Lacalle: Fed Was “Too Late, Too Slow, Too Wrong” as Debt Crisis Deepens
Summary
Market Outlook: Global markets are experiencing volatility due to heightened trade tensions between the US and China, with the US imposing tariffs and China retaliating, impacting stocks and commodities.
Central Bank Policies: Fed Chair Jerome Powell signals potential changes in monetary policy, including ending balance sheet runoff and addressing the risks of moving too slowly on rate cuts, highlighting the Fed's struggle with inflation and economic stability.
Global Economic Concerns: Developed economies are facing secular stagnation, with high debt levels and low growth, exemplified by Japan's economic challenges, which may foreshadow similar issues in Europe and the US.
China's Economic Fragility: China's economy is under pressure from domestic demand issues, youth unemployment, and a real estate bubble, while trying to manage trade tensions with the US.
Precious Metals Surge: Gold and silver prices are rising significantly, reflecting concerns over currency debasement and loss of faith in paper money, with silver experiencing a potential structural repricing.
Investment Strategies: Investors are advised to focus on sectors resilient to economic cycles and avoid relying heavily on government bonds, as the traditional 60/40 portfolio model is being challenged by current economic conditions.
Cryptocurrency Dynamics: Bitcoin and other cryptocurrencies are seen as potential hedges against currency debasement, though they remain volatile and influenced by regulatory developments and market sentiment.
Future Economic Risks: The potential for a global economic reset is highlighted, with attention on digital currencies like the digital euro, and the need for investors to protect wealth from government liabilities and currency debasement.
Transcript
[Music] Hey everyone, welcome back. I'm Jeremy Saffron. Global markets are unsettled today after President Trump's weekend post reignited tensions with China. He wrote that the US would impose 100% tariffs and full maritime inspections on Chinese cargo. The White House later said it was about existing enforcement, but Beijing retaliated anyway, sanctioning US link shipping firms and tightening rare earth exports. And Treasury Secretary Scott Bessant warned this morning China will hurt the most. And a quote, "While US Trade Representative Jameson Greer said that Trump and she still plan to meet, helping those stocks recover from earlier losses." Meanwhile, Fed Chair Jerome Powell is speaking in Philadelphia, signaling that the Fed may end its balance sheet runoff within months and warning that moving too slowly to cut rates could lead to quote painful job losses. Now, here's where we stand right now. Now, the S&P 500 down about 2% after earlier 1 and a.5% slide. And Bitcoin near $112,000, taking a nice little haircut this weekend on that volatility. Gold above $4,100, a new record. And of course, let's not forget about silver over $51 an ounce, up 70% this year. And a lot of eyes on that metal with this upcoming uh paper squeeze is what it's looking like. That sets up the question for investors watching today. Is this market turmoil a sign of deeper weakness or is an opportunity for those willing to take the risk and buy the dip? Joining me now is Daniel Lel. He's the chief economist at Tresis and a best-selling author. Daniel, it's great to have you with us uh today all the way from Europe. Thanks for making the time. Thank you very much, Jeremy. Always a pleasure to be here. I must say on a personal note also for you and the audience, I just became a father last week. So, I'm running on about 3 hours of sleep. So, bear with me if I start not making sense. But, you know, looking at these markets, I can't decide if I should be worried or optimistic. I mean, you've warned for years about a slow motion eternal crisis. Do you feel like this crisis just accelerated here? I think that we're living in an environment in which if you look at what is happening in Japan, what is happening in the UK, France, Germany, is that developed economies are in secular stagnation. So we're in a sort of perennial type of crisis on a macro level that certainly gets even worse at a micro level when we talk about disposable income, real wage growth, etc. However, precisely because of that and because of the aggressive level of indebtedness that these countries are entering into and have uh entered into uh precisely because of the enormous level of debt and the policy of central banks which basically try to say to everyone that they're very prudent but they're actually very accommodative. So, we're actually in a bull market, secular bull market with uh in in uh what I call uh private sector recession. Yeah, it's so interesting. I I want to get to the more macro, but I mean, speaking of Japan, I was watching this morning. They just got that small upgrade from the IMF. The growth nudged to about 1.1%, but it's still fighting that stagnation. It's faced for three decades, you said. I mean inflation is finally above that 2% but debt is over 230% of GDP and dem demographics as you know keep dragging the economy down. Is Japan kind of showing what the rest of the world is sliding towards this high debt low growth and no real way out? Yeah, Japan comes from the future. Japan is doing exactly uh what France, Germany, the UK did in the past and Japan is many years ahead of those nations in terms of the enormous level of government spending. You see when governments try to disguise structural challenges like demographics uh with government spending it always fires back. it always has a negative effect and the negative effect is very evident in Japan. Uh trying to disguise the structural challenges of the economy uh with elevated government spending, enormous levels of debt and so-cal public sector stimulus have generated absolutely zero level of productivity growth and certainly that problem of stagnation. Obviously uh the the the bill comes in a very elevated level of debt and now the prime minister is promising to uh try to curb the inflationary pressures with more money printing. So that is obviously fascinating to watch because this is another Kenzhen failed experiment and unfortunately uh what Japan is going through these days is what what France, the UK and Germany are likely to see in a few years. Yeah. Let's bring it a little bit closer to Washington. I mean it's obviously the news that's driving this market panic. The Washington Post is calling China's move on rare earths its trump card. Uh, Secretary Scott Bessin accused Beijing of kind of pointing a bazooka at the supply chains of the entire free world. Now, is this just another trade spat for the headlines that we read about in the mainstream? Are we kind of watching the beginning of another full-blown economic war that makes a global recession a certainty? I don't think that we're living in a in a full-blown economic war. What we're living is a negotiation in real time. We're watching two very big global leaders negotiate in in media headlines and that's obviously creating some market volatility. But ultimately the reason why we're not going to enter into a full-blown trade war between China and the United States is because China cannot afford it. China has an enormous problem of overcapacity, a very challenging domestic demand and the exporting sector in China simply cannot look at other opportunities in other markets. Uh the the the problem not just of over capacity but of working capital of many of these exporters is enormous. So China needs the United States needs the US market. uh the the idea that China would offset its lack of sales to the US with other markets simply didn't happen and it was obviously a completely misguided idea and therefore both need to reach an agreement and I think that the reason why the Trump administration has immediately called for higher uh tariffs is precisely to push for that negotiation and to reach a deal that is positive for both. I think that that is what will happen and I think that markets with a very subdued uh move uh are also discounting that outcome. Yeah, well said. Uh let's talk about China just for a quick second here because obviously you just said that they can't afford any more problems and the economy is already kind of a mess. I mean we're seeing this play out. Property prices still falling, youth unemployment near 15%, capital flight accelerating and now this trade confrontation with Washington. I mean how fragile is China really right now? Is this a controlled slowdown or are we looking at a system on the verge of losing credibility? Well, lots of problems in the Chinese economy and all of them coming from central planning. Yes. Yet again. Um uh but once we look beyond the real estate challenge which is enormous obviously and you've pointed out very well that it's nowhere close to be solved. uh the the Chinese economy in terms of technology, in terms of other sectors is actually doing better than what many expected. No, but certainly there is an enormous problem of domestic demand. Uh the Chinese economy simply cannot offset its exporting activity with domestic demand because wages are very low and obviously there is an enormous problem of youth unemployment and an enormous problem of internal poverty. So all those elements are are challenges. But the Chinese economy is is very robust in other areas and that will allow it to deliver a level of economic growth that being disappointing is certainly not one of recession. But we are living in real time uh the burst of the biggest real estate bubble in history. Yeah. And they're and they're doing it in real time. I mean, Beijing's official data still shows steady growth and record gold imports, but foreign investors keep pulling out and the wand remains under pressure here. I mean, in this fragile state that China is, is what you and I kind of talk about. If that's the case, what's the global implication here? Does the rest of the world import deflation or does Beijing respond with another round of stimulus that reignites inflation everywhere else? It's a very good question. And I think that the government in China is aware that a lot of their problems come from the stimulus packages of 2008 to 2015. So if they follow on with uh building stuff just for GDP purposes, then they will get in a worse problem than Japan is in right now. So uh it's a very challenging situation. On the one hand, China needs to export its way out of its internal challenges and that obviously raises uh concerns particularly in the European Union about receiving a flood of very very cheap products that may uh distort prices and the activity in its industrial and manufacturing sectors. So all of that is is is a big challenge. I think that the problem is that China needs to realize that a real estate bubble of the magnitude of the one that they have uh is not going to be solved by building bridges and and spending in in in more uh infrastructure which is already a problem of overcapacity that the Chinese economy has. So I think that they will basically try to export their way out. that is certainly generating a lot of concerns in in the European Union in particular. Yeah. And of course, we're seeing it play out in the precious metal side, too. Let's talk about that new uh term that we're all using, this debasement trade. I mean, Daniel, for years, as you know, on this channel on Kitco News, we've been covering the currency debasement story. While the mainstream has ignored it, I mean, now with gold trading above 4,100, it seems to be finally catching up. Bloomberg even coining a term for it, that great debasement debate as we said. Now you posted on X that gold and silver are discounting currency destruction. Is this the moment the world is finally losing faith in paper money? Is is it more than just a safe haven trade? More of the structural thing we've been talking about in the past? Absolutely. You're absolutely right. You have been reporting about this for a very long time and people are starting to catch up to the reality that this enormous level of debt uh accumulated in uh sovereign issuers and the and the unfunded liabilities which means more debt in the future. Added to the extraordinarily aggressive public sector stimulus packages that have delivered no growth. All those things have generated a very negative cocktail which is that central banks all over the world have abandoned sovereign debt from developed nations as the reserve asset that provides stability and economic real return. So what has ended up happening is that governments like the Japanese, the UK, the French, the uh also even the United States one that thought that they could print their way out of any problem by sending their enormous levels of debt to other countries as a reserve asset. That idea has gone. No. And therefore the currency purchasing power destruction, the debasement trade is in full swing. But gold and silver are only discounting a small proportion of the enormous iceberg of uh unfunded uh liabilities that so many of these nations have uh have committed to. Yeah. Yeah. Well, I mean, I'm watching Powell as the time that we're recording this making sure that we're up to date as he kind of talks over at that NAB conference in Philadelphia. And you know, pointing to your point here, Daniel, and yet you've also pointed out this great paradox, right? Right. I mean, the US dollar index is strong. It's holding above 99. I mean, you attributed this weakness in Europe and what you called the yen sacrifice in Japan. If if the US is drowning in over $36 trillion of its own debt, why is the dollar strengthening? I mean, how long can the dollar be the cleanest shirt, you know, the cleanest shirt in the dirty laundry, as we like to call it? And and what is that trip wire that finally breaks global confidence in the world's reserve currency? Well, the fact at the end of the day is that the monetary world is a world of relatives. So the dollar is not stronger is that the yen and the euro are weaker in particular those two also the pound. No. So you've you've mentioned a very a very good term. No, which is the cleanest shirt in a dirty laundry. is that the dollar is going to continue to be the world fiat reserve currency as long as all other fiat reserve currencies are actually behaving in a much worse way. And that means that the governments that issue those currencies are actually entering into worse uh into worse fiscal and monetary imbalances. And a lot of people point and rightly so to the enormous debt of the United States. But what very few people talk about is what I have mentioned twice in in this in our conversation which is the enormity of the unfunded liabilities committed by governments like the UK one, the French one, the German one or the Japanese one. We're talking about 500% 400% of GDP significantly two three times higher than the unfunded liabilities of the United States. So all of that points to yes it is true that the US dollar is losing purchasing power and that's why gold continues to rise but it is losing purchasing power at a slower pace than Japan, France or the UK. Every time that people talk about government spending, government stimulus packages and that increasing debt is not a problem, increasing public debt is not a problem because it is it doesn't generate any any challenge. Well, it does generate this challenge. Your salary and your deposit savings are losing purchasing power and fast. Yeah, it's such an interesting story. I mean, you know, we could go so many places. Powell was making these comments this morning against this backdrop of the fiscal reality that's getting harder to ignore. I mean, we got the 37 trillion in debt. And if you include those unfunded liabilities, Social Security, Medicare, federal pensions, some estimate that to be north of 200 trillion. So to your point, I mean, at what point does this become the real driver of monetary policy, not inflation, not employment, but sheer enormity of these obligations? Oh, I think that it is already in disguise the main driver of monetary policy. The reason why central banks have been so accommodative in an environment of persistent inflation, the reason why central banks continue to inject liquidity, which is printing money, is precisely because they need to do all they can to maintain the sovereign debt bubble alive. And and if you think about it, when central banks are being so vague about uh inflation targets and so vague about uh the job market targets, at the end of the day, if you look at what they are really doing relative to what what is happening globally, central banks in the UK, in uh the European Central Bank, Bank of Japan or the Fed, all of them have one priority is that governments continue to finance their increase in debt in uh the most sort of acceptable way. They accept that they will have to uh suffer higher yields or at least elevated yields relative to what they would like. But they also know that there is no other option at the end of the day. Uh when central banks talk about injecting liquidity, what they're doing is actually monetizing debt. Yeah. Yeah. I mean, because if the if the Fed has to keep rates low just to make that debt serviceable, then this isn't about fine-tuning policy anymore. It's about managing insolveny through inflation. So, is that what you mean when you talk about the slow motion implosion of advanced economies? Absolutely. That is exactly what it is. It is that uh a lot of people think that inflation is some sort of fatality, some sort of of of uh surprise. No, inflation is a policy. Inflation is the destruction of the purchasing power of the currency. The currency is sovereign debt and sovereign debt is losing uh value and is losing purchasing power in the currency in which it is issued and the yield that markets demand for that sovereign debt is a manifestation of a de facto default. So it's it's a slow motion impoverishment through the debasement of currency. That's why gold, silver, and equity markets as well are are functioning as a as a defense against that debasement. Yeah. Well said. I want to ask you, I mean, we got to get into gold and silver obviously for our audience, but let's turn to the Federal Reserve just quickly because again, I'm watching Jerome Powell do his speech right now in front of the NAB conference or the NAB in Philadelphia. And his tone was noticeably defensive. I mean, he warned that if the Fed moves too slowly, the US could face painful job losses, of course. He also said that the central bank may end its balance sheet runoff within months, essentially pausing quantitative tightening while acknowledging this pretty significant downside risks in the labor market and potential tariff related inflations. Powell admitted that with hindsight the Fed could have and perhaps should have ended its pandemic era bond buying earlier. It's a rare admission from Powell. Uh Daniel, is is Powell signaling that the Fed is losing control of its own exit strategy? that policy is now cornered between a weakening job market and a government drowning in debt. I think you're absolutely right. I think that what he is basically saying is precisely that. Uh and he's also admitting that the Fed has been atrociously wrong about inflation, atrociously wrong about the job market and atrociously wrong as well about the the the path of uh ex increasing and uh tightening monetary policy. Uh basically we're talking about uh too late, too slow, and too wrong in every single aspect of the uh Federal Reserve's policy. They were too late at tightening when inflation ran out of control because of excessive fiscal and monetary policy. They were uh they after creating elevated inflation, they actually passed a significant burden to small and medium enterprises and families by raising rates way too fast and then they cut rates way too early and now they are keep they kept rates for uh too long based on a narrative of inflation that was completely wrong. So in essence uh since since since since since since for a very long time actually you can say that the Fed has been completely wrong about almost every single one of their predictions. Yeah. Well it's nice. I mean you know because if ending QT is the first step towards easing I isn't that effectively monetizing the deficit under a new name kind of confirming what you've already warned about this fiscal dominance not monetary prudence now drives the Fed. Absolutely it is. Absolutely it is. Remember that the Fed already panicked in 2023 by delaying the quantitative tightening program and uh it also panicked by uh increasing liquidity which is basically purchasing bonds at par uh from regional banks when the uh first reser first republic bank uh crisis erupted. No. So all of those things point to a central bank that is trapped between a very high level of debt and a level of persistent inflation that they themselves created. Ultimately with this the lesson is very simple. When you decide to uh launch a quantitative easing program as some sort of magic solution that will give time to governments to balance the budget and be more prudent about fiscal policy. What the central bank is doing in reality is incentivize more debt which is what happened in 2021. uh the the the policy 2020 2021 the policy of the Federal Reserve only gave further ammunition for the government to increase spending by another two trillion above the emergency level of co and that brings us I guess directly to the market's response I mean gold as you mentioned it's surging past $4,100 an ounce on the spot side past $51 investors clearly see what Powell won't say out loud that the the age of easy money might be ending on paper, but it doesn't seem like it is on practice. Uh before we get into gold, I want to ask you what's happening in silver because it's the move's been historic. I mean, it's trading above $51 an ounce. That's up more than 70% this year. And to put that into perspective, when silver hit $50 back in 1980, it stayed there for barely 3 hours. That was obviously during the Hunt Brothers squeeze in a much smaller global market. But what we're seeing now is something very different driven by you know the both the monetary field fear that we're talking about that real industrial demand volatility will go both ways but it seems to be looking like a broader structural shift. Is this in your view you know a true physical squeeze or or is it the start of repricing of silver's role in the global economy? I think it is the the start of the repricing of of silver in the global economy. remember that a lot of people have missed dramatically the gold rally because they thought, "Oh, it's gone way too gone up way too fast. It went to to 2,000 to 3,000 to 4,000." And now a lot of them are saying, "Oh my god, we've missed the gold rally. I don't believe that it's over because of what we have just mentioned, the monetary debasement uh problem." And what they look is oh the ratio of gold to silver has widened so aggressively that the catchup opportunity is silver but the uh long trade on silver has happened just in a year in which supply of silver is very very tight. So it's created that squeeze that you mentioned. There's also another financial element is that a lot of people that were worried if gold was rising too fast and uh they were looking for some sort of hedge. There were a lot of hedge funds that were long gold short silver as a sort of uh good market neutral bet. It's not neutral at all and it's generating some short squeezes right now. So supply is tighter. A lot of people are playing the catchup on gold in the silver trade and a few hedge funds have had to unwind their shorts on silver. Yeah. I just want to ask you a little bit about the mechanics of that because our audience is obviously is very interested in the paper versus physical markets. I mean we're seeing reports of a paper to to physical ratio uh exceeding 350 to1. I mean the market is in backwardization. A rare signal of extreme physical tightness. What happens to someone holding a silver ETF or a futures contract if the LBMA or COMX faces a delivery failure? I mean, is the is the paper market about to break or uh what would that look like for the real price of physical metals in your hand? Oh, if if that market would break, there would certainly be an abrupt decline in the price that would probably be offset afterwards once those contracts are rolled over and it's cleaned up. But obviously it could create a a moment of panic. Certainly I don't think it's going to happen because what is happening right now is that a lot of financial institutions are creating new instruments that are allowing to provide liquidity to an uh to a relatively illquid or not as liquid as gold paper market. So uh I would pay uh attention to the opportunities created by pay changes in the paper uh price relative to changes in what is happening at the supply and demand side that points basically to see any type of correction driven by these uh technicalities to uh be an opportunity for investors to to purchase uh to purchase ETFs uh for the future. Yeah. Okay. So, you're still bullish on the the trade here on the silver trade. We still got some room to go. I think we got some room to go. Particularly for what I said before is that I think that the I think it's very difficult for people that have lived in the mirage of quantitative easing uh is never going to be a problem and governments can issue all the debt that they want. There was a very short period of time in monetary history. It's very difficult for a lot of people to grasp the idea of the debasement trait that we mentioned of the of the evidence that the way the only way in which a sovereign debt bubble bursts is through the destruction of the purchasing power of the currency. Therefore, it's not that silver is squeezing or that gold is rising or that equity markets are reflecting an economic boom. is that basically what they're reflecting is the future debasement, the future loss of purchasing power of the currencies in which they trade. Yeah. Interesting. It's been fascinating to watch and as we mentioned, we've been covering this for years now. So, it's interesting to kind of watch it. I mean, on the gold side, the reaction seems to be telling the real story. I mean, we got equities, crypto all under pressure. Gold doing the opposite. It doesn't seem like it's just a hedge trade anymore. Of course, we know central banks are still net buyers. Uh China's demand remains kind of opaque to say the least. And sovereign funds in the Middle East to Asia have been quietly adding exposure. Uh ETF inflows are kind of hitting those yearly highs after 2 years of outflows suggesting that institutions are kind of coming back in. I mean Daniel, you said that gold is no longer a contrarian asset. It's the the truth teller of monetary policy. Is this simple flight to safety or do you think that the market's kind of calling out this this credibility because it doesn't seem to be just reacting to fear anymore? It seems to be reacting to policy failure. It's reacting to policy failure. Absolutely right. And you have been reporting it for a long time how central banks all over the world were uh losing confidence in sovereign debt i.e. reserve assets from developed nations uh in in their balance sheets. There these these uh central banks and also the central banks of developed nations have seen that their holdings of sovereign debt were yielding negative real returns. So losses no. So so this this comes at a price and what is happening is basically that what is manifesting is that the uh historic 6040 trade in which people would look to have a portfolio of 60% uh equities 40% the sovereign debt in order to give you a cushion that gives you some real economic return if markets are a little bit volatile etc. the 40% has gone and a lot of people are starting to think, hey, instead of having 40% sovereign debt, we need to have at least 20% uh gold uh because that is what would would mirror the uh policy of all of those central banks that have said no more sovereign debt in our asset base. Yeah. And and to your point, I mean, you know, talking about that repricing of silver, skeptics obviously will say that this is just another momentum trade that once volatility cools and the Fed cuts, gold will fade. But if what we're seeing is structural, I mean, deficits, dolorization, and now this geopolitical breakdown we're talking, is there any path back to normal or is this a world now permanently repricing paper money against real assets? I think that what we're seeing is back to normal, but to to fundamental normal. H which is that sovereign debt is not a no risk asset is that uh governments are not magical entities that can issue all the debt that they want forever and ever. Huh? I think that what we're basically facing is the harsh reality that the mirage sold in 2008 about an everexpanding central bank world that uh you know the so-called alchemists like the title of the book I have behind me. Uh the so-called alchemists have have had found the way to get out of every crisis without any risk. That didn't happen. No, didn't happen. So it's basically just in essence we're basically going back to reality instead of a new reality if if that makes any sense. Yeah, it does. And and if we bring it back to the US markets, I mean, you've made the compelling case that the US private sector is strong, defying recession calls. You know, we saw that massive selloff a little bit earlier. It seems like we're pairing our losses now. But the big question on everyone's mind is, is this just a buy the dip opportunity? I mean, legendary investor Paul Tudtor Jones was watching him this morning and he said that the market feels exactly like 1999. He's positioning for a final kind of explosive blowoff rally before the top. Is he right? I mean, is there still room for this bull market to run or is the dip buyers walking straight into a trap? I think that there is still a bull market, a secular bull market created precisely by the combination of uh misguided policy in the past from central bank, a misguided response right now from governments and sovereign issuers. But I think it's also the the the strength of the US market is also going to come from the realization from many investors that the call that a lot of people made at the beginning of the year that you basically had to get out of the US and buy Europe, China, Japan, etc. may still have some legs in the Japanese uh market because of the Bank of Japan craziness, but that the there is a great opportunity in US assets because the level of uh animosity from international investors toward US assets was completely unjustified but actually created a great opportunity. No, in in the in what I call the tariff tantrum. In the in the tariff tantrum, a lot of investors globally made a call to go short US assets, short the US dollar, short US equities, long European ones. Uh, and obviously the European economy is not getting any better. No. So, I think that that still creates an opportunity. I think that the United States uh stocks still have room to go particularly because the enormous rally that we have seen has been led by particularly basically seven stocks. No. So there's plenty of valuation opportunities in the other 493. Yeah. You know, you could argue I mean, you have argued just there talking about this entire bull market from equities to housing to metals was kind of built on misguided policies because when you strip away the stimulus, the subsidies and central bank back stops. I mean, what's left for real growth? If the bull market was engineered, does that, you know, kind of mean that we're now entering the payback phase where markets and currencies and governments all have to mark to reality? I think that that is the that is exactly the case is that the idea that the inflationary pressures were gone and that uh uh we had just lived a small uh problem in 2020 to 2021 has gone has gone and and and the evidence of of uh the bond market is is is is staggering. No, the bond market is telling you that uh you could actually make one analysis or the opposite. You could actually say, well, the bond market is wrong or the equity market is wrong. I think that what what right now uh everybody's starting to understand is that the equity market is reflecting the same as the bond market which is that Japan, France, Germany, the UK, the US, all of them are going to try to disguise the enormous fiscal problems with monetary debasement. Yeah, fascinating. We were talking about Paul Tudtor Jones there before. He also warned that this will have a quote really, really bad end. And now we have JP Morgan's Jamie Diamond this morning warning about cockroaches in the credit market. I mean, you've described a slow uh kind of that slow motion implosion, right? How does an investor navigate this? I mean, how do you position for a potential meltup while knowing that there's a cliff right behind it? Is it even possible to time the exit or is it just kind of that fool's game? Uh, I think it's very difficult to time the exit. And the reason why is because you cannot you cannot just predict what central banks are going to do after the enormous successes that we have seen in the past. So what an investor needs to do is not to ignore reality obviously because if you're away from the market then you're losing money in real terms because of inflation. Mhm. And the other thing that you cannot do is simply go uh with the flow and think that nothing is going to happen. No. So you basically have to surf this market. How do you do that? Avoid the sectors that require a stronger economic growth, stronger productivity growth and stronger the very cyclical sectors are all are already suffering but they will continue to suffer. So the the losers are not going to catch up with the winners. And the winners, you cannot just stay and think, oh, these valuations are excessive in technology giants, but they're going to continue to be excessive forever. So you need to be you you should not be too complacent on technology giants and you should not be expecting that the losers that those uh hypersyclical sectors that have been lagards are going to catch up in terms of valuation to the winners. So you have to be prudent but you have to be in the market. You need to be in the market because if you're not in the market, you are already taking a bet which is an enormous bet on revaluation of currencies. That is not happening. Yeah, let's talk about that future of money. I mean, you've argued obviously the gold and bitcoin are the only things that can stop governments from destroying the currency playing that role that central banks have abandoned. But I mean, we just saw Bitcoin crash from 126,000 to below 105 in in a matter of hours triggered directly by this US government tariff announcement. Does does does it prove that even centralized assets are still on a leash held by sovereign powers kind of challenging their role as truly independent money? Uh well obviously when we talk about Bitcoin we're talking about a teenager. So we need to understand that this teenager of a currency is uh going to be significantly more volatile than what other currencies are. No. uh and it's pro and it's not even a currency yet. It is uh what I call startup money. H and I think that investors that acknowledge that are not surprised by the volatility in in Bitcoin. But if you look at it relative to the low volatility but only one way uh decline of the yen relative to the US dollar. Well, I think that uh it's proving that you may get some uh some levels of of of turmoil in cryptocurrencies, but uh and that is the reason why when I mentioned prior that the 6040 portfolio is dead, I did not say put 20% of the portfolio in cryptocurrencies. Maybe put a little but be aware of these of these uh uh levels of volatility. Yeah, ultimately I think that what is happening is catching up all the time to a market that is slowly building its own liquidity and Bitcoin obviously uh suffered in the past because it's liquidity was the US dollar that has changed but that hasn't changed entirely. No. So, I think that there's quite a bit to to to learn from the from the growth and the development of this teenager of a decentralized currency. Teenager. Teenager. I'm going to use that, Daniel. I mean, you know, obviously you've you've you've warned about the ECB's digital euro kind of being that tool for surveillance money. And then in 2025, it's it's been a a breakthrough year for crypto regulation in the US. I mean, we're seeing institutions like Black Rockck and JP Morgan now building that infrastructure to tokenize real world assets. Is is it being tamed? I mean, you call it a teenager. It's maturing. Is Bitcoin being tamed? Is the crypto space being co-opted by the very system it was meant to disrupt? And and can can a regulated kind of institutionalized asset still serve as a real check on government power? Uh, I think it can. Uh, I think it I think we're just seeing the beginning of institutions dipping their toes into the crypto world uh simply because of demand from clients. No, they're they're basically saying we cannot miss this and we need to provide something for our clients. But obviously they have no way of measuring the value of crypto assets relative to anything because because they're in a separate world and they're and it's and it's very very difficult for regulated entities. So I think that basically this is all driven by by the demand from clients and I don't think it's being tamed. I think that I think that it's going to be impossible for Bitcoin and other cryptocurrencies to uh completely destroy the US dollar or the euro or the yen. I think that that that crypto assets and fiat currencies are going to to live in parallel worlds. And the only thing that that sort of glues them is the fact that we talk about them in dollar terms. But if you go to I don't know Decentraland, nobody talks about Bitcoin in dollars. They talk a bitcoin is a bitcoin. No. So I think that that is that is probably what is likely to change in the future is that we're going to probably start to repric a lot of a few assets in the more mature crypto cryptocurrencies. Yeah. Interesting. Okay. Well, we always kind of go too fast when you're on, my friend. I mean, we're almost out of time, but you kind of pictured that global economy. It's it's caught between a slow motion implosion of sovereign debt and the the kind of acute shocks of trade wars and those bursting asset bubbles. You recently spoke about this coming global reset. Now, of course, we've talked about this before on the show. We talk about it in depth, but for the people watching us right now in Kiko News who are trying to protect their family's wealth with tangible assets, what does that reset actually look like? And and as we close, I mean, what's the single most important signal kind of the trip wire that we should be watching for that tells us this slow motion crisis is about to go into hyperdrive? Yeah, I think you need to pay a lot of attention to the digital euro experiment that the European Central Bank wants to implement because that is likely to be the blueprint of what a lot of uh governments and central banks may try to do in order to reset the system and try to uh transfer the brutal amount of liabilities incurred by the government to the real economy, how to protect yourself. I think it's very very easy and challenging at the same time. You need to invest not thinking about the headlines created by geopolitical issues or by uh political uh news but more about the monetary issues because they they they completely overtake everything else. So invest uh invest understanding that the only thing that governments will do once they enter into this phase of uh currency debasement is to try to offset part of their liabilities with the wealth and the savings and the deposits of those that that they can control with their currency. No. So uh so don't be don't invest in deposits. That's one of the things that I would say. Yeah. Well said. All right. A powerful and sobering sobering perspective. Dr. Daniel Lau, of course, chief economist at Tresis. Thanks for your time, my friend. I appreciate it. And hopefully we'll speak to you soon, Daniel. Thank you very much. And congratulations on the birth of your child. Thank you very much. I appreciate that. And uh you know exactly what I'm talking about. You have a few yourself. So, thanks so much. All right. I'm Jeremy Sapper. And obviously, you know, the world is struggling with debt, inflation, and a crisis of confidence. What do you think is the biggest risk right now? Is this a crash or a buying opportunity? Let us know in the comments below. That's all the time we have today. Thank you for joining us here on Kitco News. I'm Jeremy Saffron. As I said off the top, we've been the top coverage in this space, closing in on a million subscribers. So, hit that button. Stay tuned. We'll have you next time. [Music] Heat. 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Lacalle: Fed Was “Too Late, Too Slow, Too Wrong” as Debt Crisis Deepens
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[Music] Hey everyone, welcome back. I'm Jeremy Saffron. Global markets are unsettled today after President Trump's weekend post reignited tensions with China. He wrote that the US would impose 100% tariffs and full maritime inspections on Chinese cargo. The White House later said it was about existing enforcement, but Beijing retaliated anyway, sanctioning US link shipping firms and tightening rare earth exports. And Treasury Secretary Scott Bessant warned this morning China will hurt the most. And a quote, "While US Trade Representative Jameson Greer said that Trump and she still plan to meet, helping those stocks recover from earlier losses." Meanwhile, Fed Chair Jerome Powell is speaking in Philadelphia, signaling that the Fed may end its balance sheet runoff within months and warning that moving too slowly to cut rates could lead to quote painful job losses. Now, here's where we stand right now. Now, the S&P 500 down about 2% after earlier 1 and a.5% slide. And Bitcoin near $112,000, taking a nice little haircut this weekend on that volatility. Gold above $4,100, a new record. And of course, let's not forget about silver over $51 an ounce, up 70% this year. And a lot of eyes on that metal with this upcoming uh paper squeeze is what it's looking like. That sets up the question for investors watching today. Is this market turmoil a sign of deeper weakness or is an opportunity for those willing to take the risk and buy the dip? Joining me now is Daniel Lel. He's the chief economist at Tresis and a best-selling author. Daniel, it's great to have you with us uh today all the way from Europe. Thanks for making the time. Thank you very much, Jeremy. Always a pleasure to be here. I must say on a personal note also for you and the audience, I just became a father last week. So, I'm running on about 3 hours of sleep. So, bear with me if I start not making sense. But, you know, looking at these markets, I can't decide if I should be worried or optimistic. I mean, you've warned for years about a slow motion eternal crisis. Do you feel like this crisis just accelerated here? I think that we're living in an environment in which if you look at what is happening in Japan, what is happening in the UK, France, Germany, is that developed economies are in secular stagnation. So we're in a sort of perennial type of crisis on a macro level that certainly gets even worse at a micro level when we talk about disposable income, real wage growth, etc. However, precisely because of that and because of the aggressive level of indebtedness that these countries are entering into and have uh entered into uh precisely because of the enormous level of debt and the policy of central banks which basically try to say to everyone that they're very prudent but they're actually very accommodative. So, we're actually in a bull market, secular bull market with uh in in uh what I call uh private sector recession. Yeah, it's so interesting. I I want to get to the more macro, but I mean, speaking of Japan, I was watching this morning. They just got that small upgrade from the IMF. The growth nudged to about 1.1%, but it's still fighting that stagnation. It's faced for three decades, you said. I mean inflation is finally above that 2% but debt is over 230% of GDP and dem demographics as you know keep dragging the economy down. Is Japan kind of showing what the rest of the world is sliding towards this high debt low growth and no real way out? Yeah, Japan comes from the future. Japan is doing exactly uh what France, Germany, the UK did in the past and Japan is many years ahead of those nations in terms of the enormous level of government spending. You see when governments try to disguise structural challenges like demographics uh with government spending it always fires back. it always has a negative effect and the negative effect is very evident in Japan. Uh trying to disguise the structural challenges of the economy uh with elevated government spending, enormous levels of debt and so-cal public sector stimulus have generated absolutely zero level of productivity growth and certainly that problem of stagnation. Obviously uh the the the bill comes in a very elevated level of debt and now the prime minister is promising to uh try to curb the inflationary pressures with more money printing. So that is obviously fascinating to watch because this is another Kenzhen failed experiment and unfortunately uh what Japan is going through these days is what what France, the UK and Germany are likely to see in a few years. Yeah. Let's bring it a little bit closer to Washington. I mean it's obviously the news that's driving this market panic. The Washington Post is calling China's move on rare earths its trump card. Uh, Secretary Scott Bessin accused Beijing of kind of pointing a bazooka at the supply chains of the entire free world. Now, is this just another trade spat for the headlines that we read about in the mainstream? Are we kind of watching the beginning of another full-blown economic war that makes a global recession a certainty? I don't think that we're living in a in a full-blown economic war. What we're living is a negotiation in real time. We're watching two very big global leaders negotiate in in media headlines and that's obviously creating some market volatility. But ultimately the reason why we're not going to enter into a full-blown trade war between China and the United States is because China cannot afford it. China has an enormous problem of overcapacity, a very challenging domestic demand and the exporting sector in China simply cannot look at other opportunities in other markets. Uh the the the problem not just of over capacity but of working capital of many of these exporters is enormous. So China needs the United States needs the US market. uh the the idea that China would offset its lack of sales to the US with other markets simply didn't happen and it was obviously a completely misguided idea and therefore both need to reach an agreement and I think that the reason why the Trump administration has immediately called for higher uh tariffs is precisely to push for that negotiation and to reach a deal that is positive for both. I think that that is what will happen and I think that markets with a very subdued uh move uh are also discounting that outcome. Yeah, well said. Uh let's talk about China just for a quick second here because obviously you just said that they can't afford any more problems and the economy is already kind of a mess. I mean we're seeing this play out. Property prices still falling, youth unemployment near 15%, capital flight accelerating and now this trade confrontation with Washington. I mean how fragile is China really right now? Is this a controlled slowdown or are we looking at a system on the verge of losing credibility? Well, lots of problems in the Chinese economy and all of them coming from central planning. Yes. Yet again. Um uh but once we look beyond the real estate challenge which is enormous obviously and you've pointed out very well that it's nowhere close to be solved. uh the the Chinese economy in terms of technology, in terms of other sectors is actually doing better than what many expected. No, but certainly there is an enormous problem of domestic demand. Uh the Chinese economy simply cannot offset its exporting activity with domestic demand because wages are very low and obviously there is an enormous problem of youth unemployment and an enormous problem of internal poverty. So all those elements are are challenges. But the Chinese economy is is very robust in other areas and that will allow it to deliver a level of economic growth that being disappointing is certainly not one of recession. But we are living in real time uh the burst of the biggest real estate bubble in history. Yeah. And they're and they're doing it in real time. I mean, Beijing's official data still shows steady growth and record gold imports, but foreign investors keep pulling out and the wand remains under pressure here. I mean, in this fragile state that China is, is what you and I kind of talk about. If that's the case, what's the global implication here? Does the rest of the world import deflation or does Beijing respond with another round of stimulus that reignites inflation everywhere else? It's a very good question. And I think that the government in China is aware that a lot of their problems come from the stimulus packages of 2008 to 2015. So if they follow on with uh building stuff just for GDP purposes, then they will get in a worse problem than Japan is in right now. So uh it's a very challenging situation. On the one hand, China needs to export its way out of its internal challenges and that obviously raises uh concerns particularly in the European Union about receiving a flood of very very cheap products that may uh distort prices and the activity in its industrial and manufacturing sectors. So all of that is is is a big challenge. I think that the problem is that China needs to realize that a real estate bubble of the magnitude of the one that they have uh is not going to be solved by building bridges and and spending in in in more uh infrastructure which is already a problem of overcapacity that the Chinese economy has. So I think that they will basically try to export their way out. that is certainly generating a lot of concerns in in the European Union in particular. Yeah. And of course, we're seeing it play out in the precious metal side, too. Let's talk about that new uh term that we're all using, this debasement trade. I mean, Daniel, for years, as you know, on this channel on Kitco News, we've been covering the currency debasement story. While the mainstream has ignored it, I mean, now with gold trading above 4,100, it seems to be finally catching up. Bloomberg even coining a term for it, that great debasement debate as we said. Now you posted on X that gold and silver are discounting currency destruction. Is this the moment the world is finally losing faith in paper money? Is is it more than just a safe haven trade? More of the structural thing we've been talking about in the past? Absolutely. You're absolutely right. You have been reporting about this for a very long time and people are starting to catch up to the reality that this enormous level of debt uh accumulated in uh sovereign issuers and the and the unfunded liabilities which means more debt in the future. Added to the extraordinarily aggressive public sector stimulus packages that have delivered no growth. All those things have generated a very negative cocktail which is that central banks all over the world have abandoned sovereign debt from developed nations as the reserve asset that provides stability and economic real return. So what has ended up happening is that governments like the Japanese, the UK, the French, the uh also even the United States one that thought that they could print their way out of any problem by sending their enormous levels of debt to other countries as a reserve asset. That idea has gone. No. And therefore the currency purchasing power destruction, the debasement trade is in full swing. But gold and silver are only discounting a small proportion of the enormous iceberg of uh unfunded uh liabilities that so many of these nations have uh have committed to. Yeah. Yeah. Well, I mean, I'm watching Powell as the time that we're recording this making sure that we're up to date as he kind of talks over at that NAB conference in Philadelphia. And you know, pointing to your point here, Daniel, and yet you've also pointed out this great paradox, right? Right. I mean, the US dollar index is strong. It's holding above 99. I mean, you attributed this weakness in Europe and what you called the yen sacrifice in Japan. If if the US is drowning in over $36 trillion of its own debt, why is the dollar strengthening? I mean, how long can the dollar be the cleanest shirt, you know, the cleanest shirt in the dirty laundry, as we like to call it? And and what is that trip wire that finally breaks global confidence in the world's reserve currency? Well, the fact at the end of the day is that the monetary world is a world of relatives. So the dollar is not stronger is that the yen and the euro are weaker in particular those two also the pound. No. So you've you've mentioned a very a very good term. No, which is the cleanest shirt in a dirty laundry. is that the dollar is going to continue to be the world fiat reserve currency as long as all other fiat reserve currencies are actually behaving in a much worse way. And that means that the governments that issue those currencies are actually entering into worse uh into worse fiscal and monetary imbalances. And a lot of people point and rightly so to the enormous debt of the United States. But what very few people talk about is what I have mentioned twice in in this in our conversation which is the enormity of the unfunded liabilities committed by governments like the UK one, the French one, the German one or the Japanese one. We're talking about 500% 400% of GDP significantly two three times higher than the unfunded liabilities of the United States. So all of that points to yes it is true that the US dollar is losing purchasing power and that's why gold continues to rise but it is losing purchasing power at a slower pace than Japan, France or the UK. Every time that people talk about government spending, government stimulus packages and that increasing debt is not a problem, increasing public debt is not a problem because it is it doesn't generate any any challenge. Well, it does generate this challenge. Your salary and your deposit savings are losing purchasing power and fast. Yeah, it's such an interesting story. I mean, you know, we could go so many places. Powell was making these comments this morning against this backdrop of the fiscal reality that's getting harder to ignore. I mean, we got the 37 trillion in debt. And if you include those unfunded liabilities, Social Security, Medicare, federal pensions, some estimate that to be north of 200 trillion. So to your point, I mean, at what point does this become the real driver of monetary policy, not inflation, not employment, but sheer enormity of these obligations? Oh, I think that it is already in disguise the main driver of monetary policy. The reason why central banks have been so accommodative in an environment of persistent inflation, the reason why central banks continue to inject liquidity, which is printing money, is precisely because they need to do all they can to maintain the sovereign debt bubble alive. And and if you think about it, when central banks are being so vague about uh inflation targets and so vague about uh the job market targets, at the end of the day, if you look at what they are really doing relative to what what is happening globally, central banks in the UK, in uh the European Central Bank, Bank of Japan or the Fed, all of them have one priority is that governments continue to finance their increase in debt in uh the most sort of acceptable way. They accept that they will have to uh suffer higher yields or at least elevated yields relative to what they would like. But they also know that there is no other option at the end of the day. Uh when central banks talk about injecting liquidity, what they're doing is actually monetizing debt. Yeah. Yeah. I mean, because if the if the Fed has to keep rates low just to make that debt serviceable, then this isn't about fine-tuning policy anymore. It's about managing insolveny through inflation. So, is that what you mean when you talk about the slow motion implosion of advanced economies? Absolutely. That is exactly what it is. It is that uh a lot of people think that inflation is some sort of fatality, some sort of of of uh surprise. No, inflation is a policy. Inflation is the destruction of the purchasing power of the currency. The currency is sovereign debt and sovereign debt is losing uh value and is losing purchasing power in the currency in which it is issued and the yield that markets demand for that sovereign debt is a manifestation of a de facto default. So it's it's a slow motion impoverishment through the debasement of currency. That's why gold, silver, and equity markets as well are are functioning as a as a defense against that debasement. Yeah. Well said. I want to ask you, I mean, we got to get into gold and silver obviously for our audience, but let's turn to the Federal Reserve just quickly because again, I'm watching Jerome Powell do his speech right now in front of the NAB conference or the NAB in Philadelphia. And his tone was noticeably defensive. I mean, he warned that if the Fed moves too slowly, the US could face painful job losses, of course. He also said that the central bank may end its balance sheet runoff within months, essentially pausing quantitative tightening while acknowledging this pretty significant downside risks in the labor market and potential tariff related inflations. Powell admitted that with hindsight the Fed could have and perhaps should have ended its pandemic era bond buying earlier. It's a rare admission from Powell. Uh Daniel, is is Powell signaling that the Fed is losing control of its own exit strategy? that policy is now cornered between a weakening job market and a government drowning in debt. I think you're absolutely right. I think that what he is basically saying is precisely that. Uh and he's also admitting that the Fed has been atrociously wrong about inflation, atrociously wrong about the job market and atrociously wrong as well about the the the path of uh ex increasing and uh tightening monetary policy. Uh basically we're talking about uh too late, too slow, and too wrong in every single aspect of the uh Federal Reserve's policy. They were too late at tightening when inflation ran out of control because of excessive fiscal and monetary policy. They were uh they after creating elevated inflation, they actually passed a significant burden to small and medium enterprises and families by raising rates way too fast and then they cut rates way too early and now they are keep they kept rates for uh too long based on a narrative of inflation that was completely wrong. So in essence uh since since since since since since for a very long time actually you can say that the Fed has been completely wrong about almost every single one of their predictions. Yeah. Well it's nice. I mean you know because if ending QT is the first step towards easing I isn't that effectively monetizing the deficit under a new name kind of confirming what you've already warned about this fiscal dominance not monetary prudence now drives the Fed. Absolutely it is. Absolutely it is. Remember that the Fed already panicked in 2023 by delaying the quantitative tightening program and uh it also panicked by uh increasing liquidity which is basically purchasing bonds at par uh from regional banks when the uh first reser first republic bank uh crisis erupted. No. So all of those things point to a central bank that is trapped between a very high level of debt and a level of persistent inflation that they themselves created. Ultimately with this the lesson is very simple. When you decide to uh launch a quantitative easing program as some sort of magic solution that will give time to governments to balance the budget and be more prudent about fiscal policy. What the central bank is doing in reality is incentivize more debt which is what happened in 2021. uh the the the policy 2020 2021 the policy of the Federal Reserve only gave further ammunition for the government to increase spending by another two trillion above the emergency level of co and that brings us I guess directly to the market's response I mean gold as you mentioned it's surging past $4,100 an ounce on the spot side past $51 investors clearly see what Powell won't say out loud that the the age of easy money might be ending on paper, but it doesn't seem like it is on practice. Uh before we get into gold, I want to ask you what's happening in silver because it's the move's been historic. I mean, it's trading above $51 an ounce. That's up more than 70% this year. And to put that into perspective, when silver hit $50 back in 1980, it stayed there for barely 3 hours. That was obviously during the Hunt Brothers squeeze in a much smaller global market. But what we're seeing now is something very different driven by you know the both the monetary field fear that we're talking about that real industrial demand volatility will go both ways but it seems to be looking like a broader structural shift. Is this in your view you know a true physical squeeze or or is it the start of repricing of silver's role in the global economy? I think it is the the start of the repricing of of silver in the global economy. remember that a lot of people have missed dramatically the gold rally because they thought, "Oh, it's gone way too gone up way too fast. It went to to 2,000 to 3,000 to 4,000." And now a lot of them are saying, "Oh my god, we've missed the gold rally. I don't believe that it's over because of what we have just mentioned, the monetary debasement uh problem." And what they look is oh the ratio of gold to silver has widened so aggressively that the catchup opportunity is silver but the uh long trade on silver has happened just in a year in which supply of silver is very very tight. So it's created that squeeze that you mentioned. There's also another financial element is that a lot of people that were worried if gold was rising too fast and uh they were looking for some sort of hedge. There were a lot of hedge funds that were long gold short silver as a sort of uh good market neutral bet. It's not neutral at all and it's generating some short squeezes right now. So supply is tighter. A lot of people are playing the catchup on gold in the silver trade and a few hedge funds have had to unwind their shorts on silver. Yeah. I just want to ask you a little bit about the mechanics of that because our audience is obviously is very interested in the paper versus physical markets. I mean we're seeing reports of a paper to to physical ratio uh exceeding 350 to1. I mean the market is in backwardization. A rare signal of extreme physical tightness. What happens to someone holding a silver ETF or a futures contract if the LBMA or COMX faces a delivery failure? I mean, is the is the paper market about to break or uh what would that look like for the real price of physical metals in your hand? Oh, if if that market would break, there would certainly be an abrupt decline in the price that would probably be offset afterwards once those contracts are rolled over and it's cleaned up. But obviously it could create a a moment of panic. Certainly I don't think it's going to happen because what is happening right now is that a lot of financial institutions are creating new instruments that are allowing to provide liquidity to an uh to a relatively illquid or not as liquid as gold paper market. So uh I would pay uh attention to the opportunities created by pay changes in the paper uh price relative to changes in what is happening at the supply and demand side that points basically to see any type of correction driven by these uh technicalities to uh be an opportunity for investors to to purchase uh to purchase ETFs uh for the future. Yeah. Okay. So, you're still bullish on the the trade here on the silver trade. We still got some room to go. I think we got some room to go. Particularly for what I said before is that I think that the I think it's very difficult for people that have lived in the mirage of quantitative easing uh is never going to be a problem and governments can issue all the debt that they want. There was a very short period of time in monetary history. It's very difficult for a lot of people to grasp the idea of the debasement trait that we mentioned of the of the evidence that the way the only way in which a sovereign debt bubble bursts is through the destruction of the purchasing power of the currency. Therefore, it's not that silver is squeezing or that gold is rising or that equity markets are reflecting an economic boom. is that basically what they're reflecting is the future debasement, the future loss of purchasing power of the currencies in which they trade. Yeah. Interesting. It's been fascinating to watch and as we mentioned, we've been covering this for years now. So, it's interesting to kind of watch it. I mean, on the gold side, the reaction seems to be telling the real story. I mean, we got equities, crypto all under pressure. Gold doing the opposite. It doesn't seem like it's just a hedge trade anymore. Of course, we know central banks are still net buyers. Uh China's demand remains kind of opaque to say the least. And sovereign funds in the Middle East to Asia have been quietly adding exposure. Uh ETF inflows are kind of hitting those yearly highs after 2 years of outflows suggesting that institutions are kind of coming back in. I mean Daniel, you said that gold is no longer a contrarian asset. It's the the truth teller of monetary policy. Is this simple flight to safety or do you think that the market's kind of calling out this this credibility because it doesn't seem to be just reacting to fear anymore? It seems to be reacting to policy failure. It's reacting to policy failure. Absolutely right. And you have been reporting it for a long time how central banks all over the world were uh losing confidence in sovereign debt i.e. reserve assets from developed nations uh in in their balance sheets. There these these uh central banks and also the central banks of developed nations have seen that their holdings of sovereign debt were yielding negative real returns. So losses no. So so this this comes at a price and what is happening is basically that what is manifesting is that the uh historic 6040 trade in which people would look to have a portfolio of 60% uh equities 40% the sovereign debt in order to give you a cushion that gives you some real economic return if markets are a little bit volatile etc. the 40% has gone and a lot of people are starting to think, hey, instead of having 40% sovereign debt, we need to have at least 20% uh gold uh because that is what would would mirror the uh policy of all of those central banks that have said no more sovereign debt in our asset base. Yeah. And and to your point, I mean, you know, talking about that repricing of silver, skeptics obviously will say that this is just another momentum trade that once volatility cools and the Fed cuts, gold will fade. But if what we're seeing is structural, I mean, deficits, dolorization, and now this geopolitical breakdown we're talking, is there any path back to normal or is this a world now permanently repricing paper money against real assets? I think that what we're seeing is back to normal, but to to fundamental normal. H which is that sovereign debt is not a no risk asset is that uh governments are not magical entities that can issue all the debt that they want forever and ever. Huh? I think that what we're basically facing is the harsh reality that the mirage sold in 2008 about an everexpanding central bank world that uh you know the so-called alchemists like the title of the book I have behind me. Uh the so-called alchemists have have had found the way to get out of every crisis without any risk. That didn't happen. No, didn't happen. So it's basically just in essence we're basically going back to reality instead of a new reality if if that makes any sense. Yeah, it does. And and if we bring it back to the US markets, I mean, you've made the compelling case that the US private sector is strong, defying recession calls. You know, we saw that massive selloff a little bit earlier. It seems like we're pairing our losses now. But the big question on everyone's mind is, is this just a buy the dip opportunity? I mean, legendary investor Paul Tudtor Jones was watching him this morning and he said that the market feels exactly like 1999. He's positioning for a final kind of explosive blowoff rally before the top. Is he right? I mean, is there still room for this bull market to run or is the dip buyers walking straight into a trap? I think that there is still a bull market, a secular bull market created precisely by the combination of uh misguided policy in the past from central bank, a misguided response right now from governments and sovereign issuers. But I think it's also the the the strength of the US market is also going to come from the realization from many investors that the call that a lot of people made at the beginning of the year that you basically had to get out of the US and buy Europe, China, Japan, etc. may still have some legs in the Japanese uh market because of the Bank of Japan craziness, but that the there is a great opportunity in US assets because the level of uh animosity from international investors toward US assets was completely unjustified but actually created a great opportunity. No, in in the in what I call the tariff tantrum. In the in the tariff tantrum, a lot of investors globally made a call to go short US assets, short the US dollar, short US equities, long European ones. Uh, and obviously the European economy is not getting any better. No. So, I think that that still creates an opportunity. I think that the United States uh stocks still have room to go particularly because the enormous rally that we have seen has been led by particularly basically seven stocks. No. So there's plenty of valuation opportunities in the other 493. Yeah. You know, you could argue I mean, you have argued just there talking about this entire bull market from equities to housing to metals was kind of built on misguided policies because when you strip away the stimulus, the subsidies and central bank back stops. I mean, what's left for real growth? If the bull market was engineered, does that, you know, kind of mean that we're now entering the payback phase where markets and currencies and governments all have to mark to reality? I think that that is the that is exactly the case is that the idea that the inflationary pressures were gone and that uh uh we had just lived a small uh problem in 2020 to 2021 has gone has gone and and and the evidence of of uh the bond market is is is is staggering. No, the bond market is telling you that uh you could actually make one analysis or the opposite. You could actually say, well, the bond market is wrong or the equity market is wrong. I think that what what right now uh everybody's starting to understand is that the equity market is reflecting the same as the bond market which is that Japan, France, Germany, the UK, the US, all of them are going to try to disguise the enormous fiscal problems with monetary debasement. Yeah, fascinating. We were talking about Paul Tudtor Jones there before. He also warned that this will have a quote really, really bad end. And now we have JP Morgan's Jamie Diamond this morning warning about cockroaches in the credit market. I mean, you've described a slow uh kind of that slow motion implosion, right? How does an investor navigate this? I mean, how do you position for a potential meltup while knowing that there's a cliff right behind it? Is it even possible to time the exit or is it just kind of that fool's game? Uh, I think it's very difficult to time the exit. And the reason why is because you cannot you cannot just predict what central banks are going to do after the enormous successes that we have seen in the past. So what an investor needs to do is not to ignore reality obviously because if you're away from the market then you're losing money in real terms because of inflation. Mhm. And the other thing that you cannot do is simply go uh with the flow and think that nothing is going to happen. No. So you basically have to surf this market. How do you do that? Avoid the sectors that require a stronger economic growth, stronger productivity growth and stronger the very cyclical sectors are all are already suffering but they will continue to suffer. So the the losers are not going to catch up with the winners. And the winners, you cannot just stay and think, oh, these valuations are excessive in technology giants, but they're going to continue to be excessive forever. So you need to be you you should not be too complacent on technology giants and you should not be expecting that the losers that those uh hypersyclical sectors that have been lagards are going to catch up in terms of valuation to the winners. So you have to be prudent but you have to be in the market. You need to be in the market because if you're not in the market, you are already taking a bet which is an enormous bet on revaluation of currencies. That is not happening. Yeah, let's talk about that future of money. I mean, you've argued obviously the gold and bitcoin are the only things that can stop governments from destroying the currency playing that role that central banks have abandoned. But I mean, we just saw Bitcoin crash from 126,000 to below 105 in in a matter of hours triggered directly by this US government tariff announcement. Does does does it prove that even centralized assets are still on a leash held by sovereign powers kind of challenging their role as truly independent money? Uh well obviously when we talk about Bitcoin we're talking about a teenager. So we need to understand that this teenager of a currency is uh going to be significantly more volatile than what other currencies are. No. uh and it's pro and it's not even a currency yet. It is uh what I call startup money. H and I think that investors that acknowledge that are not surprised by the volatility in in Bitcoin. But if you look at it relative to the low volatility but only one way uh decline of the yen relative to the US dollar. Well, I think that uh it's proving that you may get some uh some levels of of of turmoil in cryptocurrencies, but uh and that is the reason why when I mentioned prior that the 6040 portfolio is dead, I did not say put 20% of the portfolio in cryptocurrencies. Maybe put a little but be aware of these of these uh uh levels of volatility. Yeah, ultimately I think that what is happening is catching up all the time to a market that is slowly building its own liquidity and Bitcoin obviously uh suffered in the past because it's liquidity was the US dollar that has changed but that hasn't changed entirely. No. So, I think that there's quite a bit to to to learn from the from the growth and the development of this teenager of a decentralized currency. Teenager. Teenager. I'm going to use that, Daniel. I mean, you know, obviously you've you've you've warned about the ECB's digital euro kind of being that tool for surveillance money. And then in 2025, it's it's been a a breakthrough year for crypto regulation in the US. I mean, we're seeing institutions like Black Rockck and JP Morgan now building that infrastructure to tokenize real world assets. Is is it being tamed? I mean, you call it a teenager. It's maturing. Is Bitcoin being tamed? Is the crypto space being co-opted by the very system it was meant to disrupt? And and can can a regulated kind of institutionalized asset still serve as a real check on government power? Uh, I think it can. Uh, I think it I think we're just seeing the beginning of institutions dipping their toes into the crypto world uh simply because of demand from clients. No, they're they're basically saying we cannot miss this and we need to provide something for our clients. But obviously they have no way of measuring the value of crypto assets relative to anything because because they're in a separate world and they're and it's and it's very very difficult for regulated entities. So I think that basically this is all driven by by the demand from clients and I don't think it's being tamed. I think that I think that it's going to be impossible for Bitcoin and other cryptocurrencies to uh completely destroy the US dollar or the euro or the yen. I think that that that crypto assets and fiat currencies are going to to live in parallel worlds. And the only thing that that sort of glues them is the fact that we talk about them in dollar terms. But if you go to I don't know Decentraland, nobody talks about Bitcoin in dollars. They talk a bitcoin is a bitcoin. No. So I think that that is that is probably what is likely to change in the future is that we're going to probably start to repric a lot of a few assets in the more mature crypto cryptocurrencies. Yeah. Interesting. Okay. Well, we always kind of go too fast when you're on, my friend. I mean, we're almost out of time, but you kind of pictured that global economy. It's it's caught between a slow motion implosion of sovereign debt and the the kind of acute shocks of trade wars and those bursting asset bubbles. You recently spoke about this coming global reset. Now, of course, we've talked about this before on the show. We talk about it in depth, but for the people watching us right now in Kiko News who are trying to protect their family's wealth with tangible assets, what does that reset actually look like? And and as we close, I mean, what's the single most important signal kind of the trip wire that we should be watching for that tells us this slow motion crisis is about to go into hyperdrive? Yeah, I think you need to pay a lot of attention to the digital euro experiment that the European Central Bank wants to implement because that is likely to be the blueprint of what a lot of uh governments and central banks may try to do in order to reset the system and try to uh transfer the brutal amount of liabilities incurred by the government to the real economy, how to protect yourself. I think it's very very easy and challenging at the same time. You need to invest not thinking about the headlines created by geopolitical issues or by uh political uh news but more about the monetary issues because they they they completely overtake everything else. So invest uh invest understanding that the only thing that governments will do once they enter into this phase of uh currency debasement is to try to offset part of their liabilities with the wealth and the savings and the deposits of those that that they can control with their currency. No. So uh so don't be don't invest in deposits. That's one of the things that I would say. Yeah. Well said. All right. A powerful and sobering sobering perspective. Dr. Daniel Lau, of course, chief economist at Tresis. Thanks for your time, my friend. I appreciate it. And hopefully we'll speak to you soon, Daniel. Thank you very much. And congratulations on the birth of your child. Thank you very much. I appreciate that. And uh you know exactly what I'm talking about. You have a few yourself. So, thanks so much. All right. I'm Jeremy Sapper. And obviously, you know, the world is struggling with debt, inflation, and a crisis of confidence. What do you think is the biggest risk right now? Is this a crash or a buying opportunity? Let us know in the comments below. That's all the time we have today. Thank you for joining us here on Kitco News. I'm Jeremy Saffron. As I said off the top, we've been the top coverage in this space, closing in on a million subscribers. So, hit that button. Stay tuned. We'll have you next time. [Music] Heat. 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