SPECIAL REPORT: 'Deer In The Headlights' Fed Leaves Rates Unchanged | Axel Merk

Summary

• Fed Outlook: The FOMC delivered a dovish hold, emphasizing uncertainty from supply shocks and downplaying immediate policy moves while signaling potential communication reforms under a new chair.
• Oil Market Dynamics: The Iran conflict pushed near-term crude higher, but the forward curve still prices it as a shock rather than a structural shift, with U.S. and Canada seen as relative beneficiaries if buyers diversify away from the Gulf.
• Precious Metals: Despite a sharp pullback, gold is still up year-to-date; the selloff reflects a speculative shakeout and growth headwinds more than a broken thesis, keeping metals relevant as geopolitical and fiscal hedges.
• Gold Miners: Mining margins remain robust even with elevated energy costs, valuations are conservative versus spot gold, and institutional interest is broadening as gold gains “critical mineral” status in the U.S.
• AI vs. Mining: AI requires massive capex with uncertain end-margins, contrasting with mining’s current cash generation, shifting capital allocation debates versus the 2011 “software eats the world” era.
• Defense Spending: Drone warfare underscores rising global defense outlays and national-security-driven industrial policy, supporting the aerospace and defense complex while straining fiscal balances.
• Risk Management: Elevated uncertainty argues for controlled leverage, clear investment processes, and dry powder; markets may remain volatile into midterms with policy and geopolitical headline risk.
• Macro Cross-Currents: Private credit shows stress, the S&P flirts with its 200-day, and while long-term inflation expectations are anchored, energy pass-through and political responses pose risks.

Transcript

and we should be live. Welcome to Thoughtful Money. I'm Thoughtful Money founder and your host, Adam Tagert, welcoming you here for what's become a Thoughtful Money tradition, which is every time the FOMC comes out with its latest release uh and the subsequent Jerome Pal or Fed Chair press conference. I shouldn't say Jerome Pal because he won't be doing it for very often. Uh we have uh investing expert and longtime Fed watcher Axel Murk join us on the program to make sense of it for all of us. Axel, how you doing? >> Great. Well, that's a tall order to make sense of it. That you didn't ask me to come on for that. Mr. Powell said that he has no idea. So, how should we have any idea? So, um, this was an interesting one and well, I mean, interesting in theory, kind of not super interesting to listen to. Um, when so the Fed folks basically did nothing. Um, which was as expected. Um, but I I I titled this uh this live stream Axel um that that the deer in the headlights fed uh left rates unchanged. And I I use deer in the headlights for two reasons. Um, one with everything going on in the war in Iran and the spike in oil prices and whatnot, uh, you know, Pal was pretty transparent where he just said, "Hey, it's too soon to tell what the long-term implications or or the implications are going to be of all this." So, um, it's not flowing through too much into the Fed's models yet. They were very much seem to just be like, "Look, we don't know. We're we're going to need a little bit more data, so, you know, we don't have an awful lot to say about it right now." And then secondly, this was Pal's penultimate um press conference. You know, he's he's out in a couple of months. >> Maybe maybe >> well, he may Yeah. Well, yeah, exactly. I think he you think he said he he'll stick around until Worsh is um or he's happy to stay in the in the chair until Worsh is officially approved. Um and then he also said he's planning on sticking around until you know as a member of the FOMC uh until at least until the um investigation into the you know potential uh misuse of funds uh that have been that's been swirling out there is is put to bed in one way or the other. So anyways, but the Fed, you know, basically just saying, you know, in many ways like look, there's just a lot we don't know right now and so we're not changing much. So beyond that, Axel, what did you take from today? Well, one of the things that comes out are these economic projections and uh he put a disclaimer on there saying, "Oh, if there was one time several of the FMC members said that we don't want to put it out, it's this time, >> right? If we could skip one, we'd want to skip this one." Yeah. >> Yes. Except he doesn't mention of course they can skip this one. There is no requirement to publish it. Indeed, I very much hope that one of the reforms Kevin Bush will introduce to get rid of those economic projections because they're not helpful for anything. But um more on substance, the market of course expected them to do nothing and just before we dive too much into it um as a reminder, the reason we care about the Fed is because they control the bazooka. Um otherwise all this wonderful talk and is is irrelevant. The good news is if there is good news about the Iran war, they are kind of delegated to the background because that is not what is driving the market right now. >> And importantly, the Fed appears to recognize that. Now, the positive way of phrasing it is they're dis they're disciplined. They're not doing anything. The more critical interpretation is they have delight and they don't know they don't actually have anything that they know how to do. Overall, um, many observers said this was a dovish hold because they could have been much much tougher because inflation has been moving higher. Inflation has been persistently high. By the way, one of the things Kevin Walsh has persistently criticized is we don't even ourselves have a target to get down to the 2% level anytime soon. And that's that's no good. That's not cool. How can you expect the market to have confidence? Now, that said, there is confidence in the market in the Fed. um your audience may not appreciate the Fed, but on on the things that matter, which is long-term inflation expectations, there is quote unquote confidence, and that's ultimately what this is about, right? Um the Fed cannot generate more oil output. It's just not something they can do. >> And so the best thing they can do is be out of the way while those sort of factors play out. And uh I'm hesitating because I want to stick to the Fed and not bridge to to oil here. We can do that here in a minute. One of the things that that I thought was was very interesting and I credit Power with it and you know I've been a critic of Powell. He was he was asked what happened to this communication reform? Um >> and his response was not much and he said and he was very frank. He said he wanted to do a few things but he couldn't get the the everybody on board on it and there were more important things and so they moved on and the reason why that's very relevant is because one of the initiatives that K is expected to undertake is a reform of the communication strategy >> right >> and so in some ways he told Kevin Worsh good luck with this I couldn't do it maybe you can give it a try um because I have criticized Powell often as not having enough leadership on these issues um if I gives him the benefit of the doubt. Maybe he's been working behind the scenes and has just not been sufficiently effective and so let's see how how Wash is going to do. I do think the re all the reasons why he should go to have Kevin Walsh come in remain the same that the fresh face is needed. But as far as what is priced into the market, nothing really changed after the meeting. Um this morning after the latest inflation numbers, rate cuts expectations were pushed further out. A full rate cut is only priced in next year, although the chances of over 50% were were this fall. And and part of it is we have a supply shock and uh the pandemic we had a supply shock and we started writing checks in the 1970s. We had a supply shock. We introduced price controls. The question is what's going to happen this time around if this lasts much longer. Politicians tend to do the economically wrong thing when faced with a supply shock because that's politically the the right thing to do. They want to help consumers, but you can't help consumers if you can't ramp up production fast enough. So, um, just just real quick on the communication things, just for folks that haven't been watching you for as long as you and I have been talking, uh, for, you know, these past years, Axel, you know, you would love the Fed to basically communicate an awful lot less, and you'd love for them to really only communicate when they have something to communicate. And so you think that there's a lot of excessive hot air that comes out of the Fed and and you know given how closely the markets watch the Fed, it just creates a lot of unnecessary drama in the weeks where we have like you know eight Fed people speaking you think are pretty ridiculous. So anyways um I don't know let's let's let's hope you're right and that maybe you know Kevin Worsh fresh base new sheriff on the block can can make some dramatic changes. The the reason why it's not a good idea is because just take a press conference to begin with. If if there's nothing good to say, why speak, right? If if you can only get cornered. Now, with some experience, you can deflect questions, but if the goal in a meeting is to survive the meeting, why have it in the first place? >> Why have it if you don't have to, >> right? Why why have it if you don't have to? So, why not simply state things that are relevant um to the market? And if there isn't much that's relevant, then then skip it, right? It's a and you can always send somebody out to issue a clarifying statement. They do that anyway. Um but they um and by the way, just to one of the things obviously we added a descent. We should mention that. Um we only had one descent which was noteworthy. The Bank of England has lots of descents all the time. There's a lot of there's a lot in the media about oh my god it's all political and this and that having a healthy debate is is the right thing to do. Having differing opinions is the right thing to do. And in some ways to the extent that Walsh is going to introduce more substantial reforms it's good that the precedent has been set of the set because it makes it it makes it less about the person but more about the policy if people descent down the road. >> Okay. Well, we'll see. >> I think it's healthy development. >> All right. Well, we can cross our fingers and and hope. Um All right. Well, let's let's get to the meat of the matter here. So, uh we have this war going on. Oil prices um have shot up um trading around $100 a barrel around the time we're talking here. Um we don't know when they'll come down. Um at some point, you know, the longer that this continues, um it is going to increasingly flow into the economy, both likely in the form of higher prices, um and maybe even, you know, we start seeing stress on supply chains, right? Um we don't know yet, but but certainly we can we can determine the longer this goes on, the higher the risk of those two things, you know, keep going up. Um, you know, I think the Fed is, like I said, they said they need more data yet. But it it is kind of interesting because it's a it's a little bit of a rock and a hard place, right? And in one sense, you're maybe pressured to cut like, oh, this is going to slow growth, slow the economy, and therefore I want to give the economy a little bit of juice here. But at the same time, if you're worried about higher prices from from you know, high higher energy inputs, well, you don't really want to um uh you know, you're you're kind of getting pulled in two different directions here. So, um what what do you think is going on at inside their head right now? Or or even better, you know, policy wise, what what do you think they should have done something different? So when in doubt, you should listen to the smartest guy in the room. And if you think you're smarter, then you take a trading position based on that. And the smartest guy in the room is the market. Um the collective wisdom. And uh I more often than not don't fully agree with what the market might be saying, but I think that is a a reasonable starting position because it obviously includes the collective wisdom. And I mentioned that because when you talk about oil prices and we you just quoted price of oil, oil, you always always usually quote the futures price of the next month of the next month coming up. >> And so clearly supply might be disrupted. The price is high. But you can go out and look into the market about where the market is pricing in the price of oil in two months, 3 months, 6 months, two years out, three years out. >> And so what happens or what has happened is that short term the price has gone up and then it's coming down. It is not back to the level where it was six months ago when nobody priced in the the Iran war. They are two years out. the price of oil, and I'm talking about West Texas here, was around $65. Then a week ago, it was around $70 two years out. And currently, it's about $75. And I I don't have the live quotes in front of me, but that order of magnitude, which means we continue to price this in as a shock rather than a structural change. >> Right. Y >> but at the same time two years out people think well we'll have prices a little bit higher and and so I mentioned that I don't know and you don't know nobody knows how this war is going to play out but that is a baseline right uh the baseline is that this is a shock and there will be some sort of resolution and of course I'm sure you and you've had smarter guys than I have here on the room about how this is going to play out but this can this can be anything from regime collapse to um to we're going back to before, but they're going to hold um the Middle East hostage going forward. But as far as the markets are concerned, they will price this in one way or the other and we move forward. Indeed, one thing that happens with any crisis is the market is getting used to these things and figures out how to price the risks that are that are there. Um, Bloomberg is you can pull up a Bloomberg function that tell you how many ships go through the straight each day, right? I mean, it's a function that didn't exist a while ago. So, there will be if if prices are persistently higher, fracking will increase for the time being. People say, well, why should I start fracking again? Because if in a month from now the war is over, we don't need to do that. And so, not that there is necessarily perfect clarity and not necessarily that the market is right. Right. If you are convinced that this is going to get loppy longer, by all means um act on it. The the one caveat I have to any of this even to what's priced into the market is that you always have to be careful in the crisis that the rules of the game will change. >> What I mean with that is policy makers with the best of intentions step in to quote unquote help. And I put that into quotes because that help is usually counterproductive and has unintended consequences. >> But so whatever the market is doing right now, um just keep in mind that somebody's going to come in and shake this up a little bit. >> And uh you might want to be prepared even if you don't know what the unknown unknown is. So I've said all that without saying kind of what the next step is, but um and people say, "Oh, the US economy is less dependent on energy." That's of course correct, but ultimately the stuff we import there is an import cost of energy as well. So um it's not that we're not independent and importantly there's a political component. Um the price at the pump um is political um thunder here and uh and there is a midterm election coming up. I listened to Condi Rice, former Secretary of State, speak the other day and she said, "Well, in midterm elections, the party in power always lose a seat and uh yep, maybe lose a few more seats, but you got to do what you got to do sometimes." That was paraphrasing her. These are not the exact words that she's used. >> Yeah. And um I mean, we'll see. And I've had a lot of conversations and at this point in time they're only worth you know the the air of the words but um you know a lot of people are saying look you know u the memories of of voters is pretty pretty short meaning it doesn't really matter what people think today here in March it matters what they think in October. Uh, and if if this war can be over materially before then and oil prices come down and whatnot, there may be things that are burning more brightly on voters's minds when they go into the into the voting booths. Um, >> there are lots of ifs in that statement. Yes, >> there's a lot of, as I was going to say, there's a lot of lot of ifs in that in that statement. Um, let me ask you a couple just sort of tangential questions around this. Um first off uh the uh the administration um is claiming that their phone is ringing off the hook with countries that want to do uh energy deals with us that are basically saying, you know what, I've been buying a lot of, you know, oil or gas um from the Persian Gulf um and uh I'm just getting uncomfortable with, you know, Hey, what's going on there right now, but even if things settle down, I'm still going to be nervous about that region. Um, so America or or Canada or other countries, you know, um, maybe we'll buy more from you. Um, and it might cost us a little bit more, but we think that that price is maybe lower than the than our our worry premium we're now putting on Persian um, Persian Gulf sourced fossil fuels in the future. So in some ways could this turn out to to the net benefit of the US and other countries uh who are who are net exporters um where you know right now 20% of oil flows of the world's oil flows through the Persian Gulf maybe that gets knocked down after this and and America and others capture a greater share going forward. Well, well, clearly I mean the US, Canada, and Russia for that matter, they're clearly beneficiaries in the short term of of this trend, right? If you need access to energy, you're going to call around about who who wants to sell you something, right? >> And uh I mean, for the Europeans and also much of Asia, it's it's it's a big challenge because um they do get a lot of their oil from the the Middle East and and also from Russia historically, and the Europeans can't get it from either one. So yeah, I wouldn't be surprised if um if the Europeans want to get more from the US and and and indeed from Canada and other places for that matter and the it does is a reminder that the energy policies and Europe in particular have been misguided >> and uh it's they they need to come to terms with it right there is market forces have a miraculous way of of getting people's attention that uh I mean we've talked before that the that the peaceful era since World War II is over and what happened in or happens in Ukraine and and Gaza are just symptoms of a new era. And the same of course applies to what's happened in Iran. Um and in some ways what what all these things do they increase the cost of doing business. Um which also means it increases government spending. Um governments will be both because of the particular crisis at hand and because defense spending needs to go up. um deficits are going to go up because of that. Um we'll have more interventionist policies by by government because more things are considered to be in the national interest and when the government takes care of things um things will be less efficient. Um, if I can digress for a moment, I listened to a wonderful clip from Milton Freriedman the other day, um, where he kind of said he is against he thinks one of the worst people are the folks in charge of who promote fiscal discipline on the conservative side because they just enable the spenders because the moment they're successful, we reach a new baseline where more can be spent. And so his view is you just make no money available to the government. They just have to deal with it. Um and importantly you just maybe have a constitutional amendment about how much money you can spend on things because then the lobbyist fight amongst themselves. But the the reason why why any initiative created by a lobbying group is less efficiently handled by a government is because for any dollar spent by the government, lobbyists have an incentive to spend up to 99 cents on the lobbying. And so by definition government spending is not efficient. So translate that to any other initiative where government feels that this government does the right policy and the other guys have the wrong policy. All these things will be inefficient. It's one of the reasons why government should limit its functions to things like defense. Um but the the context to today is relevant is because there are so many things where government feels they have a role and the the free trade era is obviously has come to to a close for the time being. >> All right. Um let me ask you another question and then in and your answer there that specific answer um Axel obviously starts making me want to ask you questions about gold which I will at some point in this discussion and I'm already seeing a lot of questions there about it because obviously precious metals um uh have still been correcting after hitting their highs um and have been weakening in this conflict which I think has surprised a lot of people. Um but a few more questions before we get to that topic. Um let me ask you this. So, um I think there's a lot of concern here that uh Iran has been emboldened so far by their success in restraining traffic through the Gulf and that this may be sort of a new policy of theirs going forward no matter what happens from here. So, in other words, um you know, America could in theory withdraw tomorrow, right? They could say, "Hey, you know what? We we did as much as we felt we needed to this time around. We've taught Iran a big lesson. Uh, and they know that if they step out of line in the future, you know, we might come back and and bomb them again. Um, and I think the skeptic's response to that is, hey, no way. You know, Iran basically proved that it could withstand the American bombardment and it's now taken a it's put its its grip firmly around the throat of the Straight of Hormuz, and it's basically going to use that, you know, going forward to to um flex its might. And I guess the question I have there is would Iran really um have a even a midterm interest in continuing to do that because a the country needs oil revenue to survive. I mean it's its main source of revenue and two it's just been badly badly damaged infrastructure- wise and now has a huge you know rebuilding um tab ahead of it. So wouldn't it be in Iran's best interest to to keep to to get the the tankers flowing as swiftly as possible back to their old levels through the strait? >> Well, the best interest of any autocratic regime is not the welfare of its people. It's to stay in power and uh if they have a >> money to stay in power. >> Yes. Um but smuggling works wonderfully, right? I mean, just look at how much Russia can export despite the war going on. Um, and there have been some ships going through the street um of some countries that are not Chinese um and even the Chinese ones, right? I mean, it's they strike some background deals about why they should go and presumably ship at a discount. And so, again, market forces have a have a unique way of of making its way kind of through the system. Um so the incentive is there not to do this permanently but the incentive is there to do that whenever they feel the need whenever they feel they need to make a statement then they say look we are here and we have the control um and and of course yes it's possible for the US to walk away and saying yep we achieved our goals and that's the end of it um and uh I think the interesting part is that the Arab neighbors depending on who you listen to but appear to be telling um the US to finish the job >> to to stay in the fight. Yeah. >> Yeah. Stay in the fight, finish the job. And then let me go back to US politics, right? In the America first policy. Um when I one of the things that stunned me as I I I try to get news from throughout the political spectrum and in this particular case both on the left and on the right, you have a whole bunch of different views. And so the the the MAGA group is split as well. And uh um and so but then you point out right memory is short and it's if this is short then people might say okay that's fine but to do something simply because it's in the interest of the Arab neighbors um that's doesn't go over politically so well. Right. >> Right. Well, especially when they're already getting uh accused of getting in the war for the first place on behalf of Israel, right? >> Yes. Now, that said, I I do encourage anybody to to listen some of the discussions that have come out of the UV institution, which has they lean conservative, but have had excellent debates on kind of the the incredible harm that Iran has done to US interests. I think that is something that's and There was a discussion between somebody on the left and on the right. Um, and it was supposed to be debate. They ended up agreeing on just about everything, right? And the reason why they agreed on just about everything because everybody agrees that Iran is a menace, right? The question is and everybody agrees it's high risk what's happening down there. Um, the the question is of course what what happens in the medium term. The the one caution I've heard which I think people shouldn't forget is that wars are easy to start and much more difficult to to finish. Um World War I was supposed to be a short war. Um turned out to be a little bit longer, right? Um the the second Iraq war was supposed to be a a short one and ended up being a long adventure. And so it's the dynamics can pull one in um precisely because of what you say, right? It's because yes, the US can walk away, but then people might spin it and saying, "Okay, now we can do anything." I mean, the the more hawkish interpretation of this is though, the US is both willing and able to use its military muscle and with that send a signal to to China. If you think about it, and let me just take the hawkish interpretation here for for a moment. Um, in China you have a president who just sacked a top general for corruption. Um, and you see the the military execution that works very well. I'm not suggesting that they can necessarily easily secure the straight, but you do have a a military here that is organized and effective. And so the deterrent that that sends to China might be significant. You can of course take the argument, oh, the weapons are depleted and the like. Um but I think the the message that's being sent is you should not underestimate the the power of the US. Now at the other end of the spectrum as you point out right if this isn't handled properly then Iran can bully the neighbors around. Um the question I have if that were to happen the folks that suffer the most are are the Persians the Iranians that are are back there because the population might get continue to suppress. Indeed, some of the largest holders of gold that I know um are of Persian descent, and I don't see them selling their gold. I'm just pointing that out even when they live in the US. But um but the Middle East was a mess, is a mess, is likely going to remain a mess. And so from that point of view, we can go back to normal in that scenario. Now, I am not trying to embrace here any particular scenario. We we just don't know how that's going to play out. Yeah. And and look, um I don't want to spend too much time on this because neither of us are oil experts or geostrategists. Um but I I I I do wonder um you know, as as long as this doesn't become a protracted um quagmire like, you know, in Afghanistan or or in Iraq. Um, I wonder if after this, um, more of the world just doesn't say, you know what, if the Iranian regime is at least still in place, you know, we just all want to become a little less dependent on the Gulf and and that would be whom whom you source your your oil and gas from. Um and that could be to the benefit of of you know countries like America and Canada and other other >> all of the above and other technologies right I mean >> other technologies right but but also even in the Gulf itself you know there are pipelines that have been built um and are being built to basically you know from the some of those Arab nations that would otherwise export it through the Gulf you put on a tanker there they instead would take it by a pipeline to another place just so it's not so vulnerable on getting out through the straight of >> Hermoose. I mean to to you said we're not geopolitical strategists but we can all be some backseat generals here. The the concern I have is the development of drone warfare. Right? Ukraine set the example. Now we're getting a glimpse. What do you think drone warfare is going to look like in 10 years from now or 20 years from now? These things get get smaller. They more difficult to detect. They get larger, bigger scale. There's all kinds of stuff, right? The defenses will increase. Um this is a huge wakeup call for everybody on on on what to do. and the militaries. I mean, one of the things, of course, that was in headlines today is 200 Ukrainian drone experts are are consulting the Middle East. And uh I think Europe has a marketing problem because much of Europe or most of it has said, "Oh, we're not going to help secure the strait." But of course, Europe has been one of the key funding parties to Ukraine. And if that hadn't happened, the Ukrainian experts couldn't provide help in the Middle East. And so they are providing support even if indirectly they just don't seem to be capable of of spinning that in a way that that that that gets them positive headline uh headlines. But the so there is um there is going to be a dramatic investment in that space. Uh people have woken up to the dangers that are out there. Um doesn't bode well for government deficits to kind of get this back to to precious metals and monetary policy. monetary policy. Yeah. >> And and if I I survey European news every day, um the war in Iran was like the third or fourth headline. It wasn't the top headline. Um they were talking about labor strikes and other things which they love talking about almost every day. Um they still haven't had the debate that you can't have welfare and strong defense, right? Um that they want to have their cake and eat it. And if you don't make that choice, deficits are going to go through the roof. >> And I'm curious, just because you you have access to Europe. Um uh you know, especially now with Europe having to shoulder more of its own defense. You know, America has directly said, "Look, we're not we're not funding as much as we we were." And now going forward, you know, Trump certainly well, Trump's still in charge. Uh, I'm going to be really curious to see what happens to our contributions to NATO going forward if the Europe if Europe doesn't get more involved in in what's going on right now in the Gulf. Um, but do do you see uh them starting to make cuts to some of their um their social support programs or do you see them just going full down the the deficit route on this? Is it just too politically unpopular? they they they they just introduced Germany just in introduced a little reform on on welfare. Uh they they on the margin are trying minor minor things, but the spending is is full throttle. Um obviously not very efficiently because they don't even know how to spend this sort of money. Um Finland is the one country in Europe that actually has a plan about many of these things on the defense side and is is concerned about deficits at the same time as well. Um yeah I mean take the US right I mean it's become become very popular both on the left and the right to to to to provide welfare benefits. Now you can argue how efficiently it's spent but um they're clearly spending a lot of money. Um there is no entitlement reform or anything like that and and uh and that is a global trend and of course having aging populations in much of the world doesn't help help in in any of this. So those set of dynamics are not going to change. Um the to just go back to the Fed since we are talking here on the day on the Fed the discipline in central banks in not doing anything has been reasonably good and that's the right decision when faced with a supply shock. Um the question is how long that will last especially if the labor market deteriorates. the other end of the spectrum, we continue to see announcements of of enormous spending on the AI side and so capital continues to be available there. Um the one area that's of course uh not so happy is the private credit side. Um where we we see we see a little bit of of noise. Um but the part of the reason why precious metals have come down a little bit what is because and but by the way we're still at at that very healthy levels but because we have seen um headwinds to global growth and uh and if everybody kind of contracts then those who have used leverage also contract and because there were a lot of speculators in there that has come down. The good news is that a lot of the speculative shakeout is out of this market and at least in the short term some of the markets are oversold. Um the S&P 500 I think is just dipping at its 200 day moving average. I mean we're not talking technical as much but we're at a very interesting point and uh and then yes we have midterms coming up and um we have a president who is sensitive to the stock market. So, let's see what quote unquote good news he has and how effective he is if he is going to present that news. >> Okay. Um, all right. So, to you might have just answered it, but to the people that are saying in the uh chat here, um, hey, when's gold going to find a bottom here, and I'm looking at my miners, they've really taken a beating. Um when you talked about oversold parts of the market, would you put the precious metals uh in in that category? >> In the short term, yes. And I am just looking something up because as we are so much whining um we >> we would have been thrilled with these numbers a year ago. So it's good perspective. >> No, no, no, no. Not just a year ago. We have price of gold year to date is up. Um just a second. I have some proxy sweat. I don't want to give you the wrong number here. Um 11.5% 11.56%. So as we're speaking on a Wednesday aftermarket close. So >> we did it cross 5,000. Is that like January 14th or something like that? >> I don't have that date. But the but we are complaining about this massive sell off and we're only up 12% year to date in the price of gold. Um and if I look at some of the gold miners, the indices up here to date. Um if I look at what's down here to date um we got uh as the last lead us is Bitcoin down 17 and a half percent and I'm not giving any recommendation of any of this. The Mac 7 Microsoft down 17 and a half% Alphabet only down 66 basis point Amazon down 6 and a half% Nvidia down 2 and a half% um made out five and a half% Tesla down can't read that but 11% I believe and so the NA the S&P is down 1.8 8%. So, um, metals are shining pretty well here. In contrast, they have had just a dramatic runup in January. Um, and they have come down from that. There is. So, I I just want to put that into context. I'm not making a prediction where where where precious metals are going to be tomorrow, but um the the the price action even year to date look still better even with a substantial sell off today. Obviously, as we're talking today, the price of gold, depending on which source you look at, is down 3.7%. By the way, for those who follow these markets are confused sometimes. Um, the closing price, I know you like to price the futures price, that's based on Chicago close. Then a lot of prices based on New York close, which is 4 p.m. Eastern time. And then other prices use 5:00 p. p.m. Eastern time. During normal times, it doesn't matter, but it gets really confusing when things are this volatile, >> when there's a lot of volatility. Yeah. >> Okay. I'm gonna ask you a few more questions about gold real quick. I just want to address this question. So, there's been some interesting It's definitely a pretty um emotionally charged live chat going on this this time, Axel. Um no surprise, I guess, because of what's going on in the world. Um but Sheila says, "Seriously, who gives a crap about all this right change crap and all you're talking about is money? We have a serious situation going on in this world and all you guys think about is money. Um, I'm sorry to break it to you, Sheila, but this is a financial podcast. It's called Thoughtful Money. >> Wait, but but of course Sheila is absolutely right. I mean, so so >> yeah, we we if I may, um, a book I wrote in 2009, don't need to buy it because this is I I can give you the summary. The summary is spend less than you make and you can save yourself 250 pages. But but the question is how do you survive in such a world, right? And why do we care? And I you and I we have talked about it and and I mean if I just look at your pictures of of jogging this morning, right? The best investment and I my speech is regulated and so there's limited what I can recommend. But the best investment you can do is in yourself which is your your health, right? And because you are a fixed income generating machine and if you invest in your health, you have more earnings power, right? And then you can invest in in skills that maybe education or or or or some craft. But at the same time, right, I mean, yes, we are a financial channel here and and and and so what do you do with your your money? And if you use money, that's of course gold, but or your your savings or your currency. The reason why we invest in the first place or big reason is to to be ahead of that game because stable prices in today's world means 2% inflation and even at 2% inflation the government wins and you loses right because your purchasing power gets eroded over time and over a generation that's that's a that's a huge chunk of money and so you got to figure out what to do and that's part of the things I think Adam you're trying to do with others but but yes it can get very nauseating when they think, "Oh, you think is is money?" Well, money, gold in particular, flows to the folks who can who who don't really need it, who who have the assets, right? Um, if you if you don't have the earnings power, um, and you don't have the savings, then you're scrambling kind of from day to day to day on what you do. And the simple fix is you stop having that attitude. And you have the attitude of the wealthy person which is that you don't need to chase every opportunity. You can take a break, look at the picture, big picture, wait until there's value, and then use the power of compounding to slowly slowly build something up. Um, and then you don't need to worry about this crap called money. Is that a good summary? >> It's very well said. I just want to add to it that look um for a whole bunch of reasons I can explain. Um, the key one being sort of, you know, money just makes the world go around and and everything that we want to have happen in the in this world needs to be financially sustainable, which is why Axel and I rail so much about the deficit spending and bad policy and all that type of stuff. Um, but you know, we that said, we can we can be humans and I really tried to do that on this channel. And of course, actually, you've heard me talk a lot about, you know, money is a means to an end and really true wealth, things like good health like you just talked about, but quality relationships and and purpose in your life. But what's what's so frustrating to me these days, and I get it, is just people are so emotionally charged. So you'll you'll get people like her coming on a money channel and saying, "Why are you guys talking about money?" Right? I also from the other hand, I'll be talking about the war and people be saying, "Adam, what are you doing, man? Stick stick to finance. You're not a you're not a a geopolitical strategist. to stay in your lane, bro. And I'm like, look, how can you expect me to ignore something going on that is having such a great impact on the financial economy? >> So, let me to if I we can continue on this one because I do think it's very important. Um, it was 20 years ago where I started talking about the ingredients that were brewing that were the source of the financial crisis and then the rise of populism. People don't understand money. It's one reason why your show is so valuable to to have people understand it. What happened in the early part of the 2000s is that we had China come to the world stage, overproduce, causing consumer goods prices to be low. We had 911, George W. Bush's policy was keep America rolling, push growth at any cost, which means an overp production of goods, which means the cost of goods is low. Commodity prices were rising because we're producing so much, the US worker was squeezed in the middle and because in the US labor is a variable cost, outsourcing accelerated. And so if you didn't understand what's going on, the only thing you realize you're losing your job and I'm not my purchasing power is eroding and what the heck I'm working hard and nothing is happening. And and if people understand money better, they can advocate for better policies. The problem is that once you're on an unsustainable path, then you you're creating this vicious cycle of populism. And I'm not critical here of of the current administration. Um just wait for the next one when we do a shock turn to the left, for example, or or something else, right? The the populist answer is the simple answer. We're not going back to basics. Um Vulca, the former Fed chair, he talked about the three varities. You need to have stable prices. you need to have sustainable finances and sound institutions. Now, Vulca with all the credit he gets, he was a big government person. So, I don't certainly don't agree with everything, but he is correct in principle on these items and say we need to fix the basics and the basics of how money is run because if we don't do that, then the fabric of society is destroyed. And then it's not just about the crappy money, then it's about much much more than that. And um we all have our spheres of influence, right? You happen to talk about money. I happen to talk money from from my perspective. I sometimes have a discussion with my wife. You think your opinions about the Fed is are so important. What the hell anybody cares? Well, I have become humble enough not to judge other people about what they do in life is important or not. It's good if you influence a neighbor. It's good if you can influence monetary policy. And if you can influence the war in Iran, well, good for you, right? So, we all try to do our thing and and and yes, here on on thought for money, right? You're talking about money and and all tangentally aspects of how it affects other other areas. >> So, there was a clip I just wrote down I want to take from what you were saying about a minute ago about the the criticality of money um that I'm just going to make like the the main clip for thoughtful money. Um, I thought it was excellently very well said, my friend. >> Okay. Well, hopefully, I mean, I'm seeing Sheila comment here. I'm not quite sure our comments are landing with her, but the lens she's looking through, I understand, is um the tragedy of the loss of of of she's saying American lives. I would say any lives in a military incursion. Um, I don't want to get into that right now. Um, except to say, Sheila, you know, please don't assume that we don't care about that at all. We certainly do. Um, all right. So, um I'm going to get to gold in one second. Um but real quick just on the potential for this to go on longer than anybody wants and oil to remain higher for longer than anybody wants and what that could potentially do to the global economy. What's sort of your concern level right now, Axel? So, you know, if if if 10 is hair on fire and one is I'm not losing a second of sleep over it, where are you? >> Well, I've always been analytical. um rather than if I don't have a strong view, I I'm just looking at the probabilities. I wrote my master's thesis on probability density functions. Um that that these are the sort of things. And so um and I'm just trying to assess the probabilities and the risks. And the thing is Trump could come today and saying okay this is good enough, right? Um and we move on. Now, that doesn't mean that Iran is not going to keep firing a few more missiles, but that means presumably it's going to fizzle out. Um, you can take the same point of view, right? I mean, they just got the head of Iraqi intelligence. They're getting the guys who have been ordering all the killings to domestic populations. Um, it's possible that this this regime is going to crumble from within. So, there's a spectrum of of outcomes here. Um, the Marines are sent there, right? And and by all means, yes. I mean, it's it's tragic of anybody who who loses their life there. Um the the challenge of course with drones is that you can potentially shoot them from anywhere. Um the the concern to answer your question it's it's reasonably high but I just don't know. Right. Sure. And I don't think anybody knows um what you can do in this environment when you just don't know. You can make sure that you don't have leverage because leverage is what gets you right. Um and that you have an investment strategy. Let's say in investment strategy you're going to hunker down um because you think some bad things are going to happen. Well, the risk is that something good happens the day after you hunker down, right? Um and so the main thing is you want to be comfortable in a volatile period with that. And basically what what these concerns are about is and let me do an an analogy from 2008 in and I think I mentioned this on your program as well. In the spring of 2009, some brokers came out, hey, we got the bottom in the market. You got to double down um as to where we are and I said it is irresponsible to say that. Now, it turns out it was correct that we were at the bottom. But what typically happens is that on the way up, people don't diversify. They don't take chips off the table. They don't rebalance their portfolio, which means they're exposed more than they should to risk assets. Then some crisis happens. The assets are cut in half which means you lost more than you afforded to. At that stage it is irresponsible to double down because that increases your risk profile. So translating this to an uncertain environment that we have right now is people are reminded this world is risky, right? That volatility is there and the pros call it risk management. retail is told they're panicking when they do the same thing. It's the same thing, right? You got to get comfortable with what you got. If you have sleepless nights, that's with your investments. That's the best barometer that you're overexposed to what you have. But if you have a stream of income from your job and maybe um some other income and you have a long investment horizon and you don't need the money tomorrow, um there isn't any urge to act, right? And especially if you don't know, then you might as well stay put. I I just like to remind anybody to put whatever they do in the context of the investment process. And you don't need to have a good investment process, but having no investment process, that's really bad. >> Got it. Um and that's good advice and good times and bad, but um reason why I'm bringing this up is as you said, we don't know. Um, but the fact that just Axel Merc, you know, longtime investor who's been through many market cycles, um, has a an elevated concern level, I think is an important indicator to folks. And you're not specifically saying this, but I think people might take that along with other inputs and say, "Yeah, maybe this is a time to really be at least assessing my defenses and if not, you know, if not actually becoming actually a little bit more defensive in my positioning, >> especially if people have not done that during the good times, so to speak, right? If you have consistent and most people are lazy, right? they they haven't they they say oh my portfolio is doing well I don't need to look at anything and now they have some rude awakening uh the other thing of course to think about is anything that happened yesterday is water under the bridge right um and so you got to overcome the psychology that that oh my god there was this good thing yesterday so now I can't do anything it's always >> embrace your understanding of sunk costs >> where are you and what are what are the scenarios and by the way I I just said hey I think in probability density functions That works for some people. It works for me. But some of the most successful investors are black and white people. It's buy or sell. This is good or bad. Um, and that's the end of the analysis. So, I'm not suggesting that my approach is the superior one. Well, no, but what you are doing is you're making my case for me, which I make on this channel every week, which is that most people uh, you know, should look to benefit from a good professional financial adviser who can be bringing their expertise of doing all this the stuff you're talking about and making things a lot less binary. >> And and to be clear, their expertise is not to know what's going to happen in the Gulf tomorrow, but they can provide a steady hand in guiding an investment process, >> right? and they can provide risk management and the benefits of diversification and all sorts of other position size. I mean just all sorts of things that go that have been time proven to help with with wealth accumulation. Um all right so um been promising we'll we'll get back to gold and silver here. So um as as you know I think it is fair for people to look at the current chart of uh the precious metals particularly silver. Let's let's it matters more in silver here. At least it's more obvious in silver where you can compare where we are in the silver chart to where we were after we we topped out in 2011 or even in the 80s and say, "God, you know, this chart just looks real similar." Um, and of course in those two previous price peaks, we gave up pretty much the entire runup by the time the correction was over. Uh, and then the metals were went nowhere for a long time. Um there are a lot of reasons to think that it could be different this time. Um and Axel given your level of exposure professionally and personally I believe to the precious metals. What is your thinking here? >> So first an offbeat comment and then a substantive one. Um you mentioned a four-letter word. I didn't know you could do that on the air. Um the word is fair. When I hear the word fair in no political context, I red alarm bells go off because whatever comes next, it's usually is something that when I take with a grain of salt, but since you mentioned 2011, let me mention something that I haven't had time to to write a newsletter about, but I if I can if you can fancy your attention here for a moment. In in August 2011, Mark Andre wrote his famous piece that software is eating the world. >> Mh. >> And bear with me because that's highly relevant today. It happened to coincide almost exactly um within two months or so of the peak of the precious metal cycle at the time. Part of the or big reason why software was eating the world is because it's a business with a low barrier to entry, high margin business and contrast that with gold. The margins were somewhat questionable and uh huge investment took place. So why bother investing in gold when you can invest in software? Fast forward to today and AI is eating the lunch of software. And uh the hallmark of AI is though that you need huge investments and the margins are not all that clear of what's going to come out at the end of the day. And the reason I mention this is that if you look at the mining industry, precious metals in particular, yes, of course, you continue to have significant investments, but the margins at the current price of gold are just astounding. Even at a $100 um oil, even at $150 oil, um there's between 15 and 25% of production costs um in oil in in in gold is is energy. So, it's it's significant, but the margins are dramatic. It's between 50 and up to 90% some of these mining companies have. And I'm not saying everybody should pile the money into mining, but what has changed in the world is that mining and not just precious metals mining is suddenly on a much more level playing field to compete for capital. And I think that is something it's a story that's not sufficiently told that why invest in AI versus precious metals. It's suddenly something where you can look at these things and these are real choices. Whereas in 2011, it was only the gold bucks that poured money into that space. >> Right. Right. Do you >> I just want to put that out there as food for thought. >> Do you feel that Wall Street is starting to wake up to the >> Oh, definitely. >> Much better margins and pressure. >> Definitely. I mean, you see everything from more generalist large fund managers participate in in midsize mining companies. Obviously, gold has been elevated to be a strategic um a critical mineral by the administration. That's mostly to cut um red tape on for devel development on on federal land. Um but but yes um people have woken up that infrastructure investments need to take place and capital is available. >> Okay. Um so to the spirit of my question um then it you saying it it is different this time because we have um you know certainly much more attractive and competitive profit margins in the mining companies themselves. Um but obviously the metals have to sort of stay somewhere in this area for that to continue going forward. >> They they could be substantially lower and the margins are still very very high. the even though we've had this dramatic runup in the price of gold, the even if we come down 20 30%, the mining companies are still going to be widely profitable. Um and and the the the market has has not priced in these these $5,000 an ounce for context. Now, >> that starts going. Now, real quick, let me just ask this so you can include this in your answer. Okay, so the market's not pricing that in. So you you expect even if metal prices just go flat from here that the mining p mining prices of the miners should go higher over the course of this year as Wall Street as they start reporting earnings in Wall Street. >> I don't have a crystal ball. What I do know is that the valuations in the mining companies given where the price of gold is is actually very conservative >> and uh and so that doesn't mean it can't stay conservative for an extended period. And if the price of gold comes down, of course, the miners can come down as well. >> We're just talking probabilities. You're a probability guy. >> Here we go. Here we go. Yes. I'm just hedging my answers because my my speech is regulated here and I and um the the other thing that I wanted to say is you can of course lot draw lots of parallels. I mean the parallels we see is to the 1970s and and other things. So we are we are actually um far more optimistic when we just look at the charts and I would caution anybody for for just looking at the charts when they make their kind of their their analysis as to how how things might play out. >> Okay. Yeah, the one thing one more thing about gold. Yeah. People are always happy to have had gold yesterday and never quite know why they might want to have it tomorrow, >> right? >> Um and as more people are paying attention to it, you have more naysayers as well. Um but I I am optimistic that we don't get our fiscal house in order and neither will the Europeans and neither will the folks in Asia. I'm optimistic that there will be more geopolitical crises around the world in the years to come. Um and in that context, I think um precious metals have a role in the portfolio. >> Yeah. Um although it's so interesting because you mentioned geopolitical crisis and just given the start of this latest one the metals prices have weakened into it which I think caught a lot of people especially precious metals investors by surprise because they were thinking okay well I hate the war but at least this should probably you know prop my precious metals up. Well, any investment is supposed to exert the maximum frustration on investors and in that sense gold is playing its role that it price of gold doesn't always go up, right? People didn't complain when it went up for no reason and now go this goes down despite it should go up, right? Prices don't always do what they should do. Um that's that they they act based on supply and demand and you need real buyers and real sellers and when there's leverage in the system sometimes price level needs to come down a little bit. >> Okay. Um, so, uh, shoot, I was just about to post a comment here and I lost it. Um, but it was somebody who was agreeing with you. Oh, here it is. Uh, Axel was correct. The Huey to gold ratio is crazy low. This is the ratio of the miners to the metal price itself. You've just made a pretty good case um that you you think the the miners probabilistically um should do well going forward. um to somebody who has a desire to continue adding to just their precious their metal part of their portfolio. Um what what advice would you give them here? And again the the probably the biggest fear I think on on the at least the experienced precious metals investors mind here is what I said earlier which is you know are we coming are we having this price spike? we have this price spike and and I'm just buying in here as this thing just keeps, you know, if it's going to fully correct the way that it did in 2011. Am I just an idiot writing that down? >> Well, um, two answers, not sure how helpful they are. The the first one is if you look at things like these ratios, we publish a monthly chart book to throw in a pitch for that that um, we send out to anybody who would like to track these sort of things. Um the the other part is as you know I can't give specific investment advice and again have any any investment process that's better than none which mean you allocate a certain amount to whatever investment it is including gold every month if you have cash um or you do it some other ways. The the the the challenge with trying to time the market is that most of of us are really bad at market timing and that's why usually >> any process is better than no process. Right? That's a that's that's the short of it. The the important thing is if you need your money at a reasonably short time in the future, um you probably don't want to put it at risk, period. Um and so don't say, "Oh, it's it went down. It's going to go up tomorrow and in two days I need it to buy a house." Yeah. Don't do that, right? Um and this example might be extreme, but um that's that's what you need to stay away from. >> Okay. All right. Well, >> and doing nothing and being in cash is is yes, you lose purchasing power over time, but um if you're not comfortable with any of that, that's not a bad choice much, >> right? But you don't lose your shirt and if there's a market dip in there somewhere, you have dry capital to deploy it. >> And keep in mind, Berkshire Hway, again, not investment recommendation. Massive cash holdings, right? They always get laughed at when they they accumulate too much cash >> and so having having some ammunition on the side is is not a bad thing. >> Okay. Well, Axel, we're here at the end of the hour. Real quick before I do the wrap-up, anything else burning brightly on your radar that I haven't thought to ask you about, whether it's related to the Fed or just the overall >> I thought about the the the running trails you want to explore in Reno that that we haven't discussed. >> Hey, we just got to find a landing spot for you to come land at and you can come run anytime. >> Um the Fed being in the background, we covered that in the beginning, is a good thing. Um, and uh, I think Worsh is lucky that he doesn't have to deal with it right now, that he has a few weeks. Um, if he's not so lucky, he has many months to to wait this out. And, uh, and and and yes, I mean, fasten your seat belt in volatile periods. That's the that's the short of it. >> All right. Um, well, folks, let me um, let me just mention a couple quick things. So, as you know, you likely know, the thoughtful money spring online conference is coming up this weekend. that's just a couple days away. Um, I just talked to Luke Groman who's going to be one of the featured presenters there. And boy, I wish I could share more of this with you, but I will tell you that um when I asked him about his near-term outlook for this year, uh, it was not pretty. And uh the words that he used were um there's a potential and in fact I think this is his fear that this could be worse than COVID plus 2008. So um obviously I drilled through with him to explain why he feels that way. Um if you want to find out why he feels that way, if you've not bought your ticket yet uh to the conference, go do it now. uh do that at thoughtfulmoney.comconference. Um and uh if you uh well yeah, you only have a couple days left to buy it. So buy it. The conference is going to be this Saturday. It's going to be 11 hours worth of content, folks. It's just going to be a massive marathon day. But don't worry if you can't watch live or if you can't watch all 11 hours on the day itself. Replay videos of every presentation and all the live Q&As will be sent to everybody within just a couple hours of the conference's end. So, make sure you go get your ticket for that. Um, and if you'd like to get some help, um, as Axel was talking about, and just, you know, the benefits of just getting some investment, uh, structure to your how you manage your money, I highly recommend you get that from a good professional financial adviser. If you've got a good one who's already doing that for you, great. Don't mess with success. But if you don't have one or you'd like to get a second opinion from one who who fits the that criteria, consider talking to one of the ones that Thoughtful Money endorses. These are the firms you see with me on this channel week in and week out. To do that, just fill out the very short form at thoughtfulmoney.com. And then lastly, um if you think that uh uh the you know the weakness here in the precious metals is providing an attractive entry point uh to to uh you know help you in your accumulation plans around the precious metals. Um, don't forget that Andy Sheckchman of Miles Franklin, which is the endorsed Precious Metal Solution by Thoughtful Money, is continuing to extend his exclusive offer to the Thoughtful Money audience on buying silver. In fact, he just made it even better the last time I had him on the channel last week. Um, you can now buy junk silver from Miles Franklin for a $150 under spot. And to do that, just go to thoughtfulmoney.com/bygold, fill out a very short form there, and Andy's team will be in touch with you right away. And you know, if you've got other questions or needs beyond junk silver, you know, whether it's buying, selling, or storing precious metals, they can help you with that, too. Axel, thanks so much for coming with me for yet another recap of the uh the Fed here. I'm getting kind of interested uh to see a new fresh face in there with Kevin Worsh. And we don't have too long to wait. I think we have one more around here with Jerome Pal. And then presuming that Worsh gets uh confirmed, uh we'll see him here. But um please uh tell folks where they can follow you and your work. >> Yes, mercinvestments.com is uh our website. Um we manage about four and a half billion in gold and gold miners. Um we have a newsletter that's free. I mentioned we have a chart book that we send out on a monthly basis. Um Axel on social media on Twitter in particular. I give my musings. And just one final comment you asked me earlier about my fear level. To put that into contrast, my uncertainty now in September 2008, I went to my local bank and I took out a boatload of cash um because I was really concerned um and uh um and then today is is a is a different environment, different concerns, but um to just put that into perspective. So I do I there is a level when I can get really concerned. >> Yeah. And just to be clear, you're not yet at that threshold where you're literally taking cash out of the bank. >> No, I'm not at that threshold. >> Ju just to let you know, I think Luke Roman is at that level. >> Yeah. And and by the way, I didn't just take cash out of I had substantial physical gold as well, but you do need liquidity as well. >> Yeah. Where did you bury that, Maxel? >> Oh, it's it's in your house in Sebastapool. You don't have that anymore. Oh, thank you. Hey, nice deflection. Exactly. All right. Great. All right. Well, thanks so much, buddy. Again, I so much appreciate you doing this. Um, folks, please thank Axel there in the live chat or in the comments if you're watching the replay video before. And I look forward to having you all join us again the next time we do this for the next uh Fed update. Um, this one was a little bit rough, Axel, just because there was sort of so little to talk about in terms of what the Fed did. Um, and and maybe we should be appreciative for that. Um because I think we both think the Fed generally, you know, oversteps its mandate more than it uh than we prefer of what we prefer it does. But uh but who knows? But hopefully the next one's a little bit more interesting. All right. And uh with that, everybody else, thanks so much for watching.