Gold at $10,000/oz.? A Conversation with Ed Yardeni

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. We have a very special show for you today. Two distinguished guests. But before we get to that, I need to bring in Philip Diehl, 35th Director of the United States Mint, President of U.S. Money Reserve. And Philip, the feds have met. They’re October meeting and they did not raise interest rates. Are you surprised at all by this?

PHILIP N. DIEHL 0:41

Surprise, surprise. No, I’m not surprised at all. They love to uh dodge the bullet. And um this case, the bullet is the uh midterms election. And any way of sort of disturbing the midterm election, this is, we saw this coming, and they did it in uh in the face of more indications that the economy is heating up. As anybody who has watched this podcast, I am a hawk. Uh, I believe we need to tear the band-aid off. We need to face the fact that the economy is hot. We are seeing inflation rise. I think this administration has a policy letting inflation rise and to get above yield on treasuries, and thereby allowing the deterioration of the value of our currency and thereby lowering the value of our debt. And that is the strategy, the long-term strategy for dealing with our debt. And so that if that in fact is the strategy, and I believe it is, and I think the president has tipped his hand since the 2016 election, that that’s how he wants to deal with the debt. It’s one of the reasons why he wants the Fed to lower the interest rate, not raise it, to gin up the economy. That, of course, will raise interest rates and raise not raise interest rates will lower interest rates and raise the economic growth. And as a result, you would see inflation rise, and that would make these high yield rates that look so attractive today not look so attractive in the future. And so that would mean that borrow people who are buying those very high interest rates, those yield rates on bonds today would be sucked in to yields, real yields that would not be so attractive in the future. And that’s really why I advise people that if you do buy bonds, don’t take that risk, that term risk of long-term rates of 10-year treasury bonds. Go for the short-term rates, one-year, two-year rates. So you don’t take that term risk. And so, you know, it’s the combination of that short-term treasury risk and combining that with gold. So I think the the Fed is really playing into that role. Part of it is that strategy, along with the politics of any kind of raising of the rates right before the election and feeding already the motion to and the pressure toward the high costs and the affordability issues that are driving the politics today. We’ve seen this long-term hesitancy of the Fed to deal with the high inflation rates. We now have five and a half years of rising inflation and the Fed’s unwillingness to deal with the high inflation. And I have said over and over again that the one number the Fed ought to be dealing with is consumer expectations and business expectations for long-term inflation rates. That is the number. The number is not short-term expectations or short-term interest rates and economic growth. The hard number to change is those long-term consumer expectations. And you never hear those being discussed. So I think this is no surprise. There are expectations that the Fed will increase interest rates in December, and maybe one or two times next year. What we need to see is a shock and awe campaign, at least a 50 basis points in December or 75 basis points in December. We need to see a strong, courageous campaign, like we saw from Powell back in 22 when he led a three campaign, three 75-point increase campaign to knock down rising inflation in the face of the rapid increase in inflation rate.

MIKE BARNES 6:08

You mentioned December and short-term rates. It’s a short-term to get to that December meeting. It’s only about six weeks away. Can inflation change that much in six weeks? No, it’s i i uh yes, it can rise.

PHILIP N. DIEHL 6:21

I think it has the momentum to rise. The lack of leadership here in this at this time is going to add momentum to that unless we see a crash in AI. Uh we saw some discouraging numbers. Two weeks ago, we saw some shuddering in AI. I don’t think uh we’re going to see a crash. We’re going to probably see some other shudders in the market uh in A over the next six weeks. But next year is anybody’s guess. I certainly think we’re going to see a major correction in AI next year. How significant it is again is anybody’s guess. I definitely think we’re in a bubble. Calling when a bubble is going to burst is a fool’s errand. Bubbles last for far longer than anybody expects. The housing bubble was called in the 90s. I remember how many times it was called in the 90s, but it continued, of course, until 2007. It always happens. They last so long because the greed and the momentum and the greater fool theory just continues for the momentum is just so strong. But so it’s anybody’s guess how how long this uh bubble will last. But we’ll see more shutters. And it’s one of the reasons why I think it’s so important that people hedge their bets. And what we know is that bonds are not the way to hedge your bets. And we’re going to be talking about that in our next podcast. We’ve already been talking about it. Bonds have crashed since 2022. People are being lured by the government intentionally into bonds through these very high nominal rates that are being offered on long-term bonds right now. I say they’re being lured because it’s clear to me that the strategy of this administration, I don’t know what the next administration is going to do, of course, but for the next two years, the strategy of this administration is to lure people into long-term bonds to commit them at these high nominal rates, and then to increase inflation so that those nominal rates become much lower in real terms. And then there’s going to be a world of hurt for those people as they lose value in the bonds themselves. So I believe that gold is going to be the way. And there are other alternative assets as well. Uh, people talk about real estate as one of those alternative assets. My goodness, if you look at the history of real estate in the last few years, I certainly wouldn’t be investing in real estate. My home value has not done very well. I think real estate is not a bad investment, but I don’t think that’s the way to protect the value of my wealth and portfolio. And we’re going to be looking at where gold is likely to go, where the consensus is. It’s not just my opinion. Don’t just believe me. There’s a big consensus on this about how gold protects your portfolio. So, yes, I think the Fed lacks courage to deal with this issue. And I think it’s it’s very clear that the representatives of this administration, led by the chairman, are pursuing this administration’s policy.

MIKE BARNES 10:45

So to sum everything up, no change in October, but you’re expecting something the second week of December when they meet again.

PHILIP N. DIEHL 10:52

Yeah, yeah, I’m expecting an increase. And and it’s funny for somebody a lot of people would say, what is this gold proponent? What is he doing proposing increases and in fact you know, big increases in interest rates? That’s bad for gold. My attitude is don’t draw it out. Rip off the band-aid, get it over with, and get the inflation under control right away, and then we’ll see interest rates fall. That’s great for gold. And the other scenario that is really good for gold is a stagflation. But but none of us want a stagflationary scenario. It’s just not good for any of us, but it’s is good for gold. But the best scenario is falling interest rates. And let’s get it over with and have a good economy for all of us.

MIKE BARNES 12:03

We have a very special guest with us today. I’m very pleased to welcome Dr. Ed Yardini to America’s Gold Authority podcast. Dr. Yardeni is an economist, president of Yardeni Research, which has provided global investment research and allocation analyses to investment professionals for nearly 20 years. Before founding his own firm, Dr. Yardini served as the chief investment strategist at Oak Associates, Prudential Equity Group, Deutsche Bank, and C.J. Lawrence. He taught at Columbia University’s Graduate School of Business and was an economist with the Federal Reserve Bank of New York. He also held positions at the Federal Reserve Board of Governors and the U.S. Treasury Department. Dr. Yardeni has appeared on CNBC, Bloomberg TV, and Fox Business, and his work is regularly cited in business publications like the Wall Street Journal and the New York Times. For four decades, Dr. Yardeni has been studying the macroeconomic forces shaping the markets and advising investors on how to make decisions backed by data. He is joined by our own Philip Deal, 35th Director of the U.S. Mint and president of U.S. Money Reserve. Let’s enjoy this insightful financial conversation.

PHILIP N. DIEHL 13:23

Ed, I want to talk to you about a whole wide range of issues, but what I want to start with is your model. I think it’s been called the Roaring 20s or the Roaring 2000s. Yeah, the Roaring 2020s. Tell me a little bit about that model and what it says about it.

ED YARDENI 13:42

I’d call it our base case scenario. When I do my forecasting, I try to uh uh be balanced, uh not in terms of 50-50, but I I try to uh recognize uh both what could go right and what could go wrong. And more often than not, uh we tend to be on the optimistic side of things and as we are now. Back in August of 2020, I started writing about the possibility that this decade would turn out to be the roaring 2020s, obviously making an analogy to the 1920s, and so far so good. We’re uh this is the seventh year of the roaring 2020s, real GDP all-time record high, no recession, stock market all-time record high. There was a bear market, uh relatively conventional short bear market in 2022, which uh I viewed as a buying opportunity, and again, so far so good with that. So three more years here to see if we can continue to have the optimistic scenario play out. And what that means is uh no recession, uh economy continues to grow. Earnings continue to be strong, uh leading the stock market higher with a target of 10,000 on the SP 500 by the end of the decade, the end of the decade being 2029. And it’s pretty straightforward. We’re estimating that the market investors will be discounting a 2030 uh earnings per share for the SP 500 of $500 a share, multiplied by a 20 multiple, and that’s how we get to 10,000. It’s the the math is really straightforward. Forecasting PE times e is is easy. Get getting them right is the challenge here. And uh, anyways, that’s that’s our base case scenario. And it’s uh predicated uh uh on the notion that uh the the baby boomers are retiring. Uh this is a very large cohort in the in the population. As a matter of fact, by the end of the decade, about a third of all households, there’s 130 million households, about a third of them will be uh 65 years or older. So we’ve got the biggest cohort of senior citizens ever retiring with the most net worth ever. They’re they right now have $100 trillion of net worth. So we’re gonna miss them because they’re they’re experienced, they’re you know, you you tend to get more and more productive as you get on in your career. And I figured that that would impact the labor force. We’d have slower growth of the labor force, and indeed the labor force just isn’t growing now at all. So companies would have to figure out how to increase the productivity of the workers they had, and I viewed uh technology as the way that they would increase productivity. And I I did list robotics, automation, nanotechnology, and as a by the way said, of course, artificial intelligence, and that has turned out to be a a big story sooner than I expected. I don’t know that it’s having a uh a dramatic impact on productivity yet, uh, but I think the best is is yet to come on productivity. So productivity is wonderful. It uh boosts economic growth, it keeps inflation down, it means uh higher profit margins, and uh, oh yes, uh workers benefit. Uh real wages uh do go up in an environment where productivity is improving. The 30% scenario is a bucket of everything that could possibly go wrong, and that would include the geopolitical mess uh in Europe, Russia’s attack on uh Ukraine is uh is still ongoing. It’s creating problems in the in the energy market globally. Uh we got the same uh issue in the Middle East. The war there may last longer than the administration uh thought initially, and that could disrupt uh energy prices. Uh and then we’ve got a potential as a result of that for higher, higher for longer oil prices, so stickier for longer inflation, so central banks continue to raise rates, and obviously uh that that would not necessarily be a happy uh scenario. In that outlook, the chances of a recession would be 30 percent, because that’s kind of the bucket for things going wrong. So that’s the way we’re that’s the way I’m looking at things.

PHILIP N. DIEHL 17:48

Now, uh one of the things that’s really interesting is that at the same time that you have stock prices rising, you’re looking at a target of 10,000 for the S P 500 by 2029. Yeah, you’re also looking at gold prices rising to $10,000 an ounce. And is that also by the end of 2029?

ED YARDENI 18:08

Yeah, I’m uh look, uh I I readily admit I’m no expert on gold. Uh in the past, I I rarely opined on gold as a result of that. But it seemed to me that uh when gold rose above 2000, uh about a year after uh Russia invaded Ukraine and um uh the US and Europe froze the assets of the Russians, uh suddenly central banks of uh countries that we don’t get along with that are bad actors, uh axis of evil, decided that uh maybe they didn’t want to own as much uh in uh dollars and euros, and maybe they should have more in gold so that they wouldn’t be uh frozen out of their of their assets. So when we crossed above two two two thousand, um I said, that’s really all you need to know. Uh uh that’s it’s it’s uh probably a a uh a new bull market or a continuation of a bull market. I figured we could probably get to three thousand. We got there really quickly. Uh three thousand I started to uh opine on uh how high this thing could go. And uh I said, you know, we probably get to to five thousand by this year, and we got there early in the year, uh, but now we’re back down to to four thousand. I I think this is a correction in a in a bull market, and uh I do think the price of gold could get to ten thousand. Again, uh I’m no expert on this. I’m sure you’re more knowledgeable in these areas than I am, but uh uh I I I put a chart together where we’re looking at the S P 500 versus the price of gold, and just by coincidence, uh the you could put them on exactly the same chart with the same scale, so they both have the same scale. When you look at that chart, you see that starting uh in the early 70s when uh Nixon took us off the uh gold standard, the S P 500 and gold uh on a short-term basis, on a cyclical basis, uh tend to be inversely correlated. So gold is actually a good diversifier for an SP 500 portfolio. Uh, what that means is when the S P 500 is going up and making you money, gold is taking some of it away. But on the other hand, when the SP 500 is going down, gold tends to go up. And so on balance, you do you do fine over a longer period of time. And the trend, uh that’s the cycle is is inversely correlated. The trend is almost identical. Uh, so I figured um if the SP 500 gets to 10,000 by the end of the decade, by the end of 2029, gold could get to 10,000. So, I mean, just because it that’s the way it looks in a chart, what what might drive that? What might actually cause that? I I think rebalancing, I think there’s a lot of portfolios uh that have uh stocks, bonds, and gold. Uh and if they don’t, they they should they should have uh all all three. And there’s uh obviously other assets that can be included in a portfolio, but those are kind of the core assets. And the basic idea is as stocks go up and uh hit new highs after new highs, that people kind of get nervous. They say, well, you know, I made a lot of money, maybe uh uh I’ve got too much now exposure in the stock market. Maybe I need to rebalance it and move some into the bond market and some into into gold. That’s kind of the logic of how a 10,000 SP 500 uh could uh coincide with a $10,000 uh dollar uh gold price.

PHILIP N. DIEHL 21:29

Yeah, that’s this is one of the things we’ve been talking about is how crucial, of course, it is to balance a portfolio. We are we preach a balanced portfolio, the importance of diversification. And one of the things that’s been very clear is that since uh 2022, really bonds have stopped playing that traditional role of balancing a portfolio, of counterbalancing the stock market and the decline of a stock market. And since the bond market crash, and Gold has really stepped into that role. It began stepping into that role back in the aughts, the 2000 aughts. Didn’t play that role so much during the teens, but has really stepped forward since 2022. And I think it reinforced what you were really talking about is the so-called dedollarization that began after the invasion of Ukraine.

ED YARDENI 22:23

Let’s talk about that for a minute because this year has been a correction year for the gold market. And uh initially uh when the war started, uh gold had the exact opposite response to the war that you would think. You would think, okay, there’s a geopolitical crisis, uh uh a lot of turmoil in the Middle East, oil prices are going up, you should own gold. The problem is it goes back to the central bankers. Central bankers in some countries like Turkey seeing their currency going down because uh they are dependent on oil imports. Higher oil prices uh actually put downward pressure on the currencies of a lot of emerging economies. And so to the extent that their central banks were buying gold, they actually had to intervene in the market and they they they stopped buying gold for a short period of time. And then, of course, interest rates have been going up, and kind of the knee-jerk reaction in the gold market is when interest rates are going up for the price of gold to go down. Uh, but I’m basing my uh bullishness on gold entirely on the geopolitical phenomenon of central banks that don’t get along with the United States, fearing that if we get into a TIFF or a real confrontation that will freeze their assets. Well, they don’t want that. So they’re they’re gonna continue to buy gold. The Chinese are are buying gold, uh, the the the central bank is. So it’s it’s that’s that kind of drives my thesis. Now, I I think the reason uh bonds didn’t work out for many years is because the bond market was uh rigged by the central banks. The central banks uh with their zero interest rate policies for their official short-term policy rate, combined with the quantitative easing in which they bought bonds, they were rigging the bond market. Then uh really since uh 2001-2002, they stopped doing that, and the bond market was basically unrigged or became freer to express an opinion. And as a result, we had a very bad bear market in bonds until now. But now I think we’re we’re kind of back to normal bond yields. I think bond yields with uh around 5% are are attractive. So I would say that in in my scenario, the optimistic scenario, the roaring 2020s, if the market continues to move higher, there’ll be rebalancing and it’ll be to bonds and to gold.

PHILIP N. DIEHL 24:42

My my concern about bonds is whether or not governments are luring bond buyers in with high interest rates now and are exposing them to term risk. And by drawing them in and then through inflation, making those rates far less attractive in the future than they appear to be today. Because it’s gonna be so difficult for governments like our government, but governments all over the world to handle this debt without inflating their economies. I just don’t see how we’re gonna be able to handle the debt levels. And it’s not just us, it’s uh it’s governments all over the world.

ED YARDENI 25:28

Yeah, I think I think you bring up a very important scenario, and I think uh everybody’s aware of that risk. The only question is what kind of subjective probabilities do you want to put on that? Maybe I’m a little bit jaded. I’ve been doing this for almost 50 years now, and in my bookcase behind me, uh uh top shelf, I’ve got uh books from the 1980s with titles like Living Beyond Our Means, uh, The Debt Bomb, Debt Crisis. So even back in the 1980s, and and and by the way, I coined the expression bond vigilantes back in 1983. I know you did. I know you did.

PHILIP N. DIEHL 26:04

Congratulations.

ED YARDENI 26:06

I went back and read what I wrote, and I said the bond vigilantes will take law and order into their own hands if the sheriffs, the Fed, and the treasury don’t maintain law and order in the economy, in the capital markets. If they let inflation go wild, the the bond vigilantes will drive interest rates up to levels that punish the economy and slow it down. And that view of the world actually worked out quite well in the 1980s. It worked out also well in the 1990s because Bill Clinton was told by his advisors about the risk that reckless fiscal policies, how that could uh push bond yields up. So he actually behaved himself, and there was actually a surplus in the budget uh by the end of the 1990s.

PHILIP N. DIEHL 26:48

By the way, I was one of those advisors. I was chief of staff to Lloyd Benson at the Treasury Department, and I was his legislative director in the Senate and chief of staff of his finance committee. So we put we put together that budget that ended up balancing the budget.

ED YARDENI 27:05

Yeah, well, uh talk talk about uh the good old days. Uh it didn’t last very long. 9-11 happened, and you know, politicians have this uh uh tendency that they never let a crisis pass without taking advantage of it.

PHILIP N. DIEHL 27:18

And I’ll I’ll tell you this one party one party believed in balancing the budget and another one didn’t. So uh you know I don’t want to I don’t want to talk about which party, but uh well well well there’s there’s belief, and then there’s what would actually happen, right?

ED YARDENI 27:33

And uh let’s let’s let’s let’s let’s face it. We’ve become more and more partisan, and on the Democratic side, they’ve moved more to the left, and on the Republican side, they’ve moved more to the right. Absolutely right. Republicans believe in tax cuts, putting some limitations on entitlements, and Democrats believe in taxing the rich and taxing anything that moves, and uh they want to just keep increasing outlays. So at the end of the day, the deficit increases. I’m a Madison constitutionalist. I love the constitution, but the politicians have figured out a way around it, and and that is they they both get what they want. Uh one side gets tax cuts, the other got side gets more outlays, and here we are with these. And we get the bill. Yeah, we got a two trillion dollar deficit now in an economy that’s growing. And by the way, when I coined the phrase Bonvigilantees, I went back and read what I wrote, and I said the Bon Vigilantes are very unhappy about an annual budget deficit of $250 billion. So yeah, I’m a little bit, I’ve been a little I’m a little bit jaded on it. Being an optimist and kind of not giving too much weight to that debt crisis scenario has worked very well. Ray Dalio has been going around saying that you know it’s only going to get worse and we’re getting closer and closer to a debt crisis. We got one in France for sure, maybe one in the UK. I’m not sure we’re there yet in the U.S. I think bonds are back to uh to a normal level appropriate for an economy growing the way we are. And I think people are buying bonds at 5% because they believe that over the next 10 years, they’re buying 10-year bonds at 5%, because they believe over the next 10 years inflation’s not going to increase. It’s gonna it’s gonna moderate. But your scenario is, of course, the the risk scenario for that uh optimistic view. You know, I’m not pounding the table on bonds here. I I agree that uh, you know, we’re we’re kind of on the edge here when it comes to fiscal excesses.

PHILIP N. DIEHL 29:31

You made the comparison to the 1920s with your model. 1920s did not end well. It’s hard to ignore the fact that you end your scenario in 2029. So, what happens in October of 2029? Uh in your scenario.

ED YARDENI 29:54

Very very good question. And you’re not the first that’s kind of pushed back against the 1920s by saying it ended badly. So my my my response is so we better make a lot of money and get out right at the top, then we’ll be able to buy a lot of things real cheap and life life will actually be will be good if and get out get out at the right time. Yeah, yeah. The the market, uh the stock market did have a crash that started uh in in late 20 uh in late 1929. But then people forget that and all you should do is look at a chart, the stock market rebounded, regained about half of what it lost. So by April of 1930, we were back to where we were in April of 1929. I mean, that’s not a horrible crash. I mean, you know, just to kind of give give up one year’s gains that uh, you know, you didn’t expect uh to me is not the end of the world. But uh what did cause the end of the world uh was the government, of course. And the government came in with the smoothawley tariff in May of 1930. And this you look at any chart of commodity prices, of trade, of economic activity, everything just collapsed because there was a retaliation in response to the Smoot Hawley tariff. And some people made a comparison to last year’s tariffs that Trump imposed and added it up and said it’s almost as bad as the Smooth Holly tariff. But we didn’t really have any retaliation. And uh this the the the Liberation Day tariffs were postponed there for a while, and the Supreme Court has ruled that these tariffs are not constitutional. So we’re I I don’t know that we’re gonna have a smooth holly tariff uh phenomenon. Look at the look at all the uh stress tests that the economy has has passed, the pandemic, the lockdowns, lockdowns followed by a rebounding inflation, the Fed raising interest rates from zero to five and a half percent, 2023 a mini financial crisis, Trump’s tariffs. Oh, by the way, Russia invades Ukraine in 2022. We have a bear market in the stock market, oil prices surge, and now we’ve got a war uh going on with the U.S. Israel on one side, Iran the other side, and price of oil is back up. We’re running out of diesel, and yet the economy’s uh still doing quite well, and the stock market’s not that far from an all-time rec record high. Uh, but you’re asking me really about the 2030s, and you know, if I’m gonna make an analogy with the 1920s, then I guess the the risk is that uh the 2030s are gonna be reminiscent of the 1930s, which was a horrible, horrible decade full of geopolitical calamities that led to World War II. It was a dark, dark decade for sure. Totalitarianism came to the fore in Germany and Italy and Russia. And the geopolitical environment right now is not exactly a happy one. Maybe it never is. And by the way, the stock market has demonstrated over the years that geopolitical crises are actually buying opportunities in in the stock market. We saw that this year, where the war started in at the end of February, and by the end of March we had a sell-off, and that turned out to be a great buying opportunity, even though the war was still ongoing. I think there were some expectations it would be short now. People are having second thoughts about that. But um I I I I think the basic premise of the 2020s is that we are we are in the future. I mean, all these movies and uh and books that we used to read uh about science fiction uh 10, 20, 30 years ago that seemed uh just like entertainment. Well, the the reality’s here. Elon Musk, when he was a kid, read science fiction books. His favorite book, from what I understand, was Hitchhiker’s Guide to the Galaxy, while everybody else read it as science fiction. He read it as sort of a guidebook to his career. And here we’re talking about humanoid uh robotics opening up the space frontier. We’re looking at artificial intelligence. We can have discussions with artificial intelligence that can do a lot of a lot of routine work for us. So the the future is here, and the future is gonna it’s not gonna go away. It’s we’re gonna go into the 2030s, and there’s just gonna be more and faster progress. We’ve never seen the pace of technological innovation this fast, maybe with the exception, exception of the 1920s. I mean, that had to f feel like uh things were going moving pretty fast, but I think they’re moving as fast, if not faster.

PHILIP N. DIEHL 34:24

Yeah, no, absolutely right. I think we sort of lost our perspective about how fast technology was changing in the 1920s, and certainly that was one of the reasons for why the 1920s was such a period of economic growth. And I really like your perspective about how fast the economy was responding after the 1929 crash. It was really government’s response to the crash that sent us into the Great Depression.

MIKE BARNES 34:52

It wasn’t the crash itself. What a great conversation between Dr. Ed Yardeni and Philip Diehl. And the best part is that’s only part one. Part two is coming in just a couple of weeks. We look forward to 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 so much 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 35:38

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