Changing Tides: What’s Next for Markets After the Midterms?

DISCLAIMER 0:10

The views expressed in this video are those of the panelists and do not necessarily reflect the views of U.S. Money Reserve.

MIKE BARNES 0:20

Welcome to America’s Gold Authority Podcast. My name is Mike Barnes. It is a divided government. Midterm elections have put Democrats in charge of the House and the Senate. What is that going to do for the country? What is that going to do to stock prices? What is that going to do to the price of gold? Let’s bring in a couple of experts and find out. Philip Diehl, 35th Director of the United States Mint, President of U.S. Money Reserve, and Ed Moy, 38th Director of the U.S. Mint, and senior IRA strategist for U.S. Money Reserve. And Philip, I want to start with you. What was your initial reaction when the numbers came in on election night?

PHILIP N. DIEHL 0:54

Well, uh, I’m True Blue, so of course I was delighted by the outcome. I was not surprised uh by what happened in the Senate. I followed those races very closely. There were a couple of little surprises at the margin, but the races that I had not followed, such as in the House and in the gubernatorial races, I was surprised. They’re um the size of those of the blue way was uh significantly larger than I expected. Ed Moore, your thoughts?

ED MOY 1:24

My initial reaction as a Republican is oh no, we really screwed it up big time, uh this midterms. But as an American, I look at it and saying, what a great country we have, that we can have uh systems of checks and balances and a changeover like this without massive riots in the streets like we’re seeing in Europe right now.

MIKE BARNES 1:45

When we first look at it, yes, Democrats won, Republicans lost for the most part, but there were a lot of other winners and losers, Philip Deal. Tell us about that.

PHILIP N. DIEHL 1:54

I I think when we look beyond, you know, the obvious winners and losers in terms of the president’s stakes and the parties and the candidates. I think there are several uh pretty clear uh winners and losers. On the loser side, I think one of the losers in this is going to be Benjamin Netanyahu. He cast his uh his future and to a certain degree his country’s future with the Republican Party. And that has been an undercurrent in this campaign and really uh over the last several years. And it was certainly an issue in a number of the races. The president made it an issue, the Republican Party made it an issue. Also, Democratic candidates uh have made it an issue in the last several years. So I think we’re gonna see uh sort of a reckoning uh uh come forward. And the president himself uh has uh made that a point uh just on election day in which he said he he uh expected that uh aid to Israel was going to end. I think that was a shock uh in the American political system. If it’s to be taken seriously, it’s a shock to Israel. We’ll see if that actually comes to fruition. That would mean a significant change in U.S. policy, not just to Israel, but in the Middle East. Uh, I don’t know whether it will occur or not. But that uh in any case, uh, that is going to be, this election is going to be a watershed in that relationship. Also, one of the losers, no doubt, is going to be uh Elon Musk and uh the so-called tech bros. They invested, Elon Musk himself invested about a half a billion dollars in this election. Unbelievable numbers himself. Uh the tech bros uh themselves invested about $650 million. Their track record in this election was horrible. They uh lost about 90% of the races that they invested in, and the other 10% were solid races in which there was virtually no competition, no chance of loss. They they’re gonna face a reckoning with a Democratic Congress. Um, how you know how it shapes up uh is uncertain.

ED MOY 4:30

Uh I would uh agree with uh Phillips’ analysis and add uh maybe a little bit different perspective. I think the American people are um gonna get the short end of the stick on this just because of the growing polarization uh here in America, especially with our politics. I I congratulate the Democrats for uh winning solid majorities in both the House and the Senate, but uh a larger percentage of the people elected uh come from the uh left wing or far left wing of the Democratic Party, uh pulling it further in that direction. Philip, uh you know, I think watching your career, I would uh call you center left, just like I think you’d call me center right. And we’ve seen what a right word poll on the Republican Party has done to its ability to govern. I think that same poll on the Democratic side is going to cause some governing problems on their side.

PHILIP N. DIEHL 5:30

Well, I think um I think what we’ve seen is certainly the headlines have uh and the media have focused on candidates on the left, the so so so-called social democrats and the Northwest and the industrial industrial Northwest and in uh Northeast and in uh and the Northeastern U.S. that have won races. Uh, but when you look at the overall map of the United States and where Democrats have won, they’ve won in ruby red districts and in red districts, and they’ve won with moderate candidates. That has certainly been the case in Texas. And when you look in the in the Midwest, in the Plain States, and in the South, and in the West, and those have been moderate Democrats and center-left Democrats like me, uh, who worked for a moderate Democrat in the U.S. Senate, Lloyd Benson. And I think they outnumber the left Democrats when you add them all up. So I think the overall weight of this new Democratic Party that will be in Congress next year is going to be still center left. It’s not going to be far left. And I think one of the things we all worried about was that this would be a really narrow Democratic majority, like the narrow Republican majority that Speaker Johnson had to deal with, in which uh it was hard for him to keep a majority because he had to deal with the extremists on the right. And really, he had a hard time governing because of that. But Speaker Jeffers Jeffreys is going to have the luxury of a very large majority. And as a result, I think he’s going to have a lot more room to maneuver and to manage his more liberal members, his more progressive members. The other thing I think is that everyone in the party, almost everyone in the party, is really focused on 2028 and what it means for not just the party, but for the country to win in 2028 because of how much is at stake for the country. I mean, we know that Social Security is on the brink of collapse after 2029. And I think we’re going to have a recession between now and 2029. And if we do, then the Congress that comes in in January 2029 is going to confront a Social Security that is on the brink of insolvency when they walk in the door. And they’ll have to fix that right away. And so the can’t the election campaign in 28 is going to be facing that. And if you know Democrats don’t win, then uh we’re going to be looking at a major challenge to the bedrock of the social welfare state. So I think everybody understands on the Democratic side what’s at stake. Uh going back to the New Deal, going back to the Great Society. Uh, and uh the attention is focused on that, and we have the luxury right now of those big majorities. The other thing everybody’s focused on too, because we’ve failed to do this in the past, is redistricting coming up in 2031. We know that the Republicans have beaten us to death with redistricting in 2020 and 2010. Oh my gosh, and the and the consequences of that have been awful for us. And finally, we’ve had a wave election that have set us up to take care of redistricting, and we must do that in 2030, not so that we can re-rig the maps in our favor. That we have done that in the past as Democrats, but we must derig them so that there’s fair representation of Americans without gerrymandering. And I know people are cynical when Democrats talk about that, but that is what we must do. Americans must feel like that the system is being derigged so that there is fair representation. We must do that with money in politics, we must do that with gerrymandering, we must do that in a number of ways, ethics and politics and such. I’ll get off my soapbox now.

MIKE BARNES 10:37

Ed, when you look back at the election, is there any well, I think it was that one thing that hurt the Republicans. Is there one point, one factor that that changed the outcomes?

ED MOY 10:50

That’s a really good question. I would start uh by I don’t think there’s one thing. Uh I think if if you would broadly define what that one thing is, it is general anger and frustration on the part of the electorate, taking it out on the uh party in the White House. Uh but when you think about why people are angry, it’s for a wide variety of reasons. You know, just anecdotally, talking to some of my friends, the unplanned war uh uh that we’re currently fighting that doesn’t seem to have any type of resolution to some of my middle-class friends talking about the cost of living and the price of gas. And so, and others, uh particularly my friends on the leftward side of things, the aggressiveness of ICE and uh and immigration issues. And so I think a wide variety of issues cause the general anger. And as we’ve seen in uh the vast majority of midterm elections uh in modern history, uh, the uh whatever party the president is during the uh midterms, the opposite party uh usually ends up gaining seats. And it’s because of the reactions to uh to the policies that the president is implementing. Uh as a matter of fact, it’s really interesting to me that uh Phillip uh is also uh on this call because Phillip’s boss, uh Bill Clinton, and my boss, uh George W. Bush, were the only presidents in modern times that actually gained during one of their midterms. And uh when I think through Clinton, uh, you know, he started off uh trying to implement all the various things in kind of a clumsy manner. And in 1994, uh the voters reputed uh uh um uh went against that. Uh once he kind of got with the program, his uh other um uh midterms in uh in 98 went splendidly for him, and he actually gained a couple seats. George W. Bush was opposite. The way that he handled and pulled together the country after the 9-11 attacks uh gave him one of the largest midterm gains uh of any president. Uh but after our six years of being uh in the White House, uh people got tired of how we were fighting the war on terror. And uh with the um percolations of the financial crisis, uh George Bush lost seats uh during that midterm election. Uh and I don’t remember, uh Philip, about you, but I remember uh when when Congress, uh both the House and the Senate, uh flipped in uh 2006. And uh being part of the administration, we were spending most of our time uh responding to uh oversight hearing and FOIA requests uh from Congress. That was not a very pleasant time to try to get work done.

PHILIP N. DIEHL 13:52

No, I you it was awful because during during my time it was uh Whitewater, and of course, Treasury was deep in uh the whole Whitewater issue, and there were, you know, there was the Secret Service issues about whether or not the Secret Service was the leak about the what was going on with the president and and the first lady, and and then in ’94 was the Gingrich Revolution, and uh-oh, it was this terrible mess. And I was chief of staff uh at the Treasury Department at the early part of the of the Clinton administration. So, and also there were the investigations of Waco that was occurring during that period of time. Oh, it was just an awful period of time. So uh in the early days of any administration transition, you know, from one administration to another, much less from one party to another. It’s just chaos. So yeah, those were hard times. I was delighted to get out of that area and go over to uh the United States Met.

MIKE BARNES 15:06

Philip, I know that you think that AI is a huge, huge issue, and you have a graph that refers to that.

PHILIP N. DIEHL 15:12

Yes, I do. It’s titled Outcome of Closely Contested or Flip U.S. Senate Races. Now let me say this. This map really does not give the flavor of how widespread and how deep data centers, the role data centers played in this election. It really went down to the local level. People were angry about data centers right down to basically the dog catcher level. People wanted to elect people who would listen to them right down to the county commissioner level because they felt like they weren’t being heard about their legitimate concerns about data centers and not just about data centers, but AI in general. Also, they were angry at the technology elites, the tech bros and the people who were funding the campaigns. They felt like data centers and AI in general were being shoved down their throats. And in many cases, it was. These data centers were being put in their communities without being any kinds of consultations or any kind of meaningful kinds of consultations at the local level. These issues were popping up at local levels all the way up to gubernatorial campaigns and Senate campaigns. And this was not a situation in which the issues were being driven by local and state newspapers. The newspapers and the media were discovering these issues being driven from the grassroots. And I know this because I identified data centers way early on. I knew it was going to be a populist issue left and right. It was going to be a nonpartisan or bipartisan issue. It was going to anger both suburban people and rural people and in Republican and Democratic districts. So, but it did pop up in the Senate races. And on this graph, you can see the races, the close races, where it made a difference. It made a difference in the outcomes of these Senate races. And it ranges from Maine and the Northeast and New Hampshire across to South Carolina and North Carolina, all close races at one point or another, uh, Michigan, Ohio, Iowa, Kansas, and Texas. In all of those cases, it made a significant difference in the outcome and helped elect Democrats. On the other hand, it played a significant issue in electing a Republican in Nebraska. And it also played a significant role in two states where the outcome is not known yet, in Mississippi and Alaska. I think it’s pretty clear to me, I’ve looked at the numbers very closely in Alaska. I think it’s clear Alaska is going to end up once all of the early voting numbers come in, that Alaska is going to end up going to the Democrat. It’s not clear to me yet how Mississippi is going to turn out. It may be another week or so before all those numbers are in. But at the senatorial level, those uh elections uh have been determined where where data centers were uh played a role have been determined overwhelmingly in favor of Democrats. Also, there were 41 major ballot initiatives on uh on the ballot in across the country on election day. And of those 41 data center uh initiatives, 40 of them went against data centers. So uh Americans really spoke loudly on data centers. Uh this is bad news for uh AI. Uh AI cannot really afford this sort of political opposition on top of the growing concerns that have been seen in the marketplace over the last month about the amount of debt, the enormous amount of debt that data centers are requiring, and the hyperscalers are going to debt markets to fund. There’s increasing nervousness about that, and especially in an era of rising interest rates. So, this is another reason for why we’re seeing the NASDAQ respond today with uh such uh negativity about um about the prospects for uh hyperscalers in particular, but AI in general. And I’m not saying that’s a good thing. Uh I am saying what I’m saying that especially from a gold perspective, this is a caution to investors that you must hedge your bets because AI is the point, is that negative, that tiny little point on which the entire stock market is hanging. And if that tiny point in the pyramid crumbles, then your 401ks and your IRAs, whether you know it or not, are heavily invested in it through those passive index funds in AI. And I’m not telling you to sell all that, I am telling you you need to hedge against it, and your bonds are not a hedge against it anymore. That this is something we’ve been talking about in the previous episodes. I’ve been driving home over and over again. Those 6040 portfolios are broken, and they’ve been broken for over a decade. And many of you have not been told this by your advisors. They continue to sell that 60 40 portfolio. You must hedge outside of the bonds. And of course, I sell gold, but the evidence is overwhelming that gold provides that hedge. There are other ways also, and you can get advice about those other ways. But gold, the evidence is absolutely clear. And I’ve been talking about that evidence and showing you that evidence, and I will continue to do so. But gold is the powerful hedge. And you can start with a 60-2020 portfolio if you just want to get started, where you have 60% stocks, 20% bonds, if you need to have the income and 20% gold. But you need to have that. Myself, I recommend a higher uh you know portfolio than uh dedication to gold than 20%. And I’ve you know talked about that in the past. I’ll talk about that in the future.

ED MOY 22:56

So I can say this. Uh, this is one area that I agree with my Democratic colleague. Uh, it’s amazing. We can show bipartisan support uh for this idea as gold as a hedge. Uh, not only for everything that uh Philip was saying about uh the risks in the market uh being so heavily into AI investment right now, but also with the uncertainty of the future. Now, with uh a different party in charge of both the House and the Senate, uh, we’re headed to at least two years of ongoing confrontation. The Democrats aren’t gonna get everything that they want because uh the president seals veto power and there’s not veto-proof majorities in both the House and the Senate, which means they got to fight over everything and trying to figure out ways to compromise. And as a result, uh you’re gonna see a lot of uncertainty and a lot of volatility uh in policies, which then will have an impact on cash, stocks, and bonds, uh, which means you need a hedge, and uh gold is a time-tested way to do that.

MIKE BARNES 24:04

Philip, I think that there’s no question that a lot of people are looking at the Senate and what has happened. Now, they didn’t get a supermajority, but having a vast majority of more than 53 senators on the Democratic side is going to change things quite a bit. And you have a graph that shows what the makeup is for the next Congress.

PHILIP N. DIEHL 24:22

This little map shows you how the makeup of the next Senate will be. And most states are either red or blue, which shows that the states have either two Republican senators or two Democratic senators. There are a few that have one Republican and one Democrat. Most of those have really just come in this election where the delegations are split. Ohio is an example, Texas is an example, Kansas, North Carolina, South Carolina, Iowa. All examples uh where just through this election, the new Congress will see, the new Senate will see split delegations. Also, Maine. Maine now has a split delegation. Vermont, they’re split delegations because those two states have independents who uh hold Senate seats, but they both caucus with the Democrats. So we count those as Democrats because they caucus with the Democrats. So we do now, we have flipped from a 53-47 Republican majority to a 54-44 Democratic majority. I think it will end up being at least 55 and perhaps as many as 56 Democrats for a supermajority to run the Senate uh without a filibuster-proof majority. The Democrats would have to have 60 seats or would have to have defections from the Republicans in order to get to 60 votes. They do not have that. So the Republicans will be able to block any Democratic legislation through filibusters, unless the Democrats get rid of the filibuster. I do not expect that to happen, not at the beginning of the legislative session. I um I could see it happen later. Uh if, depending on how the Republicans exercise their filibuster power, um, I don’t think it would happen, but uh I I would not rule it out. The president will have the veto, and there’s no way that uh the Democrats have the power in either the House or the Senate to overcome a veto. So it’ll be a tremendous power to block the Democrats. Uh also the president has shown that he is willing to push, and some would say, go beyond the uh executive powers uh outlined in the Constitution and exercise those powers to the limits of his imagination. And and um and as far as the courts will uh allow him, and uh and I expect him to continue to do that, although he might attempt to be more reasonable now. I mean, he he was able to uh get the Republican Congress to go along. Uh and he knows now that the Democratic Congress won’t do that. So he may, I don’t know, he might be more cautious. It’s hard to tell with this president what he’s gonna do. And his initial uh voice has been pretty moderate here since the election returns have come in. So who knows? I mean, uh I, you know, I I wouldn’t wager what’s gonna happen uh at this point. But we can we can hope for the best. And I would certainly hope that the uh Democrats would at least leave the door open. But there’s no question that these election returns will embolden the Democrats to take him on. Uh and they will look for opportunities, they must look for opportunities. There is no choice to look for opportunities to work with him because there are certain things that just have to be done. There’s a there are budgets that have to be passed. They have leverage to get things done they want to get done in the budget process. Yep. I think it’s in April where we hit that debt limit. Yeah, there’s a debt limit. So that has to be done. And that’s gonna be a big confrontation. So yeah, that I mean there’s no choice. They had to work with him in some ways. And yeah, they then those are opportunities where they have leverage. So, you know, there are there are opportunities.

ED MOY 29:21

Yeah, and I do agree with you. Uh, even though there’s big majorities in both the House and the Senate, I wouldn’t count uh President Trump out. He’s shown himself to um have an out-of-the-box uh view on what his powers are and is willing to push the boundaries. One thing I wanted to pick up on that’s a consequence of the elections, is the fact that with these oversight hearings, uh, this current scuttlebutt in Washington is there are not only staffers but cabinet secretaries that aren’t too fond of being uh put under the microscope, let alone having the possibility of being impeached. And so you’re gonna see some attrition there. And it’s gonna be much harder for the president to recruit replacements and get them confirmed uh with a Senate that doesn’t see things his way. And so that’s going to be another factor to slow down progress in government.

PHILIP N. DIEHL 30:21

Yeah, and and I think to some some degree, I don’t think I’m not sure the president cares about having cabinet secretaries confirmed. I I think he likes to have acting cabinet secretaries in there because they just follow his orders. And I just I just, you know, he he likes to have actings in there. So I I don’t know if it matters that much to him whether or not he can get his own people in there. Certainly, uh I’m surprised that Supreme Court Justice Alito is deciding to stay on the court rather than giving the president an opportunity to uh appoint another justice. Of course, if a seat opens up, there is no way this Democratic Senate will confirm a Trump appointee. That will never happen after what uh Senator uh McConnell did.

MIKE BARNES 31:27

We’ve talked a lot about a divided government. The fact that the House and the Senate is one party, the White House is another party, and a lot of people are acting like things are going to be terrible for the next two years. But if you look at history, Obama’s last two years, it was like that. George W. Bush’s last two years, it was like that. Six years of President Clinton, it was like that. Four years of President Bush, it was like that. Two years of Ronald Reagan, it was like that. All eight years of Nixon and Ford, it was like that. And six years of Eisenhower’s was like that. This is nothing new, and the government still continues. Ed Moy, can it continue over the next two years?

ED MOY 32:04

Of course it can. America’s a great country. Our founders were so forward-looking. They created a constitution that uh accounts for all of this. And bottom line is uh the constitution was written to divide government into checks and balances, three equal but separate branches of government the legislative, the executive, and the uh judicial branches. And within those, there’s checks and balances, like in the legislative branch, you have the House and the Senate. House is more a straight uh majority, whereas the Senate really respects um minority rights. And given all of that, uh they anticipated divided governments, and they think that’s good because it slows things down, it makes people uh forced to look for compromises of where there can be the largest amount of mutual agreement. And so our whole government was created to move slowly, methodically, and thoughtfully. And I think we’re gonna see that happen over the next two years. And we’re a great country uh because we’ve lived through that, and the proof is in the pudding. We’re still around 250 years after our country was founded.

PHILIP N. DIEHL 33:22

It’s that powerful government represented by the people who vote in the elections who overcome six hundred million dollars from five people, five people, six hundred million dollars invested in buying this election, and we overcame that. It’s an amazing feat. People say, oh, money doesn’t matter in politics. That’s what this election proved. Ridiculous. Of course, money matters in politics. Took tremendous effort to overcome it. Money matters in politics, but we beat it this time, and but we need to do something about that money in politics. And we need to do something about gerrymandering, and you know, there, but we can do it, and we all know it has to be done. There are other things we have to do, but we can do it. We’ve proved it.

ED MOY 34:22

So, so Mike, here’s here’s my closing argument. You can have two very experienced public servants in Philip and I, we can both look at the same thing, the constitution and history, and look at the facts, and we can come up with two different perspectives on on how to view it. But the one thing that my Democratic colleague can agree with is a Republican colleague is we’re headed into uncertain times. And if you don’t have a hedge against what’s going on, think about gold, and that’s the thing that we can agree on.

PHILIP N. DIEHL 34:59

That is absolutely right. Uh, we can we can agree on that, and we can agree, we can agree that we can disagree agreeably. And Ed Ed and I did not know each other before we before we got on involved in USMR. And we and it’s one of the delightful things that we have discovered is is how much fun we have together and how much we agree on. We we agree on so much, and and it’s fun to have it’s been so much fun to to realize that and recognize that and and then discover the areas we where we don’t agree and be able to talk about it.

ED MOY 35:42

Yep, and learn from it too. I’ve learned a lot from you, Philip.

PHILIP N. DIEHL 35:46

Me too.

MIKE BARNES 35:47

I think we’ve all learned a lot from both of you. And as Ed Moy says, the proof is in the pudding. Philip Diehl and Ed Moy, thank you so much for joining me today. Thanks, Mike, and thanks, Ed. Yep, it’s this has been a lot of fun. It’s going to be interesting over the next couple of years to see what happens as the country moves on. Could there be a recession? What’s gold going to do? What’s AI going to do, and how’s that going to affect us? We’ll have to keep our eyes on that. That’s all the time we have for today’s episode. On behalf of all of us here in the U.S. Money Reserve Studios, thank you for tuning in. If you have any questions or you want to learn more about today’s episode, you can call the number in our episode description and speak with one of our friendly account executives. They’re going to be more than happy to answer any questions you may have about precious metals and the strategic role they can play in achieving a secure and comfortable financial future. I’m Mike Barnes. We will see you next time on America’s Gold Authority Podcast.

DISCLAIMER 36:46

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