Hello and welcome to the K.E.Report.Chad and Corey getting an update from Chris Temple, editor and publisher of The National Investor.
Chris, always great to get you on the show to get an update on how you're looking at the macro markets and the micro markets.And we can say this, that yesterday after a definitive
Trump win and Republican win across the board, the markets sure rallied.And you had noted to your readers that you would expect something like this, where we would see a market rally, but then a sell-off in the precious metals in tandem.
I guess just walk us through your initial takeaway of the last two days of trading after a definitive Republican win.
Well, the key word, Chad, and good to be with you and Corey again, of course.The key word is definitive, which very few people were expecting going into the election.
Everybody was waiting with bated breath to see if you're going to have a photo finish, riots in the streets, lawsuits, challenges and whatnot.And you know, the election did not come out as close as some people thought.
And I think that's a good thing for a variety of reasons, not the least of which is that, you know, we can all move on and get ready for a new administration and not worry about lawsuits and uncertainty and so forth.
So look, you know, the business was sniffing out again, the Trump win.That's why stocks were going up ahead of the election.They put a big exclamation point on it.
yesterday with quadruple digit gain in the fed to new highs and whatnot after the win and of course you know gold has gone up for a variety of reasons I think this year but when you've got people wanting to buy cryptocurrencies because Trump's administration with Elon Musk on board especially is supposed to be uber friendly to bitcoin and other cryptos and we're going to have a
big boom in a stock market, even at the expense of having higher inflation again, you know, stocks are the path of least resistance.So that's why we had it.
But, you know, as I said yesterday morning, it's like following the typical Fed meeting, you know, sometimes the market gyrates and changes direction a couple or three times until they get the story right.This is going to be the case too.
And, you know, when you were, when you look at Soaring interest rates, soaring dollar, soaring stock market, those three things aren't going to coexist for a very long period of time before something has to give.
So people have their celebratory time in the stock market right now, but eventually reality is going to set back in.The reality of the great stagflation is going to
reassert itself, and especially if there's nothing of substance forthcoming that suggests that Trump is going to meaningfully change the culture in Washington, most of all the spending habits in Washington,
You know, there might be a rude awakening later.We'll see what happens.
There are ways in which there could be something meaningful done about the debt and whatnot, but if it's all business as usual, you know, his promises of bringing inflation down further or bringing energy prices down, et cetera, they're not going to be kept because the math doesn't work.
So just on the market front here, Chris, the markets have been in extremely strong uptrend.I think 11 of the last 12 months, the markets have been up with this Trump election, with the Republicans kind of sweeping everything.
Does that change the overall direction of these markets simply because we now have even more clarity less of those geopolitical fears behind us just due to the decisive nature of that election?
Well, it's not going to change the overall direction for, you know, anytime real soon.Again, this is the, I think, the outcome that a lot of people most wanted to see, the implication being that business booms will continue and stuff, and alongside
a Republican sweep.You also have the Fed that is cutting rates.They're going to slow that down.You know, they went from a 50 basis point cut in September to 25 right before we recorded this.
Maybe another 25 in December, but then they're probably going to sit on their hands and see how things work out because inflation is going to remain sticky, and especially with a stock market strong, financial conditions strong.
It's kind of stupid to cut rates too much because then you just have that many more reasons for inflation to reassert itself.
And I think the other thing you got to throw into guys is that the mindset, and with some, I think, sensible foundation is going to be that you're going to see a winding back of a lot of the regulatory state, a lot of regulations and administrative rules and so forth.
And then that result of all of that is going to be positive for business and therefore for stocks. You know, the honeymoon is not going to last forever.Reality is going to set in.
And, you know, I think that, as I said a minute ago, the great stagflation will reassert itself.
And when it starts to become more and more real that there is no magic wand, from what we know right now, that Trump and Republicans can wave over the economy, we're going to continue to have chronically high inflation, long-term interest rates,
don't forget from bottom to top have gone up like 80 basis points after the Fed cut 50 on the short end.
You know that steep yield curve is nice you know a positive yield curve for the first time in a long time is nice for a lot of different reasons but
At some point, if they don't come down much more, let alone go the other direction, you start to call into question stock market valuations.
For the first time in a dozen years, Warren Buffett's Berkshire Hathaway has more cash in a portfolio than portfolio.And so he's voted with his money and portfolio that stocks are too expensive and that returns are going to be subdued going forward.
And whether Trump can change that or not is going to be a tall order.
Chris, let's dig into this a little bit more.I like what you had to say there about valuations, because a lot of people have said valuations don't matter.
But we know that valuations don't matter until they matter, and at the point if we start seeing a slowdown in the growth aspect, I guess some of the questions people have about this new administration are, will tariffs be inflationary?
Is that inflation going to stick around are some of the supply chains and, you know, a move away from globalism to nationalism, what does that do to cost?If we don't start nearshoring and friendshoring, what does that do?
So what are your thoughts on how inflation could be stickier and the macro outlook?
First of all, inflation is going to remain stickier simply because there is still such excess liquidity sloshing around thanks to the wild monetary binge that we've talked about before out of the Fed post-COVID.
Don't forget that over the course of about two years or so, one-third nearly of all the dollars ever created in the history of the US of A was created all in that one fell swoop.So it's why we had the inflation that we did.
Policy choices by the Biden administration exacerbated some of that.But going forward, let's talk about tariffs first off.I've tried
as much as I can to get people to relearn the word mercantilism, which is an economic philosophy and school of thought that drives Donald J. Trump.It did in his first term.
It's going to do it more so this time around now that he's got a freer hand and a Republican Congress, none of whom unlike his first term in office, are going to be never Trumpers.
Now he's got the whole Republican conference on his side with no detractors to speak of.And so he's going to be able to do a lot of what he wants to do.
But keep in mind that tariffs, they're a tool that can be used for good, for ill, but they cannot be used as a sledgehammer and across the board.Now, one of the people on his transition team, Howard Lutnick,
had a great interview that he gave with CNBC a while back, I don't know if you guys saw it, I'll have to send you the link, where even he was dialing back some of Trump's rhetoric and said, look, tariffs are going to be used where they can be productive, they're not going to be used as a weapon as much, they are going to be used to protect some parts of the U.S.
industry.But that's a challenge, because when you go back to the days of William McKinley, who Trump loves to compare himself to, on the subject of tariffs.It was a different age back then, and the U.S.economy was still very insular.
We were meeting all of our own needs internally as a country by and large, and in that context you were able to protect that by making sure that no foreign actors were able to undercut you, and that was what you used tariffs for.
Today, the idea that we're going to use tariffs in a broad-brush way, when we don't have, still, very much in the way of domestic industries to protect, they need to be rebuilt, that can be problematic.
because all you're going to do is basically add to the cost of everything.
You know, I agree more than not with a lot of Trump's tariff philosophy, but one of the ways in which, you know, on its face, some of his claims during the campaign just don't ring true is that, oh, you know, tariffs aren't, number one, they aren't inflationary, and number two, consumers don't pay them, the companies do.
That's nonsense. You know, there might be some isolated exceptions to that.But in this context, a tariff on a company trying to sell goods in the U.S.is no different than a corporation whose face is higher taxes and passes them on to consumers.
The only way they end up not being inflationary is when they kill consumption.And nobody wants to do that, including Trump.
So I think that there's going to have to be some reckoning with how effective tariff policy is going to be both when it comes to the overall money into the treasury, as well as on the impact on the broad economy.It's going to take way more than that.
The flip side, where I do think that the president's going to be pretty energetic, is that we will see dramatic accelerations to the moves that were already starting to percolate, but not enough under the previous administration.
to make sure that we have permitting reform, we have subsidies, we have a lot of things done so that we really do jumpstart our mining industry, a lot of the food chain for critical materials, for EVs, and a whole lot of other things.
That Trump definitely will do.But I think that too much emphasis has been placed, largely because of him, on tariffs as a be-all and end-all.
How much, Chris, can we look back at his last presidency, what he managed to get done, what he didn't manage to get done, what inflation did over that time, and compare it to what we're going to be facing in the next four years?
First of all, inflation, as he loves to remind people, wasn't as bad while he was there because you did not have this one-off event until he was on his way out the door that so goosed the money supply.
I hate to be the one to break this to him, but if he had been president the last four years, inflation would have been just as bad or arguably worse.
because one of the indications of where his views are on this is, if you guys remember, he was often hectoring the Federal Reserve to keep interest rates low and keep the dollar low.That's not how you fight inflation.
I have to break that to the renewed president-elect.So,
This time going forward, one of the things that was kind of comical about the excuse of the Trump trade the day after the election yesterday, driving up the dollar and everything else, is that that's the opposite of what Trump is going to be actively pushing for.
There's going to be lower interest rates, a lower dollar, no matter what inflation is doing.That's going to be a problem. So, in his first term, he showed that those are his inclinations.
He was just lucky that there had not been Fed policy that had so primed the pump for inflation. like what happened in the wake of COVID, which is what his predecessor, his successor had to deal with.
Because frankly, to some extent, Joe Biden had the same curse in this sense that Jimmy Carter did when he came into office.By the time Jimmy Carter was elected, we were starting our second big wave of inflation.It was not his fault.
It was the fault of Richard Nixon and Nixon's Fed chairman, Arthur Burns.
Now, however, even though the published inflation rates have been declining for a short time, they're going to be exacerbated by the lingering effects of all this liquidity and how they've already boosted costs for business, which are not going back down.
All right.So we've, we've already, we've already got that.Not to mention what's going to happen if renewed tax cuts and so forth, all else being equal, raise the deficit further.
Well, let's dive into that area next.I was going to ask you about the budget cuts that he's proposed.He's going to put potentially Elon Musk on the case to help reduce government spending.Is it enough?
Because the deficit right now is so large and with interest rates remaining higher than they were, the debt service on that is quite large.Can he make enough budget cuts to meaningfully impact the deficit?
And what do you think the odds are that the tax cuts are paired with actual budget cuts?
Not very good. I'm going to give them the benefit of the doubt.If we go back to the Reagan years, a quick little history lesson.After Reagan was elected, he set up something called the President's Private Sector Survey on Cost Control.
It came to be known more simply as the Grace Commission after J. Peter Grace, the industrialist who was the head of this.It was a blue ribbon panel of corporate heads and bankers and whatnot who were tasked by the Gipper
with coming up with ways to cut waste and fraud and cost overruns and whatnot out of the federal budget.
And after a couple of years, give or take, I forget the exact amount of time, they came up with recommendations that would have cut over $400 billion from federal spending, and largely all by business-like efficiencies.
Almost none of that was put in place.Instead, Reagan thought that he was going to rely on tax cuts broadening the base.You know, you guys have heard the term before, perhaps, called the Laffer curve.
which means that if you reduce tax rates, you increase the actual amount of taxes into the government because you foster business.Sure enough, they were right, because tax receipts over the eight years of Reagan's presidency much more than doubled.
Problem was, federal spending went up a whole hell of a lot faster.
because for all of the talk at the time when Reagan was making at least some attempts to, you know, rein in the budget and so forth, and I remember at the time, I say this all the time, you know, hearing the press and the Democrats report on this, you'd have thought you were listening to some ad for a slasher movie from those days because he's going to cut and gouge and slash and hack and all this stuff.
But federal spending went up at a far greater rate.So the end result was The $40 billion annual budget deficit he inherited from Carter that was such a terrible thing increased more than fivefold by the time he left office.
At that time, the stock market had done well because the Fed had started the whole issue of asset price inflation as a driver of economic growth, and so the economy could handle that.How does that relate to today?
Well, yes, the president-elect has said he's going to turn Elon Musk loose with this doge
Commission, Department of Government Efficiency, you know, take off on one of those cryptocurrency and little cartoon-like figures that Elon Musk has often been associated with.We'll see what happens.But, you know, the question is, how do you do it?
And there's only a couple of broad ways that you could make a dent of any meaning into the federal budget.
The biggest one is one that Bobby Kennedy would go along with, Tulsi Gabbard would go along with, Musk would probably go along with, but the Trump Contrade was promised during
Trump 1.0 resisted, and that is to take a meat axe to the military and to the deep state.
The reason I voted for Trump in the first place in 2016 was he promised he was going to put NATO on a scrap heap of history where it belongs, it still does, and he was beyond that going to rein in the military, which, as he said when he ran for office,
has done nothing but cause trouble the world over.We got lied into Iraq and Kuwait.We got lied into Afghanistan.We've spent zillions of dollars trying to conquer and occupy the world.
And instead, by the time he left office at the end of his prior term, he was bragging about military spending being at an all-time high.
So if he's going to do that again, he's screwed from the get-go because, you know, there's not much more to cut than that.
And the other big item being the interest on the national debt, which is running at an annualized rate right now of about a trillion and a quarter a year.It'll be a trillion five or six by the end of 2025.
And there are some things he can do to do an end run around the Federal Reserve during his term. which I hope, believe it or not, I might actually help be an instigator of.But if he's unwilling to do that, then what else is left?
Are you going to do away with Social Security?No.Are you going to cut most of everything else?No.There are a lot of agencies that are redundant.There are a lot of agencies should never have been there in the first place on the federal level.
whether he's got the nerve to go after a lot of this stuff for some of it, we'll see.He does have a free hand, at least for two years, and I wish him well.
I do believe, along with a lot of people, that the federal government does spend far too much money.
You know, keep in mind that for all of the hysteria and name-calling and silliness that we saw, you know, democracy's on the ballot, democracy's under threat, our democracy's in danger, we're not gonna have it again.
I saw somebody make this point the other day and it was absolutely spot on. If you had an AI program that everywhere on the internet that the word democracy appeared in that context and you substituted bureaucracy, that's what's under threat.
And these people know it.
And that's part of the reason why there was such hysteria against Trump when he was running because for 80 years, since the end of World War II, especially when it comes to the foreign policy stuff, you've had over all those decades, this Leviathan
of an administrative state, a military state, a deep state.This has been constructed biggest in the world.And Trump has got to be willing to declare war on it from day one and whittle it back down to size.
There's a lot of ox is going to be gored in that process.But, you know, if anybody's had a mandate, maybe even since Reagan to do that, it's this guy who just had much more overwhelming election result than anybody. head on their bingo card.
So on that military front then, Chris, looking outside of the US borders, do you think he's going to be able to end or at least slow down some of these wars that are ongoing?
Well, I hope he does.You know, look, the reason why Trump was indicted the first time around is because he was investigating an actual crime that was an impeachable offense.And Joe Biden is on videotape, has been for the whole world to see, bragging
about exactly that thing.And that was when Biden was withheld a billion dollars in loan guarantees to the Ukraine government back when he was vice president, until the Ukraine government fired the prosecutor that was investigating his family.
over the whole Burisma thing.That was a fact.It's on tape.Biden bragged about it, but when Trump started to investigate it, he got impeached for it, okay?
Now we have an opportunity to go back and really flesh out something that Bobby Kennedy has eloquently explained many times, and that is that it was Joe Biden, the government at that time that caused the change of government, the overthrow of the Ukraine government,
and then tried further to encroach on Russia by suggesting that we're going to arm Ukraine, we're going to think about bringing them into NATO, which is one of several ways in which the U.S.
and NATO have broken a promise made to Gorbachev by George Bush Sr.over 30 years ago. that if the Cold War is ending, the Soviet Union is kaput, let's reunify Germany, bring lasting peace, recognize the end of the Cold War.
But part of that is that NATO will not expand its borders.And for 30 years, the US-led NATO has broken that promise.But we act like it's Putin's fault, just as if the Soviet Union or Russia were able to cajole Canada
into being a friend of Russia and they start staging weapons in Canada and turning Canada against the U.S., you know, are we supposed to think that's okay?No.And so that's what led to this.
So every now and then Trump understands, you know, lets on that he understands that and that there needs to be a peace that recognizes Russia's territorial integrity and that doesn't threaten it any further with NATO.
You know, we need to understand that Biden arguably made the Middle East worse by giving Iran all the money that he did and allowing them to stir up trouble that they may not have been able to stir up otherwise.
So we'll see, you know, the problem is out of his own mouth from time to time, you wonder if he gets it because, you know, on a campaign trail to act tough, he says, well, you know, Russia would never have invaded Ukraine.
If I was in there, you know what, if you had been the one to overthrow Ukraine and threaten Russia's borders with NATO, I got news for you.Yes, he would have invaded because you're threatening him.It doesn't matter whether.
The president of the United States has a D or an R after his name.So I hope that he does start to walk back the damages of his predecessor when it comes to Ukraine, especially.I think that the will is there.
And look, one of the good things about Trump, and not only here, but over China, is that he doesn't want war.At least he's had that good instinct.You know, the deep state was trying to maneuver him into war against China.
or the preparations for it back the first time he was in there.And he resisted that, and I think he wants to resist it again.
You know, he wants economic competition, and the only war he wants is going to be if he thinks he's got to get tough with tariffs.So, you know, the seeds are there, and have been, to end this maniacal American empire
that spends more money on so-called defense, really offense, than the next 20 countries or whatever in the world put together.
If we can get rid of that, the world will be a safer and happier place and hundreds of billions and trillions of dollars won't be spent that would bring down the deficit and would translate instead into something more productive.We'll see.
Yeah, Chris, let's see what happens.
But it would be nice to see less war, less money spent on the military and less money spent on some of those redundant government agencies, as you mentioned, because I think there's a lot of fat to cut out of the government graph.
But we'll just see what actually happens in practice.I guess let's just wrap up with a balance between what the Fed can do with monetary policy and what the government can do or probably will do with fiscal policy.
We know that every administration has spent more than the last.We know that the idea that if there's a weakening economy or if there is this great stagflation, if we get into trouble, they're probably going to try to spend their way out of it.
And then the Fed is trying to rein in inflation at a time where tariffs and some of these other policies are probably going to lead to inflation.So how do you balance out the Fed's monetary policy with the government's fiscal policy?
Well, there's a lot of stuff that I don't think people prepared for it.It's coming down the pike.You know, again, Trump thinks he can browbeat the Fed and the lowering rates.
The Fed, after having first created this mess with all the money printing post COVID, now they're trying to clean it up without toppling us into a recession.They've gotten away with it to this point.
because the US economy still has been, relatively speaking, the strongest in the world.There's still a lot of liquidity out there.But you're going to have to see Trump be prepared to do some pretty unconventional things.
I've already given a few interviews since the election results.I've got a few more to give.I would encourage all of our listeners to go and Google the Coalition for a National Infrastructure Bank.
There's an initiative that's been percolating for a while.Each session of Congress, it has about 35, 40 co-sponsors, unfortunately, and incredibly all Democrats, and it never goes anywhere.
But this is something that the president needs to take a look at because you must, in order to balance the government finances out, you must have a way to substantially broaden the tax base and broaden the economy.
without it coming about as a first matter, just the way it usually has these years, just borrowing money.This infrastructure bank would be similar to what was called the Reconstruction Finance Corporation.
the wake of the depression that Roosevelt inspired.And a lot of people need to go back in history and look and see what this was.
This was a public-private partnership of a bank where you didn't have just a direct relationship to the debt, to the national debt, but where the government set this up and seeded it.
And then you had Wall Street and the private sector securitize a lot of this and have money that was able to be used to rebuild the country back then.
And today it would fulfill a lot of the unfilled promises, not his fault, I have to add, of why there was a lack of infrastructure spending and that kind of thing from Trump's first term.This would help to foster that.
it would be done off of the balance sheet of the federal budget, so it wouldn't directly contribute to the national debt.
But if it was successful, and I think done right, it would be, it would broaden the tax base, lead to millions more higher paying jobs, taxes, of course, on higher wages, that would come back in on the back end and directly
add to the tax base and to the tax revenue.So there's that.And I think that the president can surgically do an end run around the Fed and be able to boost the economy without it being inflationary in other ways as well.
One of his advisories, who I hope is overutilized, rather than underutilized, of course, as Robert Kennedy Jr., whose uncle famously was the last U.S.
president, to put up the middle finger to the Fed and say, you know what, I think the American people have to have money to spend. help the economy, but I don't think we need to borrow it as a first matter.
And he created what were called United States notes that for a while circulated next to Federal Reserve notes.The government has always had that authority, the Treasury has that authority, and the President can give it to it.
And that's something I think is going to have to be looked at as well.Because I will say this in closing on this whole discussion, if Trump thinks he can just resurrect watered-down, trickledown economics,
and add some tariffs and think he's going to magically lead the economic growth and better tax receipts and balance the budget, he will go down in history as an utter failure and reinforce the warnings.
of those who said all of his talk and bravado is only going to make the deficit and everything worse.He's got the ability to counter that and to instead go down in history as a great president.
He's already achieved the greatest political comeback in any of our lifetimes, arguably even greater than Nixon, when Nixon was defeated in 1960 and said, well, you don't have Dick Nixon to kick around anymore, and came back eight years later and got elected.
Trump's got that ability. And he's got that potential.He's got a Republican Congress on his side, but he's going to have to be willing to do much greater battle against the banking establishment in a deep state than he ever did in his first term.
Well, Chris, we'll wrap it up there.But let's hope for the United States' sake and for the world's sake that he chooses the better of those two paths.
And we'll keep following along here at the KE Report to see what policies get implemented, what effects they have in the marketplace.And always fascinating to get your thoughts on the market, Chris.
And if people want to follow along with Chris's writing and his thoughts on geopolitics, macro, and even the resource sector, definitely check out The National Investor.We'll put a link to that down below so you can follow along with Chris's work.
And as always, looking forward to our next conversation.
Well, absolutely.I'm looking forward to seeing both of you guys in New Orleans.Not many days since we're going to dive into some oysters together.
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