the 10 year yield will come down. The price of the 10 year would go up, and you’d have a nice little capital gain on that trade. I subsequently changed my view, and I’m more in a diamond camp now, and there are two reasons for that. One is that the nominal yield is made up by, you know, the real component, the real yield, inflation adjusted, and then inflation and I think that the real yield, which is kind of not directly observable, but, well, it is actually with inflation protected securities with tips, but, but if you look at the nominal 10 year, you don’t, you don’t see a real yield. You just see a nominal number. But underneath that, and part of the nominal yield is a real yield, and it’s going up, and I think it probably it’s, it’s been a negative territory. It’s come up. It’s positive now it’s like 1.3% something like that. I think it’ll go up another one or two percentage points. So that’s going to shove the the nominal up. No, no matter what the the inflationary effect, an inflation factor that’s in the nominal yield will tend, I think, because inflation will be continue to come down because of this slow money supply growth, that will go down, but the real yields going up, and then, and then you have the risk factor, and also the fact that they’re going To be pouring a lot of treasuries into the market because of what the big, beautiful bill, whatever form that takes, is going to mean a lot of deficit spending and a lot of deficit financing with more treasuries coming into the market. So the only. Way the market can absorb a lot of new treasuries is if the yields are more attractive. And by the way, if you look at if you look at the 10 year from 1980 until about 2022 yields coming down, down, down, down, down. The the biggest bull market and bonds probably in history. And then about 2022 it starts coming up, and it broke out of the bull market. The bull market essentially stopped in 2022 so, so the bull market is is, in fact, gone, and one reason for that is this real yield factor, because back in 2022 the real yields were actually negative. They were, they were, they were, and then think things turned around, and the yields have started to go up, and now they’re clearly outside of this, this long trend of you know, since, since 1980 the trend, by the way, is just almost a perfect line going down, the yields going down, down, down. The price of the bonds, of course, going up. That’s that’s over.
James Connor 41:24
I have to ask you about gold. The last time we spoke, you’ve been you’re very bullish on gold. It’s up 25% on the year. Give or take. Are you still bullish on it? Yeah, still holding gold?
Steve Hanke 41:34
Yes, was the answer.
James Connor 41:40
You never have enough
Steve Hanke 41:41
words going I don’t know it’s good. It’s going up. And if you’re trade investing or trading it, that’s what you got to know. And and if you want, if you really want micro information on the sentiment in the gold market, you’ve got to go to the hanky coughnus Gold sentiment score. Because we’re we’re measuring sentiment in the market every hour. It’s the it’s the only place where you can get sentiment in the gold market. On it with high frequency data, is a hanky coughnus Gold sentiment score, which you might flip that up for your audience. Good our website,
James Connor 42:19
by all means. Well, this is always, as always has been, a fascinating discussion. Steve and I want to thank you for making time. I’m going to leave you with one piece of advice. I know you and I both love beating up on politicians. There’s a documentary that was just released on Netflix, and it’s called train wreck, Mayor of mayhem, and it’s all about a Toronto mayor that we had in the city of Toronto back in 2013 2014 his name was Rob Ford, and you got to watch it, because it’s what I would call car crash TV. You’re going to watch this. And they did this really happen, yeah. But to your point earlier, these third grade politicians running our cities and our countries, and this is why we’re in so much trouble. So check that out when you get some
Steve Hanke 43:09
time. I know what I’m going to do tonight. Thanks.
James Connor 43:14
So if somebody would like to follow you online and read some of your research and check out your ideas. Where can they go? Go
Steve Hanke 43:21
to x i My handle is at Steve underscore, hanky. If people really want to get on my weekly distribution that includes, you know, podcasts like this, articles I write and so forth, they can, they can send me an email, hanky@jhu.edu and I’ll put them on my distribution.
James Connor 43:45
And I think the next few weeks are going to be very interesting, especially once we start seeing these q2 numbers coming out. So I suggest you and I get together again sometime later in July, and we can just review everything again.
Steve Hanke 43:58
Yep, for that, that’d be great. That’d be great, Jimmy,
James Connor 44:01
let’s do it once again. Thank you. Thank you. Have a great
Steve Hanke 44:05
weekend. There’s so
James Connor 44:07
much happening in the world right now, especially when it comes to geopolitics, and if you need help understanding how these events will impact your financial future, consider having a discussion with a professional financial advisor. You can find out more information at wealthion.com/free. Once again, that’s wealthion.com/free
