Inflation Still Hot, Gold Prices Are Moving Up

Mike Maharrey: Hello, this is Mike Maharrey. I am an analyst and journalist working for Money Metals, and I am here today with Greg Weldon. He is the founder and CEO and president and I guess overall guru at Weldon Financial and often referred to as the Gold Guru. Greg, how are you?

Greg Weldon: Good and I take the garbage out at night too, so we have the whole spectrum covered here.

Mike Maharrey: I do too. What an amazing coincidence. Well, I really appreciate you taking a little bit of time to talk. I think this is a great time to talk about gold since we’ve had this little rally here over the last couple of weeks, we’ve seen gold hit record prices both in spot and on the future market. And the narrative I guess is that everybody’s anticipating Fed rate cuts, inflation is beat supposedly, and so everybody’s excited about getting their easy money back and I’m sure that is part of the driver. Do you think this is what’s behind this gold rally or do you think there’s a little bit more to it?

Greg Weldon: I think you nailed it, but I think there are a lot of nails to hit here, and that’s one of the issues going forward that makes it kind of exciting and yet somewhat frightening at the same time. When you take in the whole from the top down picture, from the geopolitical risk of that side of the world, Russia and China dominated OPEC, to this side of the world in the US and what’s going on in the US internally, when you talk about the US debt. But really when you cut down to the bare bones, it’s about debasement of the purchasing power of paper currencies in every corner of the planet and the fact that gold is where it is at a time when the dollar really hasn’t depreciated, to me it speaks volumes to how exciting it could be when they play the dollar card because you know they’ll have to. It’s not that they’ll choose to, they’ll be forced to at some point. That of course is the dynamic around the Fed and the Treasury, money printing, the debt, and the whole nine yards.

So I think it hits on so many cylinders. It’s, again, you kind of want to say, okay, how do I refute this bullish thesis? What are the reasons I could be wrong here? And they’re increasingly difficult to find. And the one that you do find is probably the most terrifying one is that everything goes down and it’s a complete debt deflation that pancakes every asset including gold.

Mike Maharrey: Yeah, it’s really an interesting time to be alive, as my stepdaughter often says. You mentioned the geopolitical. I think that’s an interesting aspect that is not often discussed in the mainstream. We hear a lot about Fed monetary policy. I think it’s interesting just in that aspect that this is all based on the anticipation of rate cuts. We haven’t actually had a rate cut. But I’ve been writing a little bit about the de-dollarization, and I wonder if you could go a little bit more into that. Because I think sometimes when people hear that, and my argument’s kind of that you’ve got two things on. You’ve got the depreciation of the money because of the debt and the money printing, and then you’ve also got the fact that the US has used the dollar as a foreign policy tool. So you’ve kind of got these two dynamics. But when I talk about this, a lot of people will kind of like, well, Mike, that sounds kind of conspiracy theory cranky. What are your thoughts on it? I mean, is this a reasonable fear?

Greg Weldon: Yeah, I think it’s a very tangible fear. What’s interesting to me really is that you have people especially, I mean I’m in Palm Beach, Florida, and I’m not super wealthy like some of the people in this business, some of the people that live around me, but the bottom line is these are people that are very successful in the businesses that they have built and then sold most likely, some of my neighbors and whatnot retired with a lot of money. So their instincts are usually pretty sharp. And I have people asking me, like what do you think? They’re uneasy. They’re feeling anxiety. And they kind of know why, but they can’t put their finger on the bigger picture. And I think that that’s so important the way you bring it up, because yeah, the fear is real because the risk is real. And when you start with the kind of to chop down to the beginning of the question about the Fed, and what you just saw with Fed expectations, the expectations at one point, Mike, were for six or seven rate cuts this year, which was insane. And I’m saying this is nuts.

And if the stock market is where it is predicated upon that expectation being fulfilled, you have a very big risk in the stock market because it’s not going to be fulfilled. And the degree to which this to me has to play out that you see a 40-year downtrend in inflation and interest rates that is reversed in a secular fashion. That’s the big problem. And what you will do is have to acquiesce to higher rates of inflation because the trend is now going to be for higher lows in inflation, higher lows in interest rates because you’ve turned the tide, you’ve reached that critical mass in money printing and debt. $307 trillion in debt globally. So then you kind of say, okay, well the Fed’s going to cut rates because at some point you know they will give up the fight in inflation or declare victory when they really haven’t won as per their stated goals because they have to protect the economy from a debt deflation, which is a much bigger risk.

Powell knows this. He’s told us this. We can fight inflation with the book or playbook, what we can’t fight is a Japanese style debt deflation because you need growth growth, not just stagnation, not just flat, not just equal to CPI inflation growth to service the debt or it will collapse onto itself like a supernova. So that takes it to the next step. And what’s the next step? Well, the next step is the geopolitical risk that exists that applies to the dollar that I don’t think people quite understand applies to the dollar or willing to even look at or recognize. Because what you just saw with the expectation from the Fed tells you how short-term instant gratification, short-term attention span this entire society, let alone the markets, has become. So that’s number one. So you’re not looking at the big picture, you’re not researching, you’re not looking at the forest, you’re looking at the blades of grass for crying out loud, not even the trees.

And when you see the bigger picture, what you have is a financial war that’s already started. It’s a resource war. It’s a commodity war. China is winning. They’re beating our butts, man. And when you take China and Russia, ever since the Olympics, 30 trillion renminbi deal for state banks to loan money to Russia to build new pipelines, they engaged kazakhstan for natural gas. That’s what kind of sparked off this whole European natural gas thing actually was the deal China cut with Russia. They invade Ukraine, why? For food and ports they can ship it to China. I mean, this is a conjoined effort. I call it the new axis of power, if you will. When you figure that China has managed to get Shiites and Shias to talk where you have Iran and Saudi Arabia now talking. You put OPEC, China, and Russia together on that side of the world, Europe’s in big trouble and it polarizes the world because everything is more polarized.

All you got to do is look at politics. And when we’re polarized in the US and we’re divided the way we are, we’re vulnerable. And you get to the point where you know manifest destiny is Xi, his father was in the Mao regime, he’s a Maoist from [inaudible 00:07:21], was indoctrinated from age six, sent off to Ivy League school in the US. This guy’s sharp, man. He’s kicking our butts and it pains me to say that. But when you look at their desire to control the South China Sea, the southern Japanese islands are in play, Korea’s in play, Taiwan’s in play, the Philippines are in play, Vietnam’s in play. I mean just look at the shipping from the Gulf to China. How do you get there? You got to go through all these places. So at some point when they start to move militarily, we’re not going to be in a position to fight them.

Number one, militaristically. The whole dynamic around this country, I mean I think starting the draft, you’d probably have protests all over the place, and maybe rightfully so to whatever extent. So you have a polarization in the geopolitics that is much bigger than people realize. And China will use the dollar card at some point in time. They’re the largest importer and exporter every single month, $300+ billion on both sides of that equation where all they have to do is say, look, we’re only going to accept renminbi for exports, we’re only going to pay you renminbi for imports, and the dollar collapses, they won the game, so on and so forth.

So that’s a risk too, let alone you kind of come back to what we already see globally with more and more emerging market currencies that are collapsing particularly against gold. And it sets up for the dollar to look like that three to five years from now. So look at our debt. We can talk about that for a half hour alone. So all of these things are bigger picture that are very bullish longer term outside of the potential risk that comes from a complete collapse in everything, and I think that’ll happen, but that’s several steps away in my mind.

Mike Maharrey: I think you made a really good point about the kind of short-sightedness that we see particularly in the markets. I mean, they used to joke that it’s a 24-hour news cycle. I think now it’s about a 45-minute news cycle. It’s like we get this data release, we’ll get a jobs release. And I’d like you to touch on that because you sent me some information about that that I think is interesting. But you get this jobs release and you get a headline and then everybody reacts to the headline and then in the afternoon you get a new headline and on and on it goes. But speaking of that-

Greg Weldon: And now let me just add because that’s absolutely true. And what’s interesting is two things about that; number one is you react to the headline, but you don’t dig into the data. And the headlines, you’re going to look at it on Twitter or look at it on Bloomberg or whatever, and it’s like you missed the fact that household survey for the last two months showed employment is down. Everyone was championing the big rise in hourly earnings the month before the most recent report when in fact hours were down and weekly take-home pay was deflating. And it’s like you just don’t understand.

And then what happens is you go through this period where the market’s kind of reacting to these various headlines both back and forth, and then comes a day where there’ll be some kind of catalyst little story that brings out a story that has existed for two or three or four weeks and all of a sudden it’s an epiphany and everyone realizes, oh my God, this is now happening when in fact it’s been happening for weeks, no one dug deep enough to find it. So you have both of these dynamics happening that create this much more herky-jerky, fast and furious, and short-term movements in the markets.

Mike Maharrey: And speaking of the jobs, I’d like to touch on that just a little bit deeper because if I’m just watching CNBC, my thinking is, hey, job market’s great. I mean, we are creating all of these jobs, Biden’s great. What’s the real story there?

Greg Weldon: The real story is two things. I mean, first is the number of people unemployed is up 500,000+ in the last 12 months. And you look at the U-6, which is the total unemployment rate, that is up 50 basis points from a year ago. So when you take those two things into consideration and look at the breakdown, the number of jobs being created, the vast majority are part-time jobs. You’ll actually have a decline of full-time jobs. And when you look at the statistics, this is one of the best ones. In the people working two full-time jobs for economic need, it’s at one of the highest levels ever. And when that number gets above 350,000, every other time there’s been a recession. The consumer is stressed out and you see it, number one. Number two, it’s all well and good, the problem is wage growth is still at or below the rate of inflation.

So your check is worthless the second you get it and go to the bank to cash it, theoretically in the old-school vernacular. But at the same time, savings are depleted. I mean, you guys look at any measure of savings is way down. What’s still up from the pandemic levels? Transfers, entitlements, government handouts, it’s still running 4 trillion annualized rate every single month and that’s double from anything it ever was before. So part of the problem is when you look at disposable income, it’s not really keeping pace with what you might say the income numbers are suggesting and a lot of that’s coming directly from the government, a bigger percentage than ever in terms of income is coming directly from the government.

So there’s all kinds of ways, and you start to look at the household numbers where the number of unemployed is rising, the number of employed is falling, and the number of people dropping out is rising, but the labor force is falling. So the numbers are so all over the place, you can’t even trust really that the bad isn’t worse, let alone when people get on and say the things they say for political gain or because they need ratings or because it serves the narrative of everyone on financial television that has the vested interest in the stock market going higher.

Mike Maharrey: You can definitely see the stress on the consumer when you look at consumer debt. The most recent numbers, it went up again, credit card debt or revolving credit, which is primarily credit card debts, well over a trillion dollars with credit card interest rates being at what? 28, 29, 30%. People using that much debt at that high of an interest rate tells me that that’s not just, oh, I’m confident in the future, which is kind of the spin that you get sometimes.

Greg Weldon: You’re using a credit card to pay the bills is what’s come down to. And not only that, what you just said is huge, and I talk about this all the time. You nailed it. It is that people are borrowing the most money ever at the most expensive cost to do so ever. What the problem is though, Michael, is that the senior loan officer surveys have told us the one thing that is going to become more difficult in terms of credit tightening is consumer loans, specifically credit cards and auto loans, and they expect that to exist for the rest of the year. Look at the mortgage numbers and how many mortgages have been done at below 3% versus above 5%. You don’t have any kind of real ATM, wages aren’t growing, you don’t have the growth here to keep the spending high enough to me, again, to support the debt.

The other thing on this too is of course we can talk about commercial real estate. And finally, and that’s another one of these stories. This has been on the books on, you could see it in the Fed’s balance sheet for weeks before all of a sudden it’s headline and then it makes it to 60 Minutes like two months later and everyone’s like, oh my god, commercial real estate’s a problem. So I love this. It gives me a career to do to pin out these things and dig deep into the data. But the other side of that is the consumer. And you would say, well, yes, delinquency rates are low historically, but the pace of increase is unprecedented. Even above what happened in 2007 and 2008.

So in my mind, the consumer’s stressed out, you can see it. And the worst two things that could happen in terms of the Fed and really the economy and even the stock market, number one, a consumer cocoon, and that’s probably caused by number two, which is a credit crunch. And I’ve done a couple specials, we call it Captain Crunch. I mean, because a credit crunch would be the worst thing and it’s kind of beginning to unfold.

Mike Maharrey: Well, speaking of borrowing, let’s talk a little bit about the federal government. Yeah, exactly. I wrote an article today about the most recent treasury statement, and I know that you’ve broken down those numbers as well. We’re almost to a trillion dollars for the fiscal 2024 deficit and we’re only five months into the fiscal year. I think the thing that really is staggering to me is the amount of money that the US is now spending just to pay interest on the debt. But it’s another one of those things. You talk about this just like de-dollarization. People kind of go, eh, it’s no big deal. Why should I worry about this ballooning national debt?

Greg Weldon: Well, I mean because it’s we the people that are… Here’s why. Okay, let’s go to the bare bones again and cut it down to exactly what it is. And again, it pains me to say these things, but I call it like I see it and that’s what I get paid to do and assess risk. So I don’t really worry about the political side of it because the politics are never going to fix this and the politics are so divided, we’re never going to be unified again. Well, our two-party system was our strength and now it’s going to be our downfall. But having said all that, it’s a problem because let’s take social security. Still the top number one spend. Even though interest cost was up, social security was second in terms of the change versus last year. And what did they cut? Oh yeah, Homeland Security got cut. Okay, well, that’s number one. We won’t get political, but that’s a fact. Okay, fact.

The problem is social security, what are we doing? Well, 20 and 30-year-olds pay in. They know you’re not going to get paid. They’re never going to see that money again. That’s given. We know this. It’s bankrupt, the system. You’re using that money to give to the people that have retired and are entitled to their entitlements. It’s not necessarily a bad word. The problem is politicians will come in and the second you try and fix the problem, put in a grandfather rate, people over the age of 45, whatever, are not going to collect so on and so forth, cut it off. Anyone below that has to do their own retirement from here on. Everything you put in, you lose. Well, no one wants to lose. And then the politicians will go and tell the retired people, you’re going to lose your benefits, which is nothing further from the truth. It’s a fraud really and I really shame people that do that.

But the problem is, the biggest problem is that we are taking from the 20 and 30-year-olds and 40-year-olds, taking that money in, giving it to the retirees. So what are we doing? We’re taking money from new investors to pay out old investors who are cashing out. If you did that as a private company, you’re in prison. It’s called a Ponzi scheme. It’s Bernie Madoff. You can say the dollar is the biggest Ponzi scheme in human history in that context. That’s why we worry about it because the debt deflation will result in a depression.

And when you talk about how much this economy and just in terms of the wealth that people have has grown from debt, you take that out of the equation, you blow us back to the way that standard of living is eroded that you don’t see I remember very distinctly. I used to live in New Jersey and during the 2008 crisis, all the budgets in the municipalities, which is all of a sudden another thing that’s come up out nowhere seemingly right, that the Camden, New Jersey was the second-highest crime rate for its size of a city in the country. And because of budget cuts, they had to cut 40% of the police force.

These are the erosions in standard of living, let alone some of the geopolitical risk that’s internal here with an election where it’s so divided, where the unemployment rate, let’s talk back to the labor market, because the unemployment rate among teenagers, quote, unquote “teenagers” rose to 12.5 From 10 over the last three months. You take a summer where migrants are living in these cities where there’s no air conditioning, it’s going to get hot, you have a political situation that’s totally divided, and you’ve got a whole bunch of teenagers unemployed and with nothing else to do. You have a setup for social unrest to the degree that it could be explosive in this country, and that’s another reason to be bullish on gold, [inaudible 00:19:07] dollar bearish. And the dollar bearish dynamics are secular in nature. Because if you look at the dollar adjusted by the price of gold, it’s very near a fourteen-year low. So I think the gold has done very well when the dollar has not depreciated, it’s going to explode when the dollar breaks down, and it’s very close to doing that.

Mike Maharrey: Yeah, I think that’s interesting. I think there’s a lot of negativity towards gold and silver from the last couple of years because we’ve seen high inflation and gold has kind of been range-bound, the recent breakout notwithstanding, and I think there’s a lot of people that are frustrated by that fact. But if you look at the dynamics, high interest rate environment, perceptions, gold’s held up pretty well as far as the price goes.

Greg Weldon: It has, and what you see too is the open itch is really low, and I’ve been saying this too, it’s going to break out and no one’s going to be involved, they’re going to chase it higher. It’s going to be its own kind of self-fulfilling prophecy. And I like to kind of quip just recently these days that it’s kind of a reversal. It’s total role reversal, but I’ve actually been telling people gold’s going to be the next Bitcoin.

Mike Maharrey: That’ll rankle some people. Let’s bring two things together real quick and then we’ll close out. We talked about the debt and we’ve talked about the geopolitical, the de-dollarization, and I don’t think a lot of people realize those things are connected in the sense that the US needs the world to want dollars in order to keep printing dollars, right? The fact that we have the reserve currency allows the US to print a lot more money than it otherwise could because there’s demand for dollars out there. Can you kind of real succinctly explain to the listener how the debt could end up tanking the dollar and vice versa? How there’s kind of a two-pronged sword here, or two edges, I guess is [inaudible 00:21:03]?

Greg Weldon: Sure. Yeah, no, and it’s right on because that’s exactly the connection. I actually wrote about that this morning, in fact. That it’s like, well, the budget numbers were terrible, but bond yields really aren’t rising on the budget numbers because the bond market doesn’t care. Why? Because they will paper it over. I mean, I wrote the book Gold Trading Bootcamp in 2006 and we called the crash in 2008 to a T for all the same reasons that it ultimately crashed. And in that context, I talked about monetary Armageddon, which is, again, I’ve used this analogy a lot so maybe people have heard this before, but to me, it’s totally applicable. When you have the Treasury guy and the Fed guy in the bunker as if they’re the two generals with the keys to the nuclear weapons, where they turn the key simultaneously and print enough money to pay for every dollar of debt ever issued by the US government.

So when you talk about that dynamic, they’re not going to let this thing just implode upon itself, they will print more money. This is every time you’re standing at the edge staring into a deflationary abyss, every person in officialdom will print more money and choose reflation over debt deflation, absolutely 100%. That’s what they’ve been doing for really literally 50 years since 1971. So when you look at it that way, that is where it’s like, okay, all this debt implodes, it’s not going to drive interest rates necessarily higher. It’s going to drive the dollar much, much lower. And that is where gold comes into the mix because it’s a natural offshoot. That’s even why I think there’s a story to be had for crypto. I’m not like, hey, you can’t own one or the other. I want to own both in most cases, all right?

And frankly, I think there’s opportunities in all of these things, in bonds, in currencies, and I think the thing that people maybe take a little more account of is that yes, there’s been disappointment, and yes, people have kind of gotten frustrated with the metals and yes, a lot of people have given up and thrown in the towel. And I can understand why, it’s been frustrating. But I think the expectations have been a little too high and it’s just too early. And we’re now entering the phase. Why? Because you’ve had the Pakistani rupee, the Argentinian peso, you’ve had the Turkish lira, you’ve had the Angolan kwanza, I mean, you have all these, Nigerian naira. I mean, I could list the currencies, it’s very long, against which these currencies have collapsed and the price in gold is up anywhere from 800 to 1500% over a 10 to 15 year period. So it is still that store of value in all of these currencies around the world right now. That will be a movie coming to you in a theater in the US in the near future. And I think that the debt is the thing that is the catalyst to cause the money printing that is the catalyst to drive the markets.

Mike Maharrey: You and I are exactly on the same page. I said this yesterday, the markets are going to get the easy money that they want, but not for the reason they think. They think that, oh, inflation’s beat and the economy’s going to soft land, everything will be great. My theory is that we’re going to have this debt deflation. We’re going to have some type of crisis. The economy’s broken, something’s going to manifest, and that’s when we’re going to get the easy money because that’s what the Fed does. It’s the fork they know to steal a term from the movie Pretty Woman.

Greg Weldon: It’s the stagflation theme playing out, and it really is, and we see it. It’s kind of across the world. It’s in Europe, it’s in US, and UK, it’s in Canada. So it’s a lot of places.

Mike Maharrey: Well, where can folks find out more from you? Where can they follow your work and get more info on what you’re doing?

Greg Weldon: Sure, I appreciate that. So anyone can email me sales, just simple sales, which I abhor doing the sales side of this business, but that’s a necessary evil. But yeah, sales at Weldon Online, that’s W-E-L-D-O-N, Weldon, my name, Online. WeldonOnline.com. I actually just did, last couple of reports we did, we do the Gold Guru, which is the daily, and then we do other macro research and we have a lot of institutional clients. We have also individual retirees that use the research too. So for your crowd, the Gold Guru would probably be the thing. And just did a big piece yesterday on the budget on copper, for example. We’re bullish on energy. There’s a lot going on right now and you’re seeing the kind of a turn in some of these commodities and some of these commodities have their own fundamentals that are really bullish, like copper, where the inventories are down 42% since October.

So in the Gold Guru we cover uranium, crypto, copper, base metals, and gold, silver, platinum group, and all the equities. And then we do quantitative work on the equities and do portfolios. We do discretionary portfolio, that’s my choices as a CTA hedge fund guy for the last 40 years. So [email protected], I’ll send you yesterday’s big weekly Gold Guru and any other information and we do manage money for accredited investors. I’m a registered CTA, been doing this for a long, long time. And I’ll tell you, I see a lot of similarities to a lot of times in the past too repeating, and when you see them repeat, it becomes exponentially more volatile.

In dollar terms, it’s like, okay, well a 10% move now and the S&P is worth a lot more money on a futures contract than it was even 10 years ago. So protecting the value of your money, never more important because you’re going to just being long stocks, Argentinian stock market makes the new high every day almost if you’re not keeping pace with the debasement of the purchasing power of your money. And that’s the key. There are ways to do that and we look to help people do that. So [email protected] for any kind of information or a free report that we did yesterday.

Mike Maharrey: Outstanding. Well, and I tell people all the time, if you really want to protect your wealth, you need to look beyond, again, as we’ve talked about, the 45-second news cycle. We need to look at the macros and the fundamentals. I don’t think there are enough people doing that. So I encourage folks that are listening, go check it out, send that email, get that information, because it’s what you’re not getting in the mainstream.

Greg Weldon: Yeah, true. Thank you, Michael.

Mike Maharrey: Well, I really appreciate you taking a little bit of time to chat and we’d love to have you on again at some point as things continue to unfold.

Greg Weldon: Yeah, my pleasure. I know you guys do a great job. Say hi to Mr. Gleason for me, and yeah, keep on, keeping on, man. You guys rock it.

Mike Maharrey: We’ll do it. Thank you.