SPECIAL REPORT: Chaos At The Fed? Record Dissents In Powell's Last Meeting | Axel Merk
Summary
Fed Policy Shift: Expect a more rules-based and less communicative Fed under Kevin Warsh, with dot plots likely on the chopping block and a modestly hawkish tilt given elevated inflation and solid growth.
Oil Shock: The oil price spike is treated as a supply shock, tightening financial conditions; markets still price eventual easing in oil, but prolonged conflict or subsidies could trigger second-round inflation.
United States: The US economy is resilient and less oil-dependent, with strong business investment and large caps adapting supply chains—supportive for risk assets unless data materially deteriorate.
AI: A sustained AI-driven productivity boom is a central thesis, reshaping capex toward data centers and potentially allowing lower rates over time without stoking inflation.
Gold and Precious Metals: Near-term headwinds stem from higher real rates and tighter financial conditions, but central bank demand persists; policy responses to the oil shock could turn supportive.
Gold Miners: Despite rising energy costs (a significant share of opex), miners retain strong margins at today’s gold prices, offering attractive profitability versus other heavy-capex sectors.
Opportunities and Risks: Energy, infrastructure, and precious metals investing look more attractive in a world of higher upfront capex, while policy missteps and prolonged geopolitical tensions remain key risks.
No Specific Tickers: No individual stocks were substantively pitched; the focus was on macro themes across AI, energy, and precious metals.
Transcript
And we should be live. Welcome to Thoughtful Money. I'm Thoughtful Money founder and your host Adam Taggart, welcoming you here for another one of our special reports, processing the recent Federal Reserve release as well as the Jerome Powell subsequent press conference. Doing that for us as usual is Fed expert and watcher extraordinaire Axel Merk of the Merk Family of Funds at Merk Investments. Axel, how you doing? Good, good, good, good. If I hesitate for a moment, I'm We're talking here during market hours, right? A little bit after the FOMC meeting. And Powell is in fact still talking. And I just noticed some market moves that we'll dive into probably. But yes, all ready to talk about the Fed. And just to take a step back, the reason we care about the Fed is because not because we love what they what the nuances mean, but because they have the bazooka. They can move markets. It impacts what we do. So it's it's We're nerds for a reason. All right. Well, I got to preface today's conversation with both a big thanks and an apology to Axel. So, folks, we normally do this at 2:00 p.m. Pacific, 5:00 p.m. Eastern. We're doing it a few hours early today this time around just because of constraints I have in my schedule. And Axel was kind enough to agree to come on and do that even though he still hasn't listened to the full Q&A of the the Jerome Powell press conference. So there might even be some breaking developments as we talk here. Um But Axel, I appreciate you very much being willing to do that without having 100% of the information yet here. That being said, I think we've got the majority of it. And folks, I'm coming into this cold. I've had meetings all day. So I haven't really seen anything else except that A, the Fed kept things flat. So rates are unchanged. B, there I think were a record number of dissents this time. I don't even know what direction they were in. So hopefully Axel, you know. And then third, right before I hopped on here, I saw the odds of a rate cut in 2026 start plummeting on Polymarket. So that's all I know so far. What other gaps can you fill in here from what you've taken away? Well, we have a 48 and 1/2% chance of a rate hike by April of next year right now. So to just take that conclusion so to speak up front. Um yes, we had the one expected dissent to cut. And that was that was as in the past by Stephen Moore. Um but then we had three dissents. And what they they were okay with where the the rates were, but they did not approve of the easing bias that's persistent. Indeed, the the real the lead journalist of the Wall Street Journal, Nick Timiraos, that covers he wrote a long article earlier today. And he Um he I'm just looking here for the words. In the in the current statement and in the previous one, it says in consideration in considering the extent and timing of additional adjustments. So the word additional adjustments suggests that there will be cuts. And Powell was asked Um Why is that language in there? And he said, "Good question." And then he gave a really poor answer that it he didn't feel like there was any rush. The problem There are many problems with that statement. The first one is that it's forward guidance. And incoming Fed chair Warsh thinks forward guidance is a bad idea. This is a form of forward guidance. The second one is the world has changed dramatically so. And so the longer you keep it there, the more you kind of are in a corner and then you have to say, "Sorry, I didn't mean it." The reason why you don't want to take it out is that you don't want to shock the markets and go, "Yeah, let's keep everything as it is." But that's really the idea is why it's bad to put it in there in the first place. And so they shouldn't say stuff that they'll regret afterwards. Um And >> I guess Powell doesn't really care though cuz it's not him that's going to regret it, right? It's going to be Warsh's problem. >> so let's talk about it. So you said you you you haven't listened to it. So one piece of news that you may not have heard yet is Powell is not resigning. Um he's staying on. And there are a few things. So he's going to resign or his term as chair is going to come to an end. This was his last his last press So you know I'm getting earning Um censored here by my camera. The The question was whether he would give up his role as Fed chair as Fed governor because that term continues. And he had previously said he will give that up once the investigation into This was the criminal investigation into the the building project is over if it's completely over. And it is somewhat over but not completely over because it was handed over to the Federal Reserve's Inspector General. Then there was a statement made by the Justice Department that they reserved the right to reopen it and so forth. Uh long story short, Powell said he's not going to step down. And then he made it very And then he made it very clear about how important it is that there's no interference with the Fed. He explicitly mentioned that when there is a {quote} public official that is making public comments about Fed policy, he that is not what he considers interference with the Fed. So without mentioning Trump by name, Mhm. >> Trump's tweets he has absolutely no problems with. What he has a problem with is the Justice Department um imposing political pressure. And then he was asked, "Well, what about you not providing Trump with an opportunity to appoint another governor so that um the conservatives so to speak have the majority?" And he he said even before he was asked the question, he said um he would keep a low profile. There can only be one chair. He really only stays on to to make that point. Um and he says that a new chair will have their hands full to kind of get 19 people all to be on the same side. And he is not going to be an obstacle in that and he doesn't see it that he's interfering with any other process. Um but anyways, um that will make headlines obviously that he is not giving up his his position as Fed chair. Um he >> Sorry Sorry to interrupt Axel, but was was the impression I'm not giving it up yet? Or was the impression is is I'm not giving it up. I'm going to stay until the end of the term? He No, he's he's not giving it up until he is satisfied that the investigation is fully over in a trans in a in a transparent way. And so >> Okay. Okay. So So it's not it's not a rug pull on his part. He's just saying there's still some uncertainty here. I want to stick around to clear my good name. Well, it's it's it's not about his good name as he says, it's about the institution. He said that the Justice Department must stop doing this sort of stuff. It's not good for the institution. This is crucial. And uh and so forth, right? Yeah. Hey, do we Sorry to interrupt again, but do we have a sense of what Warsh thinks about this? Well, in during his nomination hearings, he he when asked, he said um he can't comment on it because he may well be a party to a lawsuit if he is takes that that position as Fed chair. Um and so he was dodging the question. Um he very firmly believes in Fed independence. And he will he will in whether or not Powell whether this was enough, the Justice Department saying they're going to stop or not. Mhm. That's for anybody to interpret. Powell decided to go all the way on the principle. Um whether that's excessive or not, reasonable people will disagree. But anyway, that's the the statement he's made and he has every right to to take that position. >> Yeah. But but it sounds like your gut thinks that Warsh is sympathetic to Powell's stance here. >> Well, absolutely. And I I mentioned to you this after before that Powell has really been trying to deliver the Fed on the silver platter. And I I haven't heard anybody else say that, but I truly believe that even even today um he was asked about communication strategy. And he said of course he's not going to tell kind of Warsh on on what to say and and how to do it. But he he said several things that um that he pretty much said it's it's going to be Warsh's Fed. And and if the communication strategy changes, he would welcome that. Right? I mean, he and without saying that whether he did a good job or bad job, last time he said that he tried to change it, didn't succeed because he couldn't get anybody on board. But he said he would see it as a positive. Every Fed chair has to find their own groove, has to do it their own way. And so previously in December, um Powell had talked about how a productivity boom could provide a room to lower rates. Again, that is a way to um to pave the way for for Warsh who has been very much firm on that point. And then then just a point on on all these dissents, you can interpret this in different ways. You can say the Fed presidents are speaking up that they're going to be independent and so Warsh can't bully them around and good luck to Warsh to do anything that that we don't like. You can see that. Or you can see it positively And terms of um supporting Warsh, saying this is forward guidance, we don't like it, Warsh doesn't like it, >> [clears throat] >> we stand up now to show you that we are on board with you. And and so it's probably a little bit of both. By all means, anybody who knows Kevin Warsh knows that on the one hand in his public speeches he has this this little provocative style. In in private and on a one-to-one basis, he is far more cordial and and cooperative. But yes, he wants to have several reforms done. He needs to get everybody on board. And it's it's going to be an interesting journey. Let's put it this way. I mean, change is difficult. And what Warsh has been talking about is he you need to get the Fed out of politics. And in many ways what Powell is doing by standing up is is part of that. Whether one needs to stay on to do it or not, I'm sure there are going to be some people give good good arguments either way. But this is it's a it's a I think the transition is about as as appropriate as it can be given the the circumstances that we have. And it's also high time that Powell comes in. Because the this this statement that that Powell made about why the easing bias contained is still in there was completely useless. He said, "Well, we don't want to rush things." When the data change, you change your opinion, right? And the data have changed. And and if the only thing you want to do is not tell the market to have a fit because you're getting rid of your easing bias, well, it doesn't help if it's if it's so late that the market has moved on. But that's been the Powell fit to be late on things, right? Yeah, well, it's too late now, right? Okay, so it sounds like you think Powell is is doing the gentlemanly thing here by just trying to give the Fed on a platter to to Warsh, not make too many crazy last-minute changes. Going to He's sticking around for other reasons, but he's sticking around, he's going to be a supporter of the new head. Um That said, it sounds like you think we should be positioning for a very different Fed dynamic going forward, at least in terms of these public interactions or these interactions with the public. First and foremost, I think you believe that the dot plot's going to go away, right? Cuz that's forward guidance. >> And and maybe even the press conferences or some of them. Okay. I was going to say I was going to ask if we're going to see less, but you think we might not see any. Well, we'll see some, yes. But yes, the dot plots are on the chopping block. I Powell a few weeks ago said that oh, I only wish we wouldn't publish them. This would be a time not to publish them. So then why do you publish them then? It's there's no nothing that other than institutional inertia, there's no requirement to have them. He was asked Warsh was asked during the nomination hearings the other day whether he'll commit to having a press conference after every meeting. And he did not commit. He said quite the opposite. He said that he didn't say I won't have a press conference. He don't remember the exact words that he said, but basically he said that the essence of what you say is is more important than the the quantity of what you say. And so I wouldn't be surprised if those press He he did commit that if if there is a press conference, he will take questions. That he did and add that. So So we'll we'll see what's going to come of that. The this entire notion of forward guidance >> but from what you've just talked about, what you expect, you applaud all that, right? That's that's going to to your long-standing criticism of the Fed by talking when it doesn't need to and The the proof is in today's dissents. The the proof is in today's dissents, right? This this this it this this this stupid words of additional adjustments, right? And the word additional is about that this confirms that we have an easing bias. And then that the world is changing and we don't have an easing bias anymore. So why is it that you have an easing bias? And part of that is that there is no quantitative formula, there is no reaction function that the market knows. That would be the far healthier approach, right? These are inputs. The other day somebody praised the ECB. I'm quite critical of the Lagarde Fed, but one of the things that the ECB has been doing is they've been publishing scenarios even in the current environment. They've been publishing scenarios. Oh, if Iran happens this way, this is what's going to happen and so forth. And so that's trying to to not give forward guidance, but to give the market idea as how will the Fed or the ECB react in coming data. I think the ECB is overdoing it because they're giving forecasts to the second decimal on certain which is which is again stupid in its own ways. But the idea is that you're not going to coerce the market into saying this is exactly what we're going to do. And then the just while we are on the topic here of of Warsh, a lot of the media coverage has been about whether he's going to cut rates because Trump wants him to cut rates. People should have paid attention to his nomination hearing where Warsh indicated, "Hey, inflation is a little higher than than we want to and there's additional work to be done." That is Fed speak for tighter policy, not for easing. And so it's Kevin Warsh is historically known as a hawk. Now, he does believe that AI is causing a productivity boom. Indeed, one of the things that Powell confirmed today, he said, "Looking at my cheat sheet, business investment is is is up. Businesses are doing well, profitability investments are going up. The areas that are not doing so great is real estate and then job gains are somewhat poor." But when job gains are poor, it means productivity is rising, right? If everything else is positive. Right. And he also didn't say I didn't listen to this, but I'm taking he didn't say that job losses were concerned. No. No. So he's not sounding an alarm on the job market. He he he talked about a strong economy and that inflation is elevated. That does not sound like a rate cut, but but the productivity gains tee things up for rate cuts down the road. And and Powell Warsh can't just storm in there and say, "Hey, we're going to cut rates." He needs to get everybody on board. So what he can do is he can he can portray his philosophy. And just as I to take a step back, um for those who don't eat monetary policy for breakfast, just like there are Democrats and Republicans on the Fed, there are folks who are in the so-called discretionary camp and in the rules-based camp. So the discretionary camp is what I call the debating club. That is the prevailing view historically anyway or past decades where folks like to have the freedom to make a decision at the meeting reading the coffee leaves at the moment. The other approach is the the rules-based world. That's the one where you have a reaction function, a Taylor rule. John Taylor in the 1990s had a very simple formula based on inflation unemployment, this is what the rate should be. Is that the predetermined reaction function? Yes, and there are many variations of that, but the school of thought is why not at the very least publish that and then explain why you deviate from that if you do. And because ultimately these guys want to have discretion even the rules-based ones. So they don't want to have completely a computer take over or AI take over on interest rates. And one of the things that's been happening because the discretionary camp has had the upper hand for an extended period, they've been somewhat condescending. They say, "Oh yeah, it's kind of nice that you do your academic talk here, but let the big guys take care of it. We'll take care of it, right?" And so now that is being turned upside down. Warsh is firmly in the rules-based camp. And he has a lot of other ideas that aren't all necessarily exactly rules-based, but um but that cultural and attitude change is quite possibly going to have some friction because the other guys are not just going to go away quietly. And in that sense, I think it's a healthy thing that that you've had four dissents. Only that these dissents are not breaking out with the first meeting that Warsh has, so that that there is a lively debate. People are standing up because one of the things that happened in your but one of the things you know and some of your viewers may know, we have Bill Poole as our senior economic advisor. He's the former St. Louis Fed president. He retired in the spring of 2008. He's worked with us since the summer of 2008. He was known as a periodic dissenter. And one of the things that he lament is that there are so many at the Fed that just don't put their foot down and speak up for their opinion. I mean, it's it's like anywhere else in in in society, right? There are some people who stand up for their views and some that just go with whatever the prevailing view is. And he he said you can you can measure the market reaction to speeches and those who put their foot down tend to have more impact in what they say, right? There's lots of people have opinions about the Fed. The market is not going to move based on the conversations we have right here, but if Jeremy Powell makes a statement, he moves the market. And so there are degrees of how much influence people have. And And so the the idea that there is a a discussion on substance, that's a good thing, right? And then having a discussion on some completely irrelevant topic, that's noise, right? There's plenty of that in social media. But um if there is a discussion on on the substance, I think that that's uh that's very very helpful. Okay. Did Did Powell just say something uh extraordinary and now your phone's blowing up here? Ac- actually, that is that is a journalist calling who wants my opinion on the Fed. So, but I um >> [laughter] >> The The previous one was the top of money audience, correct? Exactly. Exactly. >> Um all right. Well, lots of Lots of digging here. Yeah, lots of digging here. Thank you again for prioritizing us. Real quick, folks. Um humor here, name of a user, um reposted the stream. If you know how to do that, folks, please repost the stream as well. That helps it get out to as many people as possible, especially while we're still doing this live. Um so actually, you were mentioning that rate hike odds are increasing now. And is is that I mean, there's there's a bunch of reasons, right? You could you could as you just mentioned, you could say, "Well, look, the economy's strengthening, job market's not on fire. Um so that's not an environment for cutting. Um but also I think most people are saying, "Whoa, wait a minute. There's a global oil shock. That's inflationary. Um and the Fed may eventually have to hike to deal with the coming inflation from that. And we're obviously already seeing it in things like the price of gas. Um people are worried about what's going to happen with other key essentials like the price of food, the price of semiconductors going forward cuz of the you know, helium not making it out of the straits. Um how big of an issue was the Fed's remarks and the journalists' remarks today about the specter of inflation coming from this oil price shock? So, first of all, before the FOMC statement, about 75 basis points, 0.75% in in rate cuts had been priced out through next summer. And then after the statement as the as the press conference started, that kind of shifted to to some tightening there. Um And when you have a supply shock, as we know from the pandemic, providing a stimulus is inflationary, right? So, the right reaction is to get supply and demand back into into balance. Now, keep in mind that one of the better things to fix inflation is high prices. High prices are a cure against um inflation in the sense that when you have high oil prices, you're disincentivized um from using oil. It's demand destruction. So, it's it They are things that kind of move in tandem. Now, I think we're extremely fortunate to be in the US because the US is far less dependent on these high oil prices. Of course, we're all cursing when we drive by the gas station and see how how how expensive a gallon of of uh of of fuel is. And I think you had a guest on living in California. >> [laughter] >> Yes. Yeah, I've got a truck where we use diesel that uh we see that uh even more so. But but you had a guest on the other day uh talking about um freight saying that in a K-shaped economy, it's not like folks at the lower end of the income spectrum were doing things before that they have to cut back on. They're already at the minimum, right? And so they're not going to cut much on on activities. And at the higher end of the income spectrum, um yeah, it might be a nuisance and they might shift some spending. Uh but they still have At the end of the day, if you spend a few more bucks filling up your ga- your tank, it's not the end of the world. It's different in the in the rest of the world where there are true supply shortages. You have are some countries that have rationing. Um also, the one thing I think we you've mentioned in some of your interviews, but there going to be food shortages in part of the world. People can- cannot afford fertilizer in in some countries, Right. And just to be clear, this this will be on a delay factor because the planting season is now. They won't see the lower yield until say 6 months from now. But yes. Yeah. Yeah. Yeah. Yeah. Yeah. And And And so um there will be implications on how much of that spills over to the US economy is another question. We of course have this AI boom happening at the same time. Um my oldest son, he he works for one of the the big tech companies and I he he's not a finance guy, although he's good with math. And so I I know I've mentioned to him that oh, with Oracle and I'm not giving any investment advice here. Um some of the big bond funds companies, they cannot allocate more to it because there's some 300 billion or so of of debt that's being issued in in there alone. And they have to spread the risk. And he was just laughing. He's saying, "Well, it's all the same stuff, right? I mean, whether it's this company or that company, the data center, it's all the same clients, it's all the same thing, right? I mean, it's all the He didn't use the word contagion risk, but that's kind of what it is. But for the time being, we're riding that wave. And the um talking about California, um the Wall Street Journal had an article about the haves and the have not and the have mores. Um when you try to rent an apartment in San Francisco and you only have a normal income that's very high, you're competing with folks that make 30, 40,000 bucks a month for the same apartment. Um and so pushing up pushing up two-bedroom apartments, right? Prices. And so it's uh we're on the boom phase of of of that cycle. And of course, Silicon Valley is known for these boom-bust cycles. But um none of that suggests that rates should be cut in that in that space. Yeah. Um and again, I I guess just pithily or concisely, how concerned are you personally about the potential of of additional inflation, like an additional inflation wave coming ahead from all from from this oil price spike? Well, we we have it. I mean, the question is the wave is the the second-round effects, right? I mean, >> [sighs and gasps] >> for now, it's going to be airline prices going up or this or that. It's say if you look at what the market is pricing in, even though we are at very elevated level now. Now, um the the highest actually since the beginning of the war, the market is still pricing this in as a shock more than as a structural change. Right. Right. Yeah, the market seems to, you know, have no recession concerns, no major inflation >> Yes, but what what that what I'm referring to you specifically is the market is pricing in that oil prices will be coming down over the next couple of months. That there will be some resolution. I'm not saying that's necessarily correct, but that is what the market is pricing >> is what it is, right? And if we look at future oils contracts, it it is substantially lower than the 100 and whatever today. And even Bank of Canada had its interest rate decision this morning and the Tiff Macklem, the head of the Bank of Canada, um who is historically considered a hawk, he also said, "Let's wait this out" type of thing, right? Let's just keep rates where they are. Um Canada's of course an oil exporter on the other end of the spectrum. They're hit by by by tariffs, but um but will this last for longer? Yeah, I mean, Niall Ferguson has pointed out, nobody expected World War I to last 4 years. Nobody expected the Iraq war we had beginning of the the century to to last as many years as it did. Um you never know how how these things unfold. What I do know is that if this does persist, the odds of policy makers intervening to quote unquote help are increasing. And I say that is because the politically the political reaction to supply shock tends to be the economically bad thing to do. Uh think giving people subsidies to buy gasoline is is supporting demand, right? What you want to starve off demand. But politically, it's of course nice that you give people a subsidy when when they're hurting. And so if we do get in the US some substantial subsidies because this conflict lasts for an extended period, um that is an environment will have second-round effects on inflation. Uh it's the environment price of gold has been um somewhat muted here and and has had headwinds. Primary reason is precisely because it's priced in as a shock more than anything else and the Fed hasn't reacted or others by kind of having these second-round effects. But what um what what will need to happen is that um or what's been happening in the markets is that bond prices have been moving higher, but long-term inflation expectations haven't moved higher, which means in financial conditions are actually tighter. Um and so the real interest rates have been somewhat elevated. And that's been a headwind to the price of gold. Okay. I'm going to get to gold and silver with Axel in just a moment, folks, cuz I know there's a lot of interest in that. Um Axel, let me ask you this. So, uh >> [sighs and gasps] >> I'll try to I try to make this not a leading question. Um In your opinion, had the Iran war not occurred, what do you think the US economy would be doing? How how how healthy or sick would you think the US economy would be now? Well, what we have is a a stimulus from the tax refunds that was baked into the the tax bill from last year. Mhm. We had tariffs that were somewhat becoming predictable. Obviously, to say how tariffs exactly unfold is is very difficult because we seem to get new ones every day or others cancelled. Um we had and still have various initiatives on on deregulation um that boost economic growth. And so and then of course we have this the this amazing spending based on AI and we have a Fed chair coming in who all those equal suggested rates should be lower because the AI boom translates into a productivity boom and when you have a productivity boom um you can lower rates without being inflationary. And uh by the way, Kevin Warsh we talked about fiscal deficits much. He criticizes the Fed for having enabled massive spending with zero interest rates, but he says the only way you can get out of this is through growth. So you need to have growth to grow out of the debt. You can't do it through fiscal restraint or something like that happen. Um and so you need to enable it through growth and so in that that's one of the reasons I believe that Trump liked Warsh because he's made statements along those lines. And so we would have had a a Fed chair supportive of that. Obviously, well that he still has the same challenge that he needs to um herd the cats at the Fed, um but that would have been the bias so to speak. Um and so most of these things are are somewhat pro-growth. Now we have fewer workers because of the immigration policies. Um and uh and so the question is is there a limit to how much growth you can have, but the inflation indicators absent of the Iran war were not flashing red so to speak. And so this would have been a a path that would have been the likely one if I can kind of go through that counterfactual. Can I can I summarize what I think you just said? Don't put words in your mouth, but but absent the Iran war sounds like you think it would have been kind of a Goldilocks economy, right? Like economy growing pretty well, you know, no real serious challenges on the inflationary side or the jobs market side. Um Is that is that fair to say? >> I I I I wouldn't use the word Goldilocks because I I do think that the tariffs um we've talked about this before um do impact this machinery we call exorbitant privilege. Um long-term rates had been moving higher in my view because of tariffs in part and uh instead of getting the fiscal house in order, we put in put on pressure on the Federal Reserve. Um so there's certainly not everything is perfect. Um but it would have been a path to potentially lower the debt to GDP ratio, which is a stepping stone in the direction of fiscal sustainability. Mhm. But the deficit's also wide that we're talking about the second derivative here, right? We do need to do more than that. And so of course we have when you have fiscal when you have expansionary fiscal policy it tends to be a net positive for for equity markets. Right. But we were also tapering over of a bunch of things. So so equity markets probably would have been doing just fine in that sort of environment. But we're also promoting this >> But they're doing fine now, too. >> [laughter] >> Yes. Is it fair to say you think they would be doing better in that environment? It's difficult to say because I mean we had just a few days ago company is not even public, right? So I guess I can talk about it. But OpenAI giving a revenue warning. I mean in in the in the year 2000 that would have caused a a substantial downward revision and and yes, some stocks in that space were down, but not by much and so Not by much, yeah. the the the reason I wouldn't say Goldilocks is because there is some things in that in in in the AI spending side that do remind me of the late '90s and but it's very difficult to say whether we're in '98, '99, 2000 or or mid-2000s, right? >> Right. Well let let me tell you why I'm asking and I'm just trying to push this along cuz we still want to get to gold well before I lose you. Um So the administration had been saying coming into this year, "Hey folks, get ready, right? Get ready for the start of the golden age of America, right? We we did all this stuff 2025 to try to set ourselves up for success here. And you know, in in because of where I sit, I heard a lot of skepticism from a lot of folks including a lot in this audience saying, "Hey, that's all hot air. It's never going to happen." And coming into the start of this year, I think we started to see some outperformance to the upside economically. Not not in every metric, but but in a number and and you you referenced the interview I did recently with Craig Fuller who was about to put his head in the oven last November and is on the exact opposite end of the spectrum now, right? He's in the world of transportation, the industrial economy, the economy of real goods. He's saying he's never been more bullish given what he's seeing in his slice of the economy. Manufacturing revolution, transportation doing great. Not so much if you were a shipper trying to bring imports to America, but certainly exports and and trucking and and rails and stuff like that. Um and so my my the the point I just want to focus on here is um if you look at what's happening in the economy, right? That that's in spite of the war, right? That and and in many ways Craig said funnily enough the war actually helps a certain part of this economy as well. The markets, as you said, they're not worried. They don't seem that worried about higher inflation. They don't seem that worried right now about a recession being resulting from any demand destruction that's going on right now. And so um the reason why I bring all this up, Axel, is one I I'd love to get, you know, your continued thoughts on this, but also and I'm not I'm not saying this is going to happen, folks, but I'm just fo- you know, there was a certain cohort that was worried about the US economy coming into this year. There's definitely a certain cohort that says, "Oh my gosh, now because of the Iran war, I'm really worried about what's going to happen next in the economy." And what I'm saying right now is is those may be valid concerns, but we're not seeing signs of slowdown in the economic data yet and the market is thinking this is not going to happen, either. So one of the bits of advice I'm giving folks, Axel, which you don't have to agree with, is yes, there's reasons to be concerned. I can share your reasons about AI capital spending all day long. Um but until the data starts reflecting it it may not matter to the markets and if it doesn't matter to the markets, if you're investing upon these concerns, you might get steamrolled. So let me phrase it this way. There is an amazing strength in the US economy and it is extremely difficult for government to mess that up. Mhm. Um and the the reason I say that is that and and of course there there may be national security reasons for government intervention and the like, but it is business that grows an economy, not government. Mhm. And and we have to remind ourselves of that, right? So if we the the idea of government taking stakes in businesses has has been the case and is being proposed for airlines now and the like, um you always have to think about what's the next administration going to do with that ownership? That you're kind of in any boom you're placing the seeds for the next problems down the road. And so this economy is doing great despite the sort of things that one might have a problem with. And part of it is because it's just maybe not significant enough. Businesses want to make money and they find ways around the tariffs. They find ways to deal with it. By the way, there was a warning by um by some common effectors that hey, if the Mexican US trade deal is not renewed, then they're not going to sell any more low-end cars in the US anymore. Um they aren't any produced in the US and so we're going to stop exporting them from Mexico and importing them into the US. Um Will that affect the stock market? Who knows, right? It's the sort of thing that we can talk about and muse about and be upset about or like or dislike. And the same the same with the tariffs. Um Companies are extremely especially the larger ones. It's one reason presumably why the large companies have been performing particularly well. Large companies can adjust the procurement channels much faster than than some some small business can. And so there are ways to deal with a changing world order and and get done with it. And again, the US because it's a fairly self-contained economy is much better able to adjust many of these things. There was an article um I don't remember who to give credit for this the other day. Um Europe has all this regulation red tape on AI in the latest scheme of things. Well, red tape increases the barrier to entry, which means large companies benefit relative to small business. Right. And if you look at Europe >> the red tape? It's often funded by the big companies. Yeah, yeah, but but in relation to Europe, guess what? The big players are American players. So, the red tape Europe puts in place is hurting European companies, helping US companies. Right. So, I I mentioned that, right? Because there's plenty of stuff to complain about, but to translate that, what it means for your investment, the S&P 500, or or or like it it's it's not always an easy step. And and and yes, um um exorbitant privilege being had, but I'm not saying it's it's cut off immediately. Will have an implication for credit allocation, will have implication for for the relevance of the dollar, will have relevance for gold in the medium term. But these things are not necessarily things that that happen overnight. And and the the one thing where government does play a role is red tape. And the Trump administration has been reducing trade tape. And so, if you unleash the animal spirits, so to speak, and allow people to to conduct business, that's a good thing, right? And so, you can disagree with plenty of the administration, you can agree with plenty. Translating it to what actually matters, be that for interest rates or or or stock prices, is often a different matter. Okay. So, it it it don't put words in my mouth, but it sounds like you echo my caution of just being careful about how much you let your emotional concerns drive your investing philosophy from here. Definitely. And one of the challenges that the current environment has, and we we learned that in the zero interest rate environment, in the zero interest rate rate environment, quote unquote, everything went up. When everything goes up, you will not invest based on the best companies, but you will invest based on your political ideology. Right. >> And then you go to the next cocktail party and tout how your green investment or your AI investment or whatever it may have been has been going through the roof, and you feel particularly smart. Yeah, how brilliant you are. >> bear market to to get people to be humble again. Um and it will come, right? It will come. But it's a it's uh it's an interesting world. Okay. So, we're getting lots of questions about gold and silver. I want to make sure we do that topic justice before we have to hop. Folks, we're going to end on at the end of the hour here. So, we've got about 18 minutes left. Um actually, I just want to put up a just to kick off this discussion, I'm I'm going to put up uh a tweet that I put out a few hours ago. And again, you feel free to tear this apart apart if you disagree. Um I'll read it here real quickly. Um I said, "I haven't [clears throat] been tweeting much about it recently, but I am closely watching the price weakness in gold and silver. I'll admit I'm concerned about the technicals, you know, meaning the technical price action that we're seeing. Um but I still think this is mostly tied to the price of oil. Nations are having to sell assets like the precious metals to pay for more expensive oil. When the price of oil comes down, I expect precious metals prices to recover. Now, there was a lot of froth in the precious metal prices from those crazy highs they hit at the beginning of the year. Obviously, that had to come out, and both you and I were warning folks that that was likely. Um my guess though now is that what might be the more important factor in the price action of them is now this factor I mentioned about it's kind of like a global margin call, right? You're a country, you get you got to buy oil to run your economy. And uh to afford the more expensive oil, well, you got to sometimes sell things that do have value. And so, um we have seen, you know, central banks like Turkey um turning from net buyers to net sellers because of this. Um what's your general reaction to what I posted there, and I'm sure you have something much more smart to say in terms of what you think is actually driving the price action here? So, I think the World Gold Council just came out that net central banks have continued to to buy. Just want to throw that out there, um even though I agree with the kind of the gist of of what you you said there. Um the way I look at the price of gold in the current environment, while you're correct that it's been correlated to the price of oil, I frame it in terms of real interest rates. Um that when when the price of oil goes up, bond yields tend to go higher, but inflation expectations don't change. Um gold has this funny thing that correlation is not stable versus just about anything. And if there's one thing it's been more stable towards, it is real rates. Now, the folks >> And and that's been true over the long term, right? >> Yes, but it wasn't true much of last year. And that's why the critics of my statement point that out, and they said, "Well, there's a time for these correlations to move in and out." And you can of course >> let me let me just for let me just for 1 second for the the viewers. When you say it's correlated with real interest rates, the more the higher real interest rates go, then the correlation is the lower the price of gold tends to go. >> Yes. And and the way to think about it, gold is competing with cash in the long run. And if you are compensated for holding cash, when cash preserves its purchasing power, why would you hold gold? And and I have to say, every time I say that, nobody knows what inflation is going to be over the next 10 years. But they're market-based measures, and they do have an impact on the price of gold. The way I look at it is these are confidence measures in the Federal Reserve or central banks in other countries as to their ability to keep the purchasing power somewhat stable. And and so, in an oil shock, when overall, central banks are just doing nothing, that tightens financial conditions, and that is a headwind. And and I I mentioned that because that allows us to to keep our eyes open for these second-round effects, when you have massive intervention, or potentially anyway, by um by governments to to come to the rescue, to support things, to help people. And if and when that happens, I would think that the price of gold would react. Also, if we have such a bad oil shock that the job market is actually imploding, and we don't have a sign of that in the US anyway, that that will quite possibly get um central banks to react. And so, that's why I don't want to be too glued on the oil price, Mhm. but looking on the fundamental drivers of that. Um but it is correct, yes, that the high oil price and um has been correlated with with a lower a gold price of late. Okay. So, as a gentleman who professionally has a lot of exposure to where the precious metals prices head, um are you concerned here? You know, some people are asking questions here about, you know, like I said, I'm concerned about the technicals. Are we getting in danger of a a a period where we could get a technical breakdown? Um or sort of like my thesis, which I admit is is very general. I mean, this is a multifactorial thing, and I'm just picking one thing I'm looking at closely. But do you hang your hat on that there could be a macro development that could change direction here, like, oh, war ends tomorrow, price of oil comes down as a result, and that takes some of the pressure off the price of gold? So, just for context, for those who don't know me, we manage a little over 4 billion in gold and gold mining, and I Wait, is it 4 billion now? My goodness, that's gotten high. >> It's it's off the off the high, yes, with with the recent correction. But but yeah, >> Well, maybe off the high, but it's still that's a lot of growth, my friend, over the >> That is Oh, yes. Oh, yes. Oh, yes. It's been it's been quite a ride, and I personally own a substantial amounts of gold and and gold miners as well. Um I mean, the market says this this is not a structural change. This is short term. And so, if that's your belief, then it should be a buying opportunity. Um Is it Is it short term? Is it structural? Um I was on a call earlier today where somebody said, "It's always a good time to buy gold." Well, I guess so. Yeah. [laughter] That's of course one >> It's like CNBC was talking. Now, it it really depends on two things. It depends on anybody's investment process and anybody's risk profile, right? Um I just mentioned the miners. Um In a bull market, costs tend to go up. Costs have been very contained. This year, costs will go up. Um I heard today that 15% of gold miners uh uh is about energy. I would put it a little bit higher. I would put it closer to 20% in in many companies. But and so, the asset will impact margins, but the price of gold could come down substantially for these companies still to have amazing profitability. One of the things I like to mention is that in today's era, it used to be Marc Andreessen said that software is eating the world. He said that in 2011, just at the peak of the previous gold bull market. Now, AI is eating software, but the difference is the reason I mentioned it is AI is an investment where a substantial investment is needed, margins are uncertain. In mining, substantial investment is also needed. And in precious metals mining, the margins are fantastic right now. And so, suddenly, you have a much more level playing field in all that. And going back to the commodity, um yes, price of gold has been correlated to oil. I don't know what the next tweet is going to be of the president. Um I would think it's very difficult to resolve the underlying issues in the Middle East. If we do end up with a scenario where Iran is prevailing and is going to charge a toll for every ship that passes, it might be medium-term very negative for the the loss of influence of the US of this the signaling that it does, but as far as as the global economy is concerned, a million bucks for for a ship, it's >> It's not a dollar a barrel. It's a dollar a barrel. >> yeah. Exactly. And so and presumably at least in part that has to be absorbed by the local producers because the the price is set globally. So from that point of view, any way of resolving this is going to be positive and then we'll focus back on the other thing on fiscal sustainability and and all these other things are back back on the plate. And so in that sense any any headwind that we have is somewhat short-term. Now, the caution to that is we do get Kevin Warsh in, he is a hawk at heart regardless of what Elizabeth Warren is alleging these days. Um, and and so if he says, "Hey, we inflation is a little bit too high." that could also be a headwind that that's going to be a bit more pronounced. But at the other end of the spectrum, he is very much in favor of easing rates because of the productivity boom. And so I would think that's going to prevail. Um, I don't have a crystal ball. I do think the risk of the Iran war lasting longer, there's a good chance of that, but the markets will adjust to it. And it it's just that if we constantly think that it's short-term, then the folks that do the fracking are not going to ramp up production because it's they won't bother putting up open up wells, right? Right. That That said, we have seen a notable increase in production here in the US. We are at record levels now. Your point is right as we could have more, but there's a good-sized cohort that doesn't trust these prices yet and isn't going to take the investment yet. And there's also diversification, right? You don't want to be fully dependent on the Middle East to get your oil. So even if it opens up there, you might want to get more oil from the US. What I completely agree with that and I I've actually stuck my neck out and made that prediction publicly here, which is that Although although although in Europe there are some voices saying, "Hey, Mr. Trump wants Greenland. You don't know whether he's going to stop exports of oil for the next thing." So who knows? What whatever what whatever wherever you're going to go, you're going to have geopolitical risk, right? The Germans can do it. They fix it. They can do fracking in Germany. The reason you don't do fracking in Germany is because of the regulations, right? And so it's theoretically possible. Yeah. But I mean I'm just going to reiterate my prediction, which is whatever the percent of world oil that that transited through the Gulf prior to this conflict, some people are quoting 20%. Whatever it is, I'm saying it's going to be lower once this is resolved. Um, the the world is just going to diversify its risk. It'll still buy from the Gulf, but it just won't buy as much, right? And that's the same with other energy sources, right? I mean be that solar, be that nuclear, be that whatever, people are quote unquote incentivized to diversify and that's it might be only in years out, but that trend is those those incentives have been firmly put in place. And so I'm just curious on that. I mean Merk Investments I don't believe invests in the energy sector, but do you believe that the energy sector is becoming more interesting as an investment play exactly because of this? In other words, like this is highly likely driving people nations towards nuclear, right? Hey, let's fast track more of this stuff, right? >> coming back to the the point I I made a few minutes ago, it's a much more level playing field. Investing in AI is very different from investing in software. The beauty about software was the barriers to entry are low, profit margins are infinite. I'm exaggerating here, of course, but now you're in a world where whatever you invest in, you have to put up substantial investment and the margins in some of these areas are actually very attractive. And so suddenly infrastructure investing is attractive, energy investing is attractive, precious metals investing is attractive. And and so I think we will see a reallocation of investment dollars that that benefit each one of those areas. It doesn't mean they'll always go up, right? I mean if if you've had a surge in some companies because of the war in Iran, of course that can can do a U-turn as well. Yeah. Okay. All right. We only have a couple minutes left. So Axel, let's try to do this next section in 2 minutes or less. I just want to squeeze in a couple of user questions here. This user Purple Rain has asked two questions. Um, now we're going to see if Warsh can actually bring rates down. As you said, there might be some challenges there. But he's saying if the Treasury is transitioning debt to the short end, which they have been, it's not like a new thing. Um, can they successfully mute the long-term rates or allow long-term rates to fly? Um, do they basically don't need to worry about long-term >> If I if I'm not mistaken, the Fed wants to dump its long-dated portfolio onto Treasury and swap it with Treasuries. Um, and so there's going to be all kinds of ideas in in how they do it. >> Wait. Sorry, when you say dump its long-dated portfolio and put in the Treasuries, do you mean short-term Treasuries? Well, the Fed wants to get rid of the duration and wants to reduce the balance sheet. Well, the Fed in order to reduce the balance sheet, they need to get rid of that stuff. They don't want to sell the stuff because they don't want to impact the markets. So they're going to do some sort of swap with Treasury. Um, and so at least that's my understanding of a swap with the Treasury. Yes. Yes. Oh, okay. Not not not buy Treasuries, but do a deal with the US Treasury. Okay. >> sort of deal, right? And who knows what that's going to be. My own preference would be for the Fed to go back to its channel targeting system. That's not being debated too much. Um, there are lots of question of how it all is going to work. Um, many of these things are going to be behind the scenes work um, that Warsh has cut out for himself. Whether at the end of the day there's going to be a huge market impact is another question because ultimately the market should look at all this on a consolidated basis anyway. Okay. I'm going to pull up this question, which I think there might be a typo in, but if I'm misreading it, you you answer it correctly. Ken asks, the UAE, which just today announced that it was breaking away from OPEC, will they drive down He says production. >> But I think he means prices, right? I think the broader point is that OPEC being busted, so to speak, will will lead to lower prices medium-term. I think that's that's really the messaging that we have from here that the UAE is is saying, "Okay, we don't want to do OPEC anymore." And yes, they want to increase production. They of course are able to using a pipeline getting some exports done. Is this maybe the beginning of the end of OPEC in your eyes? Well, that's obviously how that's how the market has perceived it and I I think that may be correct. Okay. Although it is interesting market is perceiving it. Oil prices are up, not down, but I think that's because the latest Trump tweet storm >> also who knows how that's going to play out. There are many scenarios. Ultimately, it's in everybody's interest to to work together to keep that Strait of Hormuz free. Um, it seems like the only the US and Israel have have the willingness to potentially do it, but the US doesn't like to be shot at either by by going through the strait. So the embargo is the the the easier easier path for the time being. Yes. And I have strong thoughts about this. Not pushing any side, just strong thoughts on what I think the probabilities are, but given the lack of time, folks if you want to see what they are, just go to my X account. You can look there. All right. So Axel, again, thank you for being so willing to jump on, answer all these questions when Powell hadn't even finished speaking yet. Um, for folks that would like to follow you in your work, where should they go? merkinvestments.com. We have a newsletter that's free. Sign up at axelmerkinvestments on Twitter. I post especially on monetary policy, a few other things. I try to tease Adam sometimes on other topics, but I can't talk about products on social media, but feel free to reach out and merkinvestments.com has some some nuggets you don't want to miss. Okay. Folks, obviously if you want to talk to any of the financial advisors that Thoughtful Money endorses about anything Axel and I have talked about or just in general with your portfolio, feel free to schedule one of those conversations by filling out the short form there at thoughtfulmoney.com. These consultations are totally free. There's no commitments involved. It's just a service these folks offer. And then just a reminder, um, if you think this might be a good buying opportunity for the precious metals, you can go buy them from Thoughtful Money's endorsed precious metals solutions provider. That's um, Andy Schectman's firm Miles Franklin. And to do that, just fill out the very short form here at thoughtfulmoney.com/buygold. But just a reminder that Andy, while supplies last, is offering what he considers to be really just one of the best deals he's seen in his career. You can buy junk silver from him. This is the pre-1965 US coinage for $2 below spot, which he says he's really never seen that deal nor certainly not been able to offer it across his multi-decade career. So if that's something that interests you again, just go to thoughtfomoney.com/buygold. Axel, my friend, I think I'm getting you out of here in just an hour. Thank you so much for doing this. Thank you. All right, everybody else thanks so much for watching. Let us Please do me a favor real quick to let Axel know how much you appreciate him coming on and doing this every time. Hit the like button, click the subscribe button below, as well as that little bell icon right next to it. Let him know in the live chat here so he sees your good words before he leaves. And also if you're watching the replay, let him know in the comments section below. If you want us to keep doing this going forward, which I think most of you do, please let us know so we will continue to do it. And Axel, next time we do this, we will actually have Kevin Warsh to react to. So we won't be postulating anymore, we'll be able to start reacting in in the real time to it. Here we go. All right. All right, my friend. Thanks so much. Everybody else, thanks so much for watching.
SPECIAL REPORT: Chaos At The Fed? Record Dissents In Powell's Last Meeting | Axel Merk
Summary
Transcript
And we should be live. Welcome to Thoughtful Money. I'm Thoughtful Money founder and your host Adam Taggart, welcoming you here for another one of our special reports, processing the recent Federal Reserve release as well as the Jerome Powell subsequent press conference. Doing that for us as usual is Fed expert and watcher extraordinaire Axel Merk of the Merk Family of Funds at Merk Investments. Axel, how you doing? Good, good, good, good. If I hesitate for a moment, I'm We're talking here during market hours, right? A little bit after the FOMC meeting. And Powell is in fact still talking. And I just noticed some market moves that we'll dive into probably. But yes, all ready to talk about the Fed. And just to take a step back, the reason we care about the Fed is because not because we love what they what the nuances mean, but because they have the bazooka. They can move markets. It impacts what we do. So it's it's We're nerds for a reason. All right. Well, I got to preface today's conversation with both a big thanks and an apology to Axel. So, folks, we normally do this at 2:00 p.m. Pacific, 5:00 p.m. Eastern. We're doing it a few hours early today this time around just because of constraints I have in my schedule. And Axel was kind enough to agree to come on and do that even though he still hasn't listened to the full Q&A of the the Jerome Powell press conference. So there might even be some breaking developments as we talk here. Um But Axel, I appreciate you very much being willing to do that without having 100% of the information yet here. That being said, I think we've got the majority of it. And folks, I'm coming into this cold. I've had meetings all day. So I haven't really seen anything else except that A, the Fed kept things flat. So rates are unchanged. B, there I think were a record number of dissents this time. I don't even know what direction they were in. So hopefully Axel, you know. And then third, right before I hopped on here, I saw the odds of a rate cut in 2026 start plummeting on Polymarket. So that's all I know so far. What other gaps can you fill in here from what you've taken away? Well, we have a 48 and 1/2% chance of a rate hike by April of next year right now. So to just take that conclusion so to speak up front. Um yes, we had the one expected dissent to cut. And that was that was as in the past by Stephen Moore. Um but then we had three dissents. And what they they were okay with where the the rates were, but they did not approve of the easing bias that's persistent. Indeed, the the real the lead journalist of the Wall Street Journal, Nick Timiraos, that covers he wrote a long article earlier today. And he Um he I'm just looking here for the words. In the in the current statement and in the previous one, it says in consideration in considering the extent and timing of additional adjustments. So the word additional adjustments suggests that there will be cuts. And Powell was asked Um Why is that language in there? And he said, "Good question." And then he gave a really poor answer that it he didn't feel like there was any rush. The problem There are many problems with that statement. The first one is that it's forward guidance. And incoming Fed chair Warsh thinks forward guidance is a bad idea. This is a form of forward guidance. The second one is the world has changed dramatically so. And so the longer you keep it there, the more you kind of are in a corner and then you have to say, "Sorry, I didn't mean it." The reason why you don't want to take it out is that you don't want to shock the markets and go, "Yeah, let's keep everything as it is." But that's really the idea is why it's bad to put it in there in the first place. And so they shouldn't say stuff that they'll regret afterwards. Um And >> I guess Powell doesn't really care though cuz it's not him that's going to regret it, right? It's going to be Warsh's problem. >> so let's talk about it. So you said you you you haven't listened to it. So one piece of news that you may not have heard yet is Powell is not resigning. Um he's staying on. And there are a few things. So he's going to resign or his term as chair is going to come to an end. This was his last his last press So you know I'm getting earning Um censored here by my camera. The The question was whether he would give up his role as Fed chair as Fed governor because that term continues. And he had previously said he will give that up once the investigation into This was the criminal investigation into the the building project is over if it's completely over. And it is somewhat over but not completely over because it was handed over to the Federal Reserve's Inspector General. Then there was a statement made by the Justice Department that they reserved the right to reopen it and so forth. Uh long story short, Powell said he's not going to step down. And then he made it very And then he made it very clear about how important it is that there's no interference with the Fed. He explicitly mentioned that when there is a {quote} public official that is making public comments about Fed policy, he that is not what he considers interference with the Fed. So without mentioning Trump by name, Mhm. >> Trump's tweets he has absolutely no problems with. What he has a problem with is the Justice Department um imposing political pressure. And then he was asked, "Well, what about you not providing Trump with an opportunity to appoint another governor so that um the conservatives so to speak have the majority?" And he he said even before he was asked the question, he said um he would keep a low profile. There can only be one chair. He really only stays on to to make that point. Um and he says that a new chair will have their hands full to kind of get 19 people all to be on the same side. And he is not going to be an obstacle in that and he doesn't see it that he's interfering with any other process. Um but anyways, um that will make headlines obviously that he is not giving up his his position as Fed chair. Um he >> Sorry Sorry to interrupt Axel, but was was the impression I'm not giving it up yet? Or was the impression is is I'm not giving it up. I'm going to stay until the end of the term? He No, he's he's not giving it up until he is satisfied that the investigation is fully over in a trans in a in a transparent way. And so >> Okay. Okay. So So it's not it's not a rug pull on his part. He's just saying there's still some uncertainty here. I want to stick around to clear my good name. Well, it's it's it's not about his good name as he says, it's about the institution. He said that the Justice Department must stop doing this sort of stuff. It's not good for the institution. This is crucial. And uh and so forth, right? Yeah. Hey, do we Sorry to interrupt again, but do we have a sense of what Warsh thinks about this? Well, in during his nomination hearings, he he when asked, he said um he can't comment on it because he may well be a party to a lawsuit if he is takes that that position as Fed chair. Um and so he was dodging the question. Um he very firmly believes in Fed independence. And he will he will in whether or not Powell whether this was enough, the Justice Department saying they're going to stop or not. Mhm. That's for anybody to interpret. Powell decided to go all the way on the principle. Um whether that's excessive or not, reasonable people will disagree. But anyway, that's the the statement he's made and he has every right to to take that position. >> Yeah. But but it sounds like your gut thinks that Warsh is sympathetic to Powell's stance here. >> Well, absolutely. And I I mentioned to you this after before that Powell has really been trying to deliver the Fed on the silver platter. And I I haven't heard anybody else say that, but I truly believe that even even today um he was asked about communication strategy. And he said of course he's not going to tell kind of Warsh on on what to say and and how to do it. But he he said several things that um that he pretty much said it's it's going to be Warsh's Fed. And and if the communication strategy changes, he would welcome that. Right? I mean, he and without saying that whether he did a good job or bad job, last time he said that he tried to change it, didn't succeed because he couldn't get anybody on board. But he said he would see it as a positive. Every Fed chair has to find their own groove, has to do it their own way. And so previously in December, um Powell had talked about how a productivity boom could provide a room to lower rates. Again, that is a way to um to pave the way for for Warsh who has been very much firm on that point. And then then just a point on on all these dissents, you can interpret this in different ways. You can say the Fed presidents are speaking up that they're going to be independent and so Warsh can't bully them around and good luck to Warsh to do anything that that we don't like. You can see that. Or you can see it positively And terms of um supporting Warsh, saying this is forward guidance, we don't like it, Warsh doesn't like it, >> [clears throat] >> we stand up now to show you that we are on board with you. And and so it's probably a little bit of both. By all means, anybody who knows Kevin Warsh knows that on the one hand in his public speeches he has this this little provocative style. In in private and on a one-to-one basis, he is far more cordial and and cooperative. But yes, he wants to have several reforms done. He needs to get everybody on board. And it's it's going to be an interesting journey. Let's put it this way. I mean, change is difficult. And what Warsh has been talking about is he you need to get the Fed out of politics. And in many ways what Powell is doing by standing up is is part of that. Whether one needs to stay on to do it or not, I'm sure there are going to be some people give good good arguments either way. But this is it's a it's a I think the transition is about as as appropriate as it can be given the the circumstances that we have. And it's also high time that Powell comes in. Because the this this statement that that Powell made about why the easing bias contained is still in there was completely useless. He said, "Well, we don't want to rush things." When the data change, you change your opinion, right? And the data have changed. And and if the only thing you want to do is not tell the market to have a fit because you're getting rid of your easing bias, well, it doesn't help if it's if it's so late that the market has moved on. But that's been the Powell fit to be late on things, right? Yeah, well, it's too late now, right? Okay, so it sounds like you think Powell is is doing the gentlemanly thing here by just trying to give the Fed on a platter to to Warsh, not make too many crazy last-minute changes. Going to He's sticking around for other reasons, but he's sticking around, he's going to be a supporter of the new head. Um That said, it sounds like you think we should be positioning for a very different Fed dynamic going forward, at least in terms of these public interactions or these interactions with the public. First and foremost, I think you believe that the dot plot's going to go away, right? Cuz that's forward guidance. >> And and maybe even the press conferences or some of them. Okay. I was going to say I was going to ask if we're going to see less, but you think we might not see any. Well, we'll see some, yes. But yes, the dot plots are on the chopping block. I Powell a few weeks ago said that oh, I only wish we wouldn't publish them. This would be a time not to publish them. So then why do you publish them then? It's there's no nothing that other than institutional inertia, there's no requirement to have them. He was asked Warsh was asked during the nomination hearings the other day whether he'll commit to having a press conference after every meeting. And he did not commit. He said quite the opposite. He said that he didn't say I won't have a press conference. He don't remember the exact words that he said, but basically he said that the essence of what you say is is more important than the the quantity of what you say. And so I wouldn't be surprised if those press He he did commit that if if there is a press conference, he will take questions. That he did and add that. So So we'll we'll see what's going to come of that. The this entire notion of forward guidance >> but from what you've just talked about, what you expect, you applaud all that, right? That's that's going to to your long-standing criticism of the Fed by talking when it doesn't need to and The the proof is in today's dissents. The the proof is in today's dissents, right? This this this it this this this stupid words of additional adjustments, right? And the word additional is about that this confirms that we have an easing bias. And then that the world is changing and we don't have an easing bias anymore. So why is it that you have an easing bias? And part of that is that there is no quantitative formula, there is no reaction function that the market knows. That would be the far healthier approach, right? These are inputs. The other day somebody praised the ECB. I'm quite critical of the Lagarde Fed, but one of the things that the ECB has been doing is they've been publishing scenarios even in the current environment. They've been publishing scenarios. Oh, if Iran happens this way, this is what's going to happen and so forth. And so that's trying to to not give forward guidance, but to give the market idea as how will the Fed or the ECB react in coming data. I think the ECB is overdoing it because they're giving forecasts to the second decimal on certain which is which is again stupid in its own ways. But the idea is that you're not going to coerce the market into saying this is exactly what we're going to do. And then the just while we are on the topic here of of Warsh, a lot of the media coverage has been about whether he's going to cut rates because Trump wants him to cut rates. People should have paid attention to his nomination hearing where Warsh indicated, "Hey, inflation is a little higher than than we want to and there's additional work to be done." That is Fed speak for tighter policy, not for easing. And so it's Kevin Warsh is historically known as a hawk. Now, he does believe that AI is causing a productivity boom. Indeed, one of the things that Powell confirmed today, he said, "Looking at my cheat sheet, business investment is is is up. Businesses are doing well, profitability investments are going up. The areas that are not doing so great is real estate and then job gains are somewhat poor." But when job gains are poor, it means productivity is rising, right? If everything else is positive. Right. And he also didn't say I didn't listen to this, but I'm taking he didn't say that job losses were concerned. No. No. So he's not sounding an alarm on the job market. He he he talked about a strong economy and that inflation is elevated. That does not sound like a rate cut, but but the productivity gains tee things up for rate cuts down the road. And and Powell Warsh can't just storm in there and say, "Hey, we're going to cut rates." He needs to get everybody on board. So what he can do is he can he can portray his philosophy. And just as I to take a step back, um for those who don't eat monetary policy for breakfast, just like there are Democrats and Republicans on the Fed, there are folks who are in the so-called discretionary camp and in the rules-based camp. So the discretionary camp is what I call the debating club. That is the prevailing view historically anyway or past decades where folks like to have the freedom to make a decision at the meeting reading the coffee leaves at the moment. The other approach is the the rules-based world. That's the one where you have a reaction function, a Taylor rule. John Taylor in the 1990s had a very simple formula based on inflation unemployment, this is what the rate should be. Is that the predetermined reaction function? Yes, and there are many variations of that, but the school of thought is why not at the very least publish that and then explain why you deviate from that if you do. And because ultimately these guys want to have discretion even the rules-based ones. So they don't want to have completely a computer take over or AI take over on interest rates. And one of the things that's been happening because the discretionary camp has had the upper hand for an extended period, they've been somewhat condescending. They say, "Oh yeah, it's kind of nice that you do your academic talk here, but let the big guys take care of it. We'll take care of it, right?" And so now that is being turned upside down. Warsh is firmly in the rules-based camp. And he has a lot of other ideas that aren't all necessarily exactly rules-based, but um but that cultural and attitude change is quite possibly going to have some friction because the other guys are not just going to go away quietly. And in that sense, I think it's a healthy thing that that you've had four dissents. Only that these dissents are not breaking out with the first meeting that Warsh has, so that that there is a lively debate. People are standing up because one of the things that happened in your but one of the things you know and some of your viewers may know, we have Bill Poole as our senior economic advisor. He's the former St. Louis Fed president. He retired in the spring of 2008. He's worked with us since the summer of 2008. He was known as a periodic dissenter. And one of the things that he lament is that there are so many at the Fed that just don't put their foot down and speak up for their opinion. I mean, it's it's like anywhere else in in in society, right? There are some people who stand up for their views and some that just go with whatever the prevailing view is. And he he said you can you can measure the market reaction to speeches and those who put their foot down tend to have more impact in what they say, right? There's lots of people have opinions about the Fed. The market is not going to move based on the conversations we have right here, but if Jeremy Powell makes a statement, he moves the market. And so there are degrees of how much influence people have. And And so the the idea that there is a a discussion on substance, that's a good thing, right? And then having a discussion on some completely irrelevant topic, that's noise, right? There's plenty of that in social media. But um if there is a discussion on on the substance, I think that that's uh that's very very helpful. Okay. Did Did Powell just say something uh extraordinary and now your phone's blowing up here? Ac- actually, that is that is a journalist calling who wants my opinion on the Fed. So, but I um >> [laughter] >> The The previous one was the top of money audience, correct? Exactly. Exactly. >> Um all right. Well, lots of Lots of digging here. Yeah, lots of digging here. Thank you again for prioritizing us. Real quick, folks. Um humor here, name of a user, um reposted the stream. If you know how to do that, folks, please repost the stream as well. That helps it get out to as many people as possible, especially while we're still doing this live. Um so actually, you were mentioning that rate hike odds are increasing now. And is is that I mean, there's there's a bunch of reasons, right? You could you could as you just mentioned, you could say, "Well, look, the economy's strengthening, job market's not on fire. Um so that's not an environment for cutting. Um but also I think most people are saying, "Whoa, wait a minute. There's a global oil shock. That's inflationary. Um and the Fed may eventually have to hike to deal with the coming inflation from that. And we're obviously already seeing it in things like the price of gas. Um people are worried about what's going to happen with other key essentials like the price of food, the price of semiconductors going forward cuz of the you know, helium not making it out of the straits. Um how big of an issue was the Fed's remarks and the journalists' remarks today about the specter of inflation coming from this oil price shock? So, first of all, before the FOMC statement, about 75 basis points, 0.75% in in rate cuts had been priced out through next summer. And then after the statement as the as the press conference started, that kind of shifted to to some tightening there. Um And when you have a supply shock, as we know from the pandemic, providing a stimulus is inflationary, right? So, the right reaction is to get supply and demand back into into balance. Now, keep in mind that one of the better things to fix inflation is high prices. High prices are a cure against um inflation in the sense that when you have high oil prices, you're disincentivized um from using oil. It's demand destruction. So, it's it They are things that kind of move in tandem. Now, I think we're extremely fortunate to be in the US because the US is far less dependent on these high oil prices. Of course, we're all cursing when we drive by the gas station and see how how how expensive a gallon of of uh of of fuel is. And I think you had a guest on living in California. >> [laughter] >> Yes. Yeah, I've got a truck where we use diesel that uh we see that uh even more so. But but you had a guest on the other day uh talking about um freight saying that in a K-shaped economy, it's not like folks at the lower end of the income spectrum were doing things before that they have to cut back on. They're already at the minimum, right? And so they're not going to cut much on on activities. And at the higher end of the income spectrum, um yeah, it might be a nuisance and they might shift some spending. Uh but they still have At the end of the day, if you spend a few more bucks filling up your ga- your tank, it's not the end of the world. It's different in the in the rest of the world where there are true supply shortages. You have are some countries that have rationing. Um also, the one thing I think we you've mentioned in some of your interviews, but there going to be food shortages in part of the world. People can- cannot afford fertilizer in in some countries, Right. And just to be clear, this this will be on a delay factor because the planting season is now. They won't see the lower yield until say 6 months from now. But yes. Yeah. Yeah. Yeah. Yeah. Yeah. And And And so um there will be implications on how much of that spills over to the US economy is another question. We of course have this AI boom happening at the same time. Um my oldest son, he he works for one of the the big tech companies and I he he's not a finance guy, although he's good with math. And so I I know I've mentioned to him that oh, with Oracle and I'm not giving any investment advice here. Um some of the big bond funds companies, they cannot allocate more to it because there's some 300 billion or so of of debt that's being issued in in there alone. And they have to spread the risk. And he was just laughing. He's saying, "Well, it's all the same stuff, right? I mean, whether it's this company or that company, the data center, it's all the same clients, it's all the same thing, right? I mean, it's all the He didn't use the word contagion risk, but that's kind of what it is. But for the time being, we're riding that wave. And the um talking about California, um the Wall Street Journal had an article about the haves and the have not and the have mores. Um when you try to rent an apartment in San Francisco and you only have a normal income that's very high, you're competing with folks that make 30, 40,000 bucks a month for the same apartment. Um and so pushing up pushing up two-bedroom apartments, right? Prices. And so it's uh we're on the boom phase of of of that cycle. And of course, Silicon Valley is known for these boom-bust cycles. But um none of that suggests that rates should be cut in that in that space. Yeah. Um and again, I I guess just pithily or concisely, how concerned are you personally about the potential of of additional inflation, like an additional inflation wave coming ahead from all from from this oil price spike? Well, we we have it. I mean, the question is the wave is the the second-round effects, right? I mean, >> [sighs and gasps] >> for now, it's going to be airline prices going up or this or that. It's say if you look at what the market is pricing in, even though we are at very elevated level now. Now, um the the highest actually since the beginning of the war, the market is still pricing this in as a shock more than as a structural change. Right. Right. Yeah, the market seems to, you know, have no recession concerns, no major inflation >> Yes, but what what that what I'm referring to you specifically is the market is pricing in that oil prices will be coming down over the next couple of months. That there will be some resolution. I'm not saying that's necessarily correct, but that is what the market is pricing >> is what it is, right? And if we look at future oils contracts, it it is substantially lower than the 100 and whatever today. And even Bank of Canada had its interest rate decision this morning and the Tiff Macklem, the head of the Bank of Canada, um who is historically considered a hawk, he also said, "Let's wait this out" type of thing, right? Let's just keep rates where they are. Um Canada's of course an oil exporter on the other end of the spectrum. They're hit by by by tariffs, but um but will this last for longer? Yeah, I mean, Niall Ferguson has pointed out, nobody expected World War I to last 4 years. Nobody expected the Iraq war we had beginning of the the century to to last as many years as it did. Um you never know how how these things unfold. What I do know is that if this does persist, the odds of policy makers intervening to quote unquote help are increasing. And I say that is because the politically the political reaction to supply shock tends to be the economically bad thing to do. Uh think giving people subsidies to buy gasoline is is supporting demand, right? What you want to starve off demand. But politically, it's of course nice that you give people a subsidy when when they're hurting. And so if we do get in the US some substantial subsidies because this conflict lasts for an extended period, um that is an environment will have second-round effects on inflation. Uh it's the environment price of gold has been um somewhat muted here and and has had headwinds. Primary reason is precisely because it's priced in as a shock more than anything else and the Fed hasn't reacted or others by kind of having these second-round effects. But what um what what will need to happen is that um or what's been happening in the markets is that bond prices have been moving higher, but long-term inflation expectations haven't moved higher, which means in financial conditions are actually tighter. Um and so the real interest rates have been somewhat elevated. And that's been a headwind to the price of gold. Okay. I'm going to get to gold and silver with Axel in just a moment, folks, cuz I know there's a lot of interest in that. Um Axel, let me ask you this. So, uh >> [sighs and gasps] >> I'll try to I try to make this not a leading question. Um In your opinion, had the Iran war not occurred, what do you think the US economy would be doing? How how how healthy or sick would you think the US economy would be now? Well, what we have is a a stimulus from the tax refunds that was baked into the the tax bill from last year. Mhm. We had tariffs that were somewhat becoming predictable. Obviously, to say how tariffs exactly unfold is is very difficult because we seem to get new ones every day or others cancelled. Um we had and still have various initiatives on on deregulation um that boost economic growth. And so and then of course we have this the this amazing spending based on AI and we have a Fed chair coming in who all those equal suggested rates should be lower because the AI boom translates into a productivity boom and when you have a productivity boom um you can lower rates without being inflationary. And uh by the way, Kevin Warsh we talked about fiscal deficits much. He criticizes the Fed for having enabled massive spending with zero interest rates, but he says the only way you can get out of this is through growth. So you need to have growth to grow out of the debt. You can't do it through fiscal restraint or something like that happen. Um and so you need to enable it through growth and so in that that's one of the reasons I believe that Trump liked Warsh because he's made statements along those lines. And so we would have had a a Fed chair supportive of that. Obviously, well that he still has the same challenge that he needs to um herd the cats at the Fed, um but that would have been the bias so to speak. Um and so most of these things are are somewhat pro-growth. Now we have fewer workers because of the immigration policies. Um and uh and so the question is is there a limit to how much growth you can have, but the inflation indicators absent of the Iran war were not flashing red so to speak. And so this would have been a a path that would have been the likely one if I can kind of go through that counterfactual. Can I can I summarize what I think you just said? Don't put words in your mouth, but but absent the Iran war sounds like you think it would have been kind of a Goldilocks economy, right? Like economy growing pretty well, you know, no real serious challenges on the inflationary side or the jobs market side. Um Is that is that fair to say? >> I I I I wouldn't use the word Goldilocks because I I do think that the tariffs um we've talked about this before um do impact this machinery we call exorbitant privilege. Um long-term rates had been moving higher in my view because of tariffs in part and uh instead of getting the fiscal house in order, we put in put on pressure on the Federal Reserve. Um so there's certainly not everything is perfect. Um but it would have been a path to potentially lower the debt to GDP ratio, which is a stepping stone in the direction of fiscal sustainability. Mhm. But the deficit's also wide that we're talking about the second derivative here, right? We do need to do more than that. And so of course we have when you have fiscal when you have expansionary fiscal policy it tends to be a net positive for for equity markets. Right. But we were also tapering over of a bunch of things. So so equity markets probably would have been doing just fine in that sort of environment. But we're also promoting this >> But they're doing fine now, too. >> [laughter] >> Yes. Is it fair to say you think they would be doing better in that environment? It's difficult to say because I mean we had just a few days ago company is not even public, right? So I guess I can talk about it. But OpenAI giving a revenue warning. I mean in in the in the year 2000 that would have caused a a substantial downward revision and and yes, some stocks in that space were down, but not by much and so Not by much, yeah. the the the reason I wouldn't say Goldilocks is because there is some things in that in in in the AI spending side that do remind me of the late '90s and but it's very difficult to say whether we're in '98, '99, 2000 or or mid-2000s, right? >> Right. Well let let me tell you why I'm asking and I'm just trying to push this along cuz we still want to get to gold well before I lose you. Um So the administration had been saying coming into this year, "Hey folks, get ready, right? Get ready for the start of the golden age of America, right? We we did all this stuff 2025 to try to set ourselves up for success here. And you know, in in because of where I sit, I heard a lot of skepticism from a lot of folks including a lot in this audience saying, "Hey, that's all hot air. It's never going to happen." And coming into the start of this year, I think we started to see some outperformance to the upside economically. Not not in every metric, but but in a number and and you you referenced the interview I did recently with Craig Fuller who was about to put his head in the oven last November and is on the exact opposite end of the spectrum now, right? He's in the world of transportation, the industrial economy, the economy of real goods. He's saying he's never been more bullish given what he's seeing in his slice of the economy. Manufacturing revolution, transportation doing great. Not so much if you were a shipper trying to bring imports to America, but certainly exports and and trucking and and rails and stuff like that. Um and so my my the the point I just want to focus on here is um if you look at what's happening in the economy, right? That that's in spite of the war, right? That and and in many ways Craig said funnily enough the war actually helps a certain part of this economy as well. The markets, as you said, they're not worried. They don't seem that worried about higher inflation. They don't seem that worried right now about a recession being resulting from any demand destruction that's going on right now. And so um the reason why I bring all this up, Axel, is one I I'd love to get, you know, your continued thoughts on this, but also and I'm not I'm not saying this is going to happen, folks, but I'm just fo- you know, there was a certain cohort that was worried about the US economy coming into this year. There's definitely a certain cohort that says, "Oh my gosh, now because of the Iran war, I'm really worried about what's going to happen next in the economy." And what I'm saying right now is is those may be valid concerns, but we're not seeing signs of slowdown in the economic data yet and the market is thinking this is not going to happen, either. So one of the bits of advice I'm giving folks, Axel, which you don't have to agree with, is yes, there's reasons to be concerned. I can share your reasons about AI capital spending all day long. Um but until the data starts reflecting it it may not matter to the markets and if it doesn't matter to the markets, if you're investing upon these concerns, you might get steamrolled. So let me phrase it this way. There is an amazing strength in the US economy and it is extremely difficult for government to mess that up. Mhm. Um and the the reason I say that is that and and of course there there may be national security reasons for government intervention and the like, but it is business that grows an economy, not government. Mhm. And and we have to remind ourselves of that, right? So if we the the idea of government taking stakes in businesses has has been the case and is being proposed for airlines now and the like, um you always have to think about what's the next administration going to do with that ownership? That you're kind of in any boom you're placing the seeds for the next problems down the road. And so this economy is doing great despite the sort of things that one might have a problem with. And part of it is because it's just maybe not significant enough. Businesses want to make money and they find ways around the tariffs. They find ways to deal with it. By the way, there was a warning by um by some common effectors that hey, if the Mexican US trade deal is not renewed, then they're not going to sell any more low-end cars in the US anymore. Um they aren't any produced in the US and so we're going to stop exporting them from Mexico and importing them into the US. Um Will that affect the stock market? Who knows, right? It's the sort of thing that we can talk about and muse about and be upset about or like or dislike. And the same the same with the tariffs. Um Companies are extremely especially the larger ones. It's one reason presumably why the large companies have been performing particularly well. Large companies can adjust the procurement channels much faster than than some some small business can. And so there are ways to deal with a changing world order and and get done with it. And again, the US because it's a fairly self-contained economy is much better able to adjust many of these things. There was an article um I don't remember who to give credit for this the other day. Um Europe has all this regulation red tape on AI in the latest scheme of things. Well, red tape increases the barrier to entry, which means large companies benefit relative to small business. Right. And if you look at Europe >> the red tape? It's often funded by the big companies. Yeah, yeah, but but in relation to Europe, guess what? The big players are American players. So, the red tape Europe puts in place is hurting European companies, helping US companies. Right. So, I I mentioned that, right? Because there's plenty of stuff to complain about, but to translate that, what it means for your investment, the S&P 500, or or or like it it's it's not always an easy step. And and and yes, um um exorbitant privilege being had, but I'm not saying it's it's cut off immediately. Will have an implication for credit allocation, will have implication for for the relevance of the dollar, will have relevance for gold in the medium term. But these things are not necessarily things that that happen overnight. And and the the one thing where government does play a role is red tape. And the Trump administration has been reducing trade tape. And so, if you unleash the animal spirits, so to speak, and allow people to to conduct business, that's a good thing, right? And so, you can disagree with plenty of the administration, you can agree with plenty. Translating it to what actually matters, be that for interest rates or or or stock prices, is often a different matter. Okay. So, it it it don't put words in my mouth, but it sounds like you echo my caution of just being careful about how much you let your emotional concerns drive your investing philosophy from here. Definitely. And one of the challenges that the current environment has, and we we learned that in the zero interest rate environment, in the zero interest rate rate environment, quote unquote, everything went up. When everything goes up, you will not invest based on the best companies, but you will invest based on your political ideology. Right. >> And then you go to the next cocktail party and tout how your green investment or your AI investment or whatever it may have been has been going through the roof, and you feel particularly smart. Yeah, how brilliant you are. >> bear market to to get people to be humble again. Um and it will come, right? It will come. But it's a it's uh it's an interesting world. Okay. So, we're getting lots of questions about gold and silver. I want to make sure we do that topic justice before we have to hop. Folks, we're going to end on at the end of the hour here. So, we've got about 18 minutes left. Um actually, I just want to put up a just to kick off this discussion, I'm I'm going to put up uh a tweet that I put out a few hours ago. And again, you feel free to tear this apart apart if you disagree. Um I'll read it here real quickly. Um I said, "I haven't [clears throat] been tweeting much about it recently, but I am closely watching the price weakness in gold and silver. I'll admit I'm concerned about the technicals, you know, meaning the technical price action that we're seeing. Um but I still think this is mostly tied to the price of oil. Nations are having to sell assets like the precious metals to pay for more expensive oil. When the price of oil comes down, I expect precious metals prices to recover. Now, there was a lot of froth in the precious metal prices from those crazy highs they hit at the beginning of the year. Obviously, that had to come out, and both you and I were warning folks that that was likely. Um my guess though now is that what might be the more important factor in the price action of them is now this factor I mentioned about it's kind of like a global margin call, right? You're a country, you get you got to buy oil to run your economy. And uh to afford the more expensive oil, well, you got to sometimes sell things that do have value. And so, um we have seen, you know, central banks like Turkey um turning from net buyers to net sellers because of this. Um what's your general reaction to what I posted there, and I'm sure you have something much more smart to say in terms of what you think is actually driving the price action here? So, I think the World Gold Council just came out that net central banks have continued to to buy. Just want to throw that out there, um even though I agree with the kind of the gist of of what you you said there. Um the way I look at the price of gold in the current environment, while you're correct that it's been correlated to the price of oil, I frame it in terms of real interest rates. Um that when when the price of oil goes up, bond yields tend to go higher, but inflation expectations don't change. Um gold has this funny thing that correlation is not stable versus just about anything. And if there's one thing it's been more stable towards, it is real rates. Now, the folks >> And and that's been true over the long term, right? >> Yes, but it wasn't true much of last year. And that's why the critics of my statement point that out, and they said, "Well, there's a time for these correlations to move in and out." And you can of course >> let me let me just for let me just for 1 second for the the viewers. When you say it's correlated with real interest rates, the more the higher real interest rates go, then the correlation is the lower the price of gold tends to go. >> Yes. And and the way to think about it, gold is competing with cash in the long run. And if you are compensated for holding cash, when cash preserves its purchasing power, why would you hold gold? And and I have to say, every time I say that, nobody knows what inflation is going to be over the next 10 years. But they're market-based measures, and they do have an impact on the price of gold. The way I look at it is these are confidence measures in the Federal Reserve or central banks in other countries as to their ability to keep the purchasing power somewhat stable. And and so, in an oil shock, when overall, central banks are just doing nothing, that tightens financial conditions, and that is a headwind. And and I I mentioned that because that allows us to to keep our eyes open for these second-round effects, when you have massive intervention, or potentially anyway, by um by governments to to come to the rescue, to support things, to help people. And if and when that happens, I would think that the price of gold would react. Also, if we have such a bad oil shock that the job market is actually imploding, and we don't have a sign of that in the US anyway, that that will quite possibly get um central banks to react. And so, that's why I don't want to be too glued on the oil price, Mhm. but looking on the fundamental drivers of that. Um but it is correct, yes, that the high oil price and um has been correlated with with a lower a gold price of late. Okay. So, as a gentleman who professionally has a lot of exposure to where the precious metals prices head, um are you concerned here? You know, some people are asking questions here about, you know, like I said, I'm concerned about the technicals. Are we getting in danger of a a a period where we could get a technical breakdown? Um or sort of like my thesis, which I admit is is very general. I mean, this is a multifactorial thing, and I'm just picking one thing I'm looking at closely. But do you hang your hat on that there could be a macro development that could change direction here, like, oh, war ends tomorrow, price of oil comes down as a result, and that takes some of the pressure off the price of gold? So, just for context, for those who don't know me, we manage a little over 4 billion in gold and gold mining, and I Wait, is it 4 billion now? My goodness, that's gotten high. >> It's it's off the off the high, yes, with with the recent correction. But but yeah, >> Well, maybe off the high, but it's still that's a lot of growth, my friend, over the >> That is Oh, yes. Oh, yes. Oh, yes. It's been it's been quite a ride, and I personally own a substantial amounts of gold and and gold miners as well. Um I mean, the market says this this is not a structural change. This is short term. And so, if that's your belief, then it should be a buying opportunity. Um Is it Is it short term? Is it structural? Um I was on a call earlier today where somebody said, "It's always a good time to buy gold." Well, I guess so. Yeah. [laughter] That's of course one >> It's like CNBC was talking. Now, it it really depends on two things. It depends on anybody's investment process and anybody's risk profile, right? Um I just mentioned the miners. Um In a bull market, costs tend to go up. Costs have been very contained. This year, costs will go up. Um I heard today that 15% of gold miners uh uh is about energy. I would put it a little bit higher. I would put it closer to 20% in in many companies. But and so, the asset will impact margins, but the price of gold could come down substantially for these companies still to have amazing profitability. One of the things I like to mention is that in today's era, it used to be Marc Andreessen said that software is eating the world. He said that in 2011, just at the peak of the previous gold bull market. Now, AI is eating software, but the difference is the reason I mentioned it is AI is an investment where a substantial investment is needed, margins are uncertain. In mining, substantial investment is also needed. And in precious metals mining, the margins are fantastic right now. And so, suddenly, you have a much more level playing field in all that. And going back to the commodity, um yes, price of gold has been correlated to oil. I don't know what the next tweet is going to be of the president. Um I would think it's very difficult to resolve the underlying issues in the Middle East. If we do end up with a scenario where Iran is prevailing and is going to charge a toll for every ship that passes, it might be medium-term very negative for the the loss of influence of the US of this the signaling that it does, but as far as as the global economy is concerned, a million bucks for for a ship, it's >> It's not a dollar a barrel. It's a dollar a barrel. >> yeah. Exactly. And so and presumably at least in part that has to be absorbed by the local producers because the the price is set globally. So from that point of view, any way of resolving this is going to be positive and then we'll focus back on the other thing on fiscal sustainability and and all these other things are back back on the plate. And so in that sense any any headwind that we have is somewhat short-term. Now, the caution to that is we do get Kevin Warsh in, he is a hawk at heart regardless of what Elizabeth Warren is alleging these days. Um, and and so if he says, "Hey, we inflation is a little bit too high." that could also be a headwind that that's going to be a bit more pronounced. But at the other end of the spectrum, he is very much in favor of easing rates because of the productivity boom. And so I would think that's going to prevail. Um, I don't have a crystal ball. I do think the risk of the Iran war lasting longer, there's a good chance of that, but the markets will adjust to it. And it it's just that if we constantly think that it's short-term, then the folks that do the fracking are not going to ramp up production because it's they won't bother putting up open up wells, right? Right. That That said, we have seen a notable increase in production here in the US. We are at record levels now. Your point is right as we could have more, but there's a good-sized cohort that doesn't trust these prices yet and isn't going to take the investment yet. And there's also diversification, right? You don't want to be fully dependent on the Middle East to get your oil. So even if it opens up there, you might want to get more oil from the US. What I completely agree with that and I I've actually stuck my neck out and made that prediction publicly here, which is that Although although although in Europe there are some voices saying, "Hey, Mr. Trump wants Greenland. You don't know whether he's going to stop exports of oil for the next thing." So who knows? What whatever what whatever wherever you're going to go, you're going to have geopolitical risk, right? The Germans can do it. They fix it. They can do fracking in Germany. The reason you don't do fracking in Germany is because of the regulations, right? And so it's theoretically possible. Yeah. But I mean I'm just going to reiterate my prediction, which is whatever the percent of world oil that that transited through the Gulf prior to this conflict, some people are quoting 20%. Whatever it is, I'm saying it's going to be lower once this is resolved. Um, the the world is just going to diversify its risk. It'll still buy from the Gulf, but it just won't buy as much, right? And that's the same with other energy sources, right? I mean be that solar, be that nuclear, be that whatever, people are quote unquote incentivized to diversify and that's it might be only in years out, but that trend is those those incentives have been firmly put in place. And so I'm just curious on that. I mean Merk Investments I don't believe invests in the energy sector, but do you believe that the energy sector is becoming more interesting as an investment play exactly because of this? In other words, like this is highly likely driving people nations towards nuclear, right? Hey, let's fast track more of this stuff, right? >> coming back to the the point I I made a few minutes ago, it's a much more level playing field. Investing in AI is very different from investing in software. The beauty about software was the barriers to entry are low, profit margins are infinite. I'm exaggerating here, of course, but now you're in a world where whatever you invest in, you have to put up substantial investment and the margins in some of these areas are actually very attractive. And so suddenly infrastructure investing is attractive, energy investing is attractive, precious metals investing is attractive. And and so I think we will see a reallocation of investment dollars that that benefit each one of those areas. It doesn't mean they'll always go up, right? I mean if if you've had a surge in some companies because of the war in Iran, of course that can can do a U-turn as well. Yeah. Okay. All right. We only have a couple minutes left. So Axel, let's try to do this next section in 2 minutes or less. I just want to squeeze in a couple of user questions here. This user Purple Rain has asked two questions. Um, now we're going to see if Warsh can actually bring rates down. As you said, there might be some challenges there. But he's saying if the Treasury is transitioning debt to the short end, which they have been, it's not like a new thing. Um, can they successfully mute the long-term rates or allow long-term rates to fly? Um, do they basically don't need to worry about long-term >> If I if I'm not mistaken, the Fed wants to dump its long-dated portfolio onto Treasury and swap it with Treasuries. Um, and so there's going to be all kinds of ideas in in how they do it. >> Wait. Sorry, when you say dump its long-dated portfolio and put in the Treasuries, do you mean short-term Treasuries? Well, the Fed wants to get rid of the duration and wants to reduce the balance sheet. Well, the Fed in order to reduce the balance sheet, they need to get rid of that stuff. They don't want to sell the stuff because they don't want to impact the markets. So they're going to do some sort of swap with Treasury. Um, and so at least that's my understanding of a swap with the Treasury. Yes. Yes. Oh, okay. Not not not buy Treasuries, but do a deal with the US Treasury. Okay. >> sort of deal, right? And who knows what that's going to be. My own preference would be for the Fed to go back to its channel targeting system. That's not being debated too much. Um, there are lots of question of how it all is going to work. Um, many of these things are going to be behind the scenes work um, that Warsh has cut out for himself. Whether at the end of the day there's going to be a huge market impact is another question because ultimately the market should look at all this on a consolidated basis anyway. Okay. I'm going to pull up this question, which I think there might be a typo in, but if I'm misreading it, you you answer it correctly. Ken asks, the UAE, which just today announced that it was breaking away from OPEC, will they drive down He says production. >> But I think he means prices, right? I think the broader point is that OPEC being busted, so to speak, will will lead to lower prices medium-term. I think that's that's really the messaging that we have from here that the UAE is is saying, "Okay, we don't want to do OPEC anymore." And yes, they want to increase production. They of course are able to using a pipeline getting some exports done. Is this maybe the beginning of the end of OPEC in your eyes? Well, that's obviously how that's how the market has perceived it and I I think that may be correct. Okay. Although it is interesting market is perceiving it. Oil prices are up, not down, but I think that's because the latest Trump tweet storm >> also who knows how that's going to play out. There are many scenarios. Ultimately, it's in everybody's interest to to work together to keep that Strait of Hormuz free. Um, it seems like the only the US and Israel have have the willingness to potentially do it, but the US doesn't like to be shot at either by by going through the strait. So the embargo is the the the easier easier path for the time being. Yes. And I have strong thoughts about this. Not pushing any side, just strong thoughts on what I think the probabilities are, but given the lack of time, folks if you want to see what they are, just go to my X account. You can look there. All right. So Axel, again, thank you for being so willing to jump on, answer all these questions when Powell hadn't even finished speaking yet. Um, for folks that would like to follow you in your work, where should they go? merkinvestments.com. We have a newsletter that's free. Sign up at axelmerkinvestments on Twitter. I post especially on monetary policy, a few other things. I try to tease Adam sometimes on other topics, but I can't talk about products on social media, but feel free to reach out and merkinvestments.com has some some nuggets you don't want to miss. Okay. Folks, obviously if you want to talk to any of the financial advisors that Thoughtful Money endorses about anything Axel and I have talked about or just in general with your portfolio, feel free to schedule one of those conversations by filling out the short form there at thoughtfulmoney.com. These consultations are totally free. There's no commitments involved. It's just a service these folks offer. And then just a reminder, um, if you think this might be a good buying opportunity for the precious metals, you can go buy them from Thoughtful Money's endorsed precious metals solutions provider. That's um, Andy Schectman's firm Miles Franklin. And to do that, just fill out the very short form here at thoughtfulmoney.com/buygold. But just a reminder that Andy, while supplies last, is offering what he considers to be really just one of the best deals he's seen in his career. You can buy junk silver from him. This is the pre-1965 US coinage for $2 below spot, which he says he's really never seen that deal nor certainly not been able to offer it across his multi-decade career. So if that's something that interests you again, just go to thoughtfomoney.com/buygold. Axel, my friend, I think I'm getting you out of here in just an hour. Thank you so much for doing this. Thank you. All right, everybody else thanks so much for watching. Let us Please do me a favor real quick to let Axel know how much you appreciate him coming on and doing this every time. Hit the like button, click the subscribe button below, as well as that little bell icon right next to it. Let him know in the live chat here so he sees your good words before he leaves. And also if you're watching the replay, let him know in the comments section below. If you want us to keep doing this going forward, which I think most of you do, please let us know so we will continue to do it. And Axel, next time we do this, we will actually have Kevin Warsh to react to. So we won't be postulating anymore, we'll be able to start reacting in in the real time to it. Here we go. All right. All right, my friend. Thanks so much. Everybody else, thanks so much for watching.