GOLD to $3,600? Liquidity Crisis Sparks Big Move! (Uncut) 03-06-2025

GOLD to $3,600? Liquidity Crisis Sparks Big Move! | Michael Howell

Trump is iconoclastic. He likes to break the mold. He wants to get on well, not the rapprochement with China, it’s the rapprochement with Russia.

It’s not ending gold, taking America off gold, it’s putting America back on some form of loose gold standard. And these are things which I think we’ve got to be thinking about. It may never happen, but all I’m saying is we seem to be moving down that road and I think the dollar is going to lose out against gold.

That’s for sure. Gold could be moving significantly. Extremely important.

And they help us understand world trade, tariffs, inflation, and many other things. So we will dive deep into that because a lot has changed since our last interview at the end of October of last year. So we’ll need to figure out where we stand.

What’s the status of the global economy? And why is it good news that liquidity is taking up? What does that mean? So I’ll dive deep into those topics with my guest in a few short seconds. Quick reminder, 80% of you are not subscribed to this channel. It’s a free way to support us and we tremendously appreciate it.

Thank you so much for that. And now, Michael, it is great to welcome you back on the program. It’s good to see you again.

Well, hi, Kai. Wonderful to be here. Looking forward to it.

Oh, absolutely. We’ve got so much to discuss, Michael. And I just hinted at my first question in the intro, but we got to talk about good news.

Your title is the first sentence of your latest Substack articles, like good news, liquidity is inching higher. Why is that good news? And what does that mean, Michael? Well, it’s simply good news because money moves markets. And what we’ve seen very much since the low in the liquidity cycle in October of 2022 is liquidity racing higher and that propelling risk assets, particularly stock markets, a lot higher.

And while liquidity keeps going, risk assets are going to rise in price. The problem comes is if you get any interruption in that upswing in liquidity, then you’ve got the possibility, or in fact, the real possibility, the risk of a significant air pocket in risk asset prices. And that maybe is what we’re going through temporarily now because liquidity in the last few months has kind of gone sideways a bit, although currently it is starting to pick up again.

So we can look forward to maybe some rebound in the future. Well, we’ll need to break that down. Like, maybe we’ll like, I always have to, I always feel like we need to describe the term liquidity just a little bit to our audience, especially we’ve picked up quite a few new subscribers here on the channel.

When you talk about liquidity, like what are you looking at and what do you mean by that? And then like, why is it being interrupted right now? Yeah, let me try and dig into that. There are two broad concepts of liquidity. One is maybe what traders think about, which is market liquidity, which is a measure of the depth of markets.

In other words, can you trade in size, in securities around the current price? And that’s a measure of market liquidity. But market liquidity is derivative from something we think of, which is funding liquidity, which is, is there enough credit or savings in the system to actually drive asset prices higher or lower? In other words, to fuel buying and selling behaviour. And that is something which is a monetary phenomenon that really comes back to understanding central banks, banks and shadow banks.

And it’s really that concept that we think of. Now, it’s a complicated subject. I mean, let’s make no mistake about that.

But broadly speaking, what we’re trying to analyse is the flow of funds through world financial markets. And those funds consist of credit flows and savings flows. But it’s primarily through the financial markets.

It is not so much money that’s in the real economy. Money that’s in the real economy is lost to financial assets. It’s driving other things.

It’s driving steel production. It’s driving consumer spending, whatever. But it’s not driving financial asset prices.

What we’re concentrating on is the flow of money into the financial sector. Now, Michael, you were saying like we’re seeing a bit of an interruption in that liquidity flow right now. Can you explain that? What does that mean and where is that disruption or interruption coming from? Well, it’s it’s largely coming from China or has come from China.

Let’s be clear about that. To some extent, it’s come from the US. The Federal Reserve, one will recall, cut interest rates by 50 basis points just ahead of the US presidential elections and cut again by another 25 in the week of the elections.

So the Federal Reserve has been pushing interest rates down. But simultaneously, the Federal Reserve is sort of soft peddling on balance sheet growth. Now, that’s a kind of slightly wonkish concept because what we know from reading the media is that supposedly the Federal Reserve has actually been operating a QT, a quantitative tightening regime, really pretty much for the last two to three years.

And we argue that that hasn’t really been the case. They’ve been ploughing quite a lot of liquidity into markets, certainly through late 2023 and 24. And, you know, cynically, and let’s say Scott Besant, the new US Treasury Secretary, has also picked up on it.

Cynically, this may be may have been a ploy by Janet Yellen and Jay Powell to actually get Biden reelected. So there was certainly a lot of secret goosing of the US economy by liquidity. And that is starting to roll off now.

So these effects of extra liquidity stimulus are coming out of the system. And that’s one of the reasons that you’ve seen this dip. On top of that, I mentioned China.

China has been struggling for, well, let’s say at least two years now, when trying to maintain the integrity of the yuan currency against the US dollar in particular. And what that has meant is that money markets are basically starved of liquidity, as the Chinese People’s Bank, the central bank, basically tries to manage the currency. So they’ve been tightening policy at different times to maintain something like a 7.2 parity for the yuan against the US dollar.

And that is becoming more and more difficult for them to do. So those have been the two factors that have really coloured the liquidity space over the last three to six months. It’s a bit of a charged statement that Powell and Yellen were in cahoots, you know, trying to prop up a potential democratic president here.

Let’s break that down, though. It’s like, how did they do that? And was it just about short term debt that has been issued, meaning Treasury? I always have to admit, I always confuse bills and bonds. Yeah, let’s dig into that.

I mean, there’s a chart in the pack I gave you that maybe we can move on to. And hopefully I can manipulate that towards where we’re trying to get to. So let me just swing through this presentation.

This is the chart. So you can see this chart, hopefully, is entitled US Fed and US Treasury, not QEQE and not yield curve control, yield curve control. Now, what that chart is basically illustrating is two forms of stimulus that have come respectively from the Federal Reserve and the US Treasury.

The orange area is basically what we call not QEQE. So in other words, it’s not officially called QE, but in fact, in fact, it’s a quantitative easing because it basically has involved injections of liquidity into US money markets from the Federal Reserve. And that’s principally come through a rundown of something called the reverse repo facility that’s held on the Fed balance sheet.

Now, without necessarily going into the weeds, which I can if you like, but that basically is a source of stimulus. But it’s it’s it’s outside of what the Federal Reserve normally treat as quantitative tightening. So it’s an extra form of liquidity that they’ve been doing.

So that’s number one. And that that reverse repo facility, which was as high as about three trillion US dollars at the peak, is now down to about 100, 150 billion US. So it’s really come right off.

And that’s been a source of extra liquidity for US money markets. The other source of stimulus, which is shown as the red area, is basically changes in the funding dynamics of the US Treasury market. Now, to get back to your question about bills and notes and bonds, basically bonds are long term US debt of tenors are about 20 to 30 years.

Notes are a US bonds, coupon paying bonds of anything from one year through to about 10, 15 years. And bills are anything which is a not Treasury security that doesn’t pay a coupon, but it’s really up to about a one year tenant. And those are the different instruments.

Now, it makes a difference, believe it or not, as to what route they take for their funding. And the reason for that is really twofold. One is in generic terms.

If you hold a bill, a bill takes less balance sheet space than a bond because it’s a lot less volatile. In other words, you can have more of them and you don’t have to reserve so many assets really against that in terms of your of your regulations, banking regulations. So that’s an important factor.

And if they issue a lot of bonds, it’s effectively an injection of liquidity. And you can think of that in very broad terms by saying liquidity is approximately equal to the asset divided by its duration. That’s a way of understanding that.

So by issuing more lower duration instruments, lower maturity instruments like bills, the Treasury basically has been adding liquidity to the system. Now, in terms of their funding of the US deficit in the last two years, I think the figure is something like 60 percent of all budget funding, deficit funding has come through the bill market. So it’s a whopping great figure.

Janet has been cheating very cleverly, in fact, by going down this route. The second thing to say is that there is a huge appetite for bills, particularly by banks. And if you think this through, the reason for that is the banks, in terms of their balance sheet, have to be duration matched.

So in other words, they have to have assets of a similar maturity to match also liabilities of a similar maturity to match their assets. And if you think about what a bank’s balance sheet consists of, its liabilities are things like deposits. Those deposits have been fueled by a very loose fiscal policy coming out of the Biden administration.

US deficits, we know, was sort of up at the peaks of eight, nine percent of GDP that flowed through to balance to people’s bank deposit accounts. But the banks had to match that with an asset. So effectively, what they were doing was matching that was a short term asset.

So they have a big appetite for bills. Now, the issue is that if they are buying lots of bills, any debt that banks buy is a monetization of the deficit. So what you’ve got going on here is something that would have Milton Friedman, the arch monetarist, turning in his grave because effectively the US deficit is being increasingly monetized by the banks.

And as we know, that’s a long term inflationary. But in the short term, it fuels asset markets more than it does consumer prices. And if you look at these two factors, adding in the red area, which is the not QE, sorry, the not yield curve control, yield curve control.

So in other words, it’s the way the Treasury have of managing the term structure and the not QE, QE, the orange bit. You can see at the peak, this was almost six trillion dollars of stimulus coming into the beginning of 2024. Now, that’s an important statement to make because that was clearly having a big impact on the US economy.

I mean, this is not one for one. One’s got to say this is effectively a wealth effect. Think of it in those terms.

So it may well be that that six trillion had a multiplier of about point three or whatever on GDP or point two or whatever the number happens to be. But you can see that the impact could be huge. And now what you can see is that has run off significantly as of its impact to less than a trillion US.

So there’s been a big, big drop in that stimulus. That is probably one of the reasons that the US economy is cooling down now. And all the latest evidence that you’ll be familiar with is indicating that cooling down.

Now, one of the things that one should point to in that regard, which I’ll try, I’ll try and do with the presentation, is that if you take a look at the bond market, this chart here is looking at the US Treasury yield. Now, the reason for monitoring this is that the Treasury market doesn’t lie. And what we were in, let’s say, prior to about three months ago was a regime that most people would have argued represented a strong uptrend in that orange line at the top of the chart, which is the 10 year Treasury yield.

Now, the 10 year Treasury yield was seemingly heading towards five percent or even higher as a yield base. And that was largely, as people argued, because the deficit was out of control in America and funding, coupon funding and others funding through notes and bonds was likely to spiral significantly higher. And as a result of that, if you look at the black line at the bottom, the term premium, the extra amount that investors needed to buy government bonds, the active incentive to buy bonds, that premium was going up the whole time.

So that was, if you like, a weight on the markets. And it was also because collateral was beginning to diminish as the bond as bond yields went up since collateral is largely in the form of bonds. That was depleting liquidity as well.

Now, what we’ve seen in the course of the last six weeks, as you can see from this chart, is the orange line has started to dip down quite noticeably. In other words, yields have fallen and the Treasury bond market has rallied significantly. So much so that it almost traces out a new downward channel, as I’ve indicated with the tram lines there, that seem to be pointing towards a four percent yield base.

And that is probably all to do with the fact that the economy, not just in the US, but globally is slowing down. Now, this chart is well worth thinking about because what this chart is highlighting is, albeit an AI based model, but this is a model that it tries to track world GDP growth on a daily basis. And we use a whole lot of inputs for this.

We use things like commodity prices. We use exchange rates of trade sensitive currencies. We use credit markets.

There’s a whole lot of data that goes into this. But the algorithm basically sifts this through and comes up with a projection of what it thinks underlying economic growth in the world economy is. And whether we can, you know, let’s not debate whether it’s accurate in terms of the level, but let’s debate what it’s saying in terms of the timing of the cycle.

What it says is there’s been a sharp drop in the pace of economic growth. It’s not recessionary, but it’s clearly a meaningful change in terms of the tempo activity coming through late December, January, February and into early March. And that seems to be being borne out now by subsequent economic data.

And it’s certainly what the treasury market has been indicating. And maybe what you’re also getting is a consequent change in risk assets or risk behavior in markets as a result of that. Now, I alluded to two factors.

One was the US and the other was China. And I’m just going to take a look at what’s going on in China. If you look at the following chart, what the following chart indicates is a black line, which is exactly the same factors, the previous data, which is the GDP estimate for the world economy daily.

And as I said, that’s predominantly things like commodity prices, credit markets, trade sensitive currency rates, etc. The orange line, which has been advanced by about six weeks in time, but 30 working days, is looking at the injections that the Chinese People’s Bank makes into their markets. And you can see that the gyrations of PBOC liquidity injections interestingly line up quite well with subsequent world economic growth.

Now, if you add those two stories together, the slowdown in this secret stimulus coming from the US, which was the Yellen Powell show, if you like, last year, on top of what the Chinese have been doing to protect their currency, which has been basically to tighten policy, that maybe accounts for the fact that we’ve got an air pocket in markets. Now, the alert among you will notice that that orange line is now picking up. And that may be a very interesting and important change.

And we may well be at a critical juncture here, because it looks as if the Chinese are beginning to add stimulus to their markets. And let me give you, trace through, the reasons for that happening. The first of those is to look at the Chinese bond market.

And what you see in front of you is the Chinese 10-year bond in orange, and the equivalent estimate of the term premium on the Chinese bond market in black. Now, what we saw at the end of 2024 was a collapse in the Chinese bond market in terms of yields. So yields plunged.

In other words, bond prices went up. But this was a dislocation in the bond market that was consistent with a skidding Chinese economy, for the reasons I’ve just cited, all to do with this tightening by the PBOC in late 2024. And the term premium plunged because there was a huge demand for safe assets in China, because they were the only game in town.

That’s all people could own in that debt deflation. What you’ve seen subsequently are two or three really important developments. Number one is that the bond market has stabilized.

Yields have gone up. And importantly, term premium has risen. And that’s saying that the demand for safe assets has disappeared.

That has coincided with a significant jump in Chinese equities, particularly led by things like tech. But, you know, tech is just a bellwether of a general move up. The third thing that’s happened that may be very significant, and I say may be very significant, is the conference speech that Xi Jinping made about now two weeks ago, which was a stalling the virtues of capitalism, and had Jack Ma seated in the front row.

Now, the Chinese like soapboxing and like these pantomime events, these big statements. And it reminds me, since I’ve been in the markets too long already, I should think, of the 1992 Deng Xiaoping Southern Tour. And Deng Xiaoping, a previous leader, a supreme leader in China, went on a very well publicized tour of the southern states of China, which were the very capitalist areas of the of the Chinese economy.

And he came out with a statement to be rich is glorious. And that is stole the virtues of capitalism and really laid the basis for a long bull market in both the Chinese economy and Chinese asset prices. And this may well be now what Xi Jinping is saying.

You know, state capitalism doesn’t work that well. We’ve got to free the market up a bit. And that is a very important statement to think about.

This next chart is then looking at daily injections by the PBOC in the People’s Bank of China in their money markets. And I leave it to people to get an impression as to whether there is a pickup of late or not. You know, there is.

Would it be sustained? I don’t know. But it’s happening. And here is a more complete version of what the balance sheet in China of the People’s Bank is doing.

The black line or the black area is their domestic open market operations. And you can see this big spike that’s occurred really through January and February. And the red line is a six month annualized change in, if you like, primary liquidity coming from the central bank.

So it seems that something is happening on all this data, by the way, seasonally adjusted. So it takes out the impact of the Lunar New Year, which is always a big hurdle in China. So what you’ve got is the potential here for some stimulus coming through.

And the important thing to state here is that the PBOC matters hugely for the world economy. The Federal Reserve matters for the financial markets, but it’s the PBOC that drives commodity markets. And that’s really a critical thing.

Now, just before I finish, I’ve got to say one more thing, and that’s this. This chart is something that everybody can monitor and it’s well worth looking at. And this is looking at what’s going on in the US money markets.

This is measuring how tight money markets are by looking at the spread between SOFR rates, which are repo rates, and Fed funds. And in other words, what this is, is an interest rate spread. And what I’ve looked at is a channel, which is a normal range, if you like.

Now, for a long time, SOFR rates, repo rates, were trading below Fed funds. Then they started to move into that normal channel. And what they’ve done latterly is to pick up significantly.

What we’ve seen is something like of the extreme readings of that spread over the last 12 months, 80 percent have occurred since July of last year. And that’s indicating you’re getting more and more occasions when US money markets are tightening. And that’s completely consistent with what I’ve been saying about looking at this ending of this not QEQE or not yield curve control, yield curve control, this secret stimulus.

And that’s why something needs to be done pretty rapidly by the Federal Reserve to add more liquidity to US markets. It looks like the Chinese are doing it, but now the US has got to do it too. And so we’ve got to watch this space very carefully to see whether the Federal Reserve will start to move away from a QT and towards a QE.

I suspect they will, because on our reckoning, the money runs out in US money markets around July of this year. So let me stop. No, that’s that’s phenomenal.

Like, July could be the end, you know, what you call it, like, could be the end, because we talked about this, the liquidity crunch coming and looming. Interesting developments. And I’ve written down a lot of follow up questions for you, Michael, here.

And just this morning, like, Chinese government came out with a 5% GDP growth goal for 2025, hinting at potentially injecting liquidity into the markets. We’ve seen it. They’ve announced a $55 billion injection into some of the Chinese banks already.

Do you see more of those stimulus packages coming out of China? And how is that affecting then liquidity and global trade? Well, I think the first thing is that recapitalizing the banks is clearly important. And that’s one of the things they’re really good to do. You know, I think that we’re in a window now, which, you know, if this is correct, the correct judgment, this is like the US, you know, after the GFC.

So we’re in that window, the interregnum where investors are starting to digest this news and beginning to get more and more optimistic about China. So that I think is definitely true. In terms of some of their other statements, I think it’s early days.

But I think broadly, what I would say is think back to that statement by Xi Jinping, because I would suggest that may be very significant. I mean, not just the fact that he said this, that capitalism, you know, we need to be more capitalist, but also the fact that Jack Ma, the sort of previous bet noir of the Chinese technology sector was actually, you know, embraced again by the party. And that’s got to be very significant as a symbolic move.

So I think it goes back and it parallels this Xi Jinping, this Deng Xiaoping event in 1992, which was then a cathartic moment for the Chinese markets. So I think this is this is very important. Now, there is a very important corollary that one needs to raise.

And that is what is the ability of China to ease liquidity and not have the yuan devalue significantly? And that’s really the key point. Can they do this? Now, if you join the dots here, and this is joining the dots and maybe not just joining the dots, making a huge leap forward. Is this consistent with some of the noises that one’s heard coming out of the new US administration, particularly the idea of some revaluation of the US balance sheet by Scott Besant? Now, if you look at the possibilities of what could be done here, he’s saying that he’s going to revalue the US balance sheet to the benefit of Americans.

Now, as far as I can detect, there were three basic assets that the US has on that balance sheet. One is the gold stock, which is kept at a value of low value of 42.22 dollars an ounce, which was basically decided back in the early 1970s. And it’s been kept at that level ever since.

I know of only one other country that doesn’t revalue gold higher, and that’s Japan. But every other country revalues gold periodically. Even the ECB does it, I think, every quarter.

Bank of England, I think, does it annually. PBOC allegedly does it monthly. So the important players are doing this all the time.

The US doesn’t. So that’s clearly one win for gain. The second asset they could revalue would be Fannie Mae and Freddie Mac.

That’s an asset. The GSEs, the agencies, US government agencies, if you like, which are the mortgage banks effectively in the US, they could be privatized. And that’s clearly a win for gain.

They could do that. That’s been long talked about. So why not? The other is basically real estate holdings of the US government.

Now, that would come down principally, forgetting the offices that the US government has, which are probably, you know, insignificant and big scheme of things. What we’re really talking about is the parks department. Well, they can’t do anything with that or the whole the military bases that the US has.

And again, neither of those two things really lend themselves to a feasible revaluation. So it essentially comes down to Fannie Mae, Freddie Mac and the gold stock. So what is he talking about? Now, why am I going down this rabbit hole of thinking about gold? Because what the Chinese want as well is a revaluation of gold.

And although, you know, we could argue that debt deflation in China requires a devaluation of the currency, everyone is immediately focused on devaluing the yuan against the US dollar. But that’s not necessary. What you need to do is to devalue the Chinese yuan against real assets like gold, because effectively you need to get if those debts are held against ultimately real assets, which it must be, you’ve got to get the value of paper money down.

And what that means is getting the Chinese gold price up. Now, we did estimates which suggested that the Chinese needed to expand liquidity by about 30 percent to get an equilibrium back between debt and liquidity. And one of the themes of our research consistently is that to get debt GDP, GDP, that ratio is a completely nebulous and meaningless statistic.

Economists come up with it because they can, because it’s an easy ratio to calculate. But it really means nothing. What you’ve got to do is to think about the practicalities of what debt needs, what needs to happen to debt.

Debt needs to be refinanced periodically, which is why you need liquidity. So you should be looking at the debt liquidity ratio, not the debt GDP ratio. And if you look at the debt liquidity ratio, China is about 30 percent short of liquidity and it needs to get more liquidity into the system.

So think of this as a devaluation of the Chinese yuan by 30 percent. That would be that would have the maths would ultimately turn up. If you devalue the Chinese yuan against gold, what you’re then talking about is a yuan gold price of about 26,000 yuan per ounce.

7. We’re currently just about 20, but the yuan gold price is going up the whole time and that is taking the pressure off Chinese debtors consistently. What would that mean for the U.S.? Well, if the U.S. kept the yuan gold price, so the yuan U.S. dollar price constant around 7.2, that would mean a U.S. dollar gold price of around three and a half thousand, in fact, thirty six hundred dollars an ounce.

Now, that would be an interesting proposition. So if the U.S. allowed the gold price to revalue, they’d get a whole lot of win win situations. Number one, they could do a deal with China and there may be some quid pro quo in that.

Secondly, they could reset the international monetary system and they could it could take on a new aspect of gold, which I think fits in very much with the philosophy of Scott Besant. And I think number three is that the U.S. Treasury would get a windfall gain through the Treasury general account, which would mean that they would have to issue something like one and a quarter trillion less of debt over the next few years. And that would be significant.

So, you know, Trump is iconoclastic and he likes to break the mold. I mean, in many ways, you know, you could think he he’s lying. I mean, in actual fact, this this thought occurred to me.

I was listening to another podcast called These Times, where it was it was comparing the current situation with the early 1970s. And it was saying that if you looked at Congress in the early 1970s, Congressmen were trying to pass bills that were criticizing the Europeans for having both a trade surplus with America and operating under the U.S. defense umbrella. Well, hey, I’m deja vu.

This is exactly where we are now. That’s what they’re saying. But that was the era of Nixon.

So, you know, maybe Trump is not McKinley, as he likes to think of. Maybe he’s Nixon. Maybe he’s that iconoclastic and wants to break the mold.

You know, he wants to he wants to get on. Well, not the repression with China. It’s the repression of Russia.

It’s not ending gold, taking America off gold is putting America back on some form of loose gold standard. And these are things which I think we’ve got to be thinking about. It may never happen.

But all I’m saying is we seem to be moving down that road. And ultimately, what you’ve got to get to get out of this debt problem is huge monetization and re-pegging some form of gold or bringing gold into the world monetary system is a wonderful way of doing that. No, absolutely.

It makes it makes a lot of sense. And that’s, I think, why we’re having all these discussions. And, you know, Trump has threatened any country that’s trying to devalue its currency against the U.S. dollar with tariffs and many other measures, which brings me to the tariff debate, to a degree.

And we need to touch on that because it’s topical this week, Michael. But but how are tariffs then influencing global liquidity? Like how does that impact the extra 10 percent on China? Like we don’t have to talk Canada, Mexico, because that those tariffs are in limbo, in my opinion, right now. But I think the Chinese ones are to stick for a little while till they figure things out.

And I hear there’s negotiations about trade discussions or things happening in the background. But how is that affecting liquidity then on a global level? Well, I think the answer is that it’s at the moment is probably having a limited effect. And I say that because what you would normally expect in an era or period where tariffs were going up, tariffs imposed by the U.S. are going up, that the dollar would be strong.

Clearly, the dollar has come down. But that weakness in the dollar may be for other reasons. And it may be because you’re starting to see a skidding economy and therefore maybe some of the enthusiasm, particularly about U.S. tech stocks, is being is being broken or eroded and therefore money is leaving the dollar.

That’s possible. So there may be other reasons on that. So you would have thought that a strong dollar would be negative liquidity, but we haven’t got that yet.

Now, I would say that if you come back to the tariff question, my view has always been that don’t think of tariffs as a sort of the end game. They’re not. They’re a negotiating tool.

And at the end of the day, what Trump really wants is for production to be brought back to the U.S. He wants China, Europe, etc. to open factories in America because there’s much more control over those over those factories in the event of hostilities, of course. And what’s more, it would revive the U.S. economy.

So I think this is the end game that they’re trying to do. And maybe all these deals are really in that direction. Now, in that world, this is the world I think we may be moving towards.

This is good for commodity production and real economies. And I think it’s maybe no coincidence that Trump is sort of talking maybe loosely or maybe more seriously about embracing or getting a hold of Greenland and doing something with Canada, making Canada a 51st state and bringing Greenland. I mean, these are resource rich areas.

So, you know, watch out, Australia, in case he puts his eyes on you, too. But this is the reality. We’re talking about a world now where maybe financial assets are likely to underperform real assets or maybe real assets, you know, starting a bull market.

That would that would make sense if all these things that I outlined are really coming out. And so you really got to start embracing commodity stocks or resource stocks. This is the way forward now.

This could be a very, very significant moment. No, I fully agree. It’s not easy to follow.

I mentioned it on another show here on this channel, but every morning I wake up, my head is spinning. There’s always a new announcement. It’s really difficult to keep up.

Now I’ve been hearing talks about Singapore and Indonesia trying to appease Trump by stopping like illegal chip transports to China and exports, not transport, but exports to China, like different countries all of a sudden waking up and starting to chime in here as well, trying to get a piece of the global action, it seems like. We got to talk about the dollar for a second, though. We’ve touched on it.

And I wrote one question down in preparation of this interview. The Dixie has been crashing versus other currencies. Bond yields have been, I don’t know, for lack of a better term, also going down and crashing in recent recent days, actually.

Like what is driving that? And where is that weakness all of a sudden coming from despite the tariff announcements that you mentioned? Well, I think it’s hard to say. I mean, my view would be that it’s a lot of it’s to do with the fact that you’re seeing evidence of a slowing U.S. economy. So the U.S. economy is not the sort of the the positive outlier that it’s been for much of the last two or three years.

And that may be the result of this secret stimulus that I’ve been talking about disappearing. So the U.S. economy is not being goosed by this extra yield, not yield control, yield control and not QEQE stimulus. And therefore, as a result of that, the bond markets are yields are dropping.

The attractions of the U.S. dollar are diminishing. And maybe this also is paralleling the fact that U.S. tech stocks are now starting to underperform. So all those things line up.

But it may not be anything to do with the with the tariff question per se. I think if you step aside from that and you start to look at the look at the U.S. dollar from a longer term perspective, assuming and this may be a big step, assuming that Trump is successful in driving a lot of new capital investment into America in terms of FDI, new factories, etc., and reviving the U.S. economy through more deregulation. I don’t think there’s any reason why the dollar shouldn’t be strong in terms of other paper currencies.

I mean, I’d certainly believe that Europe, you know, is struggling medium term because I, you know, I scratched my head many times and just think about, you know, the challenges that Europe has got are immense. I mean, not least the fact that we know we know Germany is now supposedly taking off or trying to release the debt break and they’re talking about big infrastructure programs and big defense programs. But the size of these programs, even the size they’re talking about, is still way insignificant to what’s what’s needed.

And, you know, defense, if it’s got to be up to five percent of GDP, probably at least to to replace the Americans, you’re talking about a huge amount of debt and a huge, huge burden of unproductive spending on the European economies. And what you know, why should the euro be strong in that environment? I failed to see it. So I think these are these are issues that we need to think about.

And, you know, ultimately, Japan is really, you know, I mean, Japan is largely dictated to by the US and I can’t really see why the yen should be a strong currency in the in the long term anyway, because Japan faces many of the same questions. And if, of course, China is embraced back by America in some form, although limited form, you know, Japan will play a role. But I can’t see why the yen should be a very strong currency.

So I still come back to in terms of paper units, the dollar should still hold up relative to the others. The DXY should continue to hold its own. Gold is a different question.

And I think the dollar is going to be is going to lose out against gold. That’s for sure. Gold could be moving significantly higher from here.

I’ve been making that joke before in this program, but it feels like the Japanese yen is like that cousin that you have to invite to your wedding because he’s just part of the family. But everybody’s like, OK, we have to invite him. You know, he has to come.

That’s what I feel about the Japanese yen. Like it was more significant a while ago. Now it’s that unloved cousin that you just have to invite and have a conversation with at the party because you cannot avoid it just because he’s part of the family.

How does a weaker dollar play into the hands of Scott Besant and the US government right now? Because we talked about refinancing this year. So a weaker dollar, lower bond yields. It seems to be playing perfectly into the cards despite, you know, the tariff announcements and all of that, like and still being the world reserve currency and pushing for staying the world reserve currency, threatening tariffs and other things on countries that are even contemplating different currencies.

Like, how does that fit together? Like, I’m trying to make sense of it. It’s like they’re trying to have the cake and eat it, too. Right.

We want to stay the world reserve currency, but we do want a weaker dollar. But both at the same time doesn’t seem to work because being the world reserve currency automatically leads to overvaluation because everybody needs your dollar or your currency. Well, that’s true.

But, you know, on the other hand, I mean, it depends which way it cuts. If you’ve got clearly if you’ve got a lot of FDI going into America and you’re reviving the US economy through that route, then you don’t necessarily need a weak dollar because the US is not necessarily going to be a major exporter. What you’re doing is you’re predicting the US is just a major producer in that regard.

So I think from that perspective, you know, it would follow the dollar could remain firm. I think if you’ve got a firm dollar, it plays into Scott Besson’s hands because it basically keeps the capital inflation. And one of the things the the the major factor, I should think, that Besson is focused on is the bond market, because the bond market or the debt is such a challenge to the US Treasury.

They’ve got a huge amount to refinance this year. I mean, something like 30 percent of outstanding debt, which means effectively, you know, something like three trillion dollars of coupons to refund to refinance and about six trillion of bills. And we know that Besson doesn’t want to issue any more bills necessarily more than he needs to.

So the pressure is going to be on the coupon market. So he wants yields lower. And the problem is, as you know, I mean, the mass of this thing work, you know, very much against them.

The higher the interest bill, the more the debt load just exponentially grows. So they’ve got to get yields down in some form or cap them. And I think this is part of that will be keeping inflation low and trying to get a stronger dollar.

So my view has been an albeit it’s been wrong in the last few weeks. I thought that the dollar would be firmer than it has been. It’s true.

But on the other hand, I have been very upbeat about the gold price. So it cuts both ways, I think. So I think from that regard, I would say my view, my instinct would be that the dollar remains firm.

I was just looking at the 10 year bond market and I’m seeing that the 10 year has the same yield as the six month, the bill and the bonds. What does that signify? Because I was going to ask you, like, what’s a healthy relationship between the two year and the 10 year? What’s a healthy gap in term premium here potentially? And the emphasis on healthy, what’s the norm that we should be looking at or arrange once it breaks out? And now I’m looking at the six month and the 10 year being pretty much par value here. What does that tell you? Well, what it’s saying is what you’ve seen is term premium have dropped back.

And that’s largely because the economy has slowed down, I would argue. There’s been greater demand for safe assets. And what you’re beginning to see is, you know, is, let’s say, an economy that’s slowing and risk appetite really starting to diminish.

So you’ve seen, you know, the more extreme elements like Bitcoin and all these crypto currencies really get hosed in the last few days. And that’s because risk appetite has come down on liquidity as being, you know, what has been crimped. I mean, there’s always a lead time in these things for a few months.

But basically, we’ve been in a period where liquidity has been weaker. The whole tenor of my recent substack note was to say, look, there is good news out there. Sure, we’re not looking at a massive tightening of liquidity yet.

But the bad news is building up. And the bad news is a softer economy. The fact that risk appetite among investors seems to be diminishing.

And these are not necessarily great omens, certainly tactically. But it may come good in the next few months if these other factors really start to dominate. And that’s why I’d look very closely at things like the yield curve.

It may well be that the bond market in China is leading the U.S. bond market. I mean, that wouldn’t be a great surprise. Bond yields in China are continuing to pick up in the Chinese markets firm.

It’s telling us that sentiment is changing in China. And effectively, you might argue that money flow is moving out of U.S. technology stocks towards China or maybe resource stocks. But if the Chinese market goes up, resources are bound to go up because China is so resource hungry.

And this must be the case. But, you know, I think there’s a lot. There’s also a lot going on in this.

I mean, one may cynically say, you know, why is there this imperative to bring Russia back into the fold? And it must be, I’m sure, all to do with the fact that Russia is a big resource economy. It’s got a lot of oil and gas potential to production. And American shale is starting to lose momentum.

So at the margin, if you want to keep oil prices low, you’ve got to embrace Russia again. And economics often trumps geopolitics. Excuse the pun there, but it does.

So maybe these things are significant. And what’s more, you know, as they say, if you’re familiar with the Sherlock Holmes novels, you need to understand the dog that didn’t bark. Why is Saudi Arabia involved in these talks over Ukraine? Why are they being held in Saudi Arabia? I mean, this is a curiosity to me, but it’s telling, it’s saying that maybe Trump views Saudi Arabia as a very important player in the world economy.

Oil in the Middle East. They’re involved in Israel-Gaza discussions. They’re involved, you know, a broker.

Gold is transferred through Saudi Arabia to China. China’s paying Saudi Arabia in gold. So there’s a lot of capital flow going through the Emirates here.

Exactly. Europe’s been elbowed out. We’re just trying to gain back some attention here by trying to spend a few trillion dollars or billion dollars on defense that we should have done 10 years ago and longer ago.

We’re trying to claw back into, what do you call it, significance perhaps, right? Michael, I have two more quick topics I want to discuss with you. One, you touched on gold already, but I’ve had Gary Savage on the channel the other day, and he said that gold broke the cartel, meaning gold broke out and broke out of control. I’m not even saying who’s controlling it.

And actually, I don’t know. Apparently, it was controlled and held down, but it’s broken out to 3,000. Was that a calculated move? How do you interpret that move? I don’t want to go down that conspiracy route, but it’s obvious that something broke and all of a sudden gold started to run.

Given the context that you provided earlier, how does that fit in? Is there something else at play perhaps? Well, I’m not an expert on the mechanics of the gold market, but I’m certainly familiar with the idea that there is a cartel and the gold price is fixed. I’d make two observations. One is the longer term fact that if you look at gold, how gold was performed, gold was pretty much matched in terms of price appreciation, the increase in US debt.

So if you look at US debt, the outstanding stock since year 2000, today compared with year 2000, the US debt stock, I think I’m correct in saying, is about nine and a half or 9.6 times bigger. So a huge, eye-watering jump. How much has the gold price gone up since that time? Answer, curiously, 9.6 times.

So it looks as if gold is moving exactly in line with debt, that’s for sure. So if debt continues to go up, which, spoiler alert, it will, then you’re going to see a much higher gold price. And that’s, I think, the thing for everyone to remember.

That’s why you need gold in your portfolios, because the world has changed. Debt accumulation by governments is definitely on the cards. On top of that, you’ve got accumulation of gold bullion by central banks, certainly outside of the West.

And we know that China, Russia, etc., are buying lots of gold at any opportunity. And that’s a significant factor. So you’ve also got the supply factor coming in.

The third thing that I’d say, and this is what I don’t really know, but I’m curious and it’s made me scratch my head about this, is that if you look at the COMEX futures market, there is a lot more physical delivery coming out of that futures market. Curiously, as to why that is. Now, it may be that that’s because investors in COMEX are scared by the tariff threat and therefore they want physical gold delivery in New York as soon as they can.

That’s possible. But there’s a lot of other motives, a lot of other reasons why that could be. And it could be that gold is disappearing from west to east and there’s accumulation.

This is a good way of getting it. Now, somebody said to me that if you look at the silver market, the silver market is also doing the same thing. And what’s happening is that silver is taking up to nine months to be delivered in terms of those gold futures contracts.

And that’s a long amount of time. And then you’ve got the Bank of England, which has overseen the London gold market. And the Bank of England is trying to deliver gold bullion into New York and they can’t do it.

They say it’s a six week delay. And the excuse they come up with, which is absolutely mind bending, is that they can’t physically transport gold bullion from the vaults in the Bank of England to Heathrow Airport because of traffic problems in London. Hello.

This is beyond belief. There’s something else kind of going on here, isn’t there? Which we just don’t know. But there’s a physical imbalance in the market somehow.

And that’s telling you that you’ve just got to own gold in some form, because I don’t understand what’s going on there. Yeah, it’s like, why is it all of a sudden, like, what’s happening? Fort Knox discussions, shorting, tariff talks, like, why would they tariff gold movements and things like that? It just doesn’t make a whole lot of sense. Exactly.

As you said, it’s tough to follow and tough to understand. Might as well just own it and play the game. Michael, one last topic, and I should have probably brought that up earlier, but I just want to add that to the stage here real quick.

And it’s the one thing that I personally think could help derail our whole discussion to a degree, perhaps, and that’s Japan. We’ve seen that last August and we talked about it in our October interview, but it’s really the yen carry trade. And I’m hearing more voices about inflation in Japan and potential rate hikes in Japan, potentially shutting off the liquidity flows from Japan towards the U.S., especially into the stock market.

And I’m curious what your thoughts are on that topic for the last five minutes here, Michael. And could that be something that brings the markets to its knees? Well, look, it’s important, but is it significant? You know, at the end of the day, you know, markets price off the margin. So, you know, these things have got to be taken into account.

My view has been that the yen carry trade over the last, let’s say, two years is not the force it was 10 years, 15 years ago. I mean, people still refer to it, but I think in terms of size, it’s diminished significantly. That doesn’t mean to say that it can’t have an effect.

More importantly, to sort of answer the question in a different way, is Japanese liquidity tightening? The answer is yes, it is. And Japanese liquidity has tightened quite noticeably over the last six months, largely because of these inflation pressures or to address these inflation pressures. And as a result, the Japanese markets have done nothing.

So, you know, that’s a fact. And, you know, what we’ve got to be alert to is the fact we live in a world of global liquidity, not just U.S. liquidity. And certainly among the bigger players there has been over the last few months, there’s some tightening, which has explained the sort of the sideways movement to dip or air pocket in liquidity and the consequent air pocket in a lot of asset markets that we’re currently seeing.

So I think that that lines up. Looking forward, you know, putting aside Japan for a moment, I still think that we’ve got to look to China and try and understand China’s policy and whether it is undertaking a sustained ease and also, therefore, to row in the U.S. and say, you know, is it feasible that the Federal Reserve could ease? And to what role, what extent does gold or a revalued gold market gold stock play in that decision? And I think the we’ve got to expect Trump and Besson to be iconoclastic and they’ve got to start to, you know, they’re going to start breaking the mold here and that that could be significant. So what do you want to do? I mean, I was talking to a family office we know yesterday and they said, you know, where do we put our money? I mean, this is this is, you know, a key consideration because what you’ve got is you’ve got custody problems.

I mean, what is the integrity of custodians now in a world where Trump can do it, use a Nero’s thumb up, down, you know, one moment he likes UBS, next moment he dislikes them, whatever it may be. I mean, these are key considerations. So family offices in particular or institutions generally have got to think very carefully about how they custody their assets.

And I think what’s more is start thinking very, very seriously about real assets, because you want things that are in the ground that are not going to go away. By gold, that might be the YouTube title. I don’t know.

Well, I’ll figure something smart out. Michael, I always appreciate your time. It’s always a great pleasure.

I could chat with you for hours. The episodes with you are always the longest, probably on average, the ones we’ve done are by far the longest, but they’re so valuable. I really appreciate your time.

Where can we send our viewers, Michael? Well, probably the most straightforward way is on Substack, which is Capital Wars. Institutional investors, we’ve got a website which is crossbordercapital.com where you can get data and research. But Substack is a very good entry point.

And that’s Capital Wars. Just curious, cross-border capital is more politically correct than Capital Wars for a company name when you advise institutional investors? Is that why you chose that? It’s got a longer history. That’s why.

Now, we originally looked at cross-border capital flows, but increasingly those cross-border capital flows have been engaged in a Capital War. So hence the change in direction. Gotcha.

Awesome. Michael, really appreciate your time. Thanks so much for coming on.

We’ll have to catch up again very soon, maybe next quarter, see where we stand, how the markets are behaving and where’s the dollar, where the bond yields and what is that telling us in terms of global liquidity. So, Michael, thank you so much. Everybody else, thank you so much for tuning in here to Soar Financially.

As you can tell, I tremendously enjoyed speaking with Michael. If you did as well, please leave a like, leave a comment down below and subscribe to the channel. 80% of you watching are not subscribed.

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Thank you.