Morgan Stanley Says to Swap Bonds for Gold | Fed Interest Rate Manipulation -

Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Coming up we’ll hear from Economist Daniel Lacalle, professor of Global Economy at IE Business School in Madrid, Spain and author of Escape from the Central Bank Trap, among other books. Daniel has some very insightful things to say about the Fed's interest rate manipulation and argues that free-floating market interest rates should be the preferred approach to avoid the constant asset bubbles and malinvestment that takes place as a result of the current policy.
Additionally, Daniel tells us why he believes central banks around the world will continue to pursue accommodative monetary policies to prop up sovereign debt, which he sees as an ongoing threat to economic growth and productivity.
So, stick around for an enlightening conversation with Mike Maharrey and the highly regarded Daniel Lacalle, coming this week’s market update. And as a reminder please download, like, rate and subscribe to this podcast wherever you consume this content.
Well, we may finally be seeing a sea change on Wall Street, with major investment house Morgan Stanley abandoning its long-held asset allocation strategy of 60% equities and 40% fixed income. According to Chief Investment Officer Mike Wilson, the firm now recommends a 60/20/20 mix, with the final 20% being allocated to gold.
Better late than never, I suppose.
But will other Wall Street firms follow suit, or will they continue misleading their customers regarding the safety of bonds? We know from years of conversations with Money Metals customers just how overwhelming the criticism of gold has been from these supposed investment experts. Many have been belittled as gold bugs and doomsayers.
The pressure from these fast money "paper bugs" not to allocate funds into physical gold and silver is one big reason why virtually all Americans have none – and it's why the American investors have sat out the massive rally in gold and silver over the past two years.
It makes sense that Wall Street has not recommended gold – they had no incentive to do so. When a client puts money into physical bullion, it is largely taken off the table for trading, rebalancing, and generating brokerage fees. When someone owns the metals, they are often held for years or even generations.
Our customers at Money Metals should be proud of themselves for having seen through all the misinformation and conflicts of interests – and buying gold and silver anyway. While recent gains are impressive, we could still be in the early stages of a long-term trend.
Even with investment demand for gold surging, it remains very much “under owned” according to a State Street Investment Management analyst.
That means the yellow metal still has plenty of upside.
Gold is up more than 88 percent since January 2024. Asian investment and central bank gold buying primarily drove the early stages of the bull market.
Asian investors tend to favor physical metal (although there is growing interest in ETFs in the East). Bar and coin demand was up by 11 percent in the first half of 2025, with Chinese and Indian investors leading the way.
Chinese bar and coin demand grew by 44 percent year-on-year, the strongest period for physical gold buying since 2013.
India bar and coin demand grew by 7 percent through the first half of this year.
But in the U.S., selling has been the dominant theme in the physical bullion market. Year-on-year bar and coin sales plummeted by 53 percent through June.
However, ETF investing has exploded in recent months and we're finally seeing a pickup of demand in the retail bullion market as well, indicating Western investors are starting to hop on the gold bandwagon.
While ETFs are a convenient way for investors to play the gold market, although many Western investors prefer paper gold, owning ETF shares is not the same as holding physical metal and comes with counterparty risk.
State Street Bank expects investment demand to remain robust and expects $4,000 per ounce gold in the not-too-distant future.
The bullish factors include weakening demand for dollars across the globe, budget turmoil in Washington DC, war, and the ongoing realignment in global trade. And for now, at least, these conditions are not likely to go away.
As for the weekly market action, gold is pushing higher for the 7th consecutive week now. The yellow metal checks in at $3,893, right at an all-time high as of this Friday recording, and good for another 3.2% advance on the week.
Silver is surging again here today in what has been yet another day where the white metal is up $1 on the day. For the week silver is up nearly $2 to come in at $48.18 – good for a 4.1% gain and, like gold, a 7th consecutive weekly advance.
The silver move is being fueled by what may be a physical shortage, as indicated by a situation in the futures market referred to as backwardation. Normally the price of the metal in the future is a bit more expensive to account for the cost of funds to hold that position. This is known as contango.
But right now, we’ve got backwardation, with the price of silver on the December contract, for instance, currently sitting at about 1% lower than it is in the spot market. We’ll keep our eyes on this somewhat unique situation in the coming weeks as we parse through what is driving this deviation from the norm.
Finally here, platinum and palladium are a bit more muted this week. Platinum is up 1.8% and checks in at $1,621, while palladium is unchanged on the week at $1,283.
Well now, without further delay, and for much more on the state of the markets, geopolitics, metals and the economy, let’s get right to this week’s exclusive interview.
<div class="pl-3">Mike Maharrey: Greetings. I'm Mike Maharrey, an analyst and reporter here at Money Metals, and I'm joined today by Daniel Lacalle. Daniel is an economist, a fund manager, the author of several books, and he teaches at the IE business school in Madrid. Daniel, how are you today? Daniel Lacalle: I'm doing very well. Thank you so much for inviting me, really looking forward to it. Mike Maharrey: Well, it's absolutely my pleasure as a fellow Austrian economist. Well, I'm not an economist, but that would definitely be the school that I'm most favorable towards. So, it's always a pleasure to chat with you and to kind get your perspectives on where things are and where we're going. So, I want to start with the Federal Reserve because that's been the big news We had this September meeting. The Fed finally delivered the 25 basis point cut that everybody's been yearning for, and you made the point in one of your blog posts that this persistent inflation that we're dealing with right now, it really didn't have anything to do with tariffs. It's the Fed's fault. So what did the central bank do? Daniel Lacalle: Well, the central bank did basically what it is not supposed to do. The central bank should be the element that limits the excess of government. So, what happened in ‘21 to ‘24, particularly I would say in between ‘21 and ‘23 was extraordinary. On the one hand, you had a government that was increasing government spending at an absolute record pace. Remember that the Biden administration increased government spending by $2 trillion above the figure that was allegedly extraordinary due to COVID. And what the Central Bank did was basically facilitate and allow not only this to happen but monetize it in the most aggressive way, leading to an abrupt increase in money supply that inevitably led to the level of inflation that we have suffered and that we continue to suffer because obviously inflation as your listeners and is cumulative and we continue to suffer those effects, particularly considering that this was a very specific experiment because when everybody was unable to move or unable to leave their homes, government spending rose dramatically leading to an unprecedented increase in money velocity. And everybody that's listening may know that the quantitative equation of money shows that money supply times money velocity is the level of prices times the growth in real productive economy. So obviously, you had a massive increase in money supply, massive increase in money, velocity, huge government spending, massive inflation. So, that is what the central bank did. And obviously the central bank, the Federal Reserve first said that inflation was transitory. Then they said it was largely transitory. Then they said that it was due to supply chains. Then they said that it was due to the war, and obviously they blame it on everything and anything except themselves. And now that inflation is being contained, they are following the Jun narrative of tariffs are going to increase inflation, which anyone that understands money the way that I mentioned prior knows is not going to happen because tariffs don't mean more units of currency in the system. You may criticize tariffs for many other reasons, but not for the inflationary pressures. Mike Maharrey: Yeah, absolutely. Do you think that the Fed waited too long to deliver another cut? I think there's a lot of people who are kind of that opinion or how do you read the way that the Fed is trying to play this? Because I think they're kind of trying to walk a type rope between keeping that inflationary pressure under control and then also delivering enough of that Keynesian stimulus that you mentioned to get things going. So, how do you see it? I mean, is it even reasonable to talk about what the Fed should do with interest rates? I mean, can we even know that? Daniel Lacalle: Yeah, exactly. That is the key point. The key point is that we should not even have this debate is that the Fed should not manipulate interest rates. One can understand that the Fed has some form of obligation to be the provider of liquidity of less resort in the fiat banking system that we live in. But manipulating interest rates is always going to be either creating bubbles or generating very severe negative impacts on job creation. And it's very, very simple for people to understand. Everybody's debating whether the Fed should cut or not cut rates. The fact that the Fed should cut rates in this current, let's say environment that we live in is super evident in the fact that small and medium enterprises are not even getting any credit. It's not a question of the price of which a small business is getting a loan, it's that they don't even get a loan. The yield on the 10-year bond is four point 10. The year on the two year bond is attractive enough for banks to hoard treasuries and not lend to small businesses. So, the crowding effect of the state on the productive economy is enormous and obviously has a gigantic effect on job creation. So ideally the Fed would not taper with interest rates, would not manipulate interest rates, and would let interest rates move freely. And then we would not need to debate whether they're at the neutral level or not at the neutral level, which is an irrelevance. We would have a market driven, a market driven interest rate setting, which obviously would be much better in periods of excess because it would reduce the amount of leverage in the system when excess and complacency take over the market and would also reduce rates when the competition would lead banks to have more interest in getting a better return by lending to businesses and to families. Mike Maharrey: So what is your view, and I'm asking you to put on, get out your crystal ball here. So, understanding that we don't really know, but what's your sense as we look at the geopolitical dynamics, the political dynamics here in the US and kind of the macroeconomic picture globally, how do you see the trajectory of rates as we move forward into the next year or so? Do you see them continuing to ease a bit and whichever way you see it moving, how do you think this is going to impact the markets, particularly talking about gold and silver, which is going to be the primary interest of this audience? Daniel Lacalle: Well, for the audience interested in gold and silver, the key element is to understand that central banks have not been hawkish or prudent in any shape or form. They have been incredibly accommodative in terms of liquidity injections in order to maintain the sovereign debt bubble. And you can see it in Japan, you can see it in the UK, you can see it in the Euro area. So what we can expect in the future is that maybe central banks will be a little bit less aggressive in terms of lower interest rates in the rest of the world, that the Federal Reserve is going to catch up with the rest of the world in terms of lowering interest rates because it's behind the curve in that scenario. And that at the same time, central banks in Japan, in the UK, in the euro area where you have the French debt crisis and everything are going to continue to pump liquidity in order to avoid the manifestation of a sovereign debt crisis. So for a holder of gold or silver, it is basically like free money. It is actually free money because if you look at the price of gold today, considering that central banks all over the world have less than 17% of their assets in gold, now if they need to double that figure, obviously the price of gold is going to rise. The price of silver will also move in tandem. And basically because they're both discounting the amount of monetary destruction that we are living right now. Mike Maharrey: Yeah, you mentioned the debt, and that's something that I talk about quite a bit, particularly government debt. We have all kinds of debt. I mean, we have corporate debt, we have consumer debt as well. But most specifically talking about government debt, when I talk about it, a lot of people just kind of roll their eyes and they're like, oh, it doesn't matter. And so from an economist perspective, what is the impact of large government debt loads on the broader economy? Daniel Lacalle: Yeah, it is a great question because a lot of people say, “You know what? I don't care about government debt. The government is always going to increase debt, and I don't see it anywhere. So why would I worry? What I want is the government to spend on the things that I benefit from.” How do you see it? You see it everywhere. Higher government debt means lower productivity. Growth means the crowding out of the private sector by which lending to the government and to government entities becomes a much bigger portion than lending to the productive economy. You see it also in real wages. Real wage growth is weaker, productivity growth is slower. So public debt works as an enormous burden on the productive economy because basically what it means is higher taxes or higher inflation or both in the future. Therefore, that in elevated level of debt makes large companies be significantly more prudent about investment, makes it more difficult for small businesses to get loans to invest, makes it more difficult for citizens to purchase a home because obviously inflationary pressures lead to the increase in real asset prices. And real asset prices rise much faster than affordability. And at the same time, real wage growth is lower. So, for anybody that says, Hey, I don't care about debt, I don't see it, you're seeing it everywhere. That is the reason why you feel poorer despite an economy that may not be in crisis. That is why it's more difficult for you to make ends meet. That is you are suffering from a constant perception of living in a recession despite not having a headline recession. Mike Maharrey: Yeah, that's a really good point. And that kind of brings me to a blog post that you published recently. And you said something that I found kind of interesting. You said that the world is not going to see another crisis like what we had in 2008 or 2011, and you said, no central banker government is going to accept it. And I saw that and it kind of struck me. I was like, wow, because I'm, I look at all of the distortions in the economy. I look at all of the mal investments, I look at all of the debt, and I see a lot of that hasn't even, I don't think, been rung out from the past monetary malfeasance. So, I'm curious as to how and why. Well, not why I know why, but how do you think that the government and the central bankers can keep a lid on the economy and keep us from having a crisis? Daniel Lacalle: Okay. It's very easy to avoid what we call a crisis. No? It's very, very, very simple. You basically only have to bloat government spending and to maintain high levels of liquidity. A crisis, as our listeners know, is the manifestation of a very significant excess of the past, but that excess can burst the way that we have seen in 2008 or that we saw in 2001. But when it is a sovereign debt bubble, it doesn't burst like the real estate bubble or a tech bubble. It implodes slowly and it affects everyone. That's why I said that it leads to persistent inflation. Real wage growth is poorer. The economy is in stagnation because the sovereign debt bubble permeates everything. No? So, a lot of people when they see all these imbalances being built in the economy, say to me, oh, there's going to be a crisis. Daniel Lacalle: I mean, it's coming. It's coming. The crisis is coming, the crisis is coming, and it's not coming and it's not coming. But you see gold rising and equity markets rising – that is already the manifestation of a crisis. It shows that what is happening is a destruction of the purchase and power of a currency. So what central banks and governments in a sort of coordinated manner, and probably, I wouldn't say that they got together in a room and decided, but it's pretty much like this. There is a joint very, very clear objective that the growing imbalances in the developed economies in particular, should not be creating an abrupt destruction of the asset base of the financial sector and the banking sector. And therefore, every time that there is the slightest warning sign about these risks, central banks will immediately resort to QE even if there is persistent inflation. So that in a way is avoiding a crisis, but at the same time, it's avoiding the cleanup. It's basically covering dirt with even more dirt. Mike Maharrey: Yeah, that makes sense. To me, it's almost like the difference between, I dunno, this is kind of a morbid analogy, but getting shot in the head as opposed to having your wrist cut. It's Daniel Lacalle: Absolutely. Mike Maharrey: Kind of a slower thing. So it's not that, oh, there's not going to be any crisis. There's nothing to worry about. It's just that they're kind of doing the crisis in slow motion. So maybe we won't notice. Daniel Lacalle: Well, people notice it. No? People feel poorer. The rise of extreme ideologies is a direct consequence of that discontent. All of those things are monetary phenomenon. The other day, somebody was asking me, what do we do? What can we do in Europe to avoid the rise of the extremes? And I said, stop printing money. And they were like, what? They didn't understand the direct impact of people feeling that they don't make ends meet, that their savings are sold, that it's much more difficult to purchase day-to-day, the daily goods, things like that. And even when banks and central banks and governments try to tell them that inflation is because of whatever, everybody's going to blame the government. No? Right? So, the idea behind this eternal quantitative easing, this sort of Pringles, once you pop, you cannot stop type of situation, is precisely to maintain the illusion that sovereign debt is the lowest risk asset. We're seeing it every day everywhere. No, we just saw that the 30 year Japanese treasury yield has gone to an all-time high. We'll see that the UK yield goes to new record highs despite the Bank of England cutting rates. That is the manifestation of a sovereign debt bubble imploding. But when the sovereign debt bubble implodes, it's completely different to a real estate bubble, a real estate bubble implodes. And who suffers? The people that have invested in real estate, A sovereign debt bubble is basically democratically shared throughout the economy, making the middle class poorer. Mike Maharrey: Yeah, yeah, you explained that so perfectly, and I think everybody that's listening can grasp that and nod their head because we all feel it. We all go to the grocery store and realize our cart's not nearly as full as it was, and yet our bank account is dwindling faster than it was before. So that absolutely makes a lot of sense to me. Are we kind of talking about a scenario worldwide, kind of like what we saw in Japan and maybe the nineties, we talk about the lost years where you just basically have no growth, it's just this kind of stagnant economic picture. Is that kind of what we're talking about? Daniel Lacalle: Yeah, exactly. That is exactly what we're going through is that you get governments telling you, oh, don't worry. Next year there will be growth. Oh, don't worry. Next year there will be real wage growth, et cetera. But what ends up happening is what you just perfectly summarized is a Japanese style of secular stagnation, and it's very evident. You mentioned a very important word that very few people in the mainstream use, which is mal investment. Malinvestment is something that is very, very difficult to understand by Monetarists or by Keynesians or by the mainstream in general. Why? Because for them, an investment is an investment, it adds to GDP, and if it's a bad investment, well it will be covered with a good investment. But the misallocation of capital going to sectors with enormous over capacity, going to overcrowded assets, et cetera, all of that generates enormous distortions. And I remember having this discussion with an economist with a Keynesian economist, Richard Cook, who said, what are you a communist? Are you going to tell people where to invest? And I said, no, no, no, no. I'm not. Just don't manipulate interest rates and the quantity of money and it'll take care of itself. I may be a stupid investor. But the concept of malinvestment you mentioned is a very different one is the one in which something that is clearly expensive or a dangerous or risky investment is not only perpetuated but incentivized by manipulating interest rates and the amount of money, because obviously money creation is never neutral. It disproportionately benefits the first recipients of money. So obviously, if you already have credit and you have invested a lot in, let's say, imagine a bubble, you're going to get credit to continue investing in the bubble. That's what happened to the real estate companies in China now, is that they thought that it would be an endless cycle of getting credit because they were too big to fail. And obviously there's so much that you can do. So, that is a big problem because malinvestment is an enormous burden on economic growth, and it's no wonder that productivity growth stalls. It is no wonder either that most of the private investment goes to real estate to very, very hot technology or high MPV sectors with very rapid returns. It makes total sense. Who's going to invest in a bridge? Yeah, I mean, I'm just trying for people to understand how manipulating the amount of money and the cost of money actually generates a lot more dangerous things than just the risk of a bubble. That is what I'm trying to convey. Mike Maharrey: I've got an analogy before you that I've used before. I'll see if you like this analogy. So if you go back to World War ii, when the British were worried about the Nazis invading, one of the things that they did was they took down all the signposts, all the road signs, because they thought, well, people don't know where they are. They're they're going to get confused. They're going to get lost. It's going to be harder for them to find their way around. I look at interest rates. I mean, interest rates are nothing but a price, right? To the price of money. Daniel Lacalle: Exactly. Mike Maharrey: They're a signpost. And when you take down the signpost, the investors get lost because they don't have a way to orient themselves. Daniel Lacalle: And it's even worse. It's a great analogy. I'm going to steal it from you in the future, but it's worse than that because it's not just taking away the signpost. It's putting a signpost that says, this is the road to Florida where it's actually the road to Canada. That is the problem of manipulating interest rates. So every time that somebody tells me, oh, the Fed should do this, the Fed should do that, and why are you so confrontational about what consensus are saying, et cetera, I say, well, fair enough. Don't take my word. I don't want the Fed to manipulate interest rate. Leave them freely. A lot of these things would disappear immediately. Malinvestment is impossible. A lot of people don't understand that monopolies, mal-investment bubbles, those things cannot happen unless there is a direct order from the powers that incentivize them. I can make a bad investment in real estate, no? But what I can guarantee you is that if I make a bad investment in real estate or in technology or whatever it is, the sector and interest rates float freely, and I am the first one to find difficulties to repay my debt. The next one is not going to find it easy to get a mortgage at the same price in the same conditions. So the warning signs of a bubble when interest rates are floating freely appear very, very quickly, and you avoid a bubble. Keynesians will say, oh, but you would get less growth. Yeah, you would get less unproductive growth because what are they talking about? They're talking of GDP and GDP can be bloated with government spending and with debt. Mike Maharrey: Absolutely. I really appreciate your insights in the way you explain things. I would love to go to your school and sit in your classes. So we've run out of time, but I think people that have gotten a taste, I think people are going to want to follow and follow along. So where can folks follow your work? I know you're pretty active on X, and then you also have your blog. So let folks know where to find all things, Daniel. Daniel Lacalle: Oh, thank you very much. Well, I always say that it's easier to find me than to avoid me because I have an X account in English also in Spanish. I have a YouTube channel in English, also in Spanish. I have a website, https://www.dlacalle.com/en/ in English, but it's very, very easy. You just put Daniel Lacalle English, and you'll get immediately on Google my X account in English, et cetera. Because some people actually in the United States and the UK, they look for me and they find the Spanish language one, just put my name Daniel Lacalle English, and immediately you will get access to my X and also LinkedIn website. But the easiest thing I would say is to check my YouTube channel, check my website. That's where you get all my articles and my collaborations. Mike Maharrey: Yeah, absolutely. Fantastic. Well, I really appreciate you taking the time out of your day to chat with me. We're on what, a six or seven hour time difference, so you're winding down and I'm ready for lunch, but I really do appreciate it. What's the word I'm looking for? Very valuable asset to society and appreciate you out there doing your work and fighting the good fight. So thank you so much for being there, and thank you so much for joining me today. Daniel Lacalle: Thank you very much, Michael. Thoroughly appreciate it and I enjoyed it very much. Thank you.</div>
Well good stuff there and it was great to get Daniel Lacalle's perspective on the state of global economics and politics, and I hope you enjoyed that interview.
Well, that will do it for this week. Be sure to check back next Friday for our next Weekly Market Wrap Podcast. And don’t miss our second weekly podcast, the Money Metals Midweek Memo available each Wednesday.
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Until next time, this has been Mike Gleason with <a href="https://www.moneymetals.com/">Money Metals Exchange</a>, thanks for listening and have a wonderful weekend everybody.

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