Jim Grant’s Golden Truth – Part II (Uncut) 02-20-2025

Jim Grant’s Golden Truth – Part II

I truly believe in gold as a monetary asset, not as a keepsake, not necessarily as a speculative plaything, although to be sure it does serve that function as well, but I believe in it as money that will, if not supplant, then at least will keep company with present-day paper currency. So you mentioned the Fed cutting rates, you know, in September with, you know, GDP at 3.1 and you know, the dollar strong, et cetera. The Fed saw fit to begin to cut rates, pretty aggressive 50 basis point cut, and then cut rates 100 basis points in three months.

And since then, 10-year yields at one point in mid-January were up 120 basis points from first cut. So Goldman Sachs informs us that that is the steepest increase in long rates ever following an initial Fed rate cut. What do you think that’s signaling? Could be a lot of things.

One of the things that might signal is the world’s mounting doubts about the quality of the public credit of the United States. You know, there’s all sorts of signs of difficulties. Nothing we can’t surmount, but the public credit has been an object of neglect, of studied neglect over the course of many administrations.

And it doesn’t take care of itself. By public credit, I mean the capacity of the government to service its debts in good money. And the Federal Reserve is focused on other things perhaps than that humble but essential project.

You know, as recently as 2020, it was a Jackson Hole, a virtual Jackson Hole that was saying, yes, we must compensate for shortfalls in inflation with a little bit more inflation in the years that follow the deficit. And you think, wow, that’s an extraordinary thing. I couldn’t believe it then.

I still can’t believe it now. So lest we forget, the Fed has committed to creating inflation at a rate of about 2%. So that’s the baseline.

That’s like a tax. But anyway, the Fed has announced its intention to inflate, and it’s announced indirectly its intention, or I guess directly its intention not to press the last mile, as it were, to get inflation rate back to 2%. And so, you know, what if, what if this first Trump three weeks, which by the way, resembles nothing so much as the New Deal’s 100 days in its sheer confusion and disorientation that is created among people.

You know, in 1933, the left was jubilant and saying, see, we told you, and the right’s hair was on fire, and now it’s kind of reversed that. People were shouting at Roosevelt that he was doing unconstitutional things, and indeed many of them were found unconstitutional. So I am going off on this tangent to the cost of the question you asked about 15 minutes ago, Trey.

But what did you want to know? I think it’s fair to say that for me, the Fed’s credibility, the final straw for me was Chair Powell’s $1.4 trillion of QE in 2021, when CPI was heading from five to seven and GDP was six, and unemployment had fallen from 14.8 to five. And yet, you know, we plowed through that $1.4 trillion, and we called it transitory. And so, you know, and Chair Powell made it even worse by joking about it at Jackson Hole recently, calling it the good ship transitory.

My question to you is, you move around in the rarefied air of New York at the top echelons of managed money and that type. Is the investing institutional public, does Fed credibility still run there? Well, thank you for the compliment. I must say that I’m rather more marginalized than that would suggest.

But to observe and to read and to listen, I would think the Fed is remarkable in the way it’s retained its credibility. I mean, the Fed is actually broke. You know, if you look at the operating losses, which are now, I guess, $200 billion, capital’s $43 billion.

This is not mark to market, by the way, this is just operating losses. Numbers turn up every Thursday afternoon at 430 in the H41 form. And you might think that that striking fact would be a subject, at least, of discussion, but Wall Street journalists would touch it with a 10-foot pole.

So not to leave that hang, the Fed is not operationally broke, despite its operating losses, because it has a chip with the Treasury. This is the same Treasury from which it is nominally 100% independent. It’s not.

I have begun in my advanced age to feel more sympathy with the Fed. I put rags on them. Get all this free advice from grants.

But you know, it’s their own fault, because of the remit they have embraced. And they give us guidance, forward guidance. What? No, no, you know, you can be six months on Wall Street, and you would learn, never give the date and the price on any forecasting.

And they can’t seem to follow that simple rule for survival. We had a conference last fall, and Stan Juckermiller said that what he criticized about the 50 basis points was not necessarily the call, because who knows, you know, the economy could be following the trade-like Austrian model, and it could be regulated more. But what he found inexplicable was the the poverty of the risk management.

They didn’t have to go to 50. They could have gone to 25 and see how the election turned out, and done more, and peeled back, waited for the animal spirits to reemerge. If Trump won, that would be a different thing altogether, but no 50.

So, you wonder about the current issue of grants, which I guess you’ve not seen, it’s called, the page one piece is called The Question of Judgment. And we review the extraordinary things that have been happening under the first three weeks of Trump. The president, I just heard from the president today, he’s selling a second term Trump executive order pen.

And I must say, Trey, that I reckon him to be the most venal president in the annals of presidencies. I’m trying to think who else would have issued a some meme coin at the very eve of his inauguration. Unbelievable.

Yeah. So, the purpose, there’s not so much to keep my disapprobation on presidents number 45 and 47. I don’t want to vote for the guy three times, never happily, on each, any of the three occasions.

I don’t want to do that. So, I simply want to observe that a president who can exhibit the kind of questionable judgment that that meme coin took, who has withheld or ordered suspended the executive order protection against Mike Pompeo and John Bolton, because although Iran has issued death threats against, or credible death threats against both, he is willing to protect it because, I guess, because they said things that he didn’t much like against Donald Trump. So, he has established a model culture in the White House.

And maybe they do a Bitcoin reserve, maybe they’re going to do a sovereign wealth fund filled with Bitcoin. But I think these things, I don’t condemn everything he’s done. But that’s not the point either.

The point is that enough things that he has done fly in the face of bipartisan, nonpartisan reckoning of presidential judgment, as you call into question what he will do next. He’ll simply say anything and do anything. And if that’s the case, then all sorts of tail the distribution, tail possibility to open themselves up, and you have to protect yourself, right? If he is not going to be circumspect, says Grand Central, then it falls to the individual investor to become rather more circumspect.

This is for survival and possible profit. But I think this is going to be a bull market in circumspection. This just seems like you’re a coward and that good things are going to happen to you.

Well, in 2024, obviously, stocks were up 25%, second year of plus 20% performance for only the fourth time in 150 years. So a little bit surprising that with the dollar at two-year highs and 10-year yields up 18% last year, stock market strong, that gold outperformed everything, being up 27%. That’s not surprising.

Yeah. And do you think we’re at the big one for gold in terms of moving, say, up past 3,000? Yeah. Okay.

Okay. Here we go. Okay.

So I called up Bill Flankenstein last week, end of the week. And I said, this wigs me out. I said, as the inventor of gold, I’ve been around for what the crypto thieves call rug pulls.

Lucy, would you hold this football, please? I’m practicing my place-kicking. And this stuff can break your heart. I mean, 2011, I thought for sure that with the U.S. becoming a split-rated credit, we thought that was going to be a possibility, that the world had at last figured out that the United States was running into fiscal difficulties going on by itself.

And that gold was in the way of becoming a monetary asset in the way it had not been since it was marginalized through malicious intent, say, in the 60s and 70s. And then what you got is a bear mark that’s ripped your face off. These gold stocks went down 99%, right? That’s the good ones.

I remember the time. It’s definitely, I suppose, for some. So, you know, I said to Bill, we have to get hedged here.

And he said, yeah, yeah. And I don’t know what Bill did. I daresay he’s a professional investor.

I am certainly not. I’m a professional author and writer. But what I did was to not get hedged because I thought, first of all, I just didn’t get around to it, meaning that something in my subconscious didn’t want to.

Why is that? Well, I believe in gold as a monetary asset. I believe that the mere talk of the mobilization of what lies in Fort Knox, the somewhat playful, be careful about Musk, because remember the rug pulls he pulled on his fan base on Saturday Night Live and got them all bombed, Dogecoin, and then said, I don’t care anymore. You can leave a room with that.

So I tried to abstract from Elon Musk saying what exactly is in Fort Knox. I tried to abstract from all that, but focus on the fact that the most elegant, functional and efficient and equitable monetary system in the world was the ended by phases starting in 1914, supplanted by a system that is incredibly complex. At one point in 2021 and 22 was predicated on the fact that the Fed, that inflation is caused by expectations.

That was the ruling regime when they got on to the transitory inflation bandwagon. So now we have the PhD standard, which is governed by very intelligent people mobilizing mathematical models they mastered in the graduate degree programs. And so it’s gone from elegant, efficient simplicity to a most inelegant, complex, I would say inefficiency.

So I truly believe in gold as a monetary asset, not as a keepsake, not necessarily as a speculative play thing. Although to be sure it does serve that function as well, but I believe in it as money that will, if not supplant, then at least will keep company with present day paper currency, not because Grant’s interest rate observer or Trey Ragg, both very persuasive fellows say you really must do this, but because like all monetary evolutions, it occurs to people spontaneously. What Bitcoin has going for it is that people have come to it, that it serves some function.

People all over the world think it’s great. So I think the most efficient price of Bitcoin is zero. However, I respect the judgment of people on mass when it comes to money.

If they see it’s money, they will accept it well. Yeah. All right.

In the eyes of the beholder. Yeah. But here we have something with 5,000 years of recorded use case.

And so anyway, so I guess, does this describe a permable trade? I was focused a little bit more on gold’s action recently, which I must have bet has been as consistent, I think, as I could have imagined. I might even say I’ve been a bit surprised by its resilience, but definitely sending a different signal than. Oh, yeah.

You should wake up in the morning and if it had been up in Asia overnight, it was going to be down 20 bucks in New York. That was as certain as could be. It was just as frustrating as could be.

And now it’s entirely different. And I’m not sure what what emphasis to lay on market action. My old mentor at Barron’s whom I love dearly, Robert M. Blyberg.

Remember him there at Barron’s in the old days? Sure. I learned a lot, so much from him. He was a great student of market action and market structure.

I dare say that he might have learned a few things from you, Trey. I love your last piece, which talked about structure and expectation and sentiment. But all these things seem to have definitely, and what might be even more bullish is the fact that none of these, that none of the attributes of a forming speculative bubble in gold have yet seemed to exhibit themselves in the American investing public.

You don’t see it in the ounces in GLT. You don’t see it certainly in speculative sentiment, or at least of all in the miners. There’s still, GDX is still at what, 41, 42, where it’s been forever.

It has not acted as if gold were at highs, let me put it that way. The things that in the past told you that things were a little bit getting out of hand, nothing like that now. I think that in our next meeting, we’ll be talking about gold shares because the GDX was up 44% in mid-October.

We forget that, and it closed the year up only 10% versus gold’s 27. So obviously there’s a disconnect there. I have a theory that rising real rates now sort of pass through gold and hit the miners harder than the metal.

And the Trump reaction is now behind us. So I truly believe that in the next six months, if gold stays in this range, I think the gold stocks are going to have a very strong period. Do you agree with that? Yep.

No, I don’t doubt that. Yeah. No.

So I think that’s what’s coming. That’ll be fun to watch. Jim, I appreciate your taking the time to visit with us.

Always interesting and great to hear your voice. And best of luck here in the first part of the year. We look forward to reading the next grants and we’ll talk to you soon.

Yeah. Well, you’re entirely welcome, Trey. I want to return your rather extravagant comments.

But this is from the heart and the mind of the Bristol Gold Group. I believe I’m talking to one of the leading partners in the Bristol Gold Group. He does a fabulous job of bringing together all these strands of the gold world and relating them to the world of paper.

So anyway, so carry on, Trey. I appreciate it. Yeah.

Two peas in a pod. Yes, sir. Talk soon.

Talk to you. Bye-bye. Bye.

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