Jesse Felder: Gold is Anticipating the End of the Tightening Cycle

Tom welcomes back, Jesse Felder, founder, editor, and publisher of The Felder Report. Jesse discusses various economic issues such as Federal Reserve decisions, inflation trends, and the changing dynamics of the commodities market. Felder insists that the optimism that inflation will return to a manageable 2% may be misplaced, as per substantial evidence pointing to an underlying, stronger inflation trend. Commodity markets feature prominently, with Felder noting a bullish trend spurred by a decade-long capital-starved situation. He identifies this lack of investment as a considerable constraint on supply, potentially leading to a price surge.

Despite optimism regarding the Federal Reserve's potential for a soft landing, Felder acknowledges persistence of economic troubles, citing unprecedented tightening, record credit card delinquencies, and struggling corporate earnings. He argues that whether inflation remains high or a recession occurs, outcomes will likely be disappointing. He expresses concern over a rapidly swelling deficit and potential inadequate demand during a recession, necessitating Federal Reserve intervention, a situation he dubs a 'nightmare scenario'.

The discussion also involves a reflection on monetary policy following the 2008 financial crisis. Jesse highlights a trend involving aging baby boomers remaining in the workforce longer and low-cost labor in China. This era of 0% interest rates and inexpensive financing necessitates a rethink of monetary cycles, including realizing that the neutral Fed rate could rise. The conversation points to the effect of relocating manufacturing to the U.S. and potential resulting inflation, issues on globalization, and focus shifts on defense and energy expenditures.

As part of the focus on the green revolution, Felder identifies emerging economies as key drivers of oil and gas demand. Efforts to limit fossil fuel use and promote clean energy will lead to increased demand for commodities such as steel and copper. The shift to electric vehicles is mentioned, as well as the lack of charging infrastructure.

On the topic of precious metals, Felder expresses a bullish stance on gold and silver. He views the possible termination of the Federal Reserve's interest rate hikes as a positive indication for gold. However, he warns of the potential impact of continuous quantitative tightening on the money markets, although he predicts eventual benefits for precious metals. Felder alerts to a prevalent recency bias in the market, speculating possible stagflation that could spike demand for precious metals. He suggests investors diversify across multiple areas, including physical gold and Sprott funds.

Time Stamp References:0:00 - Introduction0:37 - Sticky Inflation & Wages3:16 - Fed Inflation Targets5:42 - Other Inflation Metrics7:30 - Commodity Demand & Oil11:35 - Soft Landing Chances?14:54 - Treasuries & Recession?21:36 - Rate Cuts & Expectations24:00 - Recency Bias & Low Rates29:10 - Manufacturing Lag-Time33:52 - Conflicts & Disruptions37:07 - Commodity Demand Drivers40:07 - Electrical Infrastructure43:33 - Precious Metals Thoughts47:17 - Sentiment & C.B. Faith50:10 - Fear Factors & Gold52:06 - Sprott ETFs & Miners55:16 - Wrap Up

Talking Points From This Episode

* Jesse Felder warns of stronger underlying inflation trends, challenging optimism about a return to a manageable 2% inflation rate.

* Despite economic troubles and unprecedented tightening, shift towards stagflation could result in increased demand for precious metals like gold and silver.

* Felder identifies emerging economies as drivers for oil and gas, arguing that clean energy efforts could surge demand for commodities.