Mike Gleason: It’s my privilege now to welcome in Greg Weldon, CEO and president of Weldon Monetary. Greg has over three many years of market analysis and buying and selling expertise, specializing within the metals and commodity markets, and his shut reference to the metals led him to creator a guide again in 2006 titled Gold Buying and selling Boot Camp, the place he precisely predicted the implosion of the U.S. credit score market and urged folks to purchase gold when it was solely $550 an oz.. He’s an everyday presenter at monetary conferences all through the nation and is a extremely sought-after visitor on many common monetary reveals, and it is all the time nice to have him on the Cash Metals Podcast.
Greg, good to have you ever again and thanks for the time once more at present, welcome.
Greg Weldon: All the time my pleasure, Mike.
Mike Gleason: Properly, Greg, tariffs are again within the headlines this week. The optimism round an imminent commerce take care of China has been supporting markets for a number of months, however that blew up this week. The president is planning to lift tariffs and impose them on much more items. It instantly appears to be like as if a deal is far farther away than folks thought. So, I wished to get your tackle this week’s information. Tariffs had been first introduced roughly a yr in the past. Do you suppose extra tariffs are prone to succeed or are we studying right here that the Chinese language both cannot or will not negotiate as a lot as Trump would love?
Greg Weldon: Properly, gosh, I do not know, initially. Will extra tariffs succeed? I are likely to doubt it. There is definitely one camp that believes that these are nearly irreconcilable variations, that we may go on and on and on. If the Chinese language have backed off, there’s actually no alternative right here. In the event that they’re reneging already earlier than a deal’s even made, that is not essentially bargaining in good religion and there is lots of people on the market who would counsel that that is been their modus operandi the whole time. The modus operandi of Trump is to play hardball and that is what he is pulling right here.
I believe the larger query, Mike, is twofold. Clearly, it is enormous. If they do not attain a deal, that is devastating as a result of, having reached a deal is priced into the markets to some extent, actually within the U.S. I take it instantly to the inventory market, the place the inventory market has had a 28%, from low to excessive, rally from Christmas Eve right here by way of April. That’s plenty of power. That could be a monster transfer. Extrapolate that out over a course of a 12-month interval. That is simply huge. And that has been predicated upon what? Stimulus? No. Has it been predicated upon, rapidly, there’s been this shopper resurgence? No, this occurred at one of many similar instances we have seen among the worst retail gross sales numbers we have seen in a decade.
It has been constructed on hope, hope for a decision to the commerce dynamic and hope that the Fed goes to modify to an easing bias and finally lower charges by the tip of this yr. If these issues do not occur, wow, look out, as a result of they’re priced to some extent. And anticipating one other huge leap from right here by way of new highs that is going to energy one other leg that is going to return with 25 billion 12-month development in retail gross sales, I do not see that. I do not. It is nearly crucial now that the U.S. will get a deal executed, and I believe that modifications the dynamic somewhat bit that possibly Trump shouldn’t be contemplating, as a result of the thought course of within the pop media is that, properly, you bought a pleasant GDP print, you bought a document low on employment, the U.S. economic system is booming, sufficient we’re ready of power now and we will play more durable ball.
I do not know as a result of, frankly, I may slice and cube the employment quantity to shreds. I actually may. I may make a really robust quantity case, statistical, factual proof case that might counsel wage development has peaked, that the employment dynamic’s already rolling over. So, (we’re) taking part in a harmful recreation. And it is nonetheless the identical factor we talked a few yr in the past, Mike, you and I… that is mainly Donald Trump prepared to threat … it is two guys dousing gasoline, holding matches, and the U.S. betting their match is longer and so they’re nonetheless proper. The query turns into what’s China’s finish recreation right here? Are they prepared to threat all of it? And the U.S. is betting that they don’t seem to be, and we’ll see what occurs.
Mike Gleason: Trump is making possibly a little bit of a foolish declare that these tariffs are going to be paid by the Chinese language. The truth is that a lot or the entire elevated prices of exporting to the U.S. might be handed to the U.S. shopper within the type of increased costs. Chinese language corporations aren’t going to easily take in tariffs. So, you would not suppose that that is going to be good for the U.S. economic system. Trump thinks the Chinese language will blink first, clearly, however we’re fairly certain he’s hyper-sensitive about sustaining GDP development and better inventory costs as we enter the 2020 election cycle. Is that this week’s inventory sell-off an indicator of extra hassle forward within the markets and, in that case, do you suppose Trump has the fortitude to remain the course right here?
Greg Weldon: Properly, I am going to backtrack one second as a result of, in truth, Mike, in the event you have a look at actually what occurred with the primary spherical of tariffs, the Chinese language authorities paid it. They sponsored imports by paying the tariffs. So, that is fascinating level primary. Quantity two, to the diploma that you have seen a rise in shopper items import costs from China, it hasn’t been that important on the information degree. That is type of fascinating, and possibly that emboldens Trump to be extra aggressive as properly. The query is, will China proceed to soak up these prices and that is, once more, what Trump is … that is why he is making use of this strain. As a result of, in spherical one, the Chinese language authorities sponsored these prices, so he is placing the screws to the Chinese language authorities right here, in his thoughts, in doing this.
By way of the inventory market decline being an indication of extra hassle to return, I believe it is completely an indication of the vulnerability of this market, as a result of this market is up 27.9, so it is 28%, from low to excessive, from December. It has taken all that firepower to the diploma that folks are actually extra on the lengthy facet than they had been on the peak. And in the event you have a look at the Nasdaq, every successive excessive is by considerably much less and fewer. There’s not a metric when it comes to the speed of change on a 52-week foundation that’s even near new highs right here. So, there’s plenty of internal weak spot that is doubtlessly uncovered right here if you aren’t getting a commerce a deal, if you aren’t getting a Fed that shifts to a bias in direction of easing, as a result of the fastened revenue market has priced this.
The 2-year word, the five-year not, each beneath the efficient Fed Funds price of two.40. We mentioned look ahead to this again in September. When the five-year word was at three%, I mentioned particularly, you are not going to go above three as a result of the inflation’s not going to go above three and the Fed’s not going to get to a few. Although that is the place they thought they’d get, they weren’t going to get that far. The query then grew to become how a lot may you de-price? Might you de-price all the way down to 2.25, down to 2? I hoped they would not hike in December as a result of in so doing, they tacked on one other bunch of billions of to the invoice that the patron pays each month to drift their debt, which is at a document excessive. Abruptly, it is now 70% of retail gross sales on a month-to-month foundation. That is not sustainable.
And what occurred? The patron choked. Have a look at the numbers. The retail gross sales numbers had been horrible, and the market powered forward anyway on the thought course of that the Powell pivot was a shift in coverage in direction of the place they’re saying we will ease. The Fed funds futures market costs in almost 100% probability of a price lower by the tip of this yr and one other one by the tip of subsequent yr. The Fed’s dot plot says hikes. Six of the governors would vote for a hike in 2020. If you take heed to the place the Shadow Fed and among the Fed watchers are, they’re saying that, “Hey, we’re at impartial, however the Fed should need to go somewhat additional primarily based on the labor market.” Now I say that is a defective motive and I do not see the Fed climbing. I do see the Fed chopping, however it’s a query of how do you get there?
So, you have gone by way of this course of the place the fastened revenue markets wished to attempt to power the motion, which is what I mentioned if you’re at three%. It is just like the Fed’s not going to show until fastened revenue turns and the bond market comes down in direction of the place the efficient Fed funds price is and, after the December hike, that is at 2.40. I used to be even stunned it went beneath, however the five-year word led the best way, the curve inverted, and each of the 2 and five-year word had been beneath 2.40, whereas the Fed funds are pricing in an ease.
What did the greenback do? It did nothing. It caught close to its excessive. There’s thought that possibly there is a greenback scarcity on the market. Have a look at Turkey. Have a look at a spot like Venezuela. It is now nearly spilling over into Colombia, Argentina. Chilean peso, Brazilian actual, on the ropes. Quite a lot of Asian currencies are underneath strain. Quite a lot of African currencies are underneath strain. Quite a lot of the previous Soviet Republic currencies are underneath strain. And, rapidly, it is like, properly, the greenback’s not responding to the fastened revenue market, which is saying the Fed’s going to ease. A part of that ease could be the greenback aid valve will get performed. Properly, it is also powerful to see all this if you obtained a three.2 GDP, a three.four, three.5 unemployment price, and a inventory market at new highs.
However all that, to me, belies the power of the underlying economic system and the dangers that, if you aren’t getting a commerce deal and if the Fed does not shift sooner relatively than later, you then’re trying on the inventory market being the one which theoretically may power the motion in live performance with doubtlessly a greenback breakout, which might be extra strain on rising markets to the purpose the place it is a deflationary threat to the Fed and so they need to go extra according to fastened revenue. Lots on the market and plenty of other ways this might go, however it’s not going to remain right here. That is for certain.
Mike Gleason: Staying on the forex entrance, you have been hinting at some fascinating developments within the overseas trade markets. We regulate your Twitter feed, and also you’re seeing some issues that no one is speaking about simply but. We all know the U.S. greenback has been drifting increased and that’s making some headwinds for gold and silver, however we all know there’s much more occurring within the forex markets than that. Are you able to share with our listeners a few of what you are seeing there?
Greg Weldon: Properly, the metical, the kwacha, the kwanza, the pula, we will throw all these currencies at you and also you say, “Wow, what are these currencies and who the heck cares?” Properly, if you take the case of Angola, they’re an OPEC producer, 1.eight, 1.9, one thing like that, I believe, when it comes to hundreds of thousands of barrels per day of oil output, their forex is getting simply annihilated. It is simply getting mauled, and also you’re speaking a few 400% rise in greenback towards the Angolan forex within the final 10 years. These are huge devaluations which can be happening in locations the place they’re speaking about you’ll be able to’t purchase something with the native forex anymore. So, now you want both digital otherwise you want otherwise you want metallic. And what occurs, in fact, is gold in these currencies can be at document highs and in huge demand. are in demand, gold’s in demand, and there are a number of tangents which can be actually essential that come out of this story and, once more, you say to your self, who cares about these currencies?
Properly, you’re taking the case of a Mozambique and these currencies down there across the space round South Africa, sub-Saharan, the southern a part of Africa, even you throw the Congo into the combination, for crying out loud, you get this dynamic round making an attempt to peg the currencies, making an attempt to save lots of the worth of the currencies when it comes to buying energy. And what was the forex, I overlook now, the nation’s escaping my thought course of proper right here. It is not Mozambique. Madagascar? No, it’s Mozambique, no matter. There was a kind of international locations the place that they had huge forex drawback. They had been going to hyperlink to a basket of native currencies, together with the Angolan forex, and it simply utterly collapsed.
The underside line is making an attempt to take care of wealth and buying energy of your home forex is turning into more and more arduous in a lengthening record of locations, which runs the chance of imploding a greenback disaster, A, or actually some type of larger image crises, and the opposite essential macro tangent out of that is to notice the continued de-linking of gold from its regular relationship with the U.S. greenback, as a result of gold goes up even if the greenback’s hanging round at a degree that is nearly like a significant breakout level. So, this is lots occurring on the earth, in the event you have a look at a few of these different currencies, that’s type of gold bullish as a result of all of it comes again to 1 huge image, and all of it comes again to the Fed, all of it comes again to what’s their subsequent transfer going to be, and it’s a going distrust with all paper, central banks, credibility, IOUs, forex, debt, no matter.
They’ll maintain throwing paper on this raging bonfire and, in some unspecified time in the future, you do not have sufficient paper to throw on it to maintain it rising, and I believe you have reached some type of tipping level, and I believe, if you have a look at the periphery of the periphery and the currencies I am speaking about, there is a story to be advised there that’s price realizing as a result of … coming to a theater close to you quickly doubtlessly.
Mike Gleason: Do see plenty of these currencies on the periphery or the economies on the periphery that appear to really feel issues first. Taking a look at issues, the U.S. is somewhat additional down the road in the case of feeling the results of some international financial slowdown.
Now turning again to metals right here, Greg, what are you seeing there? Silver has been fairly disappointing as costs have dipped beneath $15 an oz.. Gold is hanging in there fairly properly, really, all issues thought-about, particularly given how the greenback’s doing. We’re just under $1,300 right here as we’re speaking Wednesday afternoon. What do you see forward for the metals, Greg, and may they lastly catch a bid and get some type of a breakout going or is 2019 going to be one other ho-hum/disappointing yr within the PMs?
Greg Weldon: Properly, I believe you have actually obtained to distinguish some issues right here too, as a result of the greenback being the place it’s and the greenback with what I simply talked about occurring in plenty of peripheral markets, you are not even speaking concerning the euro. We have not talked concerning the Swedish krona breaking down at a time when the Swedish Central Financial institution has probably the most detrimental rates of interest on the market and so forth and so forth. Man, the craziness in Europe when it comes to rates of interest is a complete different story. However how this then hyperlinks again to gold is bullish, however possibly not so bullish for industrial metallic, at the least not within the close to time period. It actually takes a shift from the Fed that impacts the greenback, I believe, to be the be-all-end-all of the following section of a rally that may very well be seen within the industrial metals.
We thought we had been going to get there and we wished to love them, however it’s been a irritating commerce and it is breaking down right here and that is as a result of the greenback’s sticking round 98 as a substitute of taking out 95 on the draw back, however that is as a result of the Fed is standing quick. Why? Since you obtained a excessive GDP, you bought low unemployment, and you’ve got, till the previous few days, a inventory market that is up 28% and on the verge of being at document highs. So, in fact, the method to get the Fed to the place they will need to be as a result of, frankly, none of what we’re speaking about when it comes to equities, and even when it comes to the GDP numbers in some of these things, is, to me, sustainable by way of the tip of the yr until the Fed modifications. So, it should take ache to get to the purpose the place the Fed is even wanted, and that ache might be within the base metals, within the industrial metallic.
Within the meantime, gold continues to de-link, so that you like gold over silver as a result of silver must show itself and it is nonetheless encumbered by its industrial anklets, so-to-speak. However I believe the case for gold improves daily that it isn’t breaking beneath $1,266, whereas the greenback’s up right here at 98. As a result of even when the greenback breaks out, that is going to be a denouement and that is going to be a tipping level, and that can in the end deliver the Fed again into play, then alter the larger image transfer for me within the greenback is beneath 95.02, and that is when the metals gel. Having mentioned all that, the bounce that we have seen off $1,266 right here, in the event you have a look at the long-term charts, this factor may very well be sneaky and will come out of nowhere, the place, in the event you get above $1,344 … Who’s invested in gold? It is nonetheless not a cherished asset. Persons are scared to loss of life of it. Why? As a result of the greenback’s at 98, as a result of it looks like the U.S. is in fine condition.
From that perspective, if it will get above $1,344, Mike, you actually are actual fireworks, doubtlessly, on the upside. So, holding in thoughts that, I believe, from a basic Fed financial perspective, it is endurance. That is to not say that this factor could not sneak up on you, and do not get caught sleeping as a result of above $1,344, you are going to need to be concerned.
Mike Gleason: It appears considerably fascinating that the Fed shouldn’t be nonetheless climbing charges on condition that proven fact that, sure, GDP numbers are trying good, unemployment is so low, the inventory market’s doing so properly. It looks like they in all probability ought to be elevating charges. The truth that they don’t seem to be, is that only a matter of the debt bubble completely implodes in the event that they proceed to hike? Is that the way you see it?
Greg Weldon: I believe that is a truth of they really see that the inflation threat is skewed to the draw back. For those who have a look at the place CPI is, in the event you have a look at the place power is, you have had this huge rise in power, however it solely introduced you again to the place you had been a yr in the past. So, there is not any inflation impetus. With the latest decline during the last couple days, even gasoline is now again to a place the place it is down double digits versus a yr in the past. There is no upside impetus in inflation.
Like I mentioned earlier than, I may slice and cube the employment quantity to shreds. What you see is 65% of industries posted a decline in common weekly earnings, an outright deflation, for the month. The year-over-year price of change has dropped from three.6 to 2.9. It is again beneath three. It is beneath the year-over-year change in common hourly earnings and weekly earnings lead. A part of the reason being as a result of hours labored fell, but in addition that there wasn’t sufficient juice in common hourly earnings to make up for that. So, you will have what actually appears to be like like a pattern change in earnings to the draw back. A variety of the anecdotal proof is there. You have a look at among the surveys. You have a look at the ISM numbers. You are seeing softening there. You are seeing softening in among the labor market dynamics.
The latest employment quantity, Mike, it made no sense within the diploma that you just had 700,000 enhance within the variety of folks not within the labor power, and also you had your employment achieve and, even within the family survey, it was a decline, however solely 100,000 in employment, and the participation price fell two-tenths. That is not a labor market that has tightened in capability, that is tightened when it comes to slack. The unemployment price shouldn’t be the quantity to take a look at. It is deceptive. And if you have a look at the numbers you are producing when it comes to job development, that is nice since you want it as a result of you will have development within the inhabitants. So, there’s lots occurring right here, to me, that it is simple to take a look at the unemployment price and say what Powell has mentioned the whole time, this implies we will get potential for an inflationary implosion to the upside right here when it comes to wages, that it is so tight that it implodes to the purpose the place you need to drive wages up.
We have seen that occur, and we have seen the tightness within the pipeline when it comes to supply instances and provide disruptions and all these things in trucking. All of that is gone. All of it is labored its manner out. So, I do not see an inflation impetus and, to me, considering that the Fed’s going to lift the speed base as a result of GDP is lastly again above inflation and so they need to, what, elevate charges to allow them to, what, squelch that one? Inflation’s actually not a threat, so we’ll see. And, once more, I believe the inventory market’s the important thing as a result of the inventory market is constructed on, to me, on issues that have not but occurred and should not.
And you may speak all you need about this GDP report. That is positive. I simply do not see the place the following engine of worldwide development goes to return from. It is not commerce. It is not going to be a commerce deal. It is lower than 2% of GDP. It is not going to lead to lots of of billions of of recent cash within the U.S. It is not going to equal the commerce deficit. You are not going to scale back the commerce deficit. You are not going to get rid of it, let’s put it that manner. And is it the Fed easing? Properly, the Fed’s a pair steps away. Why? As a result of every part appears to be like so rosy.
Mike Gleason: We all know that they need inflation finally right here and you bought to suppose that they’re going to in all probability ensure that they get it in some unspecified time in the future.
Greg Weldon: Properly, you possibly can make a case that, in the event that they elevate charges, they’re working towards themselves if they need inflation to get to and stick round too. Elevating charges right here could be counterproductive to their acknowledged aim.
Mike Gleason: Yeah, yeah, completely. That is why I believe that we will get inflation in some unspecified time in the future, however we simply have not fairly but.
Properly, good things as all the time, Greg. We admire the time after which love getting your commentary. Now, earlier than we allow you to go, please fill folks in on Weldon Monetary and the way they’ll discover you and some other info that they need to learn about you and your agency.
Greg Weldon: Certain. You go to our web site and join, WeldonOnline.com. Or e-mail me instantly, GregWeldon@WeldonOnline.com and I would like to ship you a duplicate of the report we did at present. It is a particular on the U.S. inventory market and we name it the Nurse Ratched Market, and, in the event you keep in mind, in fact, Mike, the One Flew Over the Cuckoo’s Nest. And the underside line, to me, is simply the market’s up 30% on plenty of hope, and it is nearly like, settle down right here, man. I hear Nurse Ratched within the background saying, “It is treatment time, gentleman. It is treatment time,” and that might imply possibly a correction within the inventory market. However have a look at all of the sectors, tech and the retail and the well being care and semiconductors and so forth and so forth and bond market, greenback, gold, and that is our particular at present, Nurse Ratched, and I would be pleased to ship that to any of your listeners in the event that they e-mail me instantly at GregWeldon@WeldonOnline.com.
Mike Gleason: Properly, wonderful. Thanks once more, Greg. I hope you will have a beautiful weekend and we sit up for talking with you once more earlier than lengthy. All the perfect and take care within the meantime.
Greg Weldon: Thanks, Mike. You too.
Mike Gleason: Properly, that can do it for this week. Thanks once more to Greg Weldon of Weldon Monetary and WeldonLive. For extra info, merely go to WeldonOnline.com the place you’ll be able to join a free trial. Once more, you could find all that info at WeldonOnline.com, remember to examine that out.