Steve Hanke, Tariffs and the Recession of 2025 (Uncut) 03-07-2025

Steve Hanke, Tariffs and the Recession of 2025

Steve, thank you very much for joining us today. How are things in Baltimore? Things are pretty good shape. Spring is not sprung, but it’s kind of thinking about it.

How about Toronto? It’s pretty well the same. Believe it or not, it’s like plus five Celsius, which is like 40 Fahrenheit. So it’s slowly getting a little bit warmer.

We still have a foot of snow outside, but it’s going to be gone in no time if the weather stays warm like this. Yeah, well, I’m ready for it. Global warming never hit this season in Baltimore.

Oh, yeah, we got… When Trump got elected, global warming went off the agenda in more ways than one. Yeah, yeah, yeah. We got pounded with a lot of snow this year, probably the most snow that I’ve seen in 15 years.

But enough talking about the weather. Let’s talk about the economy and how we should position ourselves in the coming months so we can make some money. That’s what it’s all about.

The last time you and I spoke, I can’t believe it was late Q4, Steve, and so much has happened since then. Even though it was only a few months ago, it seems like it’s been many years. There’s been so much going on.

But I want to start with the money supply. You and your team have done a lot of work on this, and you always say that money is the fuel for the economy. So maybe you can just give us a quick synopsis on where the money supply is right now and what it’s telling us.

Okay. Well, let’s start in the U.S. Since… Remember, the money supply is… With the pandemic in early 2020, the money supply shot up. And with the lag, we had inflation, which always happens.

Then they put things in reverse and started to contract the money supply, and inflation’s coming down in the United States. Right now, we are with a money supply growth at about 3.9% in the United States. That’s much slower than Hankey’s golden growth rate of 6%, a rate consistent with hitting a 2% inflation target.

So the money supply, since June of 2022, the stock of money is actually lower now than it was then. And we’ve only had that kind of a situation happen four times since 1913, when the Fed was founded. And each time was followed either by the Great Depression or, in three other instances, recessions.

So we have a recession and slowdown baked in the cake. We also have inflation coming down in the United States, as you would expect. Right now, the CPI is at 3%, but coming down.

And I think this year, we’ll see some inflation numbers that are either on the 2% target or maybe even a little bit below the 2% target. But the economy is starting to finally slow down. And I think we’ll see a continued slowdown of the economy this year in the U.S. Canada, the picture is a little bit the same, only moderated.

You had, with a pandemic, the money supply shooting up in Canada, inflation shot up, and then the Bank of Canada slammed on the brakes. And right now, the growth rate in the money supply in Canada is 5.7%, which is right in Hankey’s golden growth rate range of 6.2% to 8.2% for Canada. The inflation target in Canada is 1% to 3%.

Unlike the United States, where it’s 2%, there’s actually a range in Canada. And not surprisingly, the inflation rate is coming in right in the range in Canada. It’s at 1.9% and been coming down.

So Canada, from that point of view, is doing a better job than the United States. The Bank of Canada wasn’t so exaggerated in its monetary pumping of things up or slowing things down, a little bit more moderate. And they’ve reached their targeted inflation rate a little bit sooner.

And their money supply is growing within Hankey’s golden growth rate zone. So they’re a little bit more in the zones, shall we say. The United States, that’s not the case.

They goose things much more. Inflation was higher. They put things in reverse in a much harder way.

And they still really haven’t reached any kind of equilibrium. We’re a little bit the roller coaster is a little wilder ride, the U.S. than Canada. Well, the Bank of Canada has been very concerned about interest rates.

And so they’ve been very aggressive in cutting rates. I think they were one of the first banks in the world to do so. And I guess their big concern is it has to do with the mortgage rates.

And just to provide some context for our viewers, in the U.S., you can get a 30-year mortgage. In Canada, we can only get a three-year or a five-year mortgage. So a lot of these people who bought homes back in 2020, 2021, those mortgages are coming up for renewal, and they’re coming up at a much higher interest rate.

And to put that into further context, in 2025, over a million mortgages are coming up for renewal. In 2026, it’s 1.2 million. So the Bank of Canada and the federal government is very concerned about these higher interest rates and the impact they’re going to have on mortgage payments.

And so if your mortgage payment is $1,000 a month, it could easily go up to $1,500 or $2,000 a month. So it’s going to be interesting to see how this shakes out in the coming months. Now, you also touched on inflation.

And I want to have a deeper discussion on this, and I want to have a discussion on tariffs. We have this ongoing battle right now, maybe not a trade war yet, but it could become a trade war. And I’m not sure if you saw this interview that Warren Buffett did recently, but he was talking about tariffs.

And he said tariffs are a tax on the consumer, and tariffs can trigger inflation. So I want to get your thoughts on tariffs. And do you agree with or disagree with Warren Buffett and his views on tariffs? Well, tariffs are bad news.

There’s no question about that. But they have virtually no effect on overall inflation. Overall inflation is always a monetary phenomenon.

It doesn’t have anything to do with tariffs. Tariffs will change, however. They are a tax, and they will change the relative prices of different things.

So if you’re importing something and a tariff gets placed on it, the price of that item will go up relative to other things in the economy. But the overall level of things, that is what we call a consumer price index, for example, is not going to change very much. And what do you think about tariffs and this potential for a trade war, not just with Canada but with many other nations? What would that do to the global economy? Well, it’s going to slow the global economy down.

I’m completely against all tariffs, all quotas, all non-tariff barriers, or what they call non-quota barriers or non-tariff, either one, take your pick, and sanctions. Sanctions are in the same bag as tariffs and quotas. They’re protectionist measures.

So all of those things I’m against categorically. I’m a free trader. And I’m a free trader because free traders are for voluntary exchange between two parties.

If you get a buyer and a seller agreeing to a price and the terms for a trade, let them trade. Why should the government be stepping in with either sanctions or tariffs or quotas or non-tariff barriers or any of these other government interventions? Why should some politician or bureaucrat tell you, no, you can’t exchange? Jimmy and Steve can’t exchange at the price they’ve agreed to and the terms they’ve agreed to because some politician in either Ottawa or Washington, D.C., tells them we can’t trade on our terms. I mean, they might say, oh, you can trade.

We’ll let you trade, but we’re going to put a tariff on you and tax you for that trade. Or they might tell you, no, you can’t trade. We’re going to sanction the trade, and you will not be allowed to trade.

Or maybe they’ll put a quota on you, and they’ll say, oh, you can trade a little bit, but there’s a quota. As soon as you hit the quota, you can’t trade anymore. So you see all those things are in the family of the same thing.

Now, what’s going on, by the way? You mentioned trade war. And we have a president in the United States, a new president. His name is Donald Trump.

And Trump is a mercantilist. He’s never seen any kind of intervention in free markets that he doesn’t like. So they talk about deregulating the economy.

Yeah, that’s one thing. But what about trade? What about international trade? Well, international trade, he has all kinds of ideas about that. And they all revolve around the idea that the U.S. has a trade deficit.

It’s had a trade deficit for a long time, since 1975. And Trump and the mercantilists think that that’s bad. And they think that foreigners cause the trade deficit.

Not only is it bad, but nefarious activities by foreigners. Foreigners are trying to screw us. The Canadians are trying to screw us.

So we have to impose a tariff on Canada, or Mexico, or China, or the EU, you name it. And somehow that will reduce the trade deficit, and that will be good. That’s the thinking that Trump has.

Now, there’s a fundamental economic problem with that. Of course, it’s complete nonsense. And it’s nonsense because trade balances and current account balances are all homegrown.

If the U.S. has a trade deficit, it’s because the savings in the United States are less than the investments that are being made in the United States. It’s an identity, savings-investment identity. It’s true by definition.

Now, what if savings is less than investment? Our case. That means that there has to be some foreign element that fills the gap. And that’s why we have a trade deficit.

And the trade deficit is exactly equal to the savings-deficiency deficit that we have. And on top of it, I’ve run the numbers in an article published in 2018 or thereabouts. I’m not certain about the date.

In the Journal of Applied Corporate Finance, Ed Lee and I worked through the numbers in the United States for the first time to see if the identity held. And, of course, it does hold because it’s true by definition. And what we found out was that the private sector saves more than it invests in the United States.

So if that was all that was in the picture, we’d actually be running a trade surplus, not a deficit. But you’ve got the government. And the government runs a huge savings-deficiency, with savings being less than investment in the public sector.

And it swaps the surplus in the private sector. So the net number is a negative number, savings-deficiency. And that’s why we always have a current account deficit and a trade deficit.

And ironically, there’s only one way to solve this, by the way. If you think trade deficits are bad, which they aren’t. But if you think they’re bad and you want to get rid of them, what would you logically do? You’d logically balance the federal government’s budget.

And if you did that, the trade deficit would disappear. And to think about the thing, Jimmy, think about the countries that run huge trade surpluses. China saves way more than it invests.

So it has a surplus. Japan saves way more than it invests. It has a surplus.

Switzerland saves more than it invests. It has a surplus. Germany typically saves more than it invests.

It has a surplus. That’s the way the thing works. So coming back to tariffs, tariffs are irrelevant.

Tariffs are not going to change the overall trade balance. That is made in the USA. It’s not made by foreigners.

It has nothing to do with exchange rates. It has nothing to do with tariffs, quotas, any of this other stuff. So that’s the picture now.

They’re coming up with all kinds of things. Tariffs are one thing. And, of course, tariffs are a loser’s game.

Remember, in 1947, a famous Cambridge Don, Joan Robinson, came up with a phrase that stuck around. It’s called beggar my neighbor. And the beggar my neighbor policy, the U.S. put tariffs on Canada.

Well, what did Trudeau do? He counterattacked by putting tariffs on the United States. So you get in a doom loop with this stuff. It’s a loser’s game.

That’s what beggar my neighbor is all about. And Robinson coined that phrase in 1947. It’s still around.

And, Steve, you’ve already expressed concern about the U.S. economy. You think it’s going to go into recession at some point in 2025. Will these tariffs and the resulting trade wars only exacerbate that recession, make it more severe? It’ll exacerbate for sure, not only because of the tariffs, but also the uncertainty factors.

We put the 25 percent tariff on Canada Tuesday. Then what did Canada do? Canada raised hell about that. They put a tariff on the United States in response.

And in response to that, now the U.S. says, well, we might modify the tariff that we put on Canada. So everything is a floating crap game here. And as a result, there’s a lot of uncertainty.

And uncertainty tends to drag down confidence. And business confidence is very important. If you have a high level of confidence, you’re going to have a stronger economy than would otherwise be the case.

And if confidence starts going down and the animal spirits start disappearing, that’s a drag on things compared to what they would be if confidence would have been higher. By the way, there’s a whole theory about the trade cycle that’s strictly based on confidence. And that does come from also from Cambridge.

Frederick Lavington actually wrote a book on this called The Trade Cycle. And Lavington’s theory was that the only way you got a trade cycle and ups and downs in the economy is by waves of optimism or pessimism, confidence going up and down, up and down. That caused the business cycle with Lavington’s theory, which was very much part of the Cambridge tradition.

A lot of that worked even in with Keynes. Lavington was a student of Keynes. And so Keynes and Keynesian economics does have a lot of this kind of thing.

And remember, we had Robert Shiller, Nobel laureate from Yale University, wrote a book right before the dot-com bubble in 2001 called Irrational Exuberance. And there’s a lot of the confidence thing working into Shiller’s analysis, which turned out to be, he called that crash in the dot-com bubble. And, of course, he was already a very well-known, distinguished economist, but he became literally a household name for a while.

Yeah, that was an excellent book. Might have read it a couple of times. So I want to get your views on on these potential trade wars.

And the U.S. is kind of moving toward this American first campaign. Not kind of. They are in a very aggressive way.

And in essence, they no longer want to police the world, but they want to focus more on the region. Maybe it’s the Western Hemisphere. And maybe China does the same thing in Asia.

Maybe, I don’t know, some other country does the same thing in Europe. Maybe it’s Russia. But they no longer, the U.S. no longer wants alliances.

Before, it was focused on military alliances and economic alliances. Now it’s all about America first. What does this mean to the world order? Well, it pretty much upsets the apple carton.

There are a lot of things that don’t really make much sense. For example, you say America first, but the way it’s starting to play out with these trade wars is that everyone exporting something to the United States is an enemy. So you start losing friends fairly rapidly.

You know, this famous book by Dale Carnegie, How to Win Friends and Influence People, that’s not in Trump’s playbook. So you make potentially a lot of enemies. You’re running around with a club trying to beat everybody over the head and tell them they can’t export to the United States.

Well, think about Americans. This is going to end up backfiring because what if I’m importing a car or some electronic device or something? I think it’s a great deal. I’ve been buying BMWs forever or a Lexus.

I happen to drive a Lexus, and it’s fine. I plan on getting another one when the one I have wears out. And now all of a sudden the government is saying, oh, Hanky, if you want to do that, that’s bad.

You’re a bad guy. And we’re going to tax you because you’re buying something that’s made either in Germany or Japan. It starts queering everything up.

And by the way, it infects a lot of domestic policy, too, because the domestic policy now that’s being promulgated under this America First type of thing is, oh, we’re going to deregulate the economy, drill, baby, drill, all this other stuff. Well, that’s all consistent with all the interference with free trade. I mean, either you have free markets and free trade domestically and internationally, or you end up with them contradicting each other and clashing.

And if they clash, of course, the public gets very confused. And needless to say, the politicians spend most of their time just in jingoism anyway. I mean, they don’t know what they’re talking about.

They’re going from meeting to meeting. How could a politician possibly be thinking about anything in a serious way? Because if you look at their itinerary, it’s just one meeting after another meeting. They’re just gassing with somebody in some meeting all the time, or else they’re on an airplane going to another meeting.

So what could a politician possibly have in their head? So I want to get your views on foreign policy now. And just recently, the Trump administration has cut off all military aid to Ukraine. How do you think this situation is going to resolve? Do you think Europe steps up? Well, it’s Europe.

Rhetorically, Europe is stepping up. The problem is they have phantom armies. If you look at the military size of the military in Germany, it’s basically nonexistent.

I mean, they don’t have a functioning army in any of these countries. And the war in Ukraine has all been fought with U.S. cover. Without U.S. intelligence or U.S. satellites or U.S. targeting of targets and things like that, nothing would have happened.

This war would have stopped very soon. There’s no way it could go forward. So now the Europeans say, well, we’re going to step in if the U.S. doesn’t do this.

It is not feasible. So there’s a military feasibility problem. If the U.S. actually steps away, the war just shuts down.

That’s it. Now, the second thing, and the thing that I’m a student of, so-called expert in, is war finance. And there’s no way the Europeans can fill a void and finance an ongoing war in Ukraine against Russia.

It’s not feasible. And you look at the new German budget that has just been proposed, and the swap spreads have just collapsed. And the interest that the Germans are going to be paying to raise money with this new budget are going to shock the Germans.

It’s just not feasible. The finances in Europe are in terrible shape in all countries, right across the board. And why are they talking about getting rid of the debt break in Germany right now with this new Merz government, which probably is going to be even worse than the last Scholz government in terms of coherence and economic rationality, shall we say.

So you look at what they’re doing, and they just don’t have the money. I mean, to put it in simple terms, they don’t have the military, and they don’t have the money. So it’s all a lot of jingoism.

Jingoism, that’s the key, jingoism. They’re talking a lot, but they won’t be able to deliver much. Do you think we’re going to get a resolution here sometime this year? When I say resolution, I mean peace.

Well, this depends on how you find – we might get a ceasefire. I’m not certain we’re going to – we could end in one of these Cold War standoffs where there’s really no peace. It’s not really resolved.

And the reason for that is that the Russians have very clear conditions. That is that Ukraine will not be a member of NATO, either de jure or de facto, and that they will take all the four oblasts that they’re occupying, and they’ll retain Crimea. In other words, that Ukraine would become like Austria after the Second World War.

Austria is neutral, and it’s worked beautifully, by the way. This is the way to go, neutral Austria. Austria is not in NATO.

They’re in the EU, but they use the euro, all of that stuff, but they are not in NATO. And that’s the kind of thing that would have to be in any final agreement, shall we say, before it could really lead to peace. And right now, the Europeans are just hell-bent on going to war.

The European position – and this includes your lightweight prime minister who’s on his way out. He’s in the club. Canada, they don’t have much more than a pea shooter up there for a military.

You can’t even protect the borders. And Trudeau’s over there in London on Sunday talking about putting peacekeepers in Ukraine. Where are you going to get them? How are you going to finance it? Canada’s the same way.

You were talking about these mortgages earlier, either a one-year or a three-year rollover kind of period. This shows you the thinness of the capital market in Canada. You get a 30-year mortgage in the United States.

Why? Because we have a huge, huge capital market. And most people don’t have things in context. If you take the World Equity Index, how much of that is accounted for by the United States? It’s about 65% of all the market cap value in the world is in the United States.

So all these countries running around shooting their mouths off, if you think about it, really, it becomes a joke. I mean, the London meeting was what? It was basically an anti-American meeting. That’s why the meeting occurred.

But that’s the rhetoric. The reality, we’ll have to wait and see. But I really have my doubts that Europe’s going to be able to get the United States back on board.

I don’t think Trump in Ukraine is interested in continuing to finance a war. And support it militarily. And that is the only way the war has ever been conducted.

It’s all an American war. And having said all that, I guess it goes back to what I said earlier. We have a changing world order.

And it’s going to be interesting to see how this unfolds in the coming years. But, you know, you talk about how Ukraine’s been able to hang on because of the support they’ve gotten from the U.S. One of the things that really surprises me about this war is how Russia, how the war is still going on after three years. I can’t believe it’s been three years.

But I always thought Russia was this military force. And yet here they are. They can’t even take over a small country like Ukraine.

How do you explain that? Do you think our view of Russia is misplaced? No, they’re fighting the United States, for God’s sakes. The United States is the most powerful country in the world, whether you like it or not. I mean, I’m a realist.

And the reality is, from a military point of view, there is nothing in the same league as the United States. And the whole myth that somehow, you know, the Ukrainians are fighting this thing on their own and so forth, it’s just not there. I mean, it’s a little bit like the Middle East.

If you think the Israelis could be doing what they’re doing without the United States’ cover and intelligence and targeting of targets and munitions and everything, it wouldn’t happen. Steve, I want to ask you about valuations now, equity valuations. We’ve had a bit of a pullback in both the S&P and the Nasdaq here in the last couple of weeks, given all this uncertainty around tariffs and trade wars.

But you just made mention of the fact that Europe is in very rough shape. Canada is in very rough shape, very small economy. But nonetheless, you think the U.S. is going to go into a recession sometime this year.

China, we know what’s happening there. That’s also in rough shape. And when you look at the equity valuations, like I can’t remember how many names are trading with market caps over a trillion dollars.

It might be eight or nine names. But what sort of pullback do you expect to see in the S&P and the Nasdaq if we get a recession in the U.S.? And given all the weakness that we have throughout the world. 15 to 30 percent.

And the last time we spoke. By the way, that assumes a lot of things remain kind of constant. Let’s say the economy just slows down a little bit.

I have something called a bubble detector that I developed. I was going to ask you about that. And the bubble detector has the highest reading that it’s had ever.

It’s an all-time high. The only time it really came very close to this was right before the dot-com bubble. There was a reading that was pretty close to the current reading.

Now, all that means is that stocks relative to bonds, where the rubber meets the road, are very highly priced. The valuations in the stock market are very high relative to valuations in bonds. So in the past, every time you get these high bubble detector readings, we actually enter.

They come before what, a recession? And they come before the stock market comes down. So sometimes it’s very hard to predict exactly when. Maybe the thing’s going to keep making all-time highs for a couple more quarters.

I don’t know. But it shows you we’re in a danger zone. And that’s why you get people like Warren Buffett, for example.

Buffett, you know, 27 percent of his total Berkshire Hathaway is in cash. Twenty-seven percent. That’s huge.

And the last quarter, he liquidated all the ETFs that were along the market. So my own view is I think he – who knows? Maybe he’s looking at my bubble detector. Well, it’s – so I’m glad you brought up Warren Buffett again because in that same interview that I alluded to before, he was asked about the economy, the U.S. economy, and what his views were.

He declined to answer that. But I think if you look at his actions in the past year, he’s taken his Apple position from $178 billion down to $70 billion. He’s sold huge positions in Bank of America and also Citi.

And when you look at these actions, I think we understand quite well what he thinks of the economy. He’s quite concerned. Yeah, I think he’s concerned.

I think he has some concern about the market. I’ve said this – I mean about the economy and also the valuations in the market, both things. And don’t forget the confidence thing and the uncertainty we talked about and the general risk.

You asked me about where I thought we were going. Let’s talk about the risk. And the topics you brought up, Jimmy, you said, well, what’s going to happen with this trade war and tariffs? Well, that’s an uncertainty.

And then the next thing you jump into, you say, oh, what do you think is going to happen with the war in Ukraine? It’s been going on for three years. And, by the way, everyone has just been sleepwalking with the war. They’ve never priced that in with any risk at all.

But who knows? I mean, things could actually go worse. I mean, let’s go through a scenario. A scenario – and I think this is what the Europeans would like to do.

This is what Trudeau would like to do or the leaders in the thing, really. Trudeau is kind of irrelevant. But if you look at Starmer within the U.K. or Macron in France or maybe Merz now in Germany, they’re leading the charge against Russia.

And why do they want to put troops in Ukraine? Because they’d be a tripwire. Because the minute you get a Canadian soldier killed in Ukraine, then the cry in NATO is going to come out that the U.S. and NATO have to do something. You see the tripwire thing? It’s very hazardous and dangerous.

This idea of putting NATO troops in Ukraine – they’re in, by the way. They are in, but they’re covert now. But what if you put them in in an overt way? And what if one of them was killed? Right away, that’s going to drag Trump in even if he doesn’t want to be drugged in.

And that’s their strategy. It’s what I call a tripwire strategy. That’s what the Europeans want to do because the Europeans, by the way, any European that has their head screwed on, they know they have zero military capacity, and they also know they have no financial capacity to fight a war with Russia.

And so the only way it can be fought, if they want to fight it, is to keep the U.S. in there financing it and supplying munitions, intelligence, and all the rest of it. So you’re looking for a big slowdown in the U.S. We could have a significant pullback in the S&P, 15% to 30%. How do you think investors should position themselves? Well, why not just follow Warren Buffett? And go all cash? Well, he isn’t all.

He’s 27%, which is one hell of a pile of cash. But I would say my comfort level is in the Buffett kind of zone. Now, many people might not know this, Steve, but you have a very active background in commodities.

You were born and raised in Iowa, so you know commodities well. But I want to get your views on gold, silver, soy beans, oil. Last time we spoke, you were really bullish on gold.

Are you still? Yes. So it’s in a bull market. It’s going to stay in a bull market.

I see no signs of fading away there. So that’s one market. You mentioned oil, which is another huge market.

And I have kind of a bearish bias in oil and have had for some time. Because you look at OPEC. OPEC has a lot of excess capacity, so that’s on the supply side.

And then you look at the demand and the increment in demand that goes up over time, it grows. But the non-OPEC producers, they can fill all of the gap that’s created by the increased demand for oil that comes along. So that’s not a very bullish picture.

I mean, the only way you’re going to end up with much of a bull market in oil is if somehow OPEC decides to cut back production, which I don’t think. I think they’ll continue to restrain and not increase over the current quota, and they might pull back a little bit. But I’m biased towards price going down in oil.

Gold, I’m biased towards price going up. Livestock, I’m biased towards it going up because herd size is going down. You got fewer cattle, what happens? Price goes up.

It’s like now they’re raising cane in the United States about the price of eggs being high. Why is the price of eggs being high? Well, they’re worried about bird flu, so they slaughtered a lot of these flocks of chickens. And if you don’t have chickens, you don’t have eggs.

And if you don’t have eggs, what happens? Supply shifts to the left, and price equilibrium goes up. I mean, it’s all supply and demand in the end for all these commodities. The trick is, you know, figuring it out, which isn’t always that easy.

I did mention to you, I think, once that, you know, in 1985, I became the chief economist of Friedberg Mercantile Group in Toronto up there with you. Dr. Albert Friedberg founded that firm. Of course, still is.

I’m the chairman emeritus. But in 1985, when I joined as the chief economist, I also retained my professorship at Johns Hopkins. But at any rate, to make a long story short, I did a little plain vanilla model of OPEC at that time, and felt pretty confident about it, and predicted, one, that OPEC would collapse in 1986, and that the price of oil would go down below $10 a barrel.

I was the first one, and I think the only one, to predict the $10 below number. Anyway, we were short big time, and it worked. OPEC did collapse.

And what happened? The price plunged. It went briefly below $10 a barrel, and fortunately, we had big positions on, and after the fact, they were a little bit bigger. We were younger then, Jimmy, and risk management wasn’t quite our game.

We had 70% of all the short interest in the gas oil contract in London, just us. Plus, we had all kinds of other shorts, too. Anyway, it was a great launch for me, and a great ride for Friedberg’s clients, too.

Did you get a good bonus that year? No. It wasn’t a bonus operation back then, in those days. I don’t know what it is now, but let’s put it this way.

We each had personal positions on, too. So, in a way, I guess there was a bonus. So, if you’re looking for this significant pullback in the U.S. economy, going into a recession, big pullback in the S&P, what’s that mean for the price of oil? You already said you think it’s going to go lower, but how much lower? If it’s currently trading around $70 a barrel, is it going to $50? Is it going to $40? Well, that’s not exactly the way.

I shouldn’t say this. It kind of contradicts what I said earlier, because I said that oil would go below $10 a barrel in 1985, 1986, because OPEC would collapse. In that case, there was an endpoint prediction.

Usually, I don’t do that. The main thing is because it’s very confusing if you end up getting into these endpoints. The thing you have to know, is it going up or is it going down? So, gold is going up, oil is going down.

That’s all I have to know for now. I’ll worry about the details maybe later, as things start evolving and changing and so forth. Then I’ll worry about, oh, do I really want to hold this short position in oil as it’s going down, down, down? When am I going to liquidate my short? It’s only then that you have to start really worrying about endpoints or timing of entry or exit into a market.

Now, with gold, by the way, one thing that is helpful is something I’ve talked about with you before, and that’s the Hanke Kaufman’s Gold Sentiment score. Abe Kaufman and I actually read, with text mining and AI, all the articles that come out on gold every hour, and we can detect whether those articles are bullish or bearish and come up with what we call a Hanke Kaufman’s Gold Sentiment score. When that sentiment score becomes very bullish, for example, we know at the extreme bullishness point, it will revert and swing back the other way.

And what do you do? If it’s very bullish and you’ve got a long position, you better liquidate the long position and not add to it, and maybe even consider putting a short position on it. If you have no position and you get an extreme bullish reading on Hanke Kaufman’s Gold Sentiment score, you’d want to put on a short position and vice versa. So that gives you entry and exit points, but only on a very short time horizon.

That’s for like traders. If you’re fundamentally bullish, you put a position on long and you just ride it. You’re not going in and out.

Maybe if you want to add to a long position, you would use that sentiment score, and you’d be adding when? When we were getting a reading that was very bearish. So gold is trading at or near all-time highs. What’s your indicator saying right now? It changes every hour.

I literally haven’t looked at it in the last few hours. And how long have you been keeping track of this information? About four years. Oh, yeah.

That sounds very interesting because I would love to know how it’s changed just in the last four years because it’s, I guess, ever since the invasion of Europe. This uses very high-frequency data. So this isn’t measuring sentiment on a long-term fundamental thing.

This is measuring sentiment every hour. So it can go from very bullish to very bearish within a 24-hour period. Maybe you’ll be long, short, long, short, all within 24 hours.

So what’s the point? The point of the sentiment is, number one, let’s assume that the market over the year doesn’t change at all. The price at the end of the year is exactly where it was at the beginning of the year. We could be trading, and we have been trading, and making good money on volatility.

Every day it’s going up, down, up, down, up, down. Maybe the long-term trend is flat. It doesn’t do anything.

But with a gold sentiment score, you can be trading very actively and doing very well if you know how to read the score. Steve, you have lived through many cycles, and you’ve seen a lot of crazy things throughout your life. How would you rank this current period that we’re living through right now, especially when you look at, say, the 60s and the 70s, when we saw a lot of social uprising and a lot of economic turmoil? Well, I think – let me give you an indicator.

So, as you know, I’m no longer a spring chicken, but pretty active. And I just – you know, it’s just 24-7. I mean, so many people are asking this, that, the other thing.

There’s so much stuff going on, it’s very hard to keep up, even on a 24-hour cycle. I mean, something new, big, is popping up almost every 24 hours. So I’ve never seen anything really quite like this, honestly.

Steve, you were an advisor for Ronald Reagan, and he’s often referred to as the greatest president in modern history. Would you agree with that statement? Yeah, I would. I mean, stepping back, he was the greatest deliverer of a message, and a message that I think is important, and that’s for classical liberal economics, if you want to call it free market economics.

He was the master, and he had some principles. So in that sense, I think he was probably one of the best ones we’ve ever had in delivering a message that I happen to agree with. I mean, it’s my message I was working with, and we embraced the same message, shall we say.

So from my point of view, from that standpoint alone, I would say, yeah, he would be number one. By the way, interestingly enough, one that didn’t have that message necessarily, but ended up ex post facto with a very good record is Bill Clinton. Bill Clinton’s a Democrat.

Reagan was a Republican. But the most conservative fiscal president we’ve ever had since World War II is Bill Clinton by a long shot. Now, that was the result of the fact that you had two smart guys operating.

In the White House, you had Clinton is a clever guy, and the Speaker of the House with Newt Gingrich is another clever guy. So you had a division of powers between the Congress and the White House, and that’s obviously, to me, that’s the best kind of combination. If you get a split, a divided government is actually the best government because they tend to engage in less mischief.

There are more checks and balances going on. And it happened. I think you had two clever guys with Clinton and Newt Gingrich, and their performance.

Remember, Clinton started out, he was getting advised by his wife, Hillary Clinton, and he had all kinds of nutty left-wing ideas. Well, Gingrich put those back in the bottle in a hurry, and Clinton was smart enough to change gears. He changed gears.

And if you look, by the way, the only president to have a significant shrinkage in the size of the state relative to the total economy was Clinton. Reagan had a little bit. Eisenhower had a little bit.

But Clinton actually had a lot. And remember, the last two years of Clinton’s presidency, the second term, he actually was running a surplus. The fiscal books were in surplus.

And the big panic in those years, if you recall, you’re probably too young for that, was the fact that Wall Street was in the bond market. The bond vigilantes were wringing their hands because they said, oh, they’re not running a deficit. They’re not issuing any treasury debt.

We’re not going to have anything to trade. The treasury market is going to disappear. Well, that turned around in a hurry.

But at any rate, in rating presidents, you got to slice and dice things. I’m not saying that everything Reagan did was all that great. By the way, on trade, it was a very mixed picture.

I was involved handling the Japanese trade portfolio. Then Japan was a problem. The deficit in the United States was being filled almost exclusively by Japan.

And Reagan is a free trader, but ended up putting, remember those voluntary restraints that were put in to hold back Japanese cars coming in? That was in Reagan’s presidency. So there were lots of factors coming in. Trade, I would say, would have been the most mixed bag with Reagan and something that really his policies, a lot of them kind of flew in the face of his principles of free trade.

But it wasn’t a disaster, but it was a mixed picture in trade. Deregulation was fabulous. Well, Steve, we are coming up to an hour, and you’ve been very gracious with your time, and I want to thank you for that.

And if somebody would like to follow you online and learn more about you and hear your thoughts, where can they go? Well, they can go to Twitter for more or less real-time things. That’s at Steve underscore Hankey. If they want to get my weekly or semi-monthly, it kind of comes out on a regular basis.

It seems like it’s every week. My kind of newsletter, if you will, of articles and things that I’ve written, just send me an email at Hankey at JHU.edu. And the other thing, if you want the Hankey-Kaufman Gold Sentiment Score, just a second. I want to make certain I give you the right address.

Sometimes I can’t keep track of all these things. But the Gold Sentiment Score, you can put this up on your site, www.goldsentimentreport.com. And people can enroll in that for a small fee and get it. Especially up there in Canada, obviously a lot of Canadians like to trade precious metals.

Nothing better than gold in the hand. Absolutely. Buy gold, wear diamonds.

Steve, once again, thank you very much for your time. I do appreciate it. Thank you, Jimmy.

Great to see you.