🔴 Raised Rate Cut Hopes Lift Markets - Ep 1052

Key Concepts: Gold Mining Stocks, Federal Reserve (Fed) Rate Cuts, Quantitative Easing (QE), Japan's 10-Year Yields, US Treasuries, Consumer Sentiment, Affordability Crisis, Inflation, Deficit Spending, Obamacare (Affordable Care Act - ACA) Subsidies, Fannie Mae and Freddie Mac (GSEs), D-listings, Kevin Hassett (potential Fed Chair), Tariffs, Bitcoin Bubble, Crypto Bubble, MicroStrategy (MSTR), Levered Bitcoin ETF, Greater Fool Theory, Malinvestment, Socialism vs. Capitalism, Moral Hazard.

Market Performance and Gold's Resurgence

The week began with significant market action, particularly on Monday, where nearly all assets rallied, including crypto-related stocks and Bitcoin. However, crypto stocks largely gave back their gains on Tuesday, with some major industry names hitting new annual lows. The standout performers on Monday were gold mining stocks, with the GDX and GDXJ indices each rising by approximately 5%. The price of gold has since climbed above $4,100, reaching $4,147, and silver is holding above $51.50. While GDX and GDXJ are still 9% and 12% off their highs, respectively, individual mining stocks like Barrick Gold and IAM Gold have already achieved new highs for the current move. The speaker anticipates that gold and silver stocks will lead the metals, hitting new highs before gold, and silver will likely reach a new high before gold, with gold itself expected to hit a new record before the end of the year.

The Federal Reserve's Role and Impending Rate Cuts

The primary driver for the anticipated surge in gold and silver prices is the Federal Reserve's monetary policy. The next FOMC meeting is scheduled for December 10th. The speaker predicts another rate cut, recalling the previous meeting where Chairman Powell's ambiguous statements about future rate actions caused market uncertainty. The speaker asserts that the Fed likely knew it would cut rates but feigned indecision to manage market expectations. This decision is influenced by a weaker-than-admitted economy and pressure from the Trump administration.

Recent statements from FOMC members, including those made today, indicate a shift in concern from inflation to potential weakness in the labor market. This narrative—that inflation is "behaving" and the Fed is worried about employment—is what the markets desire to hear and is fueling the current rally. Consequently, the odds of a December rate cut have rebounded to over 80% after previously falling to 50% from an initial 90%. This expectation of dovish Fed action is seen as a catalyst for a weaker dollar and higher gold prices.

Japan's Economic Maneuvers and US Treasury Implications

Japanese 10-year bond yields have risen above 1.8% (currently 1.81%), marking a 20-year high. This is a significant increase from their historical range of 25-50 basis points. The speaker predicts these yields will continue to climb, potentially surpassing 2%. This rise poses a substantial financing cost for the Japanese government's massive debt.

A key concern is how Japan will finance its recently announced stimulus plan. The speaker suggests that instead of increasing the issuance of Japanese Government Bonds (JGBs), Japan might sell its holdings of US Treasuries. This would be highly problematic for the US, as Japan is currently the largest holder of US Treasuries, especially since China has reduced its purchases. Such a move would likely force the US Federal Reserve to re-engage in quantitative easing (QE) and maintain an easy monetary policy to counteract the selling pressure.

The Affordability Crisis: Government's Self-Inflicted Wound

Consumer sentiment has plummeted to a seven-month low, dropping from 94.6 in October to 88.7 in November. This decline is attributed to inflation and a widespread "affordability crisis" affecting housing, healthcare, and everyday goods. The speaker argues that both Democrats and Republicans are responsible for this crisis, as they fund government spending through inflation (deficit spending and money creation by the Fed) rather than through taxes or reduced spending. Americans are effectively paying for government through higher prices, not higher taxes.

Specific examples include:

• Food Prices: McDonald's prices for items like hamburgers and French fries have nearly doubled in the last four years, with French fries now costing $4.
• Healthcare: The Affordable Care Act (Obamacare), despite its name, has made healthcare more expensive, and proposed extensions of COVID-era subsidies (even endorsed by Donald Trump) will further exacerbate the problem by fueling costs. The speaker warns that a two-year extension would make the subsidy permanent.
• Housing: The speaker previously discussed how government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac are primarily responsible for the housing affordability crisis. Recent data shows that "D-listings" (homes taken off the market because they didn't sell) have hit an eight-year high, indicating that houses are too expensive for people to afford. While a natural market correction would involve housing prices collapsing to affordable levels, the government actively tries to prevent this to avoid another housing crisis and the insolvency of Fannie and Freddie, thus creating a hypocritical stance on affordability.

The Bitcoin Bubble's Demise and Gold's Ascent

The speaker believes that the "air coming out of the Bitcoin bubble" and the broader crypto market will benefit gold. MicroStrategy (MSTR), a company heavily invested in Bitcoin, is cited as an example. Morgan Stanley reportedly suggested that MSTR might be removed from global stock indexes like the MSCI, which would force index funds to sell their holdings. The speaker dismisses MicroStrategy as a "levered Bitcoin ETF" rather than a viable business, calling its model a "fraud" and predicting its eventual "implosion." MSTR's stock is already down 70% and is expected to fall further.

As Bitcoin's performance falters (it's currently one of the worst-performing assets of the year), disgruntled Bitcoin investors, particularly those who viewed it as "digital gold," are expected to shift their capital into actual gold. Central banks, notably, are buying gold, not Bitcoin. The speaker reiterates that gold, silver, and mining stocks have already bottomed out and are poised for new highs, potentially before the December FOMC meeting.

Thanksgiving, Consumerism, and the True Meaning of the Holiday

The speaker criticizes the modern commercialization of holidays like Thanksgiving and Black Friday, which he argues glorify excessive spending and consumption. Many Americans, already struggling financially, are encouraged to shop on credit for unaffordable, often imported, goods. This behavior exacerbates personal debt and contributes to the US trade deficit, as "Santa's workshop" is effectively in China. True economic growth, the speaker contends, comes from production (requiring capital, infrastructure, and labor) rather than mere consumption.

The speaker then delves into the "real story of Thanksgiving," arguing that the Pilgrims' initial communal (socialist) economic model, where resources were shared "from each according to his ability, to each according to his needs," led them to the brink of starvation due to a lack of individual incentive and a "moral hazard." It was only after they adopted a capitalist system, assigning private land to families and allowing them to keep what they produced ("reap what you sow"), that they achieved a bountiful harvest, leading to the first Thanksgiving. The speaker laments that this historical lesson—that capitalism saved the Pilgrims from socialism—is not taught in schools, and warns that mixing even a little socialism with capitalism causes harm, with capitalism often unfairly taking the blame. The solution to current economic problems, he argues, is less government and more capitalism.

Bitcoin's Thanksgiving Demise and Economic Damage

In contrast to previous years where Bitcoin enthusiasts would boast about their gains during Thanksgiving gatherings, the speaker predicts that this year's conversations will revolve around losses, given Bitcoin's poor performance. He notes that while he doesn't celebrate individual losses, he is pleased if the bubble's collapse prevents new investors from being "suckered in."

The speaker views the Bitcoin bubble as "extremely damaging to the US economy" because it misdirects valuable resources, capital, and human talent into an unproductive industry. He explains that "malinvestments" occur during the bubble's inflation phase, creating a false sense of prosperity. The bubble's eventual pop merely "reveals" these mistakes and initiates the "cure," allowing for the reallocation of resources and setting the stage for healthy economic growth. He uses the analogy, "the first rule of holes is when you're in one, you stop digging," emphasizing that the sooner the Bitcoin bubble deflates, the less economic damage it will inflict. While young investors might learn a valuable lesson from their losses, older investors who put retirement savings into crypto may face irreparable financial harm. The speaker asserts that while he may have indirectly led some early adopters to Bitcoin through his economic education, the profits they realized came at the expense of a "far greater number of people who realize significant losses," as no true wealth was created, only transferred through the "greater fool theory."

Conclusion

The speaker concludes by strongly advocating for investment in gold and silver, particularly over the Thanksgiving holiday, anticipating continued upward momentum. He recommends the Euro Pacific Gold Fund (EPGIX) as a "Christmas gift opportunity" and promotes his newsletters, Shift Sovereign and Strategic Assets, for independent investment research. The overarching message is a stark warning against government intervention, socialist policies, and speculative assets like Bitcoin, while championing sound money (gold and silver) and free-market capitalism as the path to true prosperity.