Market Theater, Gold, and the AI Bubble

[music] >> Hello and welcome to another episode of the Minor Issues podcast. I'm Mark Thornton at the Mises Institute. Well, Secretary of the Treasury Scott Bassett and famed investor Stanley Druckenmiller both worked for George Soros during his famous coup of the US pound back in 1982. Druckenmiller has since gone on to be an independent hedge fund manager with one of the best records on Wall Street spanning several decades. Kevin Warsh did not He was in college at the time. Um but after his job at the Fed the first round along with his marriage to the Estee Lauder fortune essentially made him a billionaire and that's how he also knows President Trump. Druckenmiller recently criticized Bassett in his latest move for trying to mask prices for US bonds against the reality of markets and that is a losing proposition as their 1992 coup against the British pound attest. Druckenmiller is essentially right and signals to the market that the Treasury and Trump wants a lower dollar. This spells a lower dollar versus other currencies and higher prices for US consumers. My modeling indicates that many of George Soros's successes that have made him a multi-billionaire philanthropist for various social socialist policies are attributable to insider information, personal contacts with major policy makers, and possibly insider dark actors. Now, I want to rehash some of the events um of this connection between George Soros, Scott Bessent, Stanley Druckenmiller, and Kevin Warsh who worked for Druckenmiller when he became uh so very wealthy on Wall Street. Kevin Warsh's nomination occurred on January 30th, 2026. And that's when gold first suffered an historic single-session drop, plunging from nearly 5594 to settle at 4745, roughly 14% of its value in a matter of a few days. And then, of course, on February 28th, after gold had made a significant recovery to 5311, uh war was broken out against Iran in the Persian Gulf. And gold retreated once again over the summer to less than $4,000 an ounce with the psychology of gold buyers broken and gold beaten down repeatedly by US attacks {slash} rise in the price of oil and CPI inflation expectations and the threat of rate heights, plus the typical seller uh summer doldrums in terms of gold and silver buying. Now, Secretary Bessent uh then on January excuse me, July 31st, 2026, made his infamous trade of selling euros for Japanese yen. And gold prices suffered a sharp, immediate, multi-day drop following uh Besant's currency intervention on July 31st. So, um after that, then Secretary Besant decided uh to buy, uh at least announce the purchase of long-term US government bonds on August 15th. Um after severe sell-off >> [snorts] >> in the fixed income market pushed the 30-year Treasury borrowing costs to a 19-year high of 5.31%. He stated that current yields were disconnected from economic fundamentals and that liquidity in the 30-year bond was dangerously weak. And [snorts] he announced purchase of doubling of the normal purchases to $4 billion per operation. Uh and then, it could be more than $4 billion per issue. Plus, there was uh activity in the buying window with a massive $12.5 billion buyback uh operation started just recently um in the short-term debt market. And in the long-term debt market for government bonds, that would continue from September 9th all the way to November 4th just prior to the midterm elections. And of course, this is not paying off the US government debt in any way, in any shape or form. It's really just moving around and all before the election to make things seem better than they are. It's essentially using your credit card to pay to make your mortgage payment. And then we had the latest um activity from the Soros gang with Kevin Warsh at Jackson Hole on August 28th. Now, at his speech at Jackson Hole, he made several hawkish statements that the Fed was responsible for this inflation, that it had work to do, uh and that the short-term data, which was pretty good around that time, was not indicative of long run long run trends, meaning that he saw more inflation to come, and that financial conditions were loose in the economy, all indicating a hawkish outlook on the part of Kevin Warsh. And then of course, he made those clownish uh statements, three statements about hikes, um where he wasn't talking about interest rate hikes directly, he was talking about Fed officials taking hikes around the Jackson Hole area. Um trying to rig markets essentially the way President Trump does by making statements that are picked up by artificial intelligence and the trading algorithms uh that actually move markets. And in this case, it worked as well, amazingly enough. >> [clears throat] >> The CME FedWatch tool estimating from before to right after those clownish remarks from Warsh that rate hikes uh the probability increased from 35% to almost 70%. So, these are not the US financiers of the old gold standard era. These are the type of clownish financiers who are rigging markets, playing games with the US economy and your future, all the while um in all likelihood uh profiting uh for themselves or maybe their friends or their former colleagues, et cetera. Um that's the status of uh high US finance in the world today. Um on side B of this episode, we're going to pick up on uh some of these themes uh with an interview that I did with tastytrade. Uh it's a short interview, but we look at some of the market ramifications uh of all of this activity on the part of the Soros gang in Washington. >> Welcome to Trading Trends. I'm Elias Bizak, head of Global Macro here at tastytrade. Joined once again by senior fellow at the Mises Institute, Mark Thornton. He's with us. Uh Dr. Thornton is a Austrian economics expert, and what a perfect time to have one here. Uh the situation happening with US economic policy is taking a very fun turn uh here. Mark, thank you very much for joining us. >> Well, Elliot, it's great to be here. >> I wanted to jump right in and have you um opine here on this interesting dance that the Secretary of uh the Treasury and the Chairman of the Federal Reserve are doing. Uh we're we're we're talking tough at the front end of the yield curve and we're injecting fear into the back end. What could possibly go wrong, Mark? >> Well, it's certainly quite a show in Washington, D.C. Uh you know, Warsh was uh almost comical on Friday. Uh >> I thought so, too. >> When he was in his speech, he was referring to hikes, hikes, hikes, but he was referring to Fed members hiking around the mountains, but trying to fill up the AI, um you know, in the trading machines and all that was misinformation, essentially. Uh trying to instill fear not just in people traders, but >> [clears throat] >> in the in these automated trading systems. So, that's uh that's hilarious. And then Secretary Mnuchin said, um you know, with his moves lately uh they very, very small almost inconsequential moves for the overall market, but he was sending little messages um that he he you know, he's protecting the dollar and he's protecting the yield on long-term government bonds you know, by first uh using euros to buy Japanese yen to keep up their currency so they wouldn't have to sell US Treasuries. And then a And then um you know, in his latest move saying that he is going to go out and buy long-term treasuries um using the money from his checking account, but of course, we all know that his overall budget is $2 trillion in debt. And so, you know, he doesn't really have a checking account. His checking account has a negative balance, so that just means he's going to have to borrow uh all that money again uh from the short end of the curve. So, all of this is just high theater, high comedy uh from Washington, D.C. to try to have it influence over New York City, essentially. Um you know, where they're I'm sure they're plenty smart enough to realize what the what's being shown to them. Uh but they're [clears throat] getting, you know, they're getting desperate in the sense not that the 30- year government bond yield is over 10%, but they've got to try to keep everything glued together until half to the election, which is the key thing I think uh Warsh would be happy to cut rates if there was an economic crisis and the Fed could be seen as saving the day or after the election when it doesn't matter to President Trump. Same sort of scenario for Secretary Becerra. Uh get us [clears throat] to election day in one piece, and then we'll deal with the uh the ever-worsening consequences later. >> That certainly um seems like it, and of course, lots of people, including um ostensibly the mentor for both of these uh folks, uh Stan Druckenmiller, have opined that this is not a song and dance that leads to anywhere positive. Um but um as I as sort of my mind keeps going back to uh yield suppression and um yield curve control in Japan. And of course, that ultimately failed, but it took over a decade for it to fail. So, it's an interesting kind of um play for time here, but there's always an outlet. The market seem to always find a way to say, "Well, if you're going to try to stop things from breaking the levy over here, we're going to break the levy over there." What do you think the outlet is for this? Um, where in markets are we going to get a response that essentially says, "Okay, well, if you're going to artificially hold down the 30-year yield, and if you're going to attempt to scare us at the front end, the end result is going to be and in my mind, I think I'm looking very closely at gold and silver, and I'm also uh kind of paying attention to the fact that after a long period of quiet, Bitcoin has suddenly woken up. What do you think is the relief valve here? >> Well, I think that they're hoping along with President Trump for people to relent and say, "Oh, we'll just keep it in the stock market. Uh, we'll just put more money into the stock But I think um, you know, basically that um, investors um, are looking more and more towards commodities in general. They know the implications of higher interest rates, long-term trend that's just turned upward a a couple of years ago. Uh, what that means for commodities and higher commodity prices. Um, they've seen uh the last year or so in gold and silver reaching all-time highs. And uh we've seen just very recently, of course, uh the leading gold and silver mining companies um just shoot right up. Uh just recently, Newmont Mining, uh which is not necessarily the greatest run company, but it is the largest. It's in the S&P 500, and it broke out to a new all-time high. Um and so um the uh And then on the silver side, we should Wheaton Precious Metals, which used to be Wheaton Silver, is a royalty company, which um has the largest uh silver equivalent ounces, uh which it gets at very little uh cost. Uh and it shot up tremendously recently, as well. So, I mean, that's what the set I mean, he does know about gold. He is watching gold. Uh he is concerned about gold uh in the sense of what it tells all market participants, not just the ones like you and me, who are sort of in the know about the long-run fiscal prospects of this government and other governments and central banks around the world. Uh he doesn't he doesn't want that billboard out there flashing hot red that gold is moving up up in a way, uh or that uh silver is moving up, you know, ever higher, as well. And uh And so, they are very, very concerned about that. I don't blame them. Um I think that's that is the condition and they're trying to hide that uh from people by smashing down uh the precious metals market. You know, it seems to be a coincidence that you know, this war in the Persian Gulf and the nomination of Kevin Warsh, the hawkish member of the possible nominees by Trump all occurred, you know, simultaneously with the breakdown of gold and silver uh late last February. So, you know, uh they are concerned. They know what's going on and they're, you know, they're moving markets around. It It almost looks like a criminal gang uh if you and you know, who are manipulating markets uh for purposes of political advantage and and as well it is the enormous amount of money people been making off of these one-day swings where we see, you know, the price of oil uh shoot up three or four percent uh several percent over several days uh while simultaneously gold and silver are falling multiple percents uh over a few days until the situation is actually revealed in the Persian Gulf and then the whole thing reverses itself. So, if you knew ahead of time, you know, when these announcements or when these bombing runs were going to start, I mean, it would be just like a giant uh cash-making machine. Um but I I think everybody's catching on to this and uh but and I think that, you know, they're trying to suppress gold and silver, but ultimately I think gold and silver and other commodities, too. You know, we talk about gold and silver just because they're the hot potatoes in the commodity basket. The CRB is at an all-time high. Uh Goldman Sachs uh commodity index has risen, you know, tremendously. I don't know if it's at an all-time high, but um you know, if you scan down um and look past the precious metals sometimes, you'll still see even if the precious metals are down or flat, you'll still see the CRB index uh inching up and inching ever higher. And uh that's not a good sign um for bonds or stocks or interest rates uh or price inflation for the average American because raw materials is where it all starts. >> Well, I think that is the perfect segue because I think one of the interesting kind of dynamics here happening outside of sort of the policy dance, and it really does look like a dance, um and a coordinated dance. Uh One of the most interesting things, of course, is this massive AI buildout. And now the sort of the transition from how these companies are planning to pay for it. And now after a kind of initial period of lots and lots of um free cash flow burn, now we're starting to see massive amounts of debt that these companies are issuing to be able to scale and scale and scale and scale. And of course, the story with AI was that it was going to solve all of our inflation problems because it was going to bring so much efficiency that uh and this is sort of the Kevin Warsh argument that prices for things and just the cost of doing business was going to come down to such an extent uh that all of these issues uh that we've accumulated are just going to magically get solved. But of course, on the way to this AI Utopia, we have a build-out that's going to cost money. And all of this borrowing is flooding the market with so much debt that you start to have a conversation about, well, is the government actually getting crowded out here? Um and are we going to see governments have issues raising money and funding these deficits? Or are we going to have a a problem where governments, being governments, are going to crowd out these AI hyperscalers, and then we have a problem in the stock market, and then do we even have an outlet for all of this to go, even the one that the administration would prefer? How do you look at what's happening in the AI space and the massive debt issuance that's starting to occur there as an overlay on all of this? >> Well, you know, the stock market bulls uh see the combination of AI borrowing and spending as well as the government spending and borrowing um as part of their whole bull case and as way to explain away the persistent price inflation that the government statistics are uncovering and the fact that the Fed can't get back to its 2% target and all of that. So, they're using it to explain away the anomalies that we're all seeing. Now, from the perspective of the Austrian business cycle theory, AI is a classic case of the uh what a business cycle would be named after, like the housing bubble, uh you know, the bubble and ultimately a boom-bust cycle always has a massive investment problem where a lot of investment is driven into real estate that is related to technology. Uh, usually advanced technology, new technology that hasn't been used before. We don't know much about it. It's easy to get fooled about the prospects for these businesses and all of a sudden you got multiple companies uh, you know, investing in computer chips or investing in AI. And uh, so this is a classic case. It fits all of the classic distinctive features of the Austrian business cycle theory where you have very low real interest rates or rates adjusted for inflation. You have lots of borrowing going on, lots of investment going on in the in the economy, usually in a certain segment that is related to advanced technology and you also have problems with income distribution where the asset owners in society are making just boatloads of money and the working class is making nothing except uh, higher bills uh, stagnant wages and that kind of stuff. So, you know, this is probably the the one of the best examples of the Austrian business cycle theory and you know, I think they implicitly, they may not recognize it as the creation of Ludwig von Mises more than 100 years ago or the work of Friedrich Hayek and Murray Rothbard and others uh, that have contributed to our understanding of the business cycle. >> [snorts] >> But they they have a feel for it because they're looking at all these statistics and they realize there's anomalies and there's threats and there's risks um out there and while Secretary Bisset is probably not long for this political world we are going to be stuck with uh Chairman Warsh for a long time and I think his view on AI reveals to us that he is not a monetary hawk. He's not an inflation hawk. Uh that he has that same Keynesian uh perspective on the economy where you know, the Austrian traditional approach is that increases in the money supply is what ultimately causes prices to rise in the economy overall. Whereas the Fed, they don't believe that anymore. Uh and that's the oldest lesson in economics, but they don't believe uh that old-fashioned scientific economic religion, so to speak. Uh they don't believe that money that banks create money. They you know, there's all sorts of things that they don't believe. Um and they they so they you can in their mind, they see AI as increasing labor productivity and labor productivity driving down in competitive markets driving down prices of final goods and services. Um and therefore keeping uh control of the overall price level and uh consumer prices in general. Uh but you know, that's not the way the economy is traditionally viewed. Uh I mean, it yes uh new technology if it's you know, called for in the economy and it's sustainable it is going to increase productivity. That's what economic growth is all about. Um so that's fine, but in terms of when you add in inflation, what you actually see is a fall in relative prices. Uh so in the tech bubble, we got, you know, a flood of computer chips and personal computers and and software that made us all uh more productive and we in the economy made computer chips and computers and software cheaper and cheaper and cheaper just as it does other technological goods like flat screen TVs and cell phones. You know, so all of those new technology, I mean, it does do that, but of course it it doesn't bring down the overall level of prices. It just changes the balance of prices uh in the economy. So while your computers and flat screen TVs and cell phones are going down, your health insurance, your educational expenditures, um you know, health care uh and and things like that are going up at a higher rate. And so, you know, the the this is very basic um economics that even I was taught uh in a Keynesian classroom as an undergraduate and yet uh it no longer holds any water at the Federal Reserve because of course it's not in their interest to be known as the source of price inflation. They want to be the savior of the economy. They want to be the great balancing genius act in Washington uh balancing um the rate of inflation and the rate of unemployment, but ultimately those are just policy guidelines. Their real mandate is protecting the national debt and the government's spending on the one hand, and if things go wrong, they're going to be there to protect banks and the banking system from where most of them come in their careers. That's what they're [clears throat] really up to. >> Which, of course, raises an interesting question, and I think we'll we'll wrap it up with this, because there's a lot to chew on here. There's a belief in markets, and um worshes um I guess we'll call it a performance. Um last Friday kind of um kind of stoked this thinking that we've got this war, it's created a supply disruption in energy and all manner of other things that traverse the Persian Gulf, but let's say energy is kind of the focus because we've got a tradeable asset to watch there. It's tough to pin down the price of polyethylene, but to pin down the price of crude oil is easy. And so, if we've got this supply shock as a consequence of this war, and then we've got the price inflation that follows, and we can see that even in the government's num- bers, what exactly is a rate hike supposed to do to address that issue? Um are we going to hike rates to such an extent that we're going to crush demand in the economy? I mean, surely that can't be the the playbook here. So, the markets, and with some encouragement uh from the Fed, seem to think that all of this is going to mean a a hawkish Fed. Does that make sense in your mind? >> No, not really at all, because, you know, they're if you open their playbook to that page, it says higher interest rates will um cause uh a dampening of demand for things like uh homes, automobiles, flat screen TVs, you know, it's not going to crush those things, but it's going to cut back on it. And the reduced consumer uh spending is going to lead to lower prices. Um but that just doesn't that just doesn't fit um the real model of the economy because of course, with higher interest rates, you know, the the uh first uh um impact is is probably going to be in financial markets, uh not with consumers. I mean, consumers are already under tremendous pressure. I mean, they're already uh cutting back. Um they're already using their credit cards. Um they're, you know, they're already um cutting back on, you know, subscriptions and, you know, really altering their their family budget and their standards of living. Uh they've been at that for the last couple of years. Um so, I would expect to see the impact of higher interest rates in financial markets um and uh and not in the area of consumers. Uh you know, unfortunately, it would lead to um a higher interest rate uh burden on credit card debts, which is just out of control, and people are behind in their payments, and they're, you know, bumping up against their limits um already. They're already in very tough circumstances. Uh this would make it tougher on them for sure. Uh but I don't see that is really uh squelching any aggregate demand in the economy relative to what it would do to financial markets. >> And there we have it everybody Mark Thornton here with us senior fellow at the Mises Institute. Thank you very much Mark. That's a a ton to think about. We hope you'll come back soon and try to make sense of this world for us as we do. >> I loved it and I'd love to come back.