Economists Uncut

Trillions Erased (Uncut) 03-13-2025

GOLD Sends Economy Towards Recession, Trillions Erased | Peter Boockvar

If the U.S. government continues to cut government spending, or at least reduce the rate of increase, while I think that is a big positive because budget deficits and debts have gotten out of control in the U.S., there is short-term pain associated with that. Because all that government spending is finding its way into the private sector. You pull back government spending, there’s less money in the private sector.

 

Hello and welcome to Soar Financially, a channel where we discuss the macro to understand the micro. My name is Kai Hoffman, I’m the EJR Mining guy over on X, and of course your host of this channel. And I’m looking forward to welcoming back an old friend of the podcast, Peter Buchvar.

 

He’s the CIO over at Bleakley Financial Group, and of course the author of the book report. Somebody we haven’t had on in quite a while, and I’m surprised why, because I really enjoy my conversation with Peter. And we have lots to catch up on.

 

I’ll quiz Peter on the general state of the economy, of course, but we need to dive a little deeper. I want to really talk about the impact of gold on the U.S. economy. And the question is really triggered by the Atlanta Fed and GDP now numbers that came out the last 10 days here.

 

And we need to talk about that. What does $3,000 gold mean for the U.S. economy? Is that really important? What is it telling us? So, lots to talk about, and of course we’ll touch on some other topics here as well. Before I switch over to my guest, be reminded, hit that like and subscribe button, and 80% of you are not subscribed to the channel.

 

Kindly change that. It’s a free way to support us, and we tremendously appreciate it. Now, Peter, it is great to have you back.

 

Long time no see. I hope you’re doing well. Yeah, it’s all good.

 

Thanks, Kai. I’m trying to figure out the world and the craziness that we’re in, and I appreciate having me on. Yeah, absolutely.

 

You just said, like, Kai, this is so busy. We only got 30 minutes. Let’s run through this.

 

And it really reflects what I’m seeing as well. Maybe we’ll start there. Let’s start with a general assessment of the economy, Peter.

 

What are you seeing right now? Are we in a recession already? Well, not necessarily yet, but parts of the economy are. So when I say not yet, in the aggregate, the parts of the economy have been. For going on a year now, the economy has seemed, at a headline level, just fine, 2, 2.5. But underneath the hood, it’s been much more mixed and uneven.

 

To me, and what I’ve seen over the past year, is the economy is really being held on three legs. Upper income spending, that’s been robust. People benefiting from strong stock market, higher real estate prices, and having a job.

 

AI spend, anything related to that, has been pretty strong. And, of course, you have anything related to the government that has been pretty robust when it’s come to economic growth. And anything that’s touching government has been very strong, as we know.

 

Now, we have, now on the flip side, lower to middle income spending has been soft. Manufacturing has been in a recession for now two years plus. Pace of existing home sales is at 30-year lows.

 

Global trade has been pretty muted. So, that’s to my point about being very uneven. The question now is what happens next.

 

And if the U.S. government continues to cut government spending, or at least reduce the rate of increase, while I think that is a big positive because budget deficits and debts have gotten out of control in the U.S., there is short-term pain associated with that. Because all that government spending is finding its way into the private sector. You pull back government spending, there’s less money in the private sector.

 

Again, a very long-term positive, but short-term pain while it’s unfolding. If the stock market correction continues and becomes something deeper, well, then that’s going to threaten upper-income spending. And AI spend is now in question with the deep-sea news.

 

And those stocks being punished for all the spending with people questioning the return on investment on all that spend. So, if there is going to be a recession in the U.S. economy, the risks to that, I think, are the highest they’ve been in a couple of years. Yeah, excellent points.

 

And I wrote them down as well so we could go through them. But all three legs you said the economy is built on right now are just being – destroyed is a strong word – but they’re being sawed off. Or somebody’s sawing on them, on those legs.

 

One, doge on the government spending side. AI, Chinese deep-sea. And then, of course, upper-income spending.

 

Stock market seems to be tanking. I don’t want to use the word crashing. Maybe correcting is the proper term right now until we know what we’re in here.

 

And, of course, real estate has been weak as well without the Fed or any mortgage rates coming down here as well. Peter, what has you most concerned, though? You said you’re really short on time. Lots going on.

 

What are you focused on? What’s keeping you busy then? Well, I mean I think the tariff worry is obviously consuming markets. I mean the markets have voted. They don’t like tariffs.

 

And every time we get an escalation, the market sells off. But I do want to make a point, though, is that there was some vulnerability growing in the stock market before it started to become obsessed with tariffs. And I think that really started with the deep-seek news and actually started really last year when investors started to question sort of the viability in terms of generating revenue with all that AI spent.

 

And then you get the deep-seek news. So you started to see some splintering with the MAG-7 stocks. And then you throw in the deep-seek, the actual news in January.

 

And then I think by February when we fully digested all the earnings, I declared that the AI tech trade was dead. Not in terms of these companies losing their greatness because they all are, but in terms of losing their ability to carry the market on their shoulders. I think that’s over.

 

It was an incredible cycle. The market caps got astonishing on these names, but I don’t think they can continue to drive the bus like it has in the past. So throw in the tariffs.

 

The market already had sort of this fragility in terms of its foundation. In the top seven stocks at the peak, we have 35 percent of the S&P. You lose a third of the S&P in terms of its strength.

 

Well, then you’ve got to quickly pass the baton on to other things because if you don’t, it makes you very vulnerable. And then you throw in the tariffs, which I think is now getting out of control. And you have now huge risks of recession, as I laid out before, in addition to the government spending that is getting pulled back, which I’m all for.

 

But also acknowledging the short-term pain that is associated with cuts in government spending and getting rid of waste and whatever. We all want that to happen. But there is an economic consequence to it because for every dollar that the government spends, it ends up in some private sector hands.

 

Whether it’s a transfer payment to a person, whether it’s a health care provider, whether it’s Medicaid patient, whether it’s a government contractor or somewhere else. Or it’s an airline where a government employee is traveling somewhere. It ends up in the private sector.

 

No, absolutely. And $1.57 trillion is the number the MAC-7 has sold off since the beginning of the year, which is astonishing. And we’ve seen that play out before, 2000, 2001, when the largest companies started leading a sell-off in the markets.

 

And we all know what happened after that. Is that something you’re looking even into? Are you trying to draw historical comparisons to other timeframes, the dot-com bubble, for example, to see if there’s parallels? Oh, yeah. I think there’s parallels in terms of years of digestion and consolidation in the market as these companies sort of grow into their earnings.

 

Apple is a great company, but trading at 33 times earnings, the peak, with no growth. I mean, that was silly. Tesla, with its valuation at the peak, was silly.

 

And even with a sell-off, it still is a $700 billion market cap. Google’s business model, under threat, you can argue, in terms of their search from all these generative AI models. So I think investors are asking now important questions.

 

And there’s a valuation rethink. And the S&P, generally speaking, over the past couple of years, most of the rally has just been multiple expansion. And now we’re going to get some multiple compression.

 

In addition to the risks that the earnings outlook is at risk if the U.S. economy rolls over. You touched on the tariffs escalation. That’s been news this morning, of course, Canada and the U.S. going head-to-head here, especially Doug Ford out of Ontario with Donald Trump.

 

What’s the impact? Let’s talk about that. You mentioned recession. Put it possible based on that.

 

Can you elaborate on that? Why is that possible? What’s the impact directly here? Well, let’s just lay out first. Trump is using tariffs for different reasons. One is, OK, I don’t like your fentanyl and drug and migrant policies.

 

And we’re going to hit you over the head with a baseball bat until you fix that. Then it’s, OK, we want to. Everyone’s stealing our jobs and we need to protect U.S. domestic industries like steel and aluminum because we want to make that stuff here.

 

Fine. But, you know, there’s a cost to that because all the downstream users of steel and aluminum end up paying a lot more. Then the third one is we need to raise money.

 

I want to, I being Trump, want to extend my expiring tax cuts this year. I need offsets. I’ll get some of that from government spending cuts.

 

But I also need to raise revenue and I can do that through tariffs. So it seems like these are the three sort of angles that he’s using these tariffs. But, you know, are we going to be better off for any of these? Aren’t there other tools? There’s got to be other tools to cajole Canada and Mexico to control their wars, even though Canada doesn’t seem to be much of an issue there.

 

Do we have to use tariffs? Because you’re really the U.S. farmer gets 85 percent of their potash from Canada. What is the sense of tariffing potash? U.S. gets a lot of their aluminum from Canada. What is the sense of tariffing that? You’re not going to all of a sudden make all the aluminum here.

 

And if you did, the cost of products would be high and also the cost of producing it here. Well, the rest of the world can probably produce it cheaper. So how is the U.S. going to then export our aluminum to other countries and be competitive on the global stage? I don’t think you can.

 

Maybe it sells more in the U.S., but it’s going to lose that and more exporting high cost aluminum to the rest of the world. So to me, one of the problems here is Trump is working off a false premise that deficits are bad. That a country that the U.S. has a deficit with is somehow stealing from us.

 

And yes, we do want to make more in the U.S. and have higher paying jobs. But, you know, there’s a balance to that because you don’t want to price this out, as I just said. And you still have to make products that are affordable for the consumer.

 

And, yeah, we can build iPhones in the U.S., but it’ll cost you $2,500 to do it. And then no one’s going to buy an iPhone. They’re going to buy a Samsung instead.

 

So there are a huge amount of costs that are associated with this. And now you have the cost of uncertainty because God knows what any business person is going to wake up to every day. Yeah, we just discussed that this morning.

 

My head is spinning. Every morning I wake up and open the Financial Times or just open my computer. I don’t know where to look and what to pay attention to anymore.

 

And really difficult to make context out or put it into a context. Because I’m trying to figure out, like, what is the guiding idea? And you sort of you mentioned it. What’s Donald Trump or the U.S. trying to achieve here? Like, what’s the guiding idea and what is it supposed to look like in four years from now? That’s what I’m trying to figure out.

 

Well, I just laid out the three reasons. That’s their guide. Now, how it turns out, I don’t think well.

 

We just have to look back at the 2018-2019 tariffs and put U.S. manufacturing into recession. And the Fed was cutting rates by the summer of 2019 in response to that. So we don’t have to go that far to see the results of a tariff trade war.

 

Yeah, and it seems to be expanding. Like the U.S. embassy of China, the Chinese embassy in the U.S. tweeted the other day, We’re ready for war. It doesn’t matter if it’s a trade war or any type of other war.

 

It seems like the language is getting more aggressive. It doesn’t matter where it’s from. Doug Ford, the Chinese.

 

There seems to be added hostility to the whole discussion in general. Why is it so heated? Why can’t we have a normal discussion and try to figure this out? Again, I’m coming from the point that I’m trying to make sense of it all. Where is this all leading? Well, that’s not Trump’s style.

 

So I guess that answers that part of the question. Where is it all leading? I don’t know. I don’t know where it’s all leading.

 

I don’t think it’s leading anywhere good. So I’m not totally clear. I mean, I think there are clear objectives that I understand some of it is what he’s shooting for.

 

But I think that there are other ways of achieving it. Lowering our cost structure as a country, I think, is a very admirable goal rather than what he’s doing and raising other people’s costs as a way for us to get competitive. He was on the right track when he cut the corporate income tax rate in 2017 from 35 percent to 21 percent.

 

I would have loved that to have gotten cut down to 15 percent to achieve a goal of making us more competitive. But this is what he believes in. He says it’s one of his favorite words, if not his favorite word.

 

And this is what he does. But I just want to make clear that I’m fully on board with Doge. I’m fully on board with easing the regulatory state.

 

It’s just a tariff aspect that I’m afraid he’s kicking the ball in his own net. You touched on Doge. And let’s talk about that a little bit as well because that’s having ripple effects as well.

 

Unemployment will probably jump up. We’ve already seen the February numbers seen an increase. What do you think the most impacted sectors or part of the economy will be due to Doge? Well, there’s about three million workers in the federal government.

 

This chatter that maybe two to three hundred thousand jobs I’ve seen are at risk. And if it’s 300, well, I’ve seen stats where for every government worker, there are two contractors. So that would imply there’s 300,000 people that lose their job in federal government.

 

Maybe there’s 600,000 contractors. You could see let’s give a wide range, 500 to a million jobs lost associated with this. Now, in a labor force of 160 million people, it’s small.

 

But on the margin, it could have an impact. I mean, it was one of the airlines today as a bunch of them lower guidance. One of them specifically cited a reduction in government travel.

 

So it’s going to have a negative impact. Like I said earlier, it’s good in the short term to cut a lot of the waste and government spend that has taken the U.S. budget deficit to nearly 7 percent of GDP in an expansion, let alone what it will be in the next recession. But again, there are short term consequences growth wise, and we’re beginning to feel that.

 

Let’s zoom out then. Do you think Doge will be successful? Will we be able to reel in the deficit spending? Will we be able to cut that? And maybe even and this is very far fetched, like be able to control the debt situation? Well, to me, it’s it’s the first thing it’s doing is exposing a lot of ridiculous government spending. And it’s been very successful at that.

 

We see the nonsense that government spends money in terms of controlling overall government spending, because 85 percent is dominated by Medicare, Medicaid, Social Security, defense and interest expense. You know, only that the remaining 15 percent can really be messed with. And now, of course, you can have interest rates that go down that can ease the interest rate interest expense burden.

 

But, you know, interest expenses is up a lot of the last couple of years and will continue to do so after 15 years of zero. But 15 percent is I don’t know if that’s enough to move the needle. So maybe a little bit on the edges.

 

But until you touch the nondiscretionary spending, you’re probably not going to have that much of an impact on the overall U.S. debts and deficits. To sort of grow GDP and really maybe come back to a certain balance debt to GDP here. How do you see the U.S. achieve that? How do we stimulate growth in the U.S. potentially? Well, I think you need to lower the cost of living for a lot of lower to middle income people.

 

Like I said, the upper income household has been spending just fine. Lower to middle income have been more challenged because of the cumulative rise in inflation. So you need to see a slowdown in the rate of change in inflation and even declines.

 

Obviously, tariffs are not going to necessarily help that in the short term. I think that would be a big thing. You need to stimulate greater capital spending because capital spending XAI has been pretty punk.

 

So you need to. One of the good things in the 2017 tax bill was giving the ability for companies to accelerate their depreciation, which was definitely incentive to increase capital spending. That would be a nice plus.

 

That’s just an example. And also time. Housing is a major part of the U.S. economy, and the housing market is frozen with mortgage rates high and people stuck in low mortgages within their home.

 

So what we need over a period of time is baby boomers to downsize. That would provide more supply to the market that would allow first time hire, first time buyers to buy homes, hopefully cheaper prices that can mitigate high mortgage rates. And so it’s not we use the word stimulus, like implying that we need a quick fix and there are no quick fixes here.

 

This is something that needs to take time to play out. No, that’s very true. And one thing is, of course, you need capital.

 

And it brings me a bit to the GNP. We’ve never really talked about GNP, the gross national product of the U.S. and investor attractiveness. How attractive is the U.S. for foreign investors to invest in right now, Peter? Well, it’s certainly much less attractive right now.

 

You know, getting back to the Mag 7, the Mag 7 weren’t just great stocks that did well. They were owned by the entire world. I mean, as of the last filing, the Norges Bank, which is the Norwegian central bank, not a commercial bank there, but their Norwegian central bank on 320 million shares of NVIDIA.

 

They were the 10th largest shareholder of NVIDIA. The Swiss National Bank owns about, well, as of their last filing, about 70 million shares of NVIDIA. The whole world owned these stocks.

 

So it’s no coincidence, too, that as the Mag 7 stocks have sold off, the dollar has sold off, too. So I would not be surprised if foreigners are selling as well as others these Mag 7 stocks and repatriating some of this money home and hence driving a rally in their own currencies. So in terms of the U.S. being an attractive place, well, Canada doesn’t think we’re an attractive place anymore.

 

I’m not sure Mexico thinks that as well. And China has lost their illustrious U.S. investments for a while now. So that’s the other flaw in the thinking that a trade deficit is bad, because a current account deficit implies a capital account surplus.

 

So if we have a trade deficit, well, we have a capital surplus. And a lot of that capital surplus ended up in U.S. stocks, ended up in financing U.S. treasuries, ended up investing in U.S. real estate and so on. So you cut our deficit in trade and our current account, well, you’re going to have money flee and that surplus in the capital account is going to get reduced.

 

So there’s no free lunch here with what’s being attempted here. You know, you went straight to the MAC-7 and the $1.5 trillion that have been sort of removed from the U.S. here. But I’m also thinking about the bond market, because I’ve looked at the 10-year yield, 4.2 percent.

 

It seems like some capital rotation has been happening. Do you see – what do you call it – bond investors sort of remove their capital from the U.S. or at least not inject more? Well, foreigners have been buying treasuries over the last couple of years, but they’ve been buying much less. So foreign holdings of U.S. treasuries has shrunk to around 30 percent.

 

It was near 50 percent like 10 years ago. So foreigners will still be attracted to the U.S. market, no question. But all you need is a change in the margin that can have a pronounced impact.

 

I think it’s foreigners own maybe $16, $17 trillion of U.S. stocks as of a few months ago. So you get less of a flow, again, on the margin that could have an impact. So I don’t think we’re creating sort of a stable place now to invest with a lot of these tariffs in the way that we just beat up everybody.

 

So that’s a risk that we have to pay attention to for sure. Yeah, especially given the fact that we’ll have to or the U.S. has to refinance a lot of its outstanding bills and bonds this year. I don’t have the exact number in front of me.

 

It’s somewhere between $3 and $7 trillion, I believe. It’s a massive amount. Do you see any issues with that? Is that a big risk factor that you’re looking at for this year? It is a risk factor because the U.S. budget deficit has been mostly financed or growing to a growing extent by domestic buyers, whether it’s retail, which actually treasuries have become very attractive over the last couple of years with interest rates that are not microscopic anymore.

 

Pension funds, insurance companies, even banks, short-term paper has been attractive. But it would be always nice to have the whole world buying U.S. treasuries. But what we’ve seen is, as I said, they’re buying less of them relative to the debt that we’re issuing.

 

And one of the beneficiaries of that has been gold, as foreign central banks reduced their holdings of U.S. dollars and have increased their holdings of gold. So there’s a definite correlation between the reduction in foreign buying of U.S. treasuries and the rise in gold. I want to get to gold in a second here.

 

I quickly want to ask you about the yen carry trade for a minute and how that factors in. Inflation in Japan is around 4 percent. They’re discussing raising the interest rate yet again.

 

Do you see that yen carry trade fall apart this year? I have no idea what’s left of the yen carry trade. To me, the yen carry trade blew up last August, and I have no idea what’s left. The yen has had a big rally here, down to about 147.

 

So I can’t imagine many people are in the yen carry trade anymore. OK. No, good.

 

Good. Appreciate that. Because I’ve seen the same thing, and I was wondering, given the fact that the inflation is so high in Japan and they have to raise rates at some point, whether it’s still attractive.

 

No. You brought up gold. I want to touch on the Atlanta Fed GDP now number that came out about 10 days ago, I believe, forecasted a negative 2.4 percent of GDP growth.

 

But a big factor in that was gold, apparently, because they steered back to the, whoa, whoa, whoa. Yes, GDP numbers are negative. But if we take the gold imports out of it, we’re back in positive territory, 0.4 percent.

 

What do you make of that? How do you rate that? And maybe part B of the question, how big of an impact is gold on the U.S. economy right now in general? Well, when the government calculates GDP, they do not include the gold trade. So that was an Atlanta Fed thing. They took a trade deficit and just mechanically put it into a model.

 

So when the government reports Q1 GDP, it’s not going to include that calculation. So we have to make that that that clear. So while Atlanta Fed has a minus sign in front of GDP, most private sector estimates for Q1 still has a plus sign.

 

It may have a one handle in front of it or even less, but not as deep of a contraction as the Atlanta Fed implies. Because, again, that’s taken the trade deficit, which does calculate include the gold piece. But the government takes it out, as I said, when they calculate the final number.

 

Yeah, I think it is Goldman Sachs that still predicts a 1.3 percent GDP growth here in general. But it is slowing down. We were 3 percent only.

 

I think it was in Q3 we had 3 percent growth. We’re down to 2.3 percent and it is dipping lower. Everything’s pointing towards a recession, Peter, isn’t it? Well, as I said, the economy is on three legs and those three legs are now feeling shaky.

 

So there’s a growing possibility of it. Peter, I know you’re tied for time. Maybe allow me one last question.

 

How do you see the next three months play out? I’m trying to figure out the rest of the day and tomorrow. Because each tariff announcement is influencing the markets. So if you give me an idea of how that will play out, I’ll tell you how the markets will play out.

 

And then how the markets will play out, I’ll tell you how the economy goes. Because in the debate about recession, no recession, one has to have an opinion on the S&P 500 because of the influence it’s going to have on upper income spending. You can be sure that the market continues lower.

 

High-end spending is going to take a pause. It is going to slow down. That’s just how people react.

 

That’s the psychology of people that own stocks. When their portfolio is down, they say, hey, what’s going on? Maybe I won’t get that second bottle of wine and I’ll get a $20 bottle of wine instead of a $100 bottle of wine. I think that’s a key factor here that I’ll be watching.

 

Peter, very last question. You’re the CIO of Bleakley Financial Group. If I were to come to you with a million dollars right now, how would you allocate that? Not financial advice or anything.

 

Really just trying to sum up the conversation. I think it’s a good overview. We’ve been pretty focused on owning things outside of the MAC-7.

 

We own MAC-7 just because you almost have to. The question is, to what extent? I think we were definitely early, which was difficult, but we’re rewarding us now is focusing more on value stocks and parts of the market. Having international exposure, particularly in Asia and Europe.

 

Owning gold and silver, which has helped us a lot. Owning shorter-term treasury, so we’ve taken out a lot of our duration risk. There’s cheap stuff out there to buy, which we are constantly trying to do.

 

Individual stocks and other type things. I think it’s really trying to focus on the things that have not worked for years, because those things are beginning to work. Where the things that have worked so spectacularly over the last couple of years, they’re obviously now faltering.

 

Peter, really appreciate your time. Where can we follow your work? My daily writings on Substack. It’s under my name.

 

It’s called The Book Report, and I write daily, pretty comprehensively for a very low price. From a wealth management perspective, people can check out our website, weekly.com. Fantastic. Peter, really appreciate you curving 30 minutes out of your busy day today for us.

 

We’ll have to catch up soon. Latest, very latest in New Orleans, we’re going to catch up again. I’m looking forward to that.

 

In the meantime, everybody else, thank you so much for tuning in. Really appreciate you watching here. Sore financially.

 

If you haven’t done so, hit that subscribe button. Turn on that bell icon. We’ve been uploading a video every single day for the last almost 30 days now.

 

Make sure you give us that like and that thumbs up. It helps us out tremendously, and we do appreciate it. What do you think is happening right now? How are you playing that tariff game, for lack of a better term? Put that all in the comments down below.

 

We do want to hear from you, and we take all your comments into consideration. Thank you so much for tuning in. We’ll be back with lots, lots more.

 

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