SPECIAL REPORT: Did The Fed Just Announce QE-Lite? | Axel Merk + Live Q&A
Summary
Fed Policy & Liquidity: The Fed cut 25 bps, signaled a pause, and began T-bill purchases seen as QE-lite, boosting market liquidity and risk assets.
Precious Metals: Liquidity, large fiscal deficits, and tariff dynamics were highlighted as supportive tailwinds for precious metals, pushing prices higher.
Silver: Silver’s breakout above $60 was discussed with emphasis on its higher industrial sensitivity versus gold and the potential for sharp volatility as speculators return.
Gold Miners: Mining equities were framed as attractive with improving profitability, manageable cost pressures, and multiple potential catalysts (permitting, index inclusion, development milestones) beyond metal price moves.
Valuation & Rates: Lower real rates improve discounted cash flow valuations, aiding growth assets and metals; a key risk would be any rise in real rates from policy shifts or political gridlock.
AI Context: AI was cited as a driver of productivity that supports a bullish macro narrative, but also a source of labor displacement, higher electricity costs, and potential political backlash; Nvidia (NVDA) was mentioned amid talk of cheaper chip alternatives.
ETF Structure: The safety and backing of gold ETFs (e.g., GLD vs physically-backed alternatives) were raised; the guest could not provide details due to compliance but noted their firm designed products to address common concerns.
Overall Stance: Constructive on precious metals and select miners in a liquidity-rich, easing-cycle backdrop, while cautioning that increased speculative participation elevates two-way volatility.
Transcript
and we should be live. Welcome to Thoughtful Money. I'm Thoughtful Money founder and your host, Adam Tagert. I thank you for joining us here for one of our regular post FOMC live streams to make sense of what the Federal Reserve just announced and what Fed uh Chair Jerome Pal discussed at his press conference. I am joined as usual by Axel Murk, head of Mercs and longtime Fed watcher. Uh he's I consider him to be a Fed expert. Axel, thank you so much for joining us again. >> Great to be with you and we can say that offline we managed to blame the Federal Reserve even for your tooth trouble. [laughter] >> Thank you. [gasps] So, a couple things folks. One, Axel kindly dressed up for me here, so give him props in the uh in the live chat there. Um, yes, I I won't go into it today. I probably will over this weekend's update, but yes, uh this is the first time I've been on camera on this channel uh after having lost a tooth this past weekend. Not fun. Uh, I'm not going to reveal which tooth it was. Uh, I may talk a little bit more restrained so you can't see it because it is visible. Um, but anyways, we'll worry about that for later days. Um, I'll also apologize too in my home studio here since it's my first winter in it. I'm realizing that there's some winter sun glare issues that I'm trying to deal with, but I clearly haven't solved yet. So, bear with me while uh hopefully in a couple minutes that that that glare goes away. But anyways, Axel, um, interesting. You know, it's starting to get interesting here at the Fed, uh, at these these post FOMC meetings. Um, uh, the Fed did cut by 25 basis points as the market was pretty confident it was going to. Um, but there were three descents to that decision, which I believe is the most that have been on the FM, the most desense the FOMC has experienced since 1988. So, a good long while. um you know almost 40 years I guess if I'm doing my ma my math right and uh here's the key question I have for you Axel I don't want to be misinterpreting this uh too uh too hyperbolically but the Fed did announce that they will be uh initiating purchases of basically T- billills going forward to the tune of about 40 billion a month for at least the next couple of months and they said well this is nothing out of the ordinary this is just to maintain an ample supply of reserves. Um, is this true? Is this just sort of business as usual stuff or is this kind of like foaming the runway? Is this like a QE light that is sort of, you know, getting everybody uh accommodated so that if the Fed really wants to start growing its balance sheet at at scale, it can do so. >> All of the above. Um, so Powell really doesn't mean to do QE, but he kind of has to because they have this ample reserve regime where they take down the balance sheet. They don't quite know where the limit is. At some point, you start having some tension the system and then they foam the runway which is means they add liquidity and that's ultimately what the market I believe has reacted to. Um, Powell may not want to do this as a quoteunquote policy tool, but of course it is. I mean, the market doesn't care what Powell says. The market cares what Powell does in that sense when it comes to QE. And and so, yes, they are initiating QE. They don't mean to do it to ease, but that's what it is. And they need to do it because they have this ample reserve regime. And just for for folks who are not so much into those details, the Federal Reserve used to set interest rates until the financial crisis um through interventions by the New York Fed. And they were buying and and selling, withdrawing liquidity, adding liquidity. And then at some point, Bernaki said, "Hey, let's make this much easier. We can just pay interest on reserves." And that required an act of Congress because that wasn't permissible before. And ever since then, the New York Fed definitely, and I've talked to several people there, they very much prefer it. They consider the the the previous method outdated. They say it only causes problems. You have a lot of stress for no advantage. Um, however, the ample reserve regime, I think the technical term is it sucks. And it sucks because politically it's a nightmare because you're literally paying banks billions, tens of billions in order to not use the money sometimes when you when you provide that liquidity. Um, and also the the the good what was good about the old regime is while it was a pain in the butt for the New York Fed to implement, they saw when there were problems in the system. Now they use BOME figuratively speaking to provide liquidity and the issue is that different participants in the markets are regulated differently and for them the pain point is different and so nobody knows where exactly that painoint is because you have overlapping at times contradictory regulations and so they just provide enough liquidity for everybody to be happy and that kind of works except we see it in the market reaction today if you don't need any other proof the market is very happy about it because the market loves liquidity now of course it doesn't mean everything is right with inflation unemployment or whatever it is but liquidity we have liquidity is what the market is reacting to and as long as Powell is the chair we will get that regime and by the way Powell is on the way out um there is only one person who said he wants to put an end to the ample reserve regime that's Kevin um not asset it's Kevin >> Walsh whether he'll do it is is another question but he has criticized that regime um very openly. >> So let's let's drill into that for a bit. So um as I said there were three descents I believe two that didn't want to cut and then there was surprise surprise uh Mirin um who said look we should do 50 right and um Mirin is definitely kind of on team Trump here very very visibly and Trump has basically told the market that he thinks pal successor uh he's chosen pal successor which is Kevin Hasset um I Trumping Trump, he could always change his mind here. So, we shouldn't take this as a full guarantee, but that's what the market is is now got a lot of confidence in. And and Hasset of late in the past couple days has said, "Hey, I think there's plenty of room here for the Fed to to stimulate still." So, it seems like Hasset will be probably leaning more the way that Mirin is. So as as much as you said PAL is likely to continue this more sort of accommodated you know foaming should we expect Hasset to to to be even more aggressive in that? >> Well Hasset pretty much when he was asked whether he would have been okay with a 50 point rate cut before the rate cut happened he said yes. So so he would have been definitely in the camp of of cutting. Um, when it comes to the new Fed share, I think the the actual rate matters less than the approach. And that's in part what I mean with the ample reserve regime quote unquote sucks. It's is the next Fed chair going to change the tool set that the Federal Reserve is using? Is the Fed going to retire some tools? And uh and uh indeed yes the market firmly believes it's going to be asset as you know I have favored Kevin Walsh because he's exactly the one who wants to get rid of many of these tools >> right it sounds like war should be the one to clean house most right >> and you just put the third top person on there Chris Waller Chris Waller is somebody who speaks his mind and who is who is the one who spoke up early against inflationary pressures he was willing to to switch course at the same time he is a traditionalist as far as kind of what the Fed does. And so the the structural issues wouldn't be addressed with it. Um they're all three, by the way, they're good economists. Um and and so the question is whether of course they can hurt those cats and and going back to the meeting today. Um several people including me would have been happy to have had more descents. Not because it would have changed the course of of history so much, but it would have made it in my view easier for the next Fed share. Um some people say might have been harder. But if if we've had had more descents even even than we had today, it would have signaled that it is not Hasset or Walsh or Waller or whoever it might be next Fed share. It is just the Fed that is very very divided. Um the other thing that is somewhat surprising is that these uh people reiterated what they've previously said at least two of them right. Um, one tradition at the Fed is you you express your descent and then says, "Okay, I've made my point and now I'm quiet and I go go with uh with the troops, right?" And and so we're definitely in the new era. The other thing um and sorry for for mixing this up here right the stages because we're talking about the Fed succession. Um there has been talk quite actively and and Hasset has offered as much to take not just the chairmanship but to takes take Powell's governorship. So context here is governors are appointed for 14 years. Very few governors stick around for the full 14 years but at the end of those 14 years somebody else is going to get another 14-year term. And uh Powell's term runs until um I think another two years or so. And so if asset or somebody else would were to take Paul's term and that would of course imply that Paul will step down from the Fed, everybody expects that um he he wasn't he was asked as much during the the the the um press conference today. He didn't answer that question because it wouldn't be appropriate. But it means that we would go through the same theater again in a year or so about whether indeed the uh the new chair is going to do his his job and then you really have pressure on that new person. Whereas if you give that person a slot that's open for several years then you you can have independence even a houseet who obviously some people will perceive to be political. >> Interesting. Okay. Uh, somebody here uh raised the question. I'm trying to see if I can pull it up here, but basically they said that after the cut was announced, uh, President Trump said, uh, here we go. Um, President Trump said, uh, well, they should have cut 50 basis points or 75 basis points. Can you just, you know, guesstimate for us what you think the reaction would have been if indeed the Fed had cut 50 or or 75? Would the market still be thrilled or you know with the 75 surprise basis point cut would the market start getting spooked thinking oh gosh the the Fed is seeing some some breakage in the system we haven't noticed yet? >> Well let me answer this way. The power Fed but also the banaki and the yellow Fed made it a point to not surprise the market whenever possible. And so even the the current rate cut, right, you had people come out and say, "Oh, this market thing about maybe not having a rate cut or this or that is all wrong. Powell didn't need to speak. He just sent his missionaries out to to make some statements." And by the time the meeting came about, it was over 90% likelihood in the market that we would have had a a 25 basis point cut. If we were under a different regime and had more surprises, then I can speculate on on on what might have happened. Um, in the current environment, it it seemed like almost zero chance um that that would have happened. And uh a lot of people, me included, don't think that's so healthy. Right? You you the the idea and the one thing we had, right, we had a lot of people come out, oh, I'm going to vote for 25 basis point cut. That is utterly inappropriate. You're supposed to come into a meeting with an open mind, look at the data, and then make a decision. Now, obviously, you could argue, hey, there aren't so many economic data. I've made up my mind already. But the moment you state it publicly, you're anchoring your own >> right >> um mindset and you make yourself much less flexible in a discussion. And so the new Fed chair, whoever it is, should get rid of this really, really bad habit. Now, I have talked to Fed officials and they say, "Well, the regional Fed presidents um they don't report to the Fed chair. They can do whatever they want, but the tone is set at the top and if if they get a scolding from the chair and saying, "Listen, we got to reform how we communicate." Um I think it will have an impact. And so all this talk about setting expectations before the meeting I don't think serves much good and and does a lot of harm. And so sorry for not answering the question but I don't think it would have been realistic. Uh the the market didn't react to the 25 basis point rate cut. I don't think it reacted to the QE much more than anything else. >> Right. >> The other thing of course we we haven't talked about is the the Fed said they're on pause now. So they they they are done and they look at the market and uh they he and then he emphasized that >> is that any different though than him just always saying we'll be data dependent. >> Yes. Because because the previous data dependency was that um unless something changes we'll cut again in in December. um it wasn't so clear and then it was made clear whereas now the data dependency is we really need to see something to to change our mind from from just holding off and I mean there there are a few things to be said here in the medium term they still expect inflation to be at 3%. That's really bad that the folks at the Fed don't think we can go out 2%. And by the way, for the current administration, that means that people will still be unhappy about prices. Um that the real wages are not able to keep up with that sort of movement. And then he said he expects the economy to be stronger. Um so that's a change in tone. Um which he may have said to counter this weight about the the um the 50 basis point rate cut. um folks who might have said so behind the scenes and at the same time he says that the labor market is somewhat softening and so he gets everything that he has um he was asked how he kind of squares all that and and he said oh um he thinks productivity growth is going to be strong in part because of AI of course there's some layoffs that come with it >> right >> that's very relevant because again some of the candidates to succeed Powell very much count on productivity growth One of the reasons why people want to have more rate cuts is because they believe that deregulation and other means that create productivity growth will allow a lower policy will allow more growth as less inflation. So Powell pretty much said, "Yep, I'm really on the dollar side. I don't want to be quite as aggressive as those folks, but I actually don't mind if asset is a little bit more aggressive here." I mean that's what I heard in between the lines here that he is kind of presenting the Fed on a silver plate to Hasset if that's if he wants to pursue a dobish policy. Okay. Um so I found it kind of interesting uh you know there's a lot of people I interview are concerned about a slowing economy. Some people are concerned about station. >> Pardon me. >> No kidding. Yeah. >> Yeah. Some people are concerned about uh unemployment continuing to rise next year. And we've had um I don't know if record levels but certainly um uh very elevated levels of corporate bankruptcies this year and and you know we're seeing a lot of layoff announcements. Now pal shared the Fed's projections and as you said he projected that economic that GDP would grow right grow from from this year to next year. He projected that inflation would come down right I think he said it's they're expecting something like 2.6% 6% by the end of of 2026 and 2% by the end of 27 essentially. So we're going to hit our 2% target within about two years. And unemployment, even though he talked about the labor market softening, the Fed's unemployment projections go down over the next couple years. So he's kind of projecting, I don't want to say necessarily Goldilocks, but like really kind of nice road ahead, right? Um, how do we >> And you do QE on top of that. You forgot to add that, right? >> And we might as well do QE because things are so good, >> right? Well, let's cut rates and do QE because everything's going to be so amazing. So, I guess my question for you here is and to in some slight defense of him, you know, he did reiterate a number of times we haven't had all the data we normally have, right? But um is he telling us what we want to hear or do you think the Fed and its army of PhDs actually believe this? >> I think he is the mouthpiece of the debating club from which he just emerged. That that was kind of what he took and how he squared the circles and how he was hurting the cats. remember just three months ago he I think was far more honest in the sense that he said some people have made an excellent case for more growth and some people have made an excellent case for for a more severe slowdown >> right and he was much more worried two uh meetings ago about the about the labor market and he started off by saying nothing's changed our outlook hasn't changed since October >> has changed is that we have no idea what the labor market looks like >> right But but nothing's changed since he was nervous, but now when he's talking it's like, oh, you know, yeah, it's cooling, but everything should be fine. >> Well, that that if you're asking me why we need a new Fed chair who has a little bit more of a framework. Um, by the way, what you said, he used the word feel, it doesn't feel inflationary. So, the Fed is based on feelings of the chair. And while that in some ways may always be the case, um I would much prefer a reaction function that's a mathematical formula. >> You you have said ever since I've known you. Y >> yes. Now um I think a reasonable person can make a very bullish case for next year for the growth and a reasonable person can make a very bearish case for next year on the growth. Um you can argue as the Fed appear to do that productivity growth is going to be there and the uh the big beautiful bill is going to provide a stimulus. Um there will be some good news in the springtime because a lot of people didn't adjust the withholdings on their their wages and they they're going to get some tax refunds and so who knows whether that's going to carry them through. You can make the negative case. You can say that um the tariffs got everybody to uh cut cost and that's why earnings look good. They have them hoard goods. Um they've had everybody spend a boatload of AI which gives everybody a shot in the arm. But now realism kicks in and maybe we don't need these most expensive chips. They are cheaper alternatives available than the Nvidia chips. And I'm not giving a a forecast here. the glass can be half empty pretty quickly and and so >> as far as I'm concerned, I'm an investor. I don't I don't have a crystal ball. I look in the world in terms of risks and what can happen. By the way, one thing we haven't touched on is in other parts of the world, they're starting to price in rate hikes. Not many, like half to one hike. Um but the ECB, two people have come out or so that said, "Oh, the next move is going to be a rate hike." Um and so there is a more cautious tone spreading except for the Fed where we're where we're battling over 25 versus 50 basis points cut. >> Right. And sorry to interrupt, but somebody actually did ask about the possibility of a hike because they compared this to a period in the 90s which had sort of three similar quarter basis points cuts like this and then the next uh move was a hike and pal basically said that's on none of our bingo cards at the moment. >> Well, it's not on his because he's going to be retired so he it's not his problem. Um but it's I mean the the honest answer is nobody has a clue. um they're obviously looking at at the data they have but what's lacking is a coherent framework which would allow us to to do some more robust testing against all this. Um the reaction of market is hey we got liquidity right. Yeah. And and so we will find out whether the the the next Fed share is going to have different marching orders, different priorities. And uh it's uh now presumably we'll continue to have some chiming in from the president because he just loves to chime in on monetary policy. Um >> well I think it benefits him to have the Fed be the the villain too, right? Well, not just him. Every president has has liked to to to blame the Fed when something goes wrong. Um it's a nobody quite understands the Fed. Um I had a discussion just uh I think last week and person asked me what's the difference between monetary and fiscal policy. This was an very intelligent 20some year old um woman um who is politically very active but had no idea what the difference was. And and if I may um because I don't want to presume anything um monetary policy is about the amount of money in an economy, the amount of credit, about interest rates, about money supply. What it is not about is allocating that money to specific groups. That is fiscal policy. That is in the realm of elected officials. I'm a purist on that. to me the Fed buying mortgage back securities should not be done by them because that is allocating money to the mortgage sector, >> right? But anything in that direction and of course the Fed has done a lot especially during the pandemic um steps on fiscal turf which then invites backlash and invites the folks on the fiscal side to use the Fed and abuse the Fed. Um, and by the way, to to just add to that, um, the low rates we've had for many years encourage the Fed to to initiate this reckless spending. And so there's a lot of spillover from monetary policy onto fiscal policy. >> Right. And teaching the fiscal side to be more disciplined is uh is very very difficult. >> Impossible. Yeah. Almost impossible. Let me just clarify. I've got so much to follow up on from what you've said in the past couple minutes, but let me just try to clarify this for folks. So the Fed monetary policy when the Fed quote unquote prints money what it's really doing is it's creating additional bank reserves. Correct. And well first off let's start there. Correct. >> It's it's providing it's literally providing liquidity. We are in an ample reserve environment. There is no more such a thing as there used to be um required reserves and excess reserves. We don't have that differentiation anymore. There are always reserves available. what what is not available sometimes if then you just have have have a screeching hold in in the system if credit is not available and so we are providing quoteunquote Apple reserves and uh the the the Fed can do that by buying securities in the market thereby providing cash so to speak to to to institutions >> yeah okay so a couple things I just wanted to clarify there was is one if the Fed is is um increasing reserves reserves, bank reserves. The banks can then lend those reserves out and and get money into the economy, but the banks don't have to. They can just sit on them and make free money, right? So, I just I just want to say in monetary policy, you can have times where things don't go exactly the way the Fed is hoping, right? Whereas fiscal policy, that money is getting directly injected into a part of the economy. So, fiscal policy tends to be more inflationary from an from an economy standpoint. Now QE what? Sorry, go ahead. >> Yeah, just to be confusing here, Milton Freriedman used to say that the reason we have inflation is because of deficits. Um if there weren't deficits, we wouldn't have inflation. And what the Fed can do, the Fed can stop um credit expansion by hiking interest rates so much to make it unattractive. That's really what they can do. But the Fed can keep an eye on on the amount of money in the economy, but it's not like they have a fine-tuned thing where they can exactly regulate what's happening. Um they have the Fed calls it a broad brush. They have a bazooka, right, with which they can do things. They can enable um more credit expansion and they what the Fed can do, they can destroy growth if that's what they choose to do. They can take the punch bowl away. So that is an option they have. But as you point out, they they can take the horse to the to the well, but they can't force the >> they can't force it to drink. Yeah. And all I'm trying to say is that fiscal policy tends to be more like instantaneously inflationary than monetary policy with the exception that uh monetary policy does tend to find its way into the financial markets uh more easily. And so therefore, you know, that's why the markets are jumping today, right? is is they're they're jumping because they know more liquidity is coming to the financial markets. [snorts] Um okay so uh a couple of things. So um uh pal and by by the way to just expand as to why let me put on my academic hat and I'm oversimplifying here. >> Um if you value a company it's the present value of future cash flows. >> Correct. >> And if interest rates are lower you're discounting future cash flows at a lower rate. So that prices should go higher. Yeah. >> And so the prices go higher and uh and and if you have a if you have great uncertainty about the future cash flow then this discount rate matters much much more because it it tends to whack around those motivations which and that's part of the reason why these growth companies high growth companies are have a greater interest rate sensitivity. >> Right. Right. Okay. Um, I'd love to keep talking about this and I have a few other questions on it, but we have limited time and folks, I should have mentioned this at the beginning, but we have to end here about five minutes before the hour. So, I'm going to try to cram as much as my questions in and as take as many of yours as we can. Um, so on inflation, let me just ask you this, Axel. Um, so we talked about how the Fed sees um the CPI coming down. Um, you know, there's a and he talked about he said um we're actually seeing services disinflate. um we're really seeing the remaining stickiness in inflation is in goods and and the vast majority of that's because of the tariffs. So he said, "Look, we're basically sitting on our hands at this point waiting to find out is this goods inflation kind of a one-off price increase or is it going to provide a sustained inflationary uh impulse into the economy?" Um and the honest answer is is TBD. We'll we'll we'll we'll wait and see how this plays out. question I have for you is CPI calculation is about 40% shelter. We know from more real-time sources than the the BLS uses in calculating the CPI that rents are disinflating, home prices and increasing number of places are disinflating or deflating. Um so personally from my cheap seats I'm taking the under on the CPI next year. Um, I think that 40% disinflating shelter component is going to going to really start acting as an anchor on CPI. Do you have a similar point of view or do you think that this tariff driven goods inflation could actually keep things elevated for longer? >> Well, I wonder whether that matters. Um, so let me [laughter] let me start out by saying it appears that Powell has been listening to Fox News because Bessant has been on Fox News um touting this thing that services inflation is down. So he's he's taking kind of the party line. Um if if if Hasset were to say it, it's party line, but if Bessant um but if but now Paul says it and it's all fine. Um the reason I wonder whether it matters is we have a midterm elections coming up and uh at the joy of being political um people care about the price of meat that people care about other things and and yes, rent is one of it, but of course the cost of housing is is more than the cost of end. It's it's the cost of insurance and other things. Um, by the way, when a lot of the reasons why we're increasing rently renters isn't just because we can't afford to buy the house. It's also because states have these ownorous regulations on um on insurance companies that less insurance is offered at higher prices and when you are a corporate buyer, you self-insure. then you don't care about those rules and that makes it more cost effective um for for big business to own your shelter and then lease it to you, >> right? >> To I think it's far >> plus they can borrow at cheaper rates and I mean there's just a whole other litany of advantages. >> So it it to me it really matters how the consumer feels and and currently the consumer feels rotten, right? I mean, maybe because they're listening too much to social media about everything that's bad in the world, but it used to be that the the party in power folks felt good and the party out of power felt miserable. Now, everybody feels miserable. Um, they keep spending though. And so, I say that that yes, the Fed may might use it as an excuse to do something, but it really seems to me that the underlying drivers, people are so far apart about what's going to drive. Is it going to be productivity growth we have to foster and let's not kill an economy or is it the inflationary fear? Because let's not remember the re let's not forget the the reason why some people are hawkish is because they remember the 1970s. And you don't want to be wrong on this. And they'd rather heir on the side on being a tad too hawkish than to have had the supply shock, high inflation, and then say, "Hey, yeah, we a mission accomplished." And and because then it just gets more and more expensive, >> right? And you get stuck in the Arthur Burns cycle. And >> well, exactly. And so I'm not so sure whether the actual CPI matters so much. Of course, it matters, but it it there will be things in there to appease everybody. Now, back to to kind of the the core question. What about the tariffs and and services? Um, if the economy is slowing down, services should be coming cheaper. It's one of the reasons why I'm a tad pessimistic about the economic growth. And as far as tariffs are concerned, we have no idea, right? I mean, it's a people were hoarding inventory. We have a Supreme Court. If the Supreme Court acts as terrorists, we're going to have some other ways of imposing terrorists. My own thought is that again, we have a midterm coming up, it's in the administration's interest to have some calm come into this environment and so we might get more clarity. Also, obviously, we're down from these very high tariffs that were quote unquote just negotiating pools. Um the other part I think we tend to neglect is the US economy is far more shielded from what's happening internationally than most other economies. We don't import all that much. Um somebody pointed out to me >> we don't manufacture so our exposure to the business cycle is less. Yeah. >> Yeah. And by the way somebody pointed out to me is it 18% of the economy is healthcare. Um so that may matter much more to to many people. Um and uh and so and we have an aging economy so so they they will consume more healthcare. Um I don't know how much you paid for for your little uh visit. [laughter] >> Oh two I mean we all pay too much for healthcare. Yeah. Yeah. The cost of a tooth uh extraction replacement folks is not cheap. Um, and I'm sorry to interject, but let me just ask you, this is too much of a sidetrack, so feel free not to answer this, but like personal opinion, the majority of health care spending in this country is not productive. Meaning unless it's being spent on, you know, preventative stuff that's keeping young workers in the game longer, we're basically, you know, most of our spending is on stuff people who are unwell, aged, whatever, and we're keeping them alive, which is notable, but we're we're not getting an economic return off of that. Um, so this whole thing of like measuring health care services as part of GDP, it's always bugged me because it's just like it's it's not really contributing to economic growth. >> Well, if we can keep you working here, maybe it does. The >> I mean, there is so much messed up with the healthcare here that it's the the the most recent initiative I think was one of the better ones. um the initiative that maybe people should be able to to buy their healthcare at Costos or Amazon. I think it is an absolutely terrible idea that people get their healthcare through their employer. And the reason why that's such a terrible idea is that it makes you dependent on your employer. If your health isn't good, you can't afford to quit. That's a terrible, terrible situation. And the other terrible thing about healthcare is that you have to renew it every year. That's just completely stupid. You you you should get your health care at birth, some subsidy for who have have conditions at birth, and then make it a personal responsibility to keep that up in life. And those who do pay a lower rate than those who do not. But of course, as you age, you're going to get more sick, right? And and that's why you pay in early. But if you do a reset every year, that's why you need to have all these pre-existing conditions exemptions, and you end up only getting healthcare when you're sick. I mean, none of that makes sense, right? um and and then they they the government comes to fix it and making it worse. Um so I mean that's that's a discussion that goes a little bit beyond today's above today's meeting here. >> But the you could get more efficiencies out of the system and I guess you could measure it. Um but um that's all of that is a discussion for another. >> Yeah. Yeah. Let's let's let's not go down there. All I was saying is is we we there's a lot of people that talk about as a good thing. Oh, healthcare is becoming a bigger part of the economy. I'm just like why why do we value that because it's not providing incremental growth but anyways we we'll talk about that later on. Okay. Uh, another important thing, another thing that caught my attention that Pal said is, um, hey, the the the labor market's cooling and and he said, hey, we're we're kind of in this awkward spot where risks to inflation are to the upside, but but risks to to unemployment or No, sorry. Uh, I think he said risk to deflation or inflation are to the downside, but risk to unemployment or to the upside. >> There we go. He managed to confuse everybody. But but basically, you know, he's like, "Look, we're we're we're we're kind of looking at he basically said, "Look, we're kind of looking at unemployment. We know it's going up. We're not that worried about it, and if you look at our projections, it's going to go down over the next couple years." Um, but then he said, uh, you know, our payrolls are running right now at about plus 40,000 a month, but, you know, we know that that that data is kind of murky, and so we put our own discount factor of about 60,000 a month on that. meaning we think kind of the real job growth is negative 20,000 a month. And I I like wow I I didn't realize the Fed thought that we were actually on a net loss uh for jobs right now. Um so a any reaction to that but but in general but also too like to me I I can to your point earlier I can make the bull case and the bear case for for the economy next year. You know, I can I can agree with the administration and all we're going to start getting the tailwinds of all their economic policies starting to fire on full cylinders and we'll have the the the the lag effect of the rate cuts kicking in and all that stuff, right? But I can also make a pretty gloomy outlook as well. But to me, it all hinges around what happens with unemployment. Um >> I Well, let me make the political case. Um people will blame AI for the job losses. They're already they will increasingly blame AI for driving up the electricity prices. Why? If they build a data center in downtown of my hometown, my electricity prices go up. And so politicians will try to and possibly succeed in in reducing growth in that that area. And uh to me that's that's a that's a risk factor. I think that's underappreciated in the in the growth. Um, obviously AI um might accelerate some outsourcing because you don't need entry- levelvel jobs for certain things, but I think the the reason why entry- level jobs are not abundant is because the is because of the minimum wage. I mean, California has the highest un unemployment rate, I believe, in the US. And it's because we've shot the the unemploy the the minimum wage to the roof. um basically means that you're if you don't have any skills that are marketable, you're not going to get a job, at least not legitimate jobs. Um you're driven to illegitimate activities where you don't have a minimum wage. Um and it's it's good intentions create issues rather than especially teenagers, right? Teen unemployment. It's a um I get it that living cost >> always graduate unemployment is the highest it's been in a long time. >> Yeah. and uh and it's but expectations are very high and and and of course the other problem is that it's way too expensive to live anywhere where there opportunities I mean what what we start seeing happening and I think that's going to be a trend for a while is that employers create corporate housing I mean it's a to enable it to people um >> but then but I mean that that's that's a dystopian future right that's back to the company store right where you're just >> you're just living in servitude that's in your future. Um, I'd rather go to the the the corporate store for to get a sandwich than get my free food at the company than getting healthcare from the company. Um, because that I think has has longerterm implications. >> What if you're depend on the company for everything in the future, right? That's Yeah. So, >> we are more dependent on the government for everything. Look at how many people are on on entitlements and whatnot, right? and try and we we're having huge fight of whether to reduce Medicare for some people that really don't need it. So, it's getting rid of benefits is just extremely extremely difficult. And that's part of this thing, of course, we we we have a generation now almost that that believes capitalism is all rigged and you can't blame them with all the bailouts. That's what they're thinking, right? Um and they want to just kill off ideas for growth and those are headwinds. I think that that might not happen next year, but um that's um those are headwinds every one of us can fight by arguing for for less regulation and allowing the free market to play a little bit bigger role. >> Yeah. Well, I I I think we're already seeing a lot of those headwinds politically uh as we're seeing a lot of the the the recent elections, you know, go more towards some of these progressive candidates that are trying to present an alternative to capitalism. Uh but that's again another discussion for a different day. So, Axel, um, in the remaining time we have left, uh, because I'd get shot if I didn't ask you about it, uh, I do want to talk about the action in the precious metals, most notably silver. Um, before we get there, is there anything else about the Fed's announcement today that I haven't asked you about that you think the audience should know about? >> I think we we covered a lot. I might filter some in as we talk about precious metals. And, uh, since you're from the silver state, we can talk about silver, too. >> Let's Exactly. Now that I'm here in the silver state, which is funny, I found out that uh Nevada is like one of I almost want to say the most largest gold producing regions in the world. Um and it's funny to me that it's called the silver state instead of the golden state, which your state is called. But we make more gold. We we mine a lot more gold than you guys do. >> Well, and and folks in IAD understand commodities. Folks in California don't. At least no longer. >> Yeah. Yeah. All right. Well, let's talk about silver. So, uh, this week silver, uh, had a I mean, it's been price breakout after price breakout, but a big one um, just blowing through $60 an ounce like it was nothing like it was tissue paper. And I believe uh, I'll check while we're talking here, but I believe it's up to these silver futures are up above $62. >> I will never forgive you for for quoting futures prices. It just >> Well, the reason why I do is because uh Yahoo Finance is excuse right next to each other. >> No excuse. You're supposed to be into the real thing. >> Yes. Okay. 61.86 on the spot. >> Yeah. >> Okay. So, on spot it still is almost at uh $62. And is is that a real time like like does that continue after the the stock market? >> Well, there's no liquidity. Um it's you should have seen Friday after Thanksgiving the market closed at 1 Eastern time and precious metals prices moved um significantly so but I mean what good is a price if there's no no liquidity um and so it's >> all I wanted to say is that as well as silver has done in the past couple days it has popped further post the FOMC uh release today it it is enjoying >> the volatility but the liquidity matted and everybody's happy. Yeah. >> Yeah. Okay. So, anyways, we we we've got this real- time breakout going on in silver. So, you as a precious metals afficionado, but also a gentleman who owns uh and controls a mining fund, uh what are you thinking about all this action? >> Well, it's uh it's an interesting world we live in, right? I mean, it's a we historically we have an easing cycle at the Federal Reserve. We have a fiscal deficit that's just tremendous given where we are in in in the recycling again. Um we have tariffs which in my view help precious metals because it increases pressure on the Federal Reserve as as deficits need to be financed more domestically because you're preventing the currency to to come into the country in the same degree. Um and notably and we've discussed it I believe a lot of the more fringe views in the in the precious metals communities are moving more towards mainstream and these markets are not very big and that's why you have these outsized returns and of course what differentiates silver from gold is one of the differentiations is that it has more industrial use and so when there is the thought of more economic pickup then silver can do extraordinary well in in comparison to to gold and so it's a obviously silver is notoriously volatile and that can reverse in a in a heartbeat. That's the one thing I like to caution. I had had a chat with somebody the other day. He said, "Oh, I convinced my brother to sell the stock portfolio and buy silver." And I can't give specific investment advice and I I I like silver. I like gold, but I I cannot by by censorship of my regulator can tell people, "Hey, sell all your stocks and buy silver." it's just orders of magnitude more volatile than the stock portfolio is and and so you just want to keep that in mind um if you were to do any such shifts and uh it's but in any case um we have these these commodity prices high and then the mining companies have done well but nothing compared to the profitability that these prices are suggesting and one of the things that's somewhat special in this environment is that while there have been cost pressures, they haven't been all that bad. Um, labor markets in in the mining industry are getting a little tighter, not as tight as they have been in previous markets, but the um especially the the good management teams are continuing to attract good talent. Commodity prices are well behaved. Mining is very energy intensive. Um, tax demands haven't been dramatic. Obviously, we've seen Mali for example and some other places where where governments want to have more taxes um as precious metals prices go up, [clears throat] but overall it's been a very very positive background. >> Okay. Um so very positive background although you just mentioned a few things there that made me think you're a little bit nervous about uh prices. >> I'm paid to be nervous. I am paid to be nervous. >> Okay. Um so it's we've clearly I mean there are different types of buyers in most markets but let's take the precious metals market. You you have the person concerned about purchasing power. You have the diversifier. You have the central banks. You also have the speculator. And the speculator was absent for several years busy with meme stocks, spaxs, crypto, whatever it may be. And the speculator has taken an interest again in in precious metals. And if you ask me whether I'm nervous, well, the speculator increases volatility. >> Yeah. >> And I it's just part of my job to remind people that volatility happens both on the upside and the downside. It feels much better on the upside. >> Absolutely. So on the speculator side of things, um that's recent as you were saying. Um and and this is how these cycles work, right? Is is the industry starts recovering. Um and and the people early people watch and get in and they ride, you know, the gains up until the point the speculators notice this and then they pile in and then then you get your overvaluations. Where where does your gut tell you we are on the speculator side of the story? You know, let's use innings. Um are we still in early innings here or do you have concerns that we might be in a late stage speculative run? >> It's very difficult to say. I would say we are somewhat in the middle probably on the speculative side. >> But I like to remind people also that Greenspan warned about irrational exuberance in 97. The bubble didn't burst in 2000. I'm mostly referring to AI. I don't think we're given where we are on precious metals. There's any bubble whatsoever in the mining side. Clearly some deals get funded that we have no interest in participating in. And in the bull market, a lot of deals get funded. And so, but whether that lasts for three months or five years, nobody knows. And and so it's difficult to assign an ending to that. I do believe that the la the large miners had some rough patches, but they are doing a few things to get their act together. It's part of the reasons why the large miners have performed well. >> Ultimately though, the large miners have an extremely difficult time growing. It's just that you can't find enough metal in the ground quickly enough, right? um to to and so what we're doing is we're looking for smaller companies that have catalyst beyond the price of the metal that that might warrant an upside um and >> because they're acquisition targets. >> Uh not just that, but because they are they're reaching a new phase of their growth. Um they're added to an index. They um >> okay, >> when when you solve when you get a permit, you you might get So there are other reasons why you might um you might get evaluation. and and so and we we see lots and lots of opportunities out there. Um and so in that sense I don't think we're in a bubble at all. Um now if it comes to the actual commodity um I might be my own echo chamber but I can rationalize why we are where we're here. Um clearly we've had a very positive year and uh it's it's anybody's guess whether next year will be as positive. If you take historic context, a lot of arguments can be that that we should, right? We the Fed is in an easing cycle, um economy might be slowing down, but hey, if we are in a growth cycle and the Fed is going to be tightening, um then maybe not. But if the Fed continues to be so what was harmful to especially the the small miners, but the commodity price in general to to the precious metals prices was to have the higher for longer environment, right? and that is high real interest rates. High real interest rates means you might get compensated for holding cash and that's harmful. So today real rates dropped. Um and the question is on the risk side what could get real interest rates to to move higher. um gridlock in Congress maybe cancelling all the the growth ideas but even with gridlock in Congress this administration has done a lot of things on the admin on the executive side where where they have done things anyway um but that's where that's where you want to focus on the risk side do will we have higher real interest rates I think those odds are pretty low but >> low zero >> and the market certainly seems to think they're low um Okay, so we only have a couple minutes left. So, uh, I want to ask you this question that I've been getting asked a lot, um, lately, and I just like you to clarify it for folks, Axel, because you're one of the guys that really understands this space well. Um, you have ETFs out there like ounce ETF that you were personally involved in creating that say that, uh, our ETF uh, holdings are are backed, you know, dollar for dollar with ounces, right? Um, I had I had heard and this is a long time ago, 15 10 15 years ago, oh, you don't want to hold ETFs like GLD because they're not fully backed by ounces. They own a lot of futures contracts and and therefore you've got counterparty risk. So, if the inventories got tight, you know, they might not actually be able to get enough ounces to fully back what's in the ETFs. Recently, I've gone and looked at their relatively recently, I've gone and looked at their perspectuses. I don't think that's the case, but can you can you just comment on the delta in like safety and security and affordability of the various precious metals ETFs or is this just a perception issue when they're all pretty much the same? >> I would love to do a separate program with you on that. I unfortunately I'm my hands are pretty much tied here in this venue to discuss that too much. >> Um the only thing I can say is that over I think 18 years ago, we looked at these very very closely and uh we decided to come out with a product that addresses a lot of these concerns. >> All right. [snorts] So, >> I can't but but I can't go any further into detail um whatsoever unfortunately. Um and uh what I can encourage people is to come to our website to learn more about what we're doing. Um and for those who don't know me, we we manage over three and a half billion in gold and gold mining. Um in both the physical but also in supporting mining companies. Um and then let's talk another time maybe specifically about those those physical gold details because there are there are fascinating things in there. I think they're very poorly understood. Um and uh and and yes they they serve a purpose and I think if used right some of them I think um offer of offer good value. >> Okay so I put your website here on the screen mercinvestments.com folks can go there to to learn more in real time. I don't want to get you in trouble, Axel, but if we come if you come on in a future time and we try to talk about this, can you I I >> if we if we focus a session on that, yes, I'll make sure we can. Yes. >> Okay, great. Uh and then I just want to put up your uh ex Twitter handle here so folks can follow you there as well. And for those listening, it's axelmer. Axel, we are right at the point where I told you I would let you uh exit. Uh so please uh feel free to go do that. Thank you so much. This has been a wonderful discussion. As always, folks, please thanks Axel in the live chat here. And don't leave just yet because I've got one last update for you. But Axel, you can leave right now and uh I'll catch up with you a bit later. But again, thanks so much for continuing to do this. All right. See you, buddy. Um all right, folks. So, um, I just want to remind everybody in case you you don't subscribe to my Substack or you haven't opened the email I sent out yesterday, but you probably seen me interview Andy Sheckchman on this channel uh quite frequently. I had Andy on last week. Um, we were talking about the the breakout that we had seen in silver back then. Um, but in the recent days of silver blasting above $60 an ounce, I reached out to him and said, "Hey, is there anything we can do for the Thoughtful Money audience, sort of in celebration of this milestone?" He said, "Absolutely. I'm happy to offer Thoughtful Money followers uh the exclusive special offer of buying junk silver from Miles Franklin, which is Andy's company, for a dollar under spot price. So, if that sounds like something that you'd be interested in exploring, uh, then just go to, uh, thoughtfulmoney.combygold, fill out the the form there. It's a it's a super short form. It'll take you like 30 seconds to fill out, probably not even that much. Uh, and then you can, uh, you know, get the details from Andy, uh, and whether or not you want to take advantage of that specific offer, too. He and his staff are there to, uh, address any questions or needs you might have about buying or storing precious metals in general. So, I just wanted to make sure that everybody was was aware of that opportunity. And if you want to go check it out, like I said, just go to thoughtfulmoney.com/bygold. Um, all right, folks. Thanks so much for joining on this. Um, I am planning on continuing uh to do these post FOMC release live streams with Axel. Um, but obviously I love to focus most on what you guys want me to do and do less of the things that you don't want me to do. from feedback that I've gotten uh continuously, it sounds like you guys really enjoy these sessions with Axel. But again, let me know in the live chat here or if you're watching the replay, let me know in the comments section below uh what you'd like me to do. But obviously, if you want more of this, we'll continue doing it. Um that being said, thanks so much for watching everybody. Uh if you can, please let Axel know how much you appreciate him coming on here by hitting the like button and then clicking the subscribe button below as well as that little bell icon right next to it. Um hope you all are doing well. Uh happy uh post $60 silver uh day to you and uh I look forward to talking to you guys again. Uh I think the next video coming out tomorrow is with Ted Oakley of Oxbow Advisors. Then we'll have Lance uh on the weekend. Uh so we got a lot of good content coming up. Thanks so much for watching everybody. We'll see you soon. Take care.
SPECIAL REPORT: Did The Fed Just Announce QE-Lite? | Axel Merk + Live Q&A
Summary
Transcript
and we should be live. Welcome to Thoughtful Money. I'm Thoughtful Money founder and your host, Adam Tagert. I thank you for joining us here for one of our regular post FOMC live streams to make sense of what the Federal Reserve just announced and what Fed uh Chair Jerome Pal discussed at his press conference. I am joined as usual by Axel Murk, head of Mercs and longtime Fed watcher. Uh he's I consider him to be a Fed expert. Axel, thank you so much for joining us again. >> Great to be with you and we can say that offline we managed to blame the Federal Reserve even for your tooth trouble. [laughter] >> Thank you. [gasps] So, a couple things folks. One, Axel kindly dressed up for me here, so give him props in the uh in the live chat there. Um, yes, I I won't go into it today. I probably will over this weekend's update, but yes, uh this is the first time I've been on camera on this channel uh after having lost a tooth this past weekend. Not fun. Uh, I'm not going to reveal which tooth it was. Uh, I may talk a little bit more restrained so you can't see it because it is visible. Um, but anyways, we'll worry about that for later days. Um, I'll also apologize too in my home studio here since it's my first winter in it. I'm realizing that there's some winter sun glare issues that I'm trying to deal with, but I clearly haven't solved yet. So, bear with me while uh hopefully in a couple minutes that that that glare goes away. But anyways, Axel, um, interesting. You know, it's starting to get interesting here at the Fed, uh, at these these post FOMC meetings. Um, uh, the Fed did cut by 25 basis points as the market was pretty confident it was going to. Um, but there were three descents to that decision, which I believe is the most that have been on the FM, the most desense the FOMC has experienced since 1988. So, a good long while. um you know almost 40 years I guess if I'm doing my ma my math right and uh here's the key question I have for you Axel I don't want to be misinterpreting this uh too uh too hyperbolically but the Fed did announce that they will be uh initiating purchases of basically T- billills going forward to the tune of about 40 billion a month for at least the next couple of months and they said well this is nothing out of the ordinary this is just to maintain an ample supply of reserves. Um, is this true? Is this just sort of business as usual stuff or is this kind of like foaming the runway? Is this like a QE light that is sort of, you know, getting everybody uh accommodated so that if the Fed really wants to start growing its balance sheet at at scale, it can do so. >> All of the above. Um, so Powell really doesn't mean to do QE, but he kind of has to because they have this ample reserve regime where they take down the balance sheet. They don't quite know where the limit is. At some point, you start having some tension the system and then they foam the runway which is means they add liquidity and that's ultimately what the market I believe has reacted to. Um, Powell may not want to do this as a quoteunquote policy tool, but of course it is. I mean, the market doesn't care what Powell says. The market cares what Powell does in that sense when it comes to QE. And and so, yes, they are initiating QE. They don't mean to do it to ease, but that's what it is. And they need to do it because they have this ample reserve regime. And just for for folks who are not so much into those details, the Federal Reserve used to set interest rates until the financial crisis um through interventions by the New York Fed. And they were buying and and selling, withdrawing liquidity, adding liquidity. And then at some point, Bernaki said, "Hey, let's make this much easier. We can just pay interest on reserves." And that required an act of Congress because that wasn't permissible before. And ever since then, the New York Fed definitely, and I've talked to several people there, they very much prefer it. They consider the the the previous method outdated. They say it only causes problems. You have a lot of stress for no advantage. Um, however, the ample reserve regime, I think the technical term is it sucks. And it sucks because politically it's a nightmare because you're literally paying banks billions, tens of billions in order to not use the money sometimes when you when you provide that liquidity. Um, and also the the the good what was good about the old regime is while it was a pain in the butt for the New York Fed to implement, they saw when there were problems in the system. Now they use BOME figuratively speaking to provide liquidity and the issue is that different participants in the markets are regulated differently and for them the pain point is different and so nobody knows where exactly that painoint is because you have overlapping at times contradictory regulations and so they just provide enough liquidity for everybody to be happy and that kind of works except we see it in the market reaction today if you don't need any other proof the market is very happy about it because the market loves liquidity now of course it doesn't mean everything is right with inflation unemployment or whatever it is but liquidity we have liquidity is what the market is reacting to and as long as Powell is the chair we will get that regime and by the way Powell is on the way out um there is only one person who said he wants to put an end to the ample reserve regime that's Kevin um not asset it's Kevin >> Walsh whether he'll do it is is another question but he has criticized that regime um very openly. >> So let's let's drill into that for a bit. So um as I said there were three descents I believe two that didn't want to cut and then there was surprise surprise uh Mirin um who said look we should do 50 right and um Mirin is definitely kind of on team Trump here very very visibly and Trump has basically told the market that he thinks pal successor uh he's chosen pal successor which is Kevin Hasset um I Trumping Trump, he could always change his mind here. So, we shouldn't take this as a full guarantee, but that's what the market is is now got a lot of confidence in. And and Hasset of late in the past couple days has said, "Hey, I think there's plenty of room here for the Fed to to stimulate still." So, it seems like Hasset will be probably leaning more the way that Mirin is. So as as much as you said PAL is likely to continue this more sort of accommodated you know foaming should we expect Hasset to to to be even more aggressive in that? >> Well Hasset pretty much when he was asked whether he would have been okay with a 50 point rate cut before the rate cut happened he said yes. So so he would have been definitely in the camp of of cutting. Um, when it comes to the new Fed share, I think the the actual rate matters less than the approach. And that's in part what I mean with the ample reserve regime quote unquote sucks. It's is the next Fed chair going to change the tool set that the Federal Reserve is using? Is the Fed going to retire some tools? And uh and uh indeed yes the market firmly believes it's going to be asset as you know I have favored Kevin Walsh because he's exactly the one who wants to get rid of many of these tools >> right it sounds like war should be the one to clean house most right >> and you just put the third top person on there Chris Waller Chris Waller is somebody who speaks his mind and who is who is the one who spoke up early against inflationary pressures he was willing to to switch course at the same time he is a traditionalist as far as kind of what the Fed does. And so the the structural issues wouldn't be addressed with it. Um they're all three, by the way, they're good economists. Um and and so the question is whether of course they can hurt those cats and and going back to the meeting today. Um several people including me would have been happy to have had more descents. Not because it would have changed the course of of history so much, but it would have made it in my view easier for the next Fed share. Um some people say might have been harder. But if if we've had had more descents even even than we had today, it would have signaled that it is not Hasset or Walsh or Waller or whoever it might be next Fed share. It is just the Fed that is very very divided. Um the other thing that is somewhat surprising is that these uh people reiterated what they've previously said at least two of them right. Um, one tradition at the Fed is you you express your descent and then says, "Okay, I've made my point and now I'm quiet and I go go with uh with the troops, right?" And and so we're definitely in the new era. The other thing um and sorry for for mixing this up here right the stages because we're talking about the Fed succession. Um there has been talk quite actively and and Hasset has offered as much to take not just the chairmanship but to takes take Powell's governorship. So context here is governors are appointed for 14 years. Very few governors stick around for the full 14 years but at the end of those 14 years somebody else is going to get another 14-year term. And uh Powell's term runs until um I think another two years or so. And so if asset or somebody else would were to take Paul's term and that would of course imply that Paul will step down from the Fed, everybody expects that um he he wasn't he was asked as much during the the the the um press conference today. He didn't answer that question because it wouldn't be appropriate. But it means that we would go through the same theater again in a year or so about whether indeed the uh the new chair is going to do his his job and then you really have pressure on that new person. Whereas if you give that person a slot that's open for several years then you you can have independence even a houseet who obviously some people will perceive to be political. >> Interesting. Okay. Uh, somebody here uh raised the question. I'm trying to see if I can pull it up here, but basically they said that after the cut was announced, uh, President Trump said, uh, here we go. Um, President Trump said, uh, well, they should have cut 50 basis points or 75 basis points. Can you just, you know, guesstimate for us what you think the reaction would have been if indeed the Fed had cut 50 or or 75? Would the market still be thrilled or you know with the 75 surprise basis point cut would the market start getting spooked thinking oh gosh the the Fed is seeing some some breakage in the system we haven't noticed yet? >> Well let me answer this way. The power Fed but also the banaki and the yellow Fed made it a point to not surprise the market whenever possible. And so even the the current rate cut, right, you had people come out and say, "Oh, this market thing about maybe not having a rate cut or this or that is all wrong. Powell didn't need to speak. He just sent his missionaries out to to make some statements." And by the time the meeting came about, it was over 90% likelihood in the market that we would have had a a 25 basis point cut. If we were under a different regime and had more surprises, then I can speculate on on on what might have happened. Um, in the current environment, it it seemed like almost zero chance um that that would have happened. And uh a lot of people, me included, don't think that's so healthy. Right? You you the the idea and the one thing we had, right, we had a lot of people come out, oh, I'm going to vote for 25 basis point cut. That is utterly inappropriate. You're supposed to come into a meeting with an open mind, look at the data, and then make a decision. Now, obviously, you could argue, hey, there aren't so many economic data. I've made up my mind already. But the moment you state it publicly, you're anchoring your own >> right >> um mindset and you make yourself much less flexible in a discussion. And so the new Fed chair, whoever it is, should get rid of this really, really bad habit. Now, I have talked to Fed officials and they say, "Well, the regional Fed presidents um they don't report to the Fed chair. They can do whatever they want, but the tone is set at the top and if if they get a scolding from the chair and saying, "Listen, we got to reform how we communicate." Um I think it will have an impact. And so all this talk about setting expectations before the meeting I don't think serves much good and and does a lot of harm. And so sorry for not answering the question but I don't think it would have been realistic. Uh the the market didn't react to the 25 basis point rate cut. I don't think it reacted to the QE much more than anything else. >> Right. >> The other thing of course we we haven't talked about is the the Fed said they're on pause now. So they they they are done and they look at the market and uh they he and then he emphasized that >> is that any different though than him just always saying we'll be data dependent. >> Yes. Because because the previous data dependency was that um unless something changes we'll cut again in in December. um it wasn't so clear and then it was made clear whereas now the data dependency is we really need to see something to to change our mind from from just holding off and I mean there there are a few things to be said here in the medium term they still expect inflation to be at 3%. That's really bad that the folks at the Fed don't think we can go out 2%. And by the way, for the current administration, that means that people will still be unhappy about prices. Um that the real wages are not able to keep up with that sort of movement. And then he said he expects the economy to be stronger. Um so that's a change in tone. Um which he may have said to counter this weight about the the um the 50 basis point rate cut. um folks who might have said so behind the scenes and at the same time he says that the labor market is somewhat softening and so he gets everything that he has um he was asked how he kind of squares all that and and he said oh um he thinks productivity growth is going to be strong in part because of AI of course there's some layoffs that come with it >> right >> that's very relevant because again some of the candidates to succeed Powell very much count on productivity growth One of the reasons why people want to have more rate cuts is because they believe that deregulation and other means that create productivity growth will allow a lower policy will allow more growth as less inflation. So Powell pretty much said, "Yep, I'm really on the dollar side. I don't want to be quite as aggressive as those folks, but I actually don't mind if asset is a little bit more aggressive here." I mean that's what I heard in between the lines here that he is kind of presenting the Fed on a silver plate to Hasset if that's if he wants to pursue a dobish policy. Okay. Um so I found it kind of interesting uh you know there's a lot of people I interview are concerned about a slowing economy. Some people are concerned about station. >> Pardon me. >> No kidding. Yeah. >> Yeah. Some people are concerned about uh unemployment continuing to rise next year. And we've had um I don't know if record levels but certainly um uh very elevated levels of corporate bankruptcies this year and and you know we're seeing a lot of layoff announcements. Now pal shared the Fed's projections and as you said he projected that economic that GDP would grow right grow from from this year to next year. He projected that inflation would come down right I think he said it's they're expecting something like 2.6% 6% by the end of of 2026 and 2% by the end of 27 essentially. So we're going to hit our 2% target within about two years. And unemployment, even though he talked about the labor market softening, the Fed's unemployment projections go down over the next couple years. So he's kind of projecting, I don't want to say necessarily Goldilocks, but like really kind of nice road ahead, right? Um, how do we >> And you do QE on top of that. You forgot to add that, right? >> And we might as well do QE because things are so good, >> right? Well, let's cut rates and do QE because everything's going to be so amazing. So, I guess my question for you here is and to in some slight defense of him, you know, he did reiterate a number of times we haven't had all the data we normally have, right? But um is he telling us what we want to hear or do you think the Fed and its army of PhDs actually believe this? >> I think he is the mouthpiece of the debating club from which he just emerged. That that was kind of what he took and how he squared the circles and how he was hurting the cats. remember just three months ago he I think was far more honest in the sense that he said some people have made an excellent case for more growth and some people have made an excellent case for for a more severe slowdown >> right and he was much more worried two uh meetings ago about the about the labor market and he started off by saying nothing's changed our outlook hasn't changed since October >> has changed is that we have no idea what the labor market looks like >> right But but nothing's changed since he was nervous, but now when he's talking it's like, oh, you know, yeah, it's cooling, but everything should be fine. >> Well, that that if you're asking me why we need a new Fed chair who has a little bit more of a framework. Um, by the way, what you said, he used the word feel, it doesn't feel inflationary. So, the Fed is based on feelings of the chair. And while that in some ways may always be the case, um I would much prefer a reaction function that's a mathematical formula. >> You you have said ever since I've known you. Y >> yes. Now um I think a reasonable person can make a very bullish case for next year for the growth and a reasonable person can make a very bearish case for next year on the growth. Um you can argue as the Fed appear to do that productivity growth is going to be there and the uh the big beautiful bill is going to provide a stimulus. Um there will be some good news in the springtime because a lot of people didn't adjust the withholdings on their their wages and they they're going to get some tax refunds and so who knows whether that's going to carry them through. You can make the negative case. You can say that um the tariffs got everybody to uh cut cost and that's why earnings look good. They have them hoard goods. Um they've had everybody spend a boatload of AI which gives everybody a shot in the arm. But now realism kicks in and maybe we don't need these most expensive chips. They are cheaper alternatives available than the Nvidia chips. And I'm not giving a a forecast here. the glass can be half empty pretty quickly and and so >> as far as I'm concerned, I'm an investor. I don't I don't have a crystal ball. I look in the world in terms of risks and what can happen. By the way, one thing we haven't touched on is in other parts of the world, they're starting to price in rate hikes. Not many, like half to one hike. Um but the ECB, two people have come out or so that said, "Oh, the next move is going to be a rate hike." Um and so there is a more cautious tone spreading except for the Fed where we're where we're battling over 25 versus 50 basis points cut. >> Right. And sorry to interrupt, but somebody actually did ask about the possibility of a hike because they compared this to a period in the 90s which had sort of three similar quarter basis points cuts like this and then the next uh move was a hike and pal basically said that's on none of our bingo cards at the moment. >> Well, it's not on his because he's going to be retired so he it's not his problem. Um but it's I mean the the honest answer is nobody has a clue. um they're obviously looking at at the data they have but what's lacking is a coherent framework which would allow us to to do some more robust testing against all this. Um the reaction of market is hey we got liquidity right. Yeah. And and so we will find out whether the the the next Fed share is going to have different marching orders, different priorities. And uh it's uh now presumably we'll continue to have some chiming in from the president because he just loves to chime in on monetary policy. Um >> well I think it benefits him to have the Fed be the the villain too, right? Well, not just him. Every president has has liked to to to blame the Fed when something goes wrong. Um it's a nobody quite understands the Fed. Um I had a discussion just uh I think last week and person asked me what's the difference between monetary and fiscal policy. This was an very intelligent 20some year old um woman um who is politically very active but had no idea what the difference was. And and if I may um because I don't want to presume anything um monetary policy is about the amount of money in an economy, the amount of credit, about interest rates, about money supply. What it is not about is allocating that money to specific groups. That is fiscal policy. That is in the realm of elected officials. I'm a purist on that. to me the Fed buying mortgage back securities should not be done by them because that is allocating money to the mortgage sector, >> right? But anything in that direction and of course the Fed has done a lot especially during the pandemic um steps on fiscal turf which then invites backlash and invites the folks on the fiscal side to use the Fed and abuse the Fed. Um, and by the way, to to just add to that, um, the low rates we've had for many years encourage the Fed to to initiate this reckless spending. And so there's a lot of spillover from monetary policy onto fiscal policy. >> Right. And teaching the fiscal side to be more disciplined is uh is very very difficult. >> Impossible. Yeah. Almost impossible. Let me just clarify. I've got so much to follow up on from what you've said in the past couple minutes, but let me just try to clarify this for folks. So the Fed monetary policy when the Fed quote unquote prints money what it's really doing is it's creating additional bank reserves. Correct. And well first off let's start there. Correct. >> It's it's providing it's literally providing liquidity. We are in an ample reserve environment. There is no more such a thing as there used to be um required reserves and excess reserves. We don't have that differentiation anymore. There are always reserves available. what what is not available sometimes if then you just have have have a screeching hold in in the system if credit is not available and so we are providing quoteunquote Apple reserves and uh the the the Fed can do that by buying securities in the market thereby providing cash so to speak to to to institutions >> yeah okay so a couple things I just wanted to clarify there was is one if the Fed is is um increasing reserves reserves, bank reserves. The banks can then lend those reserves out and and get money into the economy, but the banks don't have to. They can just sit on them and make free money, right? So, I just I just want to say in monetary policy, you can have times where things don't go exactly the way the Fed is hoping, right? Whereas fiscal policy, that money is getting directly injected into a part of the economy. So, fiscal policy tends to be more inflationary from an from an economy standpoint. Now QE what? Sorry, go ahead. >> Yeah, just to be confusing here, Milton Freriedman used to say that the reason we have inflation is because of deficits. Um if there weren't deficits, we wouldn't have inflation. And what the Fed can do, the Fed can stop um credit expansion by hiking interest rates so much to make it unattractive. That's really what they can do. But the Fed can keep an eye on on the amount of money in the economy, but it's not like they have a fine-tuned thing where they can exactly regulate what's happening. Um they have the Fed calls it a broad brush. They have a bazooka, right, with which they can do things. They can enable um more credit expansion and they what the Fed can do, they can destroy growth if that's what they choose to do. They can take the punch bowl away. So that is an option they have. But as you point out, they they can take the horse to the to the well, but they can't force the >> they can't force it to drink. Yeah. And all I'm trying to say is that fiscal policy tends to be more like instantaneously inflationary than monetary policy with the exception that uh monetary policy does tend to find its way into the financial markets uh more easily. And so therefore, you know, that's why the markets are jumping today, right? is is they're they're jumping because they know more liquidity is coming to the financial markets. [snorts] Um okay so uh a couple of things. So um uh pal and by by the way to just expand as to why let me put on my academic hat and I'm oversimplifying here. >> Um if you value a company it's the present value of future cash flows. >> Correct. >> And if interest rates are lower you're discounting future cash flows at a lower rate. So that prices should go higher. Yeah. >> And so the prices go higher and uh and and if you have a if you have great uncertainty about the future cash flow then this discount rate matters much much more because it it tends to whack around those motivations which and that's part of the reason why these growth companies high growth companies are have a greater interest rate sensitivity. >> Right. Right. Okay. Um, I'd love to keep talking about this and I have a few other questions on it, but we have limited time and folks, I should have mentioned this at the beginning, but we have to end here about five minutes before the hour. So, I'm going to try to cram as much as my questions in and as take as many of yours as we can. Um, so on inflation, let me just ask you this, Axel. Um, so we talked about how the Fed sees um the CPI coming down. Um, you know, there's a and he talked about he said um we're actually seeing services disinflate. um we're really seeing the remaining stickiness in inflation is in goods and and the vast majority of that's because of the tariffs. So he said, "Look, we're basically sitting on our hands at this point waiting to find out is this goods inflation kind of a one-off price increase or is it going to provide a sustained inflationary uh impulse into the economy?" Um and the honest answer is is TBD. We'll we'll we'll we'll wait and see how this plays out. question I have for you is CPI calculation is about 40% shelter. We know from more real-time sources than the the BLS uses in calculating the CPI that rents are disinflating, home prices and increasing number of places are disinflating or deflating. Um so personally from my cheap seats I'm taking the under on the CPI next year. Um, I think that 40% disinflating shelter component is going to going to really start acting as an anchor on CPI. Do you have a similar point of view or do you think that this tariff driven goods inflation could actually keep things elevated for longer? >> Well, I wonder whether that matters. Um, so let me [laughter] let me start out by saying it appears that Powell has been listening to Fox News because Bessant has been on Fox News um touting this thing that services inflation is down. So he's he's taking kind of the party line. Um if if if Hasset were to say it, it's party line, but if Bessant um but if but now Paul says it and it's all fine. Um the reason I wonder whether it matters is we have a midterm elections coming up and uh at the joy of being political um people care about the price of meat that people care about other things and and yes, rent is one of it, but of course the cost of housing is is more than the cost of end. It's it's the cost of insurance and other things. Um, by the way, when a lot of the reasons why we're increasing rently renters isn't just because we can't afford to buy the house. It's also because states have these ownorous regulations on um on insurance companies that less insurance is offered at higher prices and when you are a corporate buyer, you self-insure. then you don't care about those rules and that makes it more cost effective um for for big business to own your shelter and then lease it to you, >> right? >> To I think it's far >> plus they can borrow at cheaper rates and I mean there's just a whole other litany of advantages. >> So it it to me it really matters how the consumer feels and and currently the consumer feels rotten, right? I mean, maybe because they're listening too much to social media about everything that's bad in the world, but it used to be that the the party in power folks felt good and the party out of power felt miserable. Now, everybody feels miserable. Um, they keep spending though. And so, I say that that yes, the Fed may might use it as an excuse to do something, but it really seems to me that the underlying drivers, people are so far apart about what's going to drive. Is it going to be productivity growth we have to foster and let's not kill an economy or is it the inflationary fear? Because let's not remember the re let's not forget the the reason why some people are hawkish is because they remember the 1970s. And you don't want to be wrong on this. And they'd rather heir on the side on being a tad too hawkish than to have had the supply shock, high inflation, and then say, "Hey, yeah, we a mission accomplished." And and because then it just gets more and more expensive, >> right? And you get stuck in the Arthur Burns cycle. And >> well, exactly. And so I'm not so sure whether the actual CPI matters so much. Of course, it matters, but it it there will be things in there to appease everybody. Now, back to to kind of the the core question. What about the tariffs and and services? Um, if the economy is slowing down, services should be coming cheaper. It's one of the reasons why I'm a tad pessimistic about the economic growth. And as far as tariffs are concerned, we have no idea, right? I mean, it's a people were hoarding inventory. We have a Supreme Court. If the Supreme Court acts as terrorists, we're going to have some other ways of imposing terrorists. My own thought is that again, we have a midterm coming up, it's in the administration's interest to have some calm come into this environment and so we might get more clarity. Also, obviously, we're down from these very high tariffs that were quote unquote just negotiating pools. Um the other part I think we tend to neglect is the US economy is far more shielded from what's happening internationally than most other economies. We don't import all that much. Um somebody pointed out to me >> we don't manufacture so our exposure to the business cycle is less. Yeah. >> Yeah. And by the way somebody pointed out to me is it 18% of the economy is healthcare. Um so that may matter much more to to many people. Um and uh and so and we have an aging economy so so they they will consume more healthcare. Um I don't know how much you paid for for your little uh visit. [laughter] >> Oh two I mean we all pay too much for healthcare. Yeah. Yeah. The cost of a tooth uh extraction replacement folks is not cheap. Um, and I'm sorry to interject, but let me just ask you, this is too much of a sidetrack, so feel free not to answer this, but like personal opinion, the majority of health care spending in this country is not productive. Meaning unless it's being spent on, you know, preventative stuff that's keeping young workers in the game longer, we're basically, you know, most of our spending is on stuff people who are unwell, aged, whatever, and we're keeping them alive, which is notable, but we're we're not getting an economic return off of that. Um, so this whole thing of like measuring health care services as part of GDP, it's always bugged me because it's just like it's it's not really contributing to economic growth. >> Well, if we can keep you working here, maybe it does. The >> I mean, there is so much messed up with the healthcare here that it's the the the most recent initiative I think was one of the better ones. um the initiative that maybe people should be able to to buy their healthcare at Costos or Amazon. I think it is an absolutely terrible idea that people get their healthcare through their employer. And the reason why that's such a terrible idea is that it makes you dependent on your employer. If your health isn't good, you can't afford to quit. That's a terrible, terrible situation. And the other terrible thing about healthcare is that you have to renew it every year. That's just completely stupid. You you you should get your health care at birth, some subsidy for who have have conditions at birth, and then make it a personal responsibility to keep that up in life. And those who do pay a lower rate than those who do not. But of course, as you age, you're going to get more sick, right? And and that's why you pay in early. But if you do a reset every year, that's why you need to have all these pre-existing conditions exemptions, and you end up only getting healthcare when you're sick. I mean, none of that makes sense, right? um and and then they they the government comes to fix it and making it worse. Um so I mean that's that's a discussion that goes a little bit beyond today's above today's meeting here. >> But the you could get more efficiencies out of the system and I guess you could measure it. Um but um that's all of that is a discussion for another. >> Yeah. Yeah. Let's let's let's not go down there. All I was saying is is we we there's a lot of people that talk about as a good thing. Oh, healthcare is becoming a bigger part of the economy. I'm just like why why do we value that because it's not providing incremental growth but anyways we we'll talk about that later on. Okay. Uh, another important thing, another thing that caught my attention that Pal said is, um, hey, the the the labor market's cooling and and he said, hey, we're we're kind of in this awkward spot where risks to inflation are to the upside, but but risks to to unemployment or No, sorry. Uh, I think he said risk to deflation or inflation are to the downside, but risk to unemployment or to the upside. >> There we go. He managed to confuse everybody. But but basically, you know, he's like, "Look, we're we're we're we're kind of looking at he basically said, "Look, we're kind of looking at unemployment. We know it's going up. We're not that worried about it, and if you look at our projections, it's going to go down over the next couple years." Um, but then he said, uh, you know, our payrolls are running right now at about plus 40,000 a month, but, you know, we know that that that data is kind of murky, and so we put our own discount factor of about 60,000 a month on that. meaning we think kind of the real job growth is negative 20,000 a month. And I I like wow I I didn't realize the Fed thought that we were actually on a net loss uh for jobs right now. Um so a any reaction to that but but in general but also too like to me I I can to your point earlier I can make the bull case and the bear case for for the economy next year. You know, I can I can agree with the administration and all we're going to start getting the tailwinds of all their economic policies starting to fire on full cylinders and we'll have the the the the lag effect of the rate cuts kicking in and all that stuff, right? But I can also make a pretty gloomy outlook as well. But to me, it all hinges around what happens with unemployment. Um >> I Well, let me make the political case. Um people will blame AI for the job losses. They're already they will increasingly blame AI for driving up the electricity prices. Why? If they build a data center in downtown of my hometown, my electricity prices go up. And so politicians will try to and possibly succeed in in reducing growth in that that area. And uh to me that's that's a that's a risk factor. I think that's underappreciated in the in the growth. Um, obviously AI um might accelerate some outsourcing because you don't need entry- levelvel jobs for certain things, but I think the the reason why entry- level jobs are not abundant is because the is because of the minimum wage. I mean, California has the highest un unemployment rate, I believe, in the US. And it's because we've shot the the unemploy the the minimum wage to the roof. um basically means that you're if you don't have any skills that are marketable, you're not going to get a job, at least not legitimate jobs. Um you're driven to illegitimate activities where you don't have a minimum wage. Um and it's it's good intentions create issues rather than especially teenagers, right? Teen unemployment. It's a um I get it that living cost >> always graduate unemployment is the highest it's been in a long time. >> Yeah. and uh and it's but expectations are very high and and and of course the other problem is that it's way too expensive to live anywhere where there opportunities I mean what what we start seeing happening and I think that's going to be a trend for a while is that employers create corporate housing I mean it's a to enable it to people um >> but then but I mean that that's that's a dystopian future right that's back to the company store right where you're just >> you're just living in servitude that's in your future. Um, I'd rather go to the the the corporate store for to get a sandwich than get my free food at the company than getting healthcare from the company. Um, because that I think has has longerterm implications. >> What if you're depend on the company for everything in the future, right? That's Yeah. So, >> we are more dependent on the government for everything. Look at how many people are on on entitlements and whatnot, right? and try and we we're having huge fight of whether to reduce Medicare for some people that really don't need it. So, it's getting rid of benefits is just extremely extremely difficult. And that's part of this thing, of course, we we we have a generation now almost that that believes capitalism is all rigged and you can't blame them with all the bailouts. That's what they're thinking, right? Um and they want to just kill off ideas for growth and those are headwinds. I think that that might not happen next year, but um that's um those are headwinds every one of us can fight by arguing for for less regulation and allowing the free market to play a little bit bigger role. >> Yeah. Well, I I I think we're already seeing a lot of those headwinds politically uh as we're seeing a lot of the the the recent elections, you know, go more towards some of these progressive candidates that are trying to present an alternative to capitalism. Uh but that's again another discussion for a different day. So, Axel, um, in the remaining time we have left, uh, because I'd get shot if I didn't ask you about it, uh, I do want to talk about the action in the precious metals, most notably silver. Um, before we get there, is there anything else about the Fed's announcement today that I haven't asked you about that you think the audience should know about? >> I think we we covered a lot. I might filter some in as we talk about precious metals. And, uh, since you're from the silver state, we can talk about silver, too. >> Let's Exactly. Now that I'm here in the silver state, which is funny, I found out that uh Nevada is like one of I almost want to say the most largest gold producing regions in the world. Um and it's funny to me that it's called the silver state instead of the golden state, which your state is called. But we make more gold. We we mine a lot more gold than you guys do. >> Well, and and folks in IAD understand commodities. Folks in California don't. At least no longer. >> Yeah. Yeah. All right. Well, let's talk about silver. So, uh, this week silver, uh, had a I mean, it's been price breakout after price breakout, but a big one um, just blowing through $60 an ounce like it was nothing like it was tissue paper. And I believe uh, I'll check while we're talking here, but I believe it's up to these silver futures are up above $62. >> I will never forgive you for for quoting futures prices. It just >> Well, the reason why I do is because uh Yahoo Finance is excuse right next to each other. >> No excuse. You're supposed to be into the real thing. >> Yes. Okay. 61.86 on the spot. >> Yeah. >> Okay. So, on spot it still is almost at uh $62. And is is that a real time like like does that continue after the the stock market? >> Well, there's no liquidity. Um it's you should have seen Friday after Thanksgiving the market closed at 1 Eastern time and precious metals prices moved um significantly so but I mean what good is a price if there's no no liquidity um and so it's >> all I wanted to say is that as well as silver has done in the past couple days it has popped further post the FOMC uh release today it it is enjoying >> the volatility but the liquidity matted and everybody's happy. Yeah. >> Yeah. Okay. So, anyways, we we we've got this real- time breakout going on in silver. So, you as a precious metals afficionado, but also a gentleman who owns uh and controls a mining fund, uh what are you thinking about all this action? >> Well, it's uh it's an interesting world we live in, right? I mean, it's a we historically we have an easing cycle at the Federal Reserve. We have a fiscal deficit that's just tremendous given where we are in in in the recycling again. Um we have tariffs which in my view help precious metals because it increases pressure on the Federal Reserve as as deficits need to be financed more domestically because you're preventing the currency to to come into the country in the same degree. Um and notably and we've discussed it I believe a lot of the more fringe views in the in the precious metals communities are moving more towards mainstream and these markets are not very big and that's why you have these outsized returns and of course what differentiates silver from gold is one of the differentiations is that it has more industrial use and so when there is the thought of more economic pickup then silver can do extraordinary well in in comparison to to gold and so it's a obviously silver is notoriously volatile and that can reverse in a in a heartbeat. That's the one thing I like to caution. I had had a chat with somebody the other day. He said, "Oh, I convinced my brother to sell the stock portfolio and buy silver." And I can't give specific investment advice and I I I like silver. I like gold, but I I cannot by by censorship of my regulator can tell people, "Hey, sell all your stocks and buy silver." it's just orders of magnitude more volatile than the stock portfolio is and and so you just want to keep that in mind um if you were to do any such shifts and uh it's but in any case um we have these these commodity prices high and then the mining companies have done well but nothing compared to the profitability that these prices are suggesting and one of the things that's somewhat special in this environment is that while there have been cost pressures, they haven't been all that bad. Um, labor markets in in the mining industry are getting a little tighter, not as tight as they have been in previous markets, but the um especially the the good management teams are continuing to attract good talent. Commodity prices are well behaved. Mining is very energy intensive. Um, tax demands haven't been dramatic. Obviously, we've seen Mali for example and some other places where where governments want to have more taxes um as precious metals prices go up, [clears throat] but overall it's been a very very positive background. >> Okay. Um so very positive background although you just mentioned a few things there that made me think you're a little bit nervous about uh prices. >> I'm paid to be nervous. I am paid to be nervous. >> Okay. Um so it's we've clearly I mean there are different types of buyers in most markets but let's take the precious metals market. You you have the person concerned about purchasing power. You have the diversifier. You have the central banks. You also have the speculator. And the speculator was absent for several years busy with meme stocks, spaxs, crypto, whatever it may be. And the speculator has taken an interest again in in precious metals. And if you ask me whether I'm nervous, well, the speculator increases volatility. >> Yeah. >> And I it's just part of my job to remind people that volatility happens both on the upside and the downside. It feels much better on the upside. >> Absolutely. So on the speculator side of things, um that's recent as you were saying. Um and and this is how these cycles work, right? Is is the industry starts recovering. Um and and the people early people watch and get in and they ride, you know, the gains up until the point the speculators notice this and then they pile in and then then you get your overvaluations. Where where does your gut tell you we are on the speculator side of the story? You know, let's use innings. Um are we still in early innings here or do you have concerns that we might be in a late stage speculative run? >> It's very difficult to say. I would say we are somewhat in the middle probably on the speculative side. >> But I like to remind people also that Greenspan warned about irrational exuberance in 97. The bubble didn't burst in 2000. I'm mostly referring to AI. I don't think we're given where we are on precious metals. There's any bubble whatsoever in the mining side. Clearly some deals get funded that we have no interest in participating in. And in the bull market, a lot of deals get funded. And so, but whether that lasts for three months or five years, nobody knows. And and so it's difficult to assign an ending to that. I do believe that the la the large miners had some rough patches, but they are doing a few things to get their act together. It's part of the reasons why the large miners have performed well. >> Ultimately though, the large miners have an extremely difficult time growing. It's just that you can't find enough metal in the ground quickly enough, right? um to to and so what we're doing is we're looking for smaller companies that have catalyst beyond the price of the metal that that might warrant an upside um and >> because they're acquisition targets. >> Uh not just that, but because they are they're reaching a new phase of their growth. Um they're added to an index. They um >> okay, >> when when you solve when you get a permit, you you might get So there are other reasons why you might um you might get evaluation. and and so and we we see lots and lots of opportunities out there. Um and so in that sense I don't think we're in a bubble at all. Um now if it comes to the actual commodity um I might be my own echo chamber but I can rationalize why we are where we're here. Um clearly we've had a very positive year and uh it's it's anybody's guess whether next year will be as positive. If you take historic context, a lot of arguments can be that that we should, right? We the Fed is in an easing cycle, um economy might be slowing down, but hey, if we are in a growth cycle and the Fed is going to be tightening, um then maybe not. But if the Fed continues to be so what was harmful to especially the the small miners, but the commodity price in general to to the precious metals prices was to have the higher for longer environment, right? and that is high real interest rates. High real interest rates means you might get compensated for holding cash and that's harmful. So today real rates dropped. Um and the question is on the risk side what could get real interest rates to to move higher. um gridlock in Congress maybe cancelling all the the growth ideas but even with gridlock in Congress this administration has done a lot of things on the admin on the executive side where where they have done things anyway um but that's where that's where you want to focus on the risk side do will we have higher real interest rates I think those odds are pretty low but >> low zero >> and the market certainly seems to think they're low um Okay, so we only have a couple minutes left. So, uh, I want to ask you this question that I've been getting asked a lot, um, lately, and I just like you to clarify it for folks, Axel, because you're one of the guys that really understands this space well. Um, you have ETFs out there like ounce ETF that you were personally involved in creating that say that, uh, our ETF uh, holdings are are backed, you know, dollar for dollar with ounces, right? Um, I had I had heard and this is a long time ago, 15 10 15 years ago, oh, you don't want to hold ETFs like GLD because they're not fully backed by ounces. They own a lot of futures contracts and and therefore you've got counterparty risk. So, if the inventories got tight, you know, they might not actually be able to get enough ounces to fully back what's in the ETFs. Recently, I've gone and looked at their relatively recently, I've gone and looked at their perspectuses. I don't think that's the case, but can you can you just comment on the delta in like safety and security and affordability of the various precious metals ETFs or is this just a perception issue when they're all pretty much the same? >> I would love to do a separate program with you on that. I unfortunately I'm my hands are pretty much tied here in this venue to discuss that too much. >> Um the only thing I can say is that over I think 18 years ago, we looked at these very very closely and uh we decided to come out with a product that addresses a lot of these concerns. >> All right. [snorts] So, >> I can't but but I can't go any further into detail um whatsoever unfortunately. Um and uh what I can encourage people is to come to our website to learn more about what we're doing. Um and for those who don't know me, we we manage over three and a half billion in gold and gold mining. Um in both the physical but also in supporting mining companies. Um and then let's talk another time maybe specifically about those those physical gold details because there are there are fascinating things in there. I think they're very poorly understood. Um and uh and and yes they they serve a purpose and I think if used right some of them I think um offer of offer good value. >> Okay so I put your website here on the screen mercinvestments.com folks can go there to to learn more in real time. I don't want to get you in trouble, Axel, but if we come if you come on in a future time and we try to talk about this, can you I I >> if we if we focus a session on that, yes, I'll make sure we can. Yes. >> Okay, great. Uh and then I just want to put up your uh ex Twitter handle here so folks can follow you there as well. And for those listening, it's axelmer. Axel, we are right at the point where I told you I would let you uh exit. Uh so please uh feel free to go do that. Thank you so much. This has been a wonderful discussion. As always, folks, please thanks Axel in the live chat here. And don't leave just yet because I've got one last update for you. But Axel, you can leave right now and uh I'll catch up with you a bit later. But again, thanks so much for continuing to do this. All right. See you, buddy. Um all right, folks. So, um, I just want to remind everybody in case you you don't subscribe to my Substack or you haven't opened the email I sent out yesterday, but you probably seen me interview Andy Sheckchman on this channel uh quite frequently. I had Andy on last week. Um, we were talking about the the breakout that we had seen in silver back then. Um, but in the recent days of silver blasting above $60 an ounce, I reached out to him and said, "Hey, is there anything we can do for the Thoughtful Money audience, sort of in celebration of this milestone?" He said, "Absolutely. I'm happy to offer Thoughtful Money followers uh the exclusive special offer of buying junk silver from Miles Franklin, which is Andy's company, for a dollar under spot price. So, if that sounds like something that you'd be interested in exploring, uh, then just go to, uh, thoughtfulmoney.combygold, fill out the the form there. It's a it's a super short form. It'll take you like 30 seconds to fill out, probably not even that much. Uh, and then you can, uh, you know, get the details from Andy, uh, and whether or not you want to take advantage of that specific offer, too. He and his staff are there to, uh, address any questions or needs you might have about buying or storing precious metals in general. So, I just wanted to make sure that everybody was was aware of that opportunity. And if you want to go check it out, like I said, just go to thoughtfulmoney.com/bygold. Um, all right, folks. Thanks so much for joining on this. Um, I am planning on continuing uh to do these post FOMC release live streams with Axel. Um, but obviously I love to focus most on what you guys want me to do and do less of the things that you don't want me to do. from feedback that I've gotten uh continuously, it sounds like you guys really enjoy these sessions with Axel. But again, let me know in the live chat here or if you're watching the replay, let me know in the comments section below uh what you'd like me to do. But obviously, if you want more of this, we'll continue doing it. Um that being said, thanks so much for watching everybody. Uh if you can, please let Axel know how much you appreciate him coming on here by hitting the like button and then clicking the subscribe button below as well as that little bell icon right next to it. Um hope you all are doing well. Uh happy uh post $60 silver uh day to you and uh I look forward to talking to you guys again. Uh I think the next video coming out tomorrow is with Ted Oakley of Oxbow Advisors. Then we'll have Lance uh on the weekend. Uh so we got a lot of good content coming up. Thanks so much for watching everybody. We'll see you soon. Take care.