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Hey everyone, my name is Anthony Fatsies and welcome to another episode of the What the Finance podcast. On this podcast, I have the pleasure of welcoming on Peter Shiff. So Peter, thanks so much for coming on the podcast today. Oh, thanks Anthony. My pleasure to uh be on with you. Yeah, no problem.
I'm looking forward to the conversations. The first time we're speaking and uh definitely as you said before we got on, a lot is happening in the world at the moment. It seems like it's never ending. Uh but where I really like to start my conversations is very broad. So what are you currently seeing in the economy economy and markets at the moment?
Well, you know, I think right now the big story is that investors are completely ignoring the rise in in bond yields. I mean, maybe they're noticing it, but they're not worried about it. They're not worried about how it's going to impact the economy, how it's going to impact corporate earnings, how it's going to impact stock market valuations.
They seem to be, you know, whistling past the graveyard because I I think bond yields are rising for reasons that should be very disturbing. And I think a lot of people are trying to rationalize the increase as somehow being a good thing. It's bond yields are rising for the right reason. It's because there's so much investment opportunity.
The economy is so strong. And uh while there may be some um you know uh truth behind the idea that there is more competition for capital. uh that's not the only reason rates are rising and the f the fact is that they're going to rise a lot more. It's not just that the you know the 10 years at 5.2 or the 5 years at 5.5.
It's the trajectory and the direction uh and with which rates are headed. This is not the top. We're going much higher. And so even if you think 5.2% 2% isn't harmful. What about 6.2? What about 7.2, 8.2? Because all these rates are coming and higher uh in in the near future. Yeah, it's a super important thing to touch on.
And uh you mentioned something really interesting there that that the markets don't really seem to be sort of pricing it in. Companies are pricing in. No one's pricing it in. Why why do you think that's the case? And it's a lot of wishful thinking out there. Um there's just a lot of bullishness and enthusiasm, you know, with what's happening with AI and uh the stock market.
In fact, the fact that the stock market isn't falling is probably encouraging more people to buy. Uh they're saying, see, it doesn't matter that rates are going up. Uh because the everything is so great that we can afford to pay. But, you know, unless the government is going to be flushed with tax revenue, the US government can't afford to pay.
Uh, what about homeowners? How are they going to pay? I mean, now we're probably almost at 7 and a half% on a 30-year mortgage. We'll probably be at 8% within another few weeks. uh you know, yes, 8% was doable uh 20 years ago or 25 years ago when homes were a third of the price they are now. But but given how expensive houses are, uh 8% is a real gamecher.
Very few Americans can afford to buy if they have to pay an 8% mortgage. And 8% isn't where the mortgage is going to stop. We're going to go higher. It's going to be double digits. And maybe there are some companies that can afford to borrow at these high rates because they believe that the return on their investments are going to be so dramatic, but there are a lot of other companies that can't.
What about states and municipalities? Uh are they going to be able to afford to pay double or triple uh in interest what they've been paying to finance their deficits? Yeah, it doesn't seem to be the case. And I think what we're we're seeing, you know, Trump has surprisingly been quiet on everything.
He was surprisingly quiet on the rate height increase last week. And I I was reading something interesting today where someone was saying that, oh well, the market's going up, so he doesn't care. Once the market starts coming down, then he'll start, you know, to get to go get worried. Well, there there there's some truth to that.
But also, you know, Donald Trump did make a startling statement uh if it was true. Of course, if it was just another lie, well, that's, you know, par for the course that Trump plays on. But, you know, the media should be calling him out on the lie. But when asked about the most recent decision, the president said that before the decision was made, Kevin Walsh came to him, had a meeting with him, and told him that the board was going to vote for these rate hikes and that, you know, pretty much it was going to be unanimous.
And then after delivering that bad news to Trump, Trump gave him permission to vote with the board. and Trump said, "Well, Kevin, you know, you might as well vote with the board because it's not going to make any difference." So, if that conversation actually took place, I have a big problem with it because you basically have the Fed chair uh, you know, consulting with the president before the announcement, letting him know what the board's going to do and asking, you know, for permission to vote with them.
Um, but of course if the conversation is a complete fabrication, if it never actually took place, the question is, is the president delusional in imagining that the conversation took place or is he just lying that it took place, but because it has to be one of those possibilities that that'd be amazing to think uh, you know, Trump still thinks he's holding all the, you know, pulling the strings there.
But uh, how do you see them reacting in the future, the Fed? Do you see the, you know, the need for continual rate rises? Because I have an opinion where, you know, even when they rise rates, yields still go up. So, it's not actually really having much of a benefit on on what's happening. Well, there was a belief out there that if the Fed hiked rates, bond yields would fall.
Instead, they've continued to rise. They're the highest they've been today. I saw the 30-year at 5 um 52 and the 10year at 5.21. That was the high I saw so far today. Uh, but these yields are considerably higher than they were the day that the Fed delivered the rate hike, which was supposed to cause long yields to go down.
And I I said that that would not happen, that they would keep on rising, and that's going to continue. And in fact, the quarter point rate hike, if anything, it was just symbolic because it's not going to have any real impact on inflation. they're going to have to follow it up with far more aggressive rate hikes in the future.
Uh the question is does the Fed have the balls to deliver those rate hikes and will the markets continue to shrug them off? Could it be sort of a bit bit more cat and mouse like you know I sort of compare it maybe to the 1990s when the uh uh you know UK tried to stay in the um when uh Soros sort of you know broke the Bank of England that type of thing where they try to keep just keep increasing rates as high as possible to sort of show confidence even though everyone knows that they they can't do anything and it seems to be a bit of a similar situation you know for the world for the western sort of debt markets where people you know they're trying to increase rates show confidence but everyone knows that they've lost control of it so I don't know if there's much they can do to sort of pull it back in.
Well, I mean, the Fed is in a box here because uh they they can't raise rates high enough to bring down inflation, but they can't admit that. Um, so you know, they're trying to walk this line, uh, where they try to pretend that they're committed to reducing inflation and that they possess the tools to bring it down to 2%.
Even though they have no real intention of using those tools because if they did, they would collapse the stock market, the real estate market, uh, cause a recession, an increase in in unemployment. uh and put a lot of pressure on the government to cut spending and and and these are things that the Fed does not want to do.
Um so that's why you've got, you know, this uh all all talk and no real walk policy uh on fighting inflation. And I think the Fed was talking for so long without walking, they backed themselves into a corner where they had a hike a little bit. Uh and so that's what they did. But that's not going to be enough.
Yeah. And you can say they don't even have control over inflation at the moment because you know the majority of it's coming from energy which is due to the Middle East crisis and they can't print more barrels of you know of oil. They can't print oil basically. Well that the inflation doesn't come from oil.
Higher oil prices are higher oil prices. But that doesn't mean that all prices go up. Some prices will go up but if the Fed doesn't accommodate that by creating more inflation, by expanding money supply and expanding credit, uh other prices will fall. So in aggregate the overall price level doesn't go up and Americans just end up spending more on energy and less on everything else.
Now that's not good for the economy when you've got to spend so much of your money on on and energy or food. Uh but it's not inflation. The inflation comes from the monetary policy uh that accompanies this and and that's what's happening and that's what's going to happen. In fact, if rising oil prices cause the recession, the Fed will respond by creating inflation.
It'll print a lot more money uh to cover the extra spending uh not only during the recession, but to try to stimulate us out of the recession. Yeah, it's a good point. And I think so, we already saw that with the CPI where there was some costs actually coming down to to offset the energy. It wasn't enough to do that at the moment, but as you say, if they keep increasing rates, that could potentially come through.
you know, higher interest rates also show up in the CPI because their costs and companies that have higher interest costs uh need to recover that by raising their prices. So, you know, it's another import material costs or your labor costs or your rent. Uh the interest you pay on the money you borrow uh is also a cost that you need to recover uh in the price you charge your customers.
Yeah. And there's also a very large uh interest rate you know insensitive sort of buy seller of debt at the moment which is you know the US government and I understand it's there there will be a point where they'll it will matter but at the moment it seems like they don't currently care at the moment they'll keep being these massive deficits until
yeah I mean look it matters and you know you're going to see these numbers in the interest rate sensitive parts of the economy it's going to affect auto sales it's certainly going to affect housing uh housing, you know, the mortgage rate is the most important aspect of the US housing market because very few Americans have cash to buy a house.
Um they they need to borrow the money and their ability to buy a house is always a reflection of the monthly payments that they would uh be obligated to to make if they bought it. And a lot of that comes from the interest rate. And so if interest rates on a mortgage go from 4% to 8%, you effectively double the monthly payment because pretty much all the monthly payment is interest for like the first 10 years or more of a 30-year mortgage.
Uh so you're really doubling the cost of of a mortgage, which pro people were probably squeezing to afford at 4%. That was probably a stretch. Obviously they can't afford twice as much. Yeah. Yeah. And the US sort of property market has been quite stagnant at the moment because as you said, you know, people because it's a fixed mortgages, people have had very low mortgages.
They if they sell then they have to go on to these much higher rates and they probably can't afford to do that. So do you see this being a real issue in the future? It sounds like you do and there could be Oh yeah. And certainly if you already live in a home and you have a three or 4% mortgage, you're not moving or you know you you can't because even if you bought a less expensive house, the payments would be more than the house you've got now because of the higher mortgage.
So people are maybe going to remodel if they need a bigger house. They may add a room or something, but they're not going to move. Uh people are trapped in their homes. Yeah, it definitely seems like the case. And Scott Besson recently, you know, did did the sort of Treasury buyback didn't seem to do anything.
Do you think he'll continue with this? Do you think it was just a duds and he'll sort of stop or and is there anything else that they can do to Yeah, it's like King Kuk trying to stop the tides. It's not It's not going to work, you know? Uh and I said that when they announced that they were doubling the buybacks, I said that wasn't enough and then they immediately tripled them.
But I said that even that's not enough because you know you're spitting in the ocean that the only meaningful uh way to influence the bond market is to have the Fed do it through QE. Uh but that means creating more inflation. So the act of suppressing bond yields actually puts more upward pressure on bond yields uh and and upward pressure on the price of everything else.
So it's self-defeating because by creating more inflation, you actually create a bigger incentive to sell treasuries. And so now you have to buy even more treasuries to prevent rates from rising, which means you have to create even more inflation, which means you increase the incentive to sell treasuries even more.
So it's a self-perpetuating spiral. Yeah. And I guess that's what the yield curve control would potentially look like. And uh it doesn't seem like that's sort of on the horizon in the future. Or maybe they'll try and do some things subserv Yeah. subversely to bring that in. Yeah. But if you remember, you know, 1987, the main reason we had a stock market crash was rising bond yields and bond yields were rising all year before the market finally caved in October.
Uh so, you know, the yields can go up and I think where the yields were uh bond yields were about 9% before everything broke. But you know they they were rising uh pretty substantially uh before the market even cared about it. Then all of a sudden it cared and and there was a crash. Yeah. And the market
and it was that stock market crash that finally caused the bond market to rise and yields to come down because then money went finally, you know, moved out of stocks into bonds. Yeah. And the economy and I guess the average individual and businesses were a lot less leveraged back then. So Oh, way less.
That's why when I hear people say, "Oh, you know, it's okay that yields are at a 20-year high because we were able to pay 20 years ago, so why can't we pay these yields again?" And they overlook two important differences between then and now. One is the sheer level of debt that needs to be serviced at these rates, which is many, many times higher than the debt we had 20 years ago.
But also 20 years ago, the bond market was still in a bull market and yields were in a long-term decline. Bond yields fell from 16% a 10 year in 1980 down to below 1% in 2020. So you had 40 years of falling bond yields and 20 years ago in 2006, the yields were still falling. They weren't, you know, they were a little more than halfway through that bull market.
they they still had many many years uh to come down. So yes, there was a high rate, but there was relief because the rates kept going down. But today, it's the opposite. Rates are at 5.2 on a 10-year. On the way up, the trend is not down anymore. The trend is up. So the future isn't going to be lower rates.
The future is going to be higher rates. So when rates are 5.2 2 and and falling. Okay, that's that that's not that bad because they're going down. But when they're 5.2% and rising and you have no idea how much higher they're going to rise, it's a much more problematic situation. Yeah, it sounds very much like the 70s.
Is that sort of what you how you see it or do you think it could be worse than worse than Well, it could be a lot worse than the 70s because we were in a lot better shape than we were in the 70s. You know, the debt to GDP was 30%, not 120%. We still had trade surpluses back in the 70s. Not the deficits, a huge trillion dollar deficits we have now.
In fact, America was still the world's biggest creditor nation in the 1970s. Now, we're the world's biggest debtor nation. So, we are far more dependent on on debt and beholden to to foreigners to to lend us the money uh than we were uh back in the 70s. Yeah, it's really concerning. So, so what is the end game, I guess, do you do you think for this current, you know, bond cycle that we're seeing now?
Do you think it'll be the end? Do you think it'll just sort of be similar to what we saw in the 70s and, you know, potentially worse? It could be massive economic consequences. I think I think bonds are going to rise at least until the stock market breaks at a minimum because if the stock market doesn't break, there's no reason for the rates to stop rising.
Uh but I also think you're going to continue to see uh higher inflation prints uh coming and and you know investors are going to be uh you know more worried about having their principle eroded by inflation and foreign central banks around the world are going to be uh wanting to get rid of more treasuries uh because of the purchasing power risk and political risk that they're assuming by holding uh dollar reserves.
Yeah, we are seeing the pressure that sort of the US is putting on all countries if they you know against China for trade for everything. So we definitely does see there's a dd dollararization going on globally or you know de usification going on around the globe I said and we're also threatening threatening tariffs which are disruptive to trade but which harm Americans the most.
Our tariffs you know harm us because we have to pay them. uh foreign businesses just have to deal with the ramifications of Americans being priced out of their market. So now they have to find alternative customers which they can do. You know if you look at the Chinese trade numbers, trade between the US and China is down I think about 30%.
The Chinese are selling a lot less stuff to Americans and conversely we're buying a lot less from China. But our trade deficit has barely gone down and China's trade surplus is going to be another record high this year. Uh so China's fine trading less with America. They just trade more with everybody else.
Yeah. And it seems to be a lot more with Europe. And then we'll we'll see how long that lasts because I think they're going to try and potentially put tariffs in as well because it does seem that the Chinese economic model is unsustainable of them just exporting their consumption globally and they need to at one point sort of re re you know structure their
well eventually look eventually their currency will rise and more of their products will be consumed domestically but in the meantime it's the world that benefits from those products. The world gets to consume those products. So, you know, we're riding on the China gravy train, but yeah, eventually China is going to consume more of what it produces, and that means less for the rest of the world.
Yeah. What would you see as a replacement for the dollar? Because I know that's something that you've, you know, you mentioned there that people are going to dollar. Yeah. Gold. Yeah. Gold's replacing the dollar. I mean that that's that I mean that's already obvious because over the last few years the dollar hasn't lost much ground against the euro or the pound or you know the Aussie dollar.
It's lost a little against the Swiss Frank. It's gained some against the yen. But the real loss of purchasing power is against gold. That's where the dollar has taken it on the chin. You used to be able to get an ounce of gold for $2,000, which was a high price, but that was the price two or three years ago, and now it's, you know, 4,300.
Uh, so the dollars lost more than half its purchasing power if you relate it to gold over a very short period of time. Yeah, I guess it's a trend that we saw, you know, 100 plus years ago, central banks own gold, governments own gold, and then they sort of started selling that down buying, you know, paper.
Now it seems like we're going back to the to the gold trend. Yep. history always repeats. I know I've been saying that for years that that was going to be the case. Yeah, it's it's finally happening. You know, if we look at, as you said, the gold, will it be do you think it be Breast and Wood backed currency or do you just think it would be sort of gold used as this safe asset replacing treasuries and then there's still the fiat currencies used to
Well, in the near term, it's more likely that central banks around the world will just hold gold instead of dollars uh and use gold as the reserve to provide value and backing for their currencies. Not that you can redeem the currency in gold, but the central bank just has gold so that it could use it uh to you know intervene in the currency markets to buy back currency if its currency was uh selling off.
Uh the gold gives it that that ability and to have gold instead of instead of US dollars. But we'll see. I mean the market may very well remonetize gold on its own. Maybe central banks will follow the market. I mean, I I'm doing something to that effect myself with Shift Gold, which is my gold company.
I I have a um a a page on my website which will eventually be its own app and I and the Shift Gold has an app right now but it's called T-Gold which allows uh my Shift Gold customers to buy and sell gold and silver through T-OLD where they're buying into larger bars. They're buying a share of a particular bar.
So, it's allocated, but they're not taking delivery. And they can buy specific dollar amounts without regard to any kind of quantity because you're not buying the whole bar. You're just buying whatever part of it you you you could afford or you want at that time. So, you can buy $500 worth, you know, $1,000 worth, $15 worth of of gold or silver, and we hold it for you.
Uh we're not charging any custody right now, and you're buying it pretty much at spot. So it's very lowcost way to get into the precious metals market. Uh but ultimately I plan on using this platform as a a commerce so that people who own gold can use it as a mean of exchange so I can send and receive it.
If I have a business I want to be paid. I have a mechanism where I can be paid in gold and my customers have a mechanism to get the gold to pay me. And so people will be able to use their gold and silver as money, not just as a store of value, but as a medium of exchange. And the first thing we're doing is we're going to be launching uh debit cards and uh and secure credit cards where if you have gold at T- Gold, you can get a Visa card and you can spend that gold in real time if you need to.
If that's the money you have and you want to buy something and the merchant doesn't want your gold, they want, you know, dollars or euros or wherever you are, you can immediately have your gold converted to whatever currency the merchant will accept. Uh and if you don't want to sell your gold, if you don't want to convert it, you can use it uh as collateral to borrow against at a relatively low rate of interest because I can loan you money through that card at a much lower rate than normal Visa cards because I'm not taking the risk of a normal uh credit card lender uh where it's unsecured.
uh a lot of people default. They don't pay. And so the the companies have to charge a high enough rate to those who do pay to cover all the losses uh from those who don't. But with my cards, I'm not going to lose any money because everybody's going to pay because if they don't pay, I sell their gold.
And I sell their gold and I get the money they owe me. So I'm not taking any risk. And so because I'm not taking any risk, I don't have to charge a high interest rate to offset the risk. Yeah. Yeah, it's really interesting business out there. Yeah. So, people just got to go to T- Gold. I mean, other I mean, you know, and eventually I'm going to let people withdraw tokenized gold, too, whether I come up with my own token or just just use tokens that already exist because there are gold tokens.
Uh, but it gives you flexibility when you have your T-old account. You can take physical gold and have us send it to you or you could just withdraw a token and now you have tokenized gold. But tokenized gold is actually gold unlike Bitcoin which is fool's gold. They try to proponents of Bitcoin claim that Bitcoin is digital gold.
No, it's not. Digital gold is digital gold. You take gold and you digitize it. Bitcoin is digitized nothing. Yeah. Know, it's uh that makes a lot of sense. If uh you know, we did we did see during the Iran war at the start, it was actually quite surprising. You I guess gold is normally seen as a safe haven asset that people go into, but during that time, I guess it peaked and then sort of came off quite a bit.
Well, that's because that's because before the the war started, gold went from 2,000 to 5,500 in a very short period of time. So, there was some profit taking when the war started. And in fact, part of the reason for probably the last $500 or more in the runup was anticipation of an Iran war. It wasn't like that came as a complete shock because we had been sending our troops there, our ships there.
You know, we had been, you know, pounding the war drums for a while uh before the cannons fired or the bombs dropped rather. So, um yeah, it wasn't that surprising. I I was surprised at how big the drop was uh because we pretty much lost uh a good chunk of the gain. We went below 4,000 briefly, but silver's drop was even bigger.
it it got cut in half. It went from 125 uh down into the 60s. Uh but the interesting thing about silver is it never got back to 50. That was the the double top between 1980 and 2011. And so silver is a great chart breakout. This pullback is is exactly what the doctor would have ordered uh for a classic breakout and retracement.
And I think the market is now very well positioned for new buyers to come in, buy the breakout while you're still not too far above the level it broke out from. And you still have, you know, a double in front of you almost just to get back to the previous high. Uh so it's a great entry point. And again, people can go and buy silver at T- Gold or if they want to get the silver in their hands right now, we could ship it to you.
You can order it through Shift Gold. Yeah. I know it makes a lot of sense. I think it was very Yeah, as you say, lots of speculation before, but you know, it was sort of buy the rumor, sell the news type situation. Um, is there anything else at the moment that you are bullish on? Obviously, you know, sounds like uh gold and silver are the main ones.
Anything else on your Yeah, well, I'm you know, I'm I'm bullish on uh global equities in particularly the emerging markets. I think there's a tremendous amount of value in emerging market stocks right now as too much money is being invested in the US and maybe in tech and everybody's focusing on the companies that are involved in AI rather than their customers who may grow their profits based on how they use AI.
Uh so I I I I think you've got a lot of value out there around the world that is being overlooked and you know we have strategies at Europe Pacific Asset Management that specifically uh you know are playing into these themes that you you may not be doing on your own. So I would encourage investors to you know contact my company to talk to our adviserss at Europe Pacific Asset Management.com or check out my mutual funds.
You can get information I have five funds in my family. You can get information on my website, but they're all available no load if you just make sure you buy the advisor's class uh which has a separate ticker symbol than the load version. Uh but you can buy them at any discount broker. We'll have them on the platform.
So you don't have to, you know, work directly with my company to have me manage manage your money. But if you want to have a an individual stock portfolio rather than own into a mutual fund, then you want to set up an account directly with asset ma Europe Pacific asset management so that we can build a portfolio and then manage it on your behalf.
Yeah. Interesting. And you know, we made it 30 minutes without talking about AI which is uh quite surprising for especially today. How do how do you look at the industry at the moment? Are you can sort of concerned about the amount of money that they're spending and the business models there and uh is least
you know I I don't really know how the whole AI situation is going to ultimately evolve. Um I I mean where we are right now I think there it's already a significant factor I believe once it gets fully uh incorporated into into business and into people's lives and I think it's going to make a much bigger impact than what we've seen so far.
Um but of course maybe it's going to improve significantly from here and have a far greater impact. Uh it's hard to know for sure whether the investments that are being made in AI related capex are going to pay off uh or or not. I I don't know how commoditized uh the AI is going to become as far as buying the tokens or the inference or whatever it is.
uh whether or not future AI is still going to need as much compute and as much energy as it needs currently. Um so it's it's really hard to say. You know these stocks either are tremendously overvalued or they could be undervalued uh if the if the profits are actually going to be there in the future.
But it's a big if, you know, and who knows, you know, you hear the stuff coming out of these frontier labs and what what the people are saying and it's hard to know like, okay, how much of it is true or how much of it is just kind of like the group all, you know, so in invested and committed in this that they're they're kind of, you know, uh, you know, they they have these ideas in their heads that either we're all going to die, that the AI is going to wipe out the planet and destroy humanity and everything else, you know or it's going to completely replace all human labor and there's going to be no jobs uh for anybody that need to be done and so you know why bother right everything is going to get done for us so there's no point in even going to school or developing any skills because you're not going to need them I don't know like the truth may be somewhere in the middle there may not just be those polar polar extremes
yeah let's hope so I feel like for the uh danger you know concerns about AI safety it's the same it's like either it's going to you that the cost of everything's going to go to zero and everything's going to be amazing. We'll be in a utopia all that's going to destroy destroy humanity. So, I feel like that's just
yeah, it's it's, you know, those are some extreme uh outcomes diametrically, you know, opposed. Um, you know, I don't I don't have an investment scenario for extinction other than it doesn't matter. It doesn't really matter if you have any money if you're if you don't exist. Exactly. Maybe that's why people are yoloing at a lot of people.
But uh yeah, Peter, thanks thanks so much for your time today. We sort of covered so much uh about Yeah. macro have your uh uh viewers, listeners, you know, remember I do my own podcast. I do generally about two a week uh at my YouTube channel. You can subscribe to the YouTube channel, Peter Schiff.
I also post them on shiftradio.com. And you know you can find my podcasts pretty much any place where where there are podcasts but best if you could you know listen directly on my platforms at either Shift Radio or on my YouTube channel. So uh yeah below and then follow me on X. You know I'm I've got over 1.7 million people following me now.
So it's a it's it's a nice following. But it's important that when you follow me, you repost my my posts so more and more people uh get to read uh what I got to say. Yeah, very important. And is there a message that you'd like to uh people to take away from our conversation? Well, you know, other other than just, you know, I think take what I'm saying seriously and and and act on it.
You know, don't don't do nothing. Don't be a deer in the headlight. recognize that, you know, there are some serious uh financial uh storm clouds ahead and, you know, don't just do nothing. Do something to prepare. Yeah, very important. So, thanks again for coming on and I'll put all the links in the description below so people can find you
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