Still So Early: Trump’s Supply-Side Boom Starts Now | Jim Thorne
Summary
Macro Regime: Thesis that supply side policies will drive a non-inflationary productivity boom, with deregulation and lower rates enabling capital to flow into the real economy.
Federal Reserve: Strong critique of Fed policy and data reliance, calling for a neutral balance sheet and Fed funds near ~2.75% to let the business cycle function.
AI Adoption: AI and blockchain seen as major productivity drivers; enterprises will integrate these to cut costs and raise margins.
Banks Overweight: Emphasis on money center banks as prime beneficiaries of AI/blockchain back-office modernization, boosting EBITDA and potentially rerating like growth stocks (e.g., JPM).
AI Names: Mentions NVDA, MU, TSLA, and PLTR as implementers within the AI ecosystem, though the bigger upside may accrue to banks adopting the tech.
Early-Cycle Setup: 2026 focus on timing the early-cycle trade as rates fall, liquidity normalizes, and interest-rate-sensitive sectors revive with MBS spread normalization.
Precious Metals: Gold and silver remain strategic allocations with multi-year tailwinds, though a near-term pause is possible after a strong run.
US Exceptionalism: Bullish on a strong U.S. growth and dollar backdrop, underpinned by geopolitical leverage and potential policy deals that reinforce U.S. leadership.
Transcript
The last time my guest was here on the show about 11 months ago, he said either we need a miracle, meaning we need a massive increase in productivity, or the system will dissolve. It'll blow up and we'll have a restart. So, the question is, where are we at today? The market is trading at record levels. We're close to 7,000 points in the S&P. Gold is at an all-time high. Silver is in at an all-time high, but the US dollar, the bond market, they're not really moving. So, the question is, are we in a Goldilocks moment? Where are we at? And uh what do we make of the attack on Jerome Powell here over the weekend? It was a federal investigation here that was launched into the the Fed chair and we'll have to figure out what the ramifications are potentially for the market. My guest today is Jim Thorne. He's the chief market strategist over at Wellington Altus Private Wealth. I'm really looking forward to catching up with him because I remember enjoying the conversation tremendously back then. Before I switch over to my guest though, hit that like and subscribe button. It means a lot to us and I much much appreciate it. Our goal is to reach 100,000 subscribers by the end of this quarter. We're over 90,000, so much appreciate the support already. Now, Jim, it is great to welcome you back on the program. It's good to see you again. Happy New Year. >> Happy New Year. Crazy times, man. Crazy times. >> Crazy times. Let's dive right in, Jim. Um, I had you on about 11 months ago on the program. Really enjoyed the conversation. Um, you you said basically that the system has two exits. Either it's a massive blow up or we'll need a miracle, meaning a productivity increase. What are you seeing in the data right now and where are we at? >> We got the productivity, right? We're going to run the Well, we're going to run the US. I'm going to be specific. Uh uh the US as in a productivity miracle. They're going to run it hot. Um you know, uh Bent and Trump's economic policies are supply side in nature. And what that really means is if you think about going back to high school economics, all they're doing is shifting the supply curve out while keeping demand curve constant, which means prices go down and output goes out, right? So we're going to have they're going to run this thing hot. Uh, you know, and rates are going to come down. They're going to deregulate and we're going to grow our way out of it. I think the interesting thing for for me is you know when will Wall Street and you know the punditry wake up to the fact that Trump's policies are just classic supply side. They are non-inflationary and they're good for the deficit. So now it's just basically a matter of when does Wall Street actually do some work and kind of abandon its Trump derangement syndrome. There are some interesting statements in there we need to follow up of course. U maybe we'll start with supply side dynamics and uh is it just the government funneling money into the system or is it just enabling money to flow towards the supply side here? Maybe you can elaborate on that a little bit. Who's financing it? >> Well, it's where it's really when you think about it is where does capital go in a basic in in a first principles type of does capital go to productive areas? So you'll hear people talk about productive capital. You'll hear about manufacturing. You know, you'll hear Trump talk about make America skilled again as opposed to taking that capital and making financial products, right? So capital is no longer solely going into the financial industry to make products or and what it's do financial products and what it's doing is it's going on into the real economy and Trump and descent and and Lnik have structured it so that it is pushing the supply curve out which is good for GDP growth and good for prices to come down. The problem you have is Powell and the Fed and Wall Street, a generation. These are this is generational in the sense that they're all Keynesian, which means that all they've ever done is focus on the demand curve, not the supply curve. So if you deconstruct it and just sit there and realize that since Bernani got in or Bernanke's influence into the Fed got in like about starting 2000 they have been slowly using one little small sect of economic theory which is Keynesianism and let me let me be specific and clear went to Canes when he was dying and Keynes had remorse over for the fact that how he titled his his work the general theory. He titled it the general theory so it would sell more books. It was really only written theoretically for a very narrow part point in time in history which was the depression of the 1930s. And yet we have academia and central bankers from around the world misusing Keynes's own theory. Right? So to me, how long is it going to be before the central bankers? So think about the Fed. They're all Keynesian. And think about all the central bankers from around the world. Look at Mario Draghi and Ben Bernankei's thesis supervisor was Stanley Fiser at MIT. This is a history of economic thought question. And so when you think about what Bent is doing, he understands this. They're shifting the focus. It's now supply driven. And what we can term it Trump derangement syndrome. Maybe what it should be is is Wall Street and the central bankers need to go back and recognize that there's more chapters than the Keynesian chapter in their macroeconomic textbook. >> You you said one other thing earlier as well is that you said this is all non-inflationary. I'm just going to ask like he offered or sorry, President Trump said we're going to buy 200 billion dollars worth of mortgage back securities. Um how do you think that will funnel through the system? It's not inflationary. >> Well there. Yeah. So here's here's you know we're gonna all roads lead to Ben uh to Jay Powell today right? >> Yeah. >> But really when you think about the Fed really they have you know hey you know Jay Powell cut 50 basis points before the election to help Biden and Harris and and and the Democrats to for the Fed to sit there and say that they're not political is is really is really uh disingenuous. Okay. So, look, there is a spread. The 10-year the the mortgages are are basically there's a relationship between mortgage back securities and the 10-year. And what the Fed has been doing is it it has been selling mortgage back securities into the market as part of quantitative tightening. Fine. What that has done is that has basically generated a spread between where the mortgage back securities are or where the mortgage rates are the 30-year mortgage fixed mortgage rate in the United States and the 10-year. And that's all predicated on Fed policy. They're doing it. Powell's doing it. Powell has created the recession in housing. Okay? All Trump is doing is going in there and purchasing mortgage back securities. So the spread between the the 30-year mortgage and the 10ear gets back down to historical norms, right? And at the same point in time, what has pal done? He's taken too much liquidity out of the system. He he has not learned from history. He did not know or he has chosen to ignore what happened after World War II when they took too much liquidity out of the system and contracted the Fed balance sheet too much. Any basic graduate student in economics knows that he's making a mistake. And so what is he doing? He's now trying to step back and try to provide liquidity into the system, right? Because the overnight lending rates in in are are very tight. But yet at the same point in time, he's ignoring the housing market. Somebody in the in the mainstream media who has access to him should ask him that specific question. Why are you ignoring the housing market? Why are you basically ignoring the fact that you've caused a recession in the housing market? The unaffordability uh or the affordability crisis in housing was caused by the Federal Reserve. Why don't you own it? And so pal, you know, what Trump is trying to do is just counteract what the Fed is doing. And so there when you sit back as an objective researcher, you sit there and go the Fed has to get back, stay away, get back on the sidelines and let the market let the market determine it. But he also what he needs to determine the business cycle, determine credit creation. But at the same point in time, the Fed has got to stop putting its finger on the scale of detrimentally hurting the housing market. And what Trump is trying to do is counteract Powell. >> That's that that's interesting like because you would expect with cut, you know, lower uh Fed funds rate, you would assume that the mortgage rate comes down. But there there is a disconnect. We've seen it a few times now. Whenever the Fed cuts, mortgage rates actually jump higher. We've seen that with the bond yields as well. Um simultaneous. Maybe you can elaborate and explain that a little bit more, Jim. Like how should we understand that? Like the Fed has been trying to cut, but the market is not responding to it, meaning the mortgage side. Um, why why that disconnect? Why aren't they listening to Powell here? >> Oh, I think what's really happening is that you've got a bunch of Keynesians in the So, the credit market that you and I are talking about today is not the credit market. When I joined the business, when I joined the business, the credit market was was basically um driven by long-term investors, insurance companies, and endowments and pensions. Now, hedge funds are there and hedge funds are the marginal trader in the credit markets and and hedge funds bet. Okay? They are short-term investors. They have a memory of a knat. So, what you've got is the credit market is completely different. And I would suggest to you when you go to Wall Street, they are Keynesian and they're Democrat. And they do not believe they do not believe that supply side economics. They do not believe that Trump's policies is deficit friendly and brings inflation down. So the big trade for 2026 is going to be when does Wall Street and the bond vigilantes wake up and smell the coffee and realize they're on the wrong side of history, right? And on the wrong side of the trade. We're going to get CPI numbers out. I mean, look at all you got to do is look at what rental prices are doing and just look, you know, listen to Lenar. Lenar is saying that home new home prices are down 10%. And yet we are still using a flawed shelter variable and owner's equivalent rent and CPI and any PhD in Wall Street or on the Fed that does not understand that should be fired. Okay. So then you really what you have to ask yourself is the question if you're an exec if you're an objective researcher why are you predicating your thesis off of a taint tainted tainted data that everybody and their brother knows is tainted right that's the question because once you take out shelter and you put in market-based numbers right the inflation number goes away and this goes back to what Trump is saying about pal pow has been completely and the fed has been completely and totally disingenuous they have been politically motivated and you know yes we're talking about you know whether or not he was clear and concise and truthful to the Senate about what was going on with the building but having said that Powell's legacy will be this is the worst Fed in modern history and he owns it >> always too late too late Powell unfortunately so um 95% chance of a no cut. Is that what the market price is in right now? Um you just hinted at what should the wall what should Wall Street and the bond vigilantes do? Like let's assume they do wake up like where should they be investing? Where should they be putting their money and what what should they be doing, >> right? So the the argument is this, right? And this goes back to what happened in post World War II. Like this is just history, right? This isn't cold fusion. The Fed needs to get to neutral. And what do I mean by that? The Fed needs to get its balance sheet to the level where the capital markets or the credit markets can function freely, right? They've got to get away from micromanaging the business cycle through the shape and size, you know, the the the the duration of their their book and the size of their book. Okay, that's one. So, get to the point where the the the balance sheet is is basically neutral. And then what they've got to do is they've got to get interest rates to neutral. Okay, I think using the Fed's own data out of the New York Fed, right, that you know it should be around the Fed funds rate should be about 275. So if we were objective here, it'd be get the balance sheet to neutral, get the Fed funds rates to 275 and stand back. Get away, right? Stop doing stop affecting the business cycle. Stop the mission creep which has started in in was supercharged after the global financial crisis. Get back so that you can be independent. But what you're focused on is you're not focused on unbanking people. You're not focused on making a determination of whether crypto is good for society or not. You're focused on independent monetary policy given that the business cycle is either overheated or or contracting. And when you think about it, what I'm trying to say to you is the interest rate sensitive area of the economy, that area of the economy that the Fed has control over is in a recession. Why they look at the data holistically and do not disagregate the data is as an economist with a PhD any PhD at the Fed that doesn't do that is not worth the wait as an objective economist. So then I say to you is then what the heck is going on? I have no idea. All I know is is that the interest rate sensitive sector of the economy is being absolutely hammered. It was not the interest rate sensitive area of the economy that caused inflation. It was Janet Yellen and Leah Bernard who were two senior Fed officials that were in critical positions of the Biden administration. They did it. Ad Powell, the Fed owns this. Does the Fed have a chance to heal itself, meaning become relevant again? Like we Jerome Powell's term ends in in May. As we all know, Steven Mirren is supposed to be reappointed by the end of January or could be reappointed by the end of January. How do you see the chances of the Fed becoming relevant again? Like we always talk very negatively about them. >> You put Kevin Wars in as the chairman and he I'm not saying anything that smart people don't know. This is the whole this isn't like I'm not this you know the the I'm the I'm one I'm willing to talk about and I have freedom at being at Willington altis to basically call a spade a spade right >> Kevin Walsh knows this. So if you're an objective economist, you know this. >> All right? You know, whether you're a Wall Street economist and you're trying to, you know, become an insider and get invited to Jackson Hole, that's not me, right? I get paid to be an objective researcher, right? They know it. Just go back and listen to Kevin Worsh's interviews. They're there. They know it. Stop. And we got to deconstruct the Bernani era that started in 2000. And the way I put it much more diplomatically is you got to kick the Keynesians out and he understands that. So you need to start and it's going to be a tough road to hope as far as I'm concerned because you know you've got this is this is the Fed an institution, right? Think about this, right? Think about the fact that you have regional Fed presidents making interest rate decisions that do not have a graduate degree in economics. Think about that. I mean, think about if the Supreme Court of the United States had individuals making decisions on constitutional law that took an undergraduate law, a law course that didn't know, that weren't experts. this this mission creep of what has happened at the Fed needs to be reversed and it's going to take an individual who understands Wall Street, understands the Fed and has the constitution to do that. And I think it's worse, right? I think I think uh you know I think uh Waller is is is plan B but you know this is going to be tough. They have destroyed the reputation of the largest central bank in the world. The most important this is not going to be an easy fix. >> What would be the first move that you'd like to see from any appointee here? um would it be cutting by 50% 50 basis points uh at the next meeting right after or what would you have to see >> when you hear Mr. Morant talk and he's the Fed's he's the the President Trump's replacement. He says it very clearly. All they need to do is why Powell doesn't come out and basically say or pal anybody come out and say we recognize that the shelter that shelter is is a flawed characteristics. We're putting marketbased in. We're going to get ourselves down to the Rstar. We think the Rstar is 275. I could argue that it's lower, right? I could argue that it's lower. Okay. But it's 275 and then we're going to stand back and let the business cycle take care of itself. We want to be not tight or loose. The Fed is tight. The Fed is tight for interest rate sensitive areas, right? And we need somebody that understands economics and actually calls balls and strikes objectively. And Powell and the current Fed are an abomination. It's a joke actually. It's it's a dis it's it's really a disappointment. >> Yeah, we we we can see it. Like it's not really helping anybody. It's not really affecting the market, whatever they're doing. So, something needs to change. Something needs to give. Um No, it's it's an interesting discussion on the Fed. We got the next Fed meeting here in 16 days. We'll see what what happens. Uh especially the language at the press conference and see if he comes back to what he's been accused of here lately as well. Um Jim coming back to productivity real quick because we we sort of skipped that topic itself. Um like how do we achieve or how do the US achieve that productivity growth like where are you seeing it? What metrics are you following maybe watching? >> It's it's well for the productivity came out about 4.9%. But it's really simple you enable productivity you enable capital and you motivate capital to flow into the private sector. Right on in the big beautiful bill 100% 100% tax deductibility of capex you get capital into the productive areas of the economy and let businesses do their job in allocating capital right up here in Canada right it's it's funny because you know the economists up here don't realize that the public sector is crowding out the private sector and what do we get we get negative G uh productivity, right? So to keep it really simple, it's empower capital to move into productive areas of the economy in the private sector and the market will and the economy will take care of it. The incentives will take care of it. This is basic Adam Smith invisible hand University of Chicago economics. This isn't MIT, Princeton, Yale, socialist economics. >> Interest I'm surprised you haven't mentioned AI in all of in your answer now. So the question of course like how does that factor and do you still do you count that as part of the the private sector meaning AI investments, data center rollouts and things like that? >> Yeah, we've grown. Yeah. I mean what will happen is people will so when I say that I mean you know everybody's like and I go look at what's going to happen is the smart people like I use AI right and and what what do I do? I don't need I don't need a kid from university that just graduated to do me, hey, let's go back and talk to me about what happened in the 18 between 1880 and the 1900s with respect to the um the railway built with the rail respect to the railway buildup, right? I can go on there and I can get a summary of academic papers and counterfactual studies and I can have it on my desk in less than five minutes, right? That's productivity, right? And yes, AI and blockchain are going to be absorbed by banks and people are going to get laid off. But I guess where I am in the cycle is it's self-evident. It's going to be the technology, right? And there's going to be Jeban's paradox too where whereas you know with Jeb Jeban's paradox as the price goes down, you know, we use more of it. And so what I would just say to you is that is that you know we are in such early days of where we need to be in this evolutionary process. And yes of course it's obvious it's AI. It's obvious it's blockchain. And so I'm you know personally I've kind of you know it's kind of like jumped the shark. Of course if you don't I mean I hear everybody talk about AI now. It's it's it's it's tiring, but yes, AI is there, of course. And we've got to get to artificial general intelligence. Yes. And we're just early building it out. Yes. And do people understand it? No. Are they using it? No. It But they will. And the smart companies and the smart individuals that do, their ibito margins will go up. Smart people understand that, right? Think about this. The back offices of every major money centered bank is going to be ripped out, put on the blockchain and use AI. The IBIDA margins on financial bank on banks is going to have a renaissance and grow like you wouldn't believe. They're going to be deregulated and they're going to be able to use this technology. So you ask me about AI, it's more of Yeah. Okay. So, it's the Nvidiaas and the Microns, but also I say you guys better be overweight banks >> because yeah, Tes Tesla's there in terms of implementation. Palunteers there in terms of implementation, but just think about what's going to happen to the back end of the banks and and what their margins are going to look like. I mean, think about what JP Morgan is going to look like if we price it like a growth company. >> Yeah. With increasing margins. >> With increasing margins, is it worth two time? Do you do you put a two times do do you do you put a two times book multiple on it? You know what I mean? I mean I you know but it's you know that's why I say to folks when I you know at Wellington I sit there and say you better make darn sure you're long banks because Jamie Diamond knows this. This is the point. They know this. >> They absolutely do 100%. Um you you sort of hinted at it Jim already. Maybe just to recap a little bit of your answer, but where in the cycle are we in the boom cycle right now? Like you it sounded like we're still very early, but I don't want to put words in your mouth here, Jim. Um when it comes to that productivity and boom cycle, where are we at >> early? So, so the big the big the big trade. So, what we've got, okay, just to frame it, we what we've got to do is realize that the economic data over the past couple of years has been basically destroyed because of COVID and Biden's and I'm supposed to be specific on the United States in the immigration and all those insanities. So, what you've got to do is you've got we've got to go through a detox period. Think about what the labor numbers are going to look like going forward when we lap all of the crazy stupid immigration that the Biden and Harris administration did. Okay. So, when I when I wrote it and it's on my on Twitter if you want to go there, I posted my my 2026 forecast. The big trade for 26 is going to be when do you put the early cycle trade on? When does Powell get shuffle off the buffalo? When does interest rates come down? When does the consumer get enough capital to start spending again? And that would be an early cycle trade. So when you talk to me about what Trump was doing with the 200 billion for the uh for the mortgage back securities, all the early cycles just took off. And so th that area of the market that is interest rate sensitive and has been bombed because of PAL that is going to get new life Brett um um put into it. So you know right now it's yes you have to have AI yes you have to have banks and the question for 26 is when do you put the early cycle trade on? How early and how fast you want to go? is I'm making a I have to make a call. My call is that cooler heads are going to prevail that the bond vigilantes are eventually going to wake up and do some work, right? That that that it's going to get embarrassing for people to continue to support what the Fed is doing when the data completely and totally supports what we've been talking about for the last 25 minutes, right? rates come down, gasoline prices come down, the US consumer is not as levered as they were coming out of the global financial crisis and that kicks it in. And then also what you do is you deregulate banks for credit creation. And what that does is it increases the velocity of money and the economy kicks in. And if we're right on that, then we don't go to the zero bound. And then then the Fed has to kick in and really start to do their work in terms of are is it over? Are we overheated? And do we have to raise rates? I mean, but but to now we're still dealing with the mistakes of the Biden administration, the mistakes of what we did after the global financial crisis in terms of regulating the banks so that they do not lend to Main Street and the mistakes in terms of immigration. Once we get that done, I'm a I'm a big proponent. Look, the era of US exceptionalism has just started. We are in a golden era. People better understand what the heck the Trump doctrine is. We are in going to be in a strong dollar era, not weak. I know that's contentious, but look at the United States economic growth compared to Germany. Look at what's going to happen with Ch Trump and she when the United States now controls Venezuela oil and if Iran falls the regime, what is China and Russia going to do when they lose that leg in the stool? I would suggest you put on your bingo card a grand bargain in the spring between Trump and she because one of the knock-on effects of Venezuela is the fact that China is getting weaker. Their position geopolitically is getting weaker and weaker by the day and Trump's getting stronger because of the fact that he controls more and more oil. fact. No, absolute fact. Jim, I want to use the last two minutes. Maybe that sort of ties in what you just mentioned, but gold and silver have been rallying and I'm wondering if it's just a fallout of the geopolitical turmoil or if there is more to it. So, I'm really curious your take on that as well. >> Well, we finally got that generational trade we've been waiting for my whole career last year. And I would suggest to you that it is now at that that that I So, let me put it this way. Um I don't think we should expect a trade like we had last year this year in gold and silver. Having said that I think gold and silver being an important portion of your portfolio I think is very very very important. And I think if you and I were talking just to go where I think the catchup trade is in buying low and is the fact that this week we get I think the passing of the clarity act and Bitcoin will catch up to where gold and silver are. So I love gold and gold and silver. I don't like parabolic charts, so to speak. And but at the same point in time, gold and silver are going to have a wonderful run into the end of the decade. But I would not be surprised if we have a pause here just for to get a little bit of bre uh to to to get a breather here, right? But I I think I think gold, silver, and Bitcoin and if you want Ethereum are all required exposures in a diversified portfolio. >> Awesome. No, Jim, that's that's really useful there and really appreciate your insights. Um, maybe really short because I just read about it this morning and I should have asked earlier, Jim, but uh, President Trump wants to cap credit card interest rates and it sort of ties in with your last second to last point here. Uh, real quick, you and you mentioned the banks. Uh, I' I'd be aiss not to ask, but what do you make of that if their earnings are being potentially capped here by the president? >> Yeah. People say, "How was your weekend?" I said, "Well, I I I didn't have a weekend because President Trump was active, right? It's it you know so for the banks for the big banks it's somewhere between 8 to 10% of earnings if they cut them down but I think the long runway for banks is so profound for the end of the decade and it's only for one year that if there's any weakness in these big banks I would be a buyer. >> Okay. No fair fair fair enough Jim. Thanks for humoring that. I would have been uh kicking myself here not asking that question as a follow-up. So and probably my audience would have crucified me in the comments as well. So, um, no, Jim, tremendously appreciate your time as always. It's great to catch up. You, you mentioned your big outlook for 2026. Where can our audience find that? Where do we follow you? >> You, yeah. Uh, I'm on X, Dr. J Strategy. I'm on X. I post my market insights monthly. They're free. And if you want my conscious stream of thought, you can follow me on X and you'll get all the real time stuff that I'm dropping. >> Fantastic. Awesome, Jim. Thank you so much. Tremendously appreciate your time. It's good to see you. Happy New Year again. Um, we need to make this coffee happen at Pedak in March, early March. So, I'll reach out to you again when we when I'm in town. Really looking forward to doing that. Um, really appreciate your time. Thanks so much. And everybody else, thank you so much for tuning in to Soore Financially. I tremendously enjoyed the conversation here with Jim Thorne. He's the chief market strategist over at Wellington Altus. Go check out his X page. Uh, go check out his forecast for 2026. Some really good content in there. And uh if you enjoy our content here, hey, hit that like and subscribe button. We tremendously appreciate it. We want to hit 100,000 subscribers by the end of this quarter. Let us achieve that together. Thank you so much for tuning in. Take care out there.
Still So Early: Trump’s Supply-Side Boom Starts Now | Jim Thorne
Summary
Transcript
The last time my guest was here on the show about 11 months ago, he said either we need a miracle, meaning we need a massive increase in productivity, or the system will dissolve. It'll blow up and we'll have a restart. So, the question is, where are we at today? The market is trading at record levels. We're close to 7,000 points in the S&P. Gold is at an all-time high. Silver is in at an all-time high, but the US dollar, the bond market, they're not really moving. So, the question is, are we in a Goldilocks moment? Where are we at? And uh what do we make of the attack on Jerome Powell here over the weekend? It was a federal investigation here that was launched into the the Fed chair and we'll have to figure out what the ramifications are potentially for the market. My guest today is Jim Thorne. He's the chief market strategist over at Wellington Altus Private Wealth. I'm really looking forward to catching up with him because I remember enjoying the conversation tremendously back then. Before I switch over to my guest though, hit that like and subscribe button. It means a lot to us and I much much appreciate it. Our goal is to reach 100,000 subscribers by the end of this quarter. We're over 90,000, so much appreciate the support already. Now, Jim, it is great to welcome you back on the program. It's good to see you again. Happy New Year. >> Happy New Year. Crazy times, man. Crazy times. >> Crazy times. Let's dive right in, Jim. Um, I had you on about 11 months ago on the program. Really enjoyed the conversation. Um, you you said basically that the system has two exits. Either it's a massive blow up or we'll need a miracle, meaning a productivity increase. What are you seeing in the data right now and where are we at? >> We got the productivity, right? We're going to run the Well, we're going to run the US. I'm going to be specific. Uh uh the US as in a productivity miracle. They're going to run it hot. Um you know, uh Bent and Trump's economic policies are supply side in nature. And what that really means is if you think about going back to high school economics, all they're doing is shifting the supply curve out while keeping demand curve constant, which means prices go down and output goes out, right? So we're going to have they're going to run this thing hot. Uh, you know, and rates are going to come down. They're going to deregulate and we're going to grow our way out of it. I think the interesting thing for for me is you know when will Wall Street and you know the punditry wake up to the fact that Trump's policies are just classic supply side. They are non-inflationary and they're good for the deficit. So now it's just basically a matter of when does Wall Street actually do some work and kind of abandon its Trump derangement syndrome. There are some interesting statements in there we need to follow up of course. U maybe we'll start with supply side dynamics and uh is it just the government funneling money into the system or is it just enabling money to flow towards the supply side here? Maybe you can elaborate on that a little bit. Who's financing it? >> Well, it's where it's really when you think about it is where does capital go in a basic in in a first principles type of does capital go to productive areas? So you'll hear people talk about productive capital. You'll hear about manufacturing. You know, you'll hear Trump talk about make America skilled again as opposed to taking that capital and making financial products, right? So capital is no longer solely going into the financial industry to make products or and what it's do financial products and what it's doing is it's going on into the real economy and Trump and descent and and Lnik have structured it so that it is pushing the supply curve out which is good for GDP growth and good for prices to come down. The problem you have is Powell and the Fed and Wall Street, a generation. These are this is generational in the sense that they're all Keynesian, which means that all they've ever done is focus on the demand curve, not the supply curve. So if you deconstruct it and just sit there and realize that since Bernani got in or Bernanke's influence into the Fed got in like about starting 2000 they have been slowly using one little small sect of economic theory which is Keynesianism and let me let me be specific and clear went to Canes when he was dying and Keynes had remorse over for the fact that how he titled his his work the general theory. He titled it the general theory so it would sell more books. It was really only written theoretically for a very narrow part point in time in history which was the depression of the 1930s. And yet we have academia and central bankers from around the world misusing Keynes's own theory. Right? So to me, how long is it going to be before the central bankers? So think about the Fed. They're all Keynesian. And think about all the central bankers from around the world. Look at Mario Draghi and Ben Bernankei's thesis supervisor was Stanley Fiser at MIT. This is a history of economic thought question. And so when you think about what Bent is doing, he understands this. They're shifting the focus. It's now supply driven. And what we can term it Trump derangement syndrome. Maybe what it should be is is Wall Street and the central bankers need to go back and recognize that there's more chapters than the Keynesian chapter in their macroeconomic textbook. >> You you said one other thing earlier as well is that you said this is all non-inflationary. I'm just going to ask like he offered or sorry, President Trump said we're going to buy 200 billion dollars worth of mortgage back securities. Um how do you think that will funnel through the system? It's not inflationary. >> Well there. Yeah. So here's here's you know we're gonna all roads lead to Ben uh to Jay Powell today right? >> Yeah. >> But really when you think about the Fed really they have you know hey you know Jay Powell cut 50 basis points before the election to help Biden and Harris and and and the Democrats to for the Fed to sit there and say that they're not political is is really is really uh disingenuous. Okay. So, look, there is a spread. The 10-year the the mortgages are are basically there's a relationship between mortgage back securities and the 10-year. And what the Fed has been doing is it it has been selling mortgage back securities into the market as part of quantitative tightening. Fine. What that has done is that has basically generated a spread between where the mortgage back securities are or where the mortgage rates are the 30-year mortgage fixed mortgage rate in the United States and the 10-year. And that's all predicated on Fed policy. They're doing it. Powell's doing it. Powell has created the recession in housing. Okay? All Trump is doing is going in there and purchasing mortgage back securities. So the spread between the the 30-year mortgage and the 10ear gets back down to historical norms, right? And at the same point in time, what has pal done? He's taken too much liquidity out of the system. He he has not learned from history. He did not know or he has chosen to ignore what happened after World War II when they took too much liquidity out of the system and contracted the Fed balance sheet too much. Any basic graduate student in economics knows that he's making a mistake. And so what is he doing? He's now trying to step back and try to provide liquidity into the system, right? Because the overnight lending rates in in are are very tight. But yet at the same point in time, he's ignoring the housing market. Somebody in the in the mainstream media who has access to him should ask him that specific question. Why are you ignoring the housing market? Why are you basically ignoring the fact that you've caused a recession in the housing market? The unaffordability uh or the affordability crisis in housing was caused by the Federal Reserve. Why don't you own it? And so pal, you know, what Trump is trying to do is just counteract what the Fed is doing. And so there when you sit back as an objective researcher, you sit there and go the Fed has to get back, stay away, get back on the sidelines and let the market let the market determine it. But he also what he needs to determine the business cycle, determine credit creation. But at the same point in time, the Fed has got to stop putting its finger on the scale of detrimentally hurting the housing market. And what Trump is trying to do is counteract Powell. >> That's that that's interesting like because you would expect with cut, you know, lower uh Fed funds rate, you would assume that the mortgage rate comes down. But there there is a disconnect. We've seen it a few times now. Whenever the Fed cuts, mortgage rates actually jump higher. We've seen that with the bond yields as well. Um simultaneous. Maybe you can elaborate and explain that a little bit more, Jim. Like how should we understand that? Like the Fed has been trying to cut, but the market is not responding to it, meaning the mortgage side. Um, why why that disconnect? Why aren't they listening to Powell here? >> Oh, I think what's really happening is that you've got a bunch of Keynesians in the So, the credit market that you and I are talking about today is not the credit market. When I joined the business, when I joined the business, the credit market was was basically um driven by long-term investors, insurance companies, and endowments and pensions. Now, hedge funds are there and hedge funds are the marginal trader in the credit markets and and hedge funds bet. Okay? They are short-term investors. They have a memory of a knat. So, what you've got is the credit market is completely different. And I would suggest to you when you go to Wall Street, they are Keynesian and they're Democrat. And they do not believe they do not believe that supply side economics. They do not believe that Trump's policies is deficit friendly and brings inflation down. So the big trade for 2026 is going to be when does Wall Street and the bond vigilantes wake up and smell the coffee and realize they're on the wrong side of history, right? And on the wrong side of the trade. We're going to get CPI numbers out. I mean, look at all you got to do is look at what rental prices are doing and just look, you know, listen to Lenar. Lenar is saying that home new home prices are down 10%. And yet we are still using a flawed shelter variable and owner's equivalent rent and CPI and any PhD in Wall Street or on the Fed that does not understand that should be fired. Okay. So then you really what you have to ask yourself is the question if you're an exec if you're an objective researcher why are you predicating your thesis off of a taint tainted tainted data that everybody and their brother knows is tainted right that's the question because once you take out shelter and you put in market-based numbers right the inflation number goes away and this goes back to what Trump is saying about pal pow has been completely and the fed has been completely and totally disingenuous they have been politically motivated and you know yes we're talking about you know whether or not he was clear and concise and truthful to the Senate about what was going on with the building but having said that Powell's legacy will be this is the worst Fed in modern history and he owns it >> always too late too late Powell unfortunately so um 95% chance of a no cut. Is that what the market price is in right now? Um you just hinted at what should the wall what should Wall Street and the bond vigilantes do? Like let's assume they do wake up like where should they be investing? Where should they be putting their money and what what should they be doing, >> right? So the the argument is this, right? And this goes back to what happened in post World War II. Like this is just history, right? This isn't cold fusion. The Fed needs to get to neutral. And what do I mean by that? The Fed needs to get its balance sheet to the level where the capital markets or the credit markets can function freely, right? They've got to get away from micromanaging the business cycle through the shape and size, you know, the the the the duration of their their book and the size of their book. Okay, that's one. So, get to the point where the the the balance sheet is is basically neutral. And then what they've got to do is they've got to get interest rates to neutral. Okay, I think using the Fed's own data out of the New York Fed, right, that you know it should be around the Fed funds rate should be about 275. So if we were objective here, it'd be get the balance sheet to neutral, get the Fed funds rates to 275 and stand back. Get away, right? Stop doing stop affecting the business cycle. Stop the mission creep which has started in in was supercharged after the global financial crisis. Get back so that you can be independent. But what you're focused on is you're not focused on unbanking people. You're not focused on making a determination of whether crypto is good for society or not. You're focused on independent monetary policy given that the business cycle is either overheated or or contracting. And when you think about it, what I'm trying to say to you is the interest rate sensitive area of the economy, that area of the economy that the Fed has control over is in a recession. Why they look at the data holistically and do not disagregate the data is as an economist with a PhD any PhD at the Fed that doesn't do that is not worth the wait as an objective economist. So then I say to you is then what the heck is going on? I have no idea. All I know is is that the interest rate sensitive sector of the economy is being absolutely hammered. It was not the interest rate sensitive area of the economy that caused inflation. It was Janet Yellen and Leah Bernard who were two senior Fed officials that were in critical positions of the Biden administration. They did it. Ad Powell, the Fed owns this. Does the Fed have a chance to heal itself, meaning become relevant again? Like we Jerome Powell's term ends in in May. As we all know, Steven Mirren is supposed to be reappointed by the end of January or could be reappointed by the end of January. How do you see the chances of the Fed becoming relevant again? Like we always talk very negatively about them. >> You put Kevin Wars in as the chairman and he I'm not saying anything that smart people don't know. This is the whole this isn't like I'm not this you know the the I'm the I'm one I'm willing to talk about and I have freedom at being at Willington altis to basically call a spade a spade right >> Kevin Walsh knows this. So if you're an objective economist, you know this. >> All right? You know, whether you're a Wall Street economist and you're trying to, you know, become an insider and get invited to Jackson Hole, that's not me, right? I get paid to be an objective researcher, right? They know it. Just go back and listen to Kevin Worsh's interviews. They're there. They know it. Stop. And we got to deconstruct the Bernani era that started in 2000. And the way I put it much more diplomatically is you got to kick the Keynesians out and he understands that. So you need to start and it's going to be a tough road to hope as far as I'm concerned because you know you've got this is this is the Fed an institution, right? Think about this, right? Think about the fact that you have regional Fed presidents making interest rate decisions that do not have a graduate degree in economics. Think about that. I mean, think about if the Supreme Court of the United States had individuals making decisions on constitutional law that took an undergraduate law, a law course that didn't know, that weren't experts. this this mission creep of what has happened at the Fed needs to be reversed and it's going to take an individual who understands Wall Street, understands the Fed and has the constitution to do that. And I think it's worse, right? I think I think uh you know I think uh Waller is is is plan B but you know this is going to be tough. They have destroyed the reputation of the largest central bank in the world. The most important this is not going to be an easy fix. >> What would be the first move that you'd like to see from any appointee here? um would it be cutting by 50% 50 basis points uh at the next meeting right after or what would you have to see >> when you hear Mr. Morant talk and he's the Fed's he's the the President Trump's replacement. He says it very clearly. All they need to do is why Powell doesn't come out and basically say or pal anybody come out and say we recognize that the shelter that shelter is is a flawed characteristics. We're putting marketbased in. We're going to get ourselves down to the Rstar. We think the Rstar is 275. I could argue that it's lower, right? I could argue that it's lower. Okay. But it's 275 and then we're going to stand back and let the business cycle take care of itself. We want to be not tight or loose. The Fed is tight. The Fed is tight for interest rate sensitive areas, right? And we need somebody that understands economics and actually calls balls and strikes objectively. And Powell and the current Fed are an abomination. It's a joke actually. It's it's a dis it's it's really a disappointment. >> Yeah, we we we can see it. Like it's not really helping anybody. It's not really affecting the market, whatever they're doing. So, something needs to change. Something needs to give. Um No, it's it's an interesting discussion on the Fed. We got the next Fed meeting here in 16 days. We'll see what what happens. Uh especially the language at the press conference and see if he comes back to what he's been accused of here lately as well. Um Jim coming back to productivity real quick because we we sort of skipped that topic itself. Um like how do we achieve or how do the US achieve that productivity growth like where are you seeing it? What metrics are you following maybe watching? >> It's it's well for the productivity came out about 4.9%. But it's really simple you enable productivity you enable capital and you motivate capital to flow into the private sector. Right on in the big beautiful bill 100% 100% tax deductibility of capex you get capital into the productive areas of the economy and let businesses do their job in allocating capital right up here in Canada right it's it's funny because you know the economists up here don't realize that the public sector is crowding out the private sector and what do we get we get negative G uh productivity, right? So to keep it really simple, it's empower capital to move into productive areas of the economy in the private sector and the market will and the economy will take care of it. The incentives will take care of it. This is basic Adam Smith invisible hand University of Chicago economics. This isn't MIT, Princeton, Yale, socialist economics. >> Interest I'm surprised you haven't mentioned AI in all of in your answer now. So the question of course like how does that factor and do you still do you count that as part of the the private sector meaning AI investments, data center rollouts and things like that? >> Yeah, we've grown. Yeah. I mean what will happen is people will so when I say that I mean you know everybody's like and I go look at what's going to happen is the smart people like I use AI right and and what what do I do? I don't need I don't need a kid from university that just graduated to do me, hey, let's go back and talk to me about what happened in the 18 between 1880 and the 1900s with respect to the um the railway built with the rail respect to the railway buildup, right? I can go on there and I can get a summary of academic papers and counterfactual studies and I can have it on my desk in less than five minutes, right? That's productivity, right? And yes, AI and blockchain are going to be absorbed by banks and people are going to get laid off. But I guess where I am in the cycle is it's self-evident. It's going to be the technology, right? And there's going to be Jeban's paradox too where whereas you know with Jeb Jeban's paradox as the price goes down, you know, we use more of it. And so what I would just say to you is that is that you know we are in such early days of where we need to be in this evolutionary process. And yes of course it's obvious it's AI. It's obvious it's blockchain. And so I'm you know personally I've kind of you know it's kind of like jumped the shark. Of course if you don't I mean I hear everybody talk about AI now. It's it's it's it's tiring, but yes, AI is there, of course. And we've got to get to artificial general intelligence. Yes. And we're just early building it out. Yes. And do people understand it? No. Are they using it? No. It But they will. And the smart companies and the smart individuals that do, their ibito margins will go up. Smart people understand that, right? Think about this. The back offices of every major money centered bank is going to be ripped out, put on the blockchain and use AI. The IBIDA margins on financial bank on banks is going to have a renaissance and grow like you wouldn't believe. They're going to be deregulated and they're going to be able to use this technology. So you ask me about AI, it's more of Yeah. Okay. So, it's the Nvidiaas and the Microns, but also I say you guys better be overweight banks >> because yeah, Tes Tesla's there in terms of implementation. Palunteers there in terms of implementation, but just think about what's going to happen to the back end of the banks and and what their margins are going to look like. I mean, think about what JP Morgan is going to look like if we price it like a growth company. >> Yeah. With increasing margins. >> With increasing margins, is it worth two time? Do you do you put a two times do do you do you put a two times book multiple on it? You know what I mean? I mean I you know but it's you know that's why I say to folks when I you know at Wellington I sit there and say you better make darn sure you're long banks because Jamie Diamond knows this. This is the point. They know this. >> They absolutely do 100%. Um you you sort of hinted at it Jim already. Maybe just to recap a little bit of your answer, but where in the cycle are we in the boom cycle right now? Like you it sounded like we're still very early, but I don't want to put words in your mouth here, Jim. Um when it comes to that productivity and boom cycle, where are we at >> early? So, so the big the big the big trade. So, what we've got, okay, just to frame it, we what we've got to do is realize that the economic data over the past couple of years has been basically destroyed because of COVID and Biden's and I'm supposed to be specific on the United States in the immigration and all those insanities. So, what you've got to do is you've got we've got to go through a detox period. Think about what the labor numbers are going to look like going forward when we lap all of the crazy stupid immigration that the Biden and Harris administration did. Okay. So, when I when I wrote it and it's on my on Twitter if you want to go there, I posted my my 2026 forecast. The big trade for 26 is going to be when do you put the early cycle trade on? When does Powell get shuffle off the buffalo? When does interest rates come down? When does the consumer get enough capital to start spending again? And that would be an early cycle trade. So when you talk to me about what Trump was doing with the 200 billion for the uh for the mortgage back securities, all the early cycles just took off. And so th that area of the market that is interest rate sensitive and has been bombed because of PAL that is going to get new life Brett um um put into it. So you know right now it's yes you have to have AI yes you have to have banks and the question for 26 is when do you put the early cycle trade on? How early and how fast you want to go? is I'm making a I have to make a call. My call is that cooler heads are going to prevail that the bond vigilantes are eventually going to wake up and do some work, right? That that that it's going to get embarrassing for people to continue to support what the Fed is doing when the data completely and totally supports what we've been talking about for the last 25 minutes, right? rates come down, gasoline prices come down, the US consumer is not as levered as they were coming out of the global financial crisis and that kicks it in. And then also what you do is you deregulate banks for credit creation. And what that does is it increases the velocity of money and the economy kicks in. And if we're right on that, then we don't go to the zero bound. And then then the Fed has to kick in and really start to do their work in terms of are is it over? Are we overheated? And do we have to raise rates? I mean, but but to now we're still dealing with the mistakes of the Biden administration, the mistakes of what we did after the global financial crisis in terms of regulating the banks so that they do not lend to Main Street and the mistakes in terms of immigration. Once we get that done, I'm a I'm a big proponent. Look, the era of US exceptionalism has just started. We are in a golden era. People better understand what the heck the Trump doctrine is. We are in going to be in a strong dollar era, not weak. I know that's contentious, but look at the United States economic growth compared to Germany. Look at what's going to happen with Ch Trump and she when the United States now controls Venezuela oil and if Iran falls the regime, what is China and Russia going to do when they lose that leg in the stool? I would suggest you put on your bingo card a grand bargain in the spring between Trump and she because one of the knock-on effects of Venezuela is the fact that China is getting weaker. Their position geopolitically is getting weaker and weaker by the day and Trump's getting stronger because of the fact that he controls more and more oil. fact. No, absolute fact. Jim, I want to use the last two minutes. Maybe that sort of ties in what you just mentioned, but gold and silver have been rallying and I'm wondering if it's just a fallout of the geopolitical turmoil or if there is more to it. So, I'm really curious your take on that as well. >> Well, we finally got that generational trade we've been waiting for my whole career last year. And I would suggest to you that it is now at that that that I So, let me put it this way. Um I don't think we should expect a trade like we had last year this year in gold and silver. Having said that I think gold and silver being an important portion of your portfolio I think is very very very important. And I think if you and I were talking just to go where I think the catchup trade is in buying low and is the fact that this week we get I think the passing of the clarity act and Bitcoin will catch up to where gold and silver are. So I love gold and gold and silver. I don't like parabolic charts, so to speak. And but at the same point in time, gold and silver are going to have a wonderful run into the end of the decade. But I would not be surprised if we have a pause here just for to get a little bit of bre uh to to to get a breather here, right? But I I think I think gold, silver, and Bitcoin and if you want Ethereum are all required exposures in a diversified portfolio. >> Awesome. No, Jim, that's that's really useful there and really appreciate your insights. Um, maybe really short because I just read about it this morning and I should have asked earlier, Jim, but uh, President Trump wants to cap credit card interest rates and it sort of ties in with your last second to last point here. Uh, real quick, you and you mentioned the banks. Uh, I' I'd be aiss not to ask, but what do you make of that if their earnings are being potentially capped here by the president? >> Yeah. People say, "How was your weekend?" I said, "Well, I I I didn't have a weekend because President Trump was active, right? It's it you know so for the banks for the big banks it's somewhere between 8 to 10% of earnings if they cut them down but I think the long runway for banks is so profound for the end of the decade and it's only for one year that if there's any weakness in these big banks I would be a buyer. >> Okay. No fair fair fair enough Jim. Thanks for humoring that. I would have been uh kicking myself here not asking that question as a follow-up. So and probably my audience would have crucified me in the comments as well. So, um, no, Jim, tremendously appreciate your time as always. It's great to catch up. You, you mentioned your big outlook for 2026. Where can our audience find that? Where do we follow you? >> You, yeah. Uh, I'm on X, Dr. J Strategy. I'm on X. I post my market insights monthly. They're free. And if you want my conscious stream of thought, you can follow me on X and you'll get all the real time stuff that I'm dropping. >> Fantastic. Awesome, Jim. Thank you so much. Tremendously appreciate your time. It's good to see you. Happy New Year again. Um, we need to make this coffee happen at Pedak in March, early March. So, I'll reach out to you again when we when I'm in town. Really looking forward to doing that. Um, really appreciate your time. Thanks so much. And everybody else, thank you so much for tuning in to Soore Financially. I tremendously enjoyed the conversation here with Jim Thorne. He's the chief market strategist over at Wellington Altus. Go check out his X page. Uh, go check out his forecast for 2026. Some really good content in there. And uh if you enjoy our content here, hey, hit that like and subscribe button. We tremendously appreciate it. We want to hit 100,000 subscribers by the end of this quarter. Let us achieve that together. Thank you so much for tuning in. Take care out there.