SPEAKER_00 0:11

The views expressed in this video are those of the panelists and do not necessarily reflect the views of U.S. Money Reserve.

SPEAKER_02 0:21

Welcome to America's Gold Authority Podcast. My name is Mike Barnes. We continue to look at the global gold forecast. Philip Deal joins me now. He's the 35th Director of the U.S. Mint, President of U.S. Money Reserve. And Philip, in this episode of our series on the future of gold, stocks, and bonds through 2030, oh, we're going to be looking at a lot of things as the different economies we've lived through through the 21st century have been so strange. That's what we discussed last week. Crisis, slow growth, and fast growth.

SPEAKER_01 0:49

That's right, Mike. And what we're going to be looking at in this episode is we're going to build on uh what we looked at last week, in which we built out the scenarios of what happened over the last 25, 26 years. And we're going to look at the next uh four years and see how those regimes, those sort of models are likely to shape the future of the next four years and see what kind of guidance that gives us under two different scenarios. One is uh an optimistic scenario, and that is where there's a shakeout within the AI business models, in which the U.S. models uh go out through this shakeout and come through it um with a streamlining of those models and the industry and they turn profitable. And we all are anticipating that, hopefully, that is what happens within the next four years. I think there is going to be this uh this shakeout. And uh and our hope is that uh they come through that and they're able to turn to the challenge that is emerging from the Chinese models that are lower cost, and that we're gonna be able to dominate this industry after we go through that transition. Because if we can't, we're gonna be in a world of hurt. And this is a very common situation as new foundational technologies emerge. We can go all the way back to the railroad industry and uh the telegraph industry and the auto industry in which there are these kinds of shakeouts that occur. There ends up being a lot of blood on the floor through these transitions, but then there's a consolidation that occurs, there's a few players that emerge, there's tremendous profitability and success and a transformation that occurs. And I think we can hope that this occurs with AI. But there's a much less optimistic scenario that can occur as well. And that's the second scenario that we look at, in which there's a collapse that occurs within the next four years, in which the U.S. companies do not survive, in which there ends up being a really a commoditization of AI, in which the Chinese companies, with their much lower cost, uh, ends up emerging the champions of this industry. They take over the industry because they are able to serve customers, businesses, consumers. They eat the lunch, basically, of the high-cost American companies, and they dominate the industry. The model here is what the Japanese did to the U.S. automobile industry back in the 60s and 70s. The U.S. companies did survive, but through protectionist measures by the U.S., that's going to be much harder to do with AI. That's a much more pessimistic scenario for the U.S. economy. Also, it's much more pessimistic because of the immense commitments that have been made to uh to a capital investment in the AI industry. And the concentration in uh the SP and the NASDAQ of capital investment and the concentration and passive investment in the stock markets that has occurred is has really profound implications for people's retirement uh accounts that really most people do not understand. And so, what we will look at is what the implications are for gold and bonds prices uh under both of those scenarios. So uh, and then we will go beyond that and look at what sort of the investment portfolio applications are that go from that.

SPEAKER_02 5:11

I think the scary thing that a lot of people are a little worried about is not sure what's coming because we have some experience and we'll talk about that shortly. But before we get into more about AI, we've got to talk about something that's even more impending. Only a couple of weeks away from election day, and the midterm elections could be huge this year.

SPEAKER_01 5:30

Yes, I wasn't intending to approach that issue today, but we've had some requests, and so uh I'd like to respond to requests, so we're gonna briefly address that today, to the extent that the picture changes over the next several weeks. I'm gonna address that in each episode uh between now and the election, and then after uh sort of the dust settles after the election, I'll uh I'll address it again when uh the picture clears a little bit after the election. But right now, I think we were able to see some of the outlines of what we're going to be faced with after the election. I think it's pretty clear at this point that the House is going to be controlled by the Democrats. I really don't see a scenario in which Republicans hold control of the House. Right now, they only control the House by about four seats. And I think it's clear the Democrats are going to pick up those four seats comfortably. I think really the only question is how many seats they're going to pick up. The conventional wisdom is between 9 and 19. I think that's a very conservative number. Uh beyond 19, probably they're renting those seats. Uh by that I mean that they'll win the seats uh beyond 19 and then uh probably lose some of those seats in the next election, unless they have a really popular nominee. The Republicans have a wheat nominee in the presidential election. Maybe they hold on to those seats in the presidential election and then lose them in the midterm election, which is typically the the pattern in the midterm election after a new president is elected. But um, and you know, maybe maybe that changes some after if the Democrats really pick up a lot of state legislatures and governors, and then there's redistricting after uh 2030 and some things change. But really, there's a real structural advantage in the House of Representatives because of their control of redistricting. So the real question boils down to what's gonna happen in the Senate. And when you look at the polling right now, I think it's it's going to be a very narrow outcome. My guess is that the Democrats are going to pick up between probably 53 and 57 seats. Now, in a really strong election, they might pick up 55 to 56 seats. So it's anybody's guess. The Republicans have an advantage here. They have an enormous financial advantage, and there are some really close races here, and uh money could make a big uh uh difference in some of these close uh races in very small states, very small media markets. Democrats have an advantage in enthusiasm, so that could make a difference as well. So so who knows what this outcome is gonna be. Some of that may clarify some in the next several weeks. Uh seems like the Democrats have done a little better in the in the debates that have occurred so far. But uh I don't think that's gonna be clear until the votes come in on election day. And and we may not even know those outcomes until the votes have been counted, which, as we've seen in recent elections, often takes days after the election. So smoke may not clear for a week or longer of who controls the senate. So it's gonna be a late night uh for control of the Senate. Control of the Senate is gonna be crucial for what happens afterwards. I can I've taken a lot of questions about what's gonna happen. I cannot answer those kinds of questions in any meaningful way until we know who controls the Senate. One of the big questions is what can the Democrats do about the war? Democrats simply cannot end the war on their own, even if they control both houses of Congress. The president has tremendous power to wage war, and he has veto power with anything the Democrats can do uh in Congress, and they do will not have the power to overcome a veto of any kind, and he will be able to continue to wage the war. He cannot end the war on his own, and that's because uh the Iranians have a veto over ending the war, and ending the war, declaring an end to the war won't matter unless he's able to negotiate some kind of a deal with the Strait of Hormuz and the attacks by the Houthis on Saudi Arabia. So there has to be some kind of a negotiation, and until something happens with oil, then we'll continue the crisis in the world on oil, on diesel will continue until there's some kind of negotiation. And we can hope that after the midterms are over, maybe uh there'll be a better situation for negotiations.

SPEAKER_02 11:22

Philip, I have to ask you, with all your experience in Washington, D.C. through the years, do you think it really matters who wins this midterm election with the the House and the Senate? And I ask that because looking through the history over the last hundred years or so, the year of the elections, the midterm elections, stocks have gone up around 2.9%. And then the year after the elections, win or lose, whether it's Democrat or Republican, stocks have gone up about 12%. So either way, stocks do well the year after midterm elections. Do you think it's going to be similar this year, no matter who wins?

SPEAKER_01 11:56

This situation is so different, irrespective of the politics. You can take the politics completely out of the equation. And this situation is so different for a couple reasons. One, we've never seen the stock market so heavily invested in one industry, in the AI industry. The dot-com industry doesn't, it pales in comparison to how heavily invested we are in AI and how fragile that is. We also have never seen the stock market and individuals' investments so vulnerable to one industry because of how much uh individuals have invested in passive investments in uh the SP 500. People who have invested in the SP 500 um have effectively, even though they don't know it, are exceedingly uh exposed to AI even if they're not aware of it. And so many of them are aware of it. They think they are diversified, but they are not. And so, and they also think they are diversified because they have bond holdings, and that so-called diversification into bonds broke in 2022. It was breaking before 2022, it was breaking 10 years before that, but it completely collapsed in 2022, and we've seen the the destruction of that inverse relationship, and now stocks and bonds move together. And as we've said before, over and over again, the role that bonds played in providing that diversification, that role has been taken over by gold. If you seek that kind and you should be seeking that kind of diversification, you must seek it in gold or other alternative means, but you cannot get it in bonds anymore. Gold has demonstrated over the 21st century that it has taken the place of bonds and has also performed extraordinarily well against stocks over the course of the 21st century.

SPEAKER_02 14:39

Well, I want you to preach right now about artificial intelligence, AI, because that is the talk of the town everywhere. Yes. And you have a couple of ideas about how this could play out, which could affect so many things in the future.

SPEAKER_01 14:53

Right now, I believe AI, AI debt, and public opposition and the existential threat that we're hearing about AI are just huge threats. And we're looking right now, we're focusing on the financial risk that AI represents. Within the next four years, AI goes through a streamlining process, it goes through a shakeout, it goes through a transition, and we come through this transition, and the US companies, the so-called closed-weight labs, uh come out the other side. They have taken on their Chinese competition, they come to dominate the market, and they turn out to be successful, profitable. They begin paying their debt, they consolidate. Not all of them survive. In fact, many of them end up failing. There's huge capital losses. There are a lot of people who lose a lot of money, but there are big winners in this process. What we expect from the model that I've generated is that all three of these assets come out winners, not through the whole process. In fact, there's likely to be some big losers through this. Gold is even likely to take a hit, but then gold takes off as stocks and other assets crater. And so that's likely to happen again. And as gold falls, then the smart buyers move in and buy on the dip. And they are huge winners. In fact, those falls disguise the pressure on the coil underneath gold prices. And when that coil springs, then gold jumps. So when you see that fall during those margin calls, that's the huge buying opportunity. That's the optimistic scenario.

SPEAKER_02 17:07

Philip, you say only the strong survive in that first graph. Things are a little bit more pessimistic in graph number two because you have it as a total collapse.

SPEAKER_01 17:16

That's not a total uh AI collapse. What we're facing here with this scenario is that if the AI trade collapses, and I do think this is a realistic possibility, then we're looking at a huge drop over the next four years in stocks, which none of us want to see, a large increase in bonds, and a huge increase in gold prices. Now, this is in the order of the 2008 financial crisis, dot com and the like, maybe larger than that. Like I said, I think this is directional, maybe larger. My own personal opinion is the sooner this happens, probably the better for the economy. It's likely to be worse the longer we put this off. I think it's inevitable that one way or the other uh we're going to see one of these scenarios develop.

SPEAKER_02 18:18

Philip, are we too scarred from the dot-com crash of more than 25 years ago? Because when I look at it, I think AI, and I have no interest in AI at all, has more of a chance to be more profitable quicker than dot-com was more than 25 years ago when so many people were just opening up dot-com companies with no money, but they were getting all kinds of money, so they didn't make anything, they lost money, and that's why the crash happened. But I think it's different with AI today.

SPEAKER_01 18:46

No, I think it's going to take longer for AI to be profitable. The amount of uh capital expenditure and the level of debt that the AI companies themselves are uh expecting to incur over the next four to five years is nothing short of stunning. And the rate of growth of their revenue, much less profits, are deeply concerning to the point that Wall Street is um growing nervous, and this is evident in multiple ways. I think it's going to be a roller coaster for the next several weeks. This is one of the things with bubbles, is they inflate to the point where you can get nervous and then they make you comfortable again. Then everybody expresses surprise when they pop, and after they pop, most people say, Oh, I saw it coming. And so many people get burned. So I'm not gonna say I know when it's gonna pop, but I know it is gonna pop. And what I urge people to do is prepare for it to pop. Plan for the worst. There is going to be a pop, but there is a crucial role for gold in preserving your wealth and also in growing your wealth. This is the secret of gold that many people do not understand, and it's been proven over and over again in the last 26 years. And something I really wanted to demonstrate is gold uh serves that traditional purpose of preserving wealth that bonds has failed to do over the last 16 years, but also has grown wealth and for the last 26 years better than stocks have. I really urge you to plan for what top financial advisors expect to be really some tough times ahead over the next four years.

SPEAKER_02 21:11

We want you to be comfortable. Are you comfortable when you look at the comparison of those two scenarios? If at our last graph, we're going to look at both of those. And does anyone make you comfortable?

SPEAKER_01 21:21

In our next graph, our last graph, which simply takes those two scenarios we looked at and shows those two scenarios on the left. That's the optimistic scenario, and showing all three assets going up over the next four years, gold outperforming both stocks and bonds, and then in the pessimistic scenario, gold far outperforming both stocks and bonds, which both fall, stocks falling spectacularly by 50 or 60 percent over the next four years during the market. Crash as AI collapses. And during that time, this model suggests that the U.S. closed weighted models fail and the open-weighted models from the Chinese take over. And they do because they're almost as good, not as good as the US models, but they're good enough for most applications by business and consumers, and they're so much cheaper and less expensive to operate because they are so much more energy efficient.

SPEAKER_02 22:37

We're talking about the global gold forecast, but something has happened this week that is affecting the economy in a big way, Philip. The CPI.

SPEAKER_01 22:46

The CPI report that came out yesterday that showed higher than expected inflation isn't enough to push the Fed to increase interest rate. There's speculation that the Fed doesn't want to increase interest rates right before the midterm. What is not being said is the Fed doesn't want to increase interest rates because higher interest rates threaten the AI trade. It increases interest rates that those AI companies have to pay. And the last thing the Fed wants to do is to be blamed for toppling any of these AI companies. Nobody is talking about that as a reason why the Fed is really hesitant to raise interest rates. If that's a controlling factor for the Fed, that indicates real problems for the United States of America. The CPI is not a legitimate reason to hold interest rates where they are. It's irrelevant. And it's irrelevant for two reasons. Number one, the CPI is unaffected by the last interest rate increase that didn't have a chance to have an impact on CPI. The only number that is really important, consumer inflation expectations. And that number has been rising and has been at a concerning level for five years. That's what should be driving Fed policy today and is being ignored. And it's being ignored for political reasons, except for a few people in the Fed. There are other hawks, inflation hawks, who I think it is in the back of their mind, I am an inflation hawk because there is no greater danger in the economy today than inflation getting away from us. And if we are risking long-term inflation and hyperinflation because of the AI, what we fear a quarter point increase in interest rates might cause to uh AI, uh then we're really playing with fire.

SPEAKER_02 25:20

There are so many question marks. How do we get through these next four years?

SPEAKER_01 25:25

It's going to be so tough. And it's tough uh not just because we're so overinvested in stocks and so concentrated in AI, but also because we've been so irresponsible in running up so much debt on the corporate side, on the government side. It's not just us, it's all over the world. We continue, we the deficits are frightening in the U.S. The war in uh of choice in Iran is running up enormous debts. We we don't even know the debts yet uh of that war because number one, it's not over. We haven't counted the debt. Well, we have the deficits from that war, a lot of it is being hidden. Uh the energy costs are still that tab is being run and will be run well into next year and beyond. Prices will not fall for years. It's not a matter of, you know, once the war is over. It's gonna be years before prices fall back, if ever, to what they were before. There are so many other challenges. The breakup of our alliances are gonna cause tremendous defense expenses. It's gonna take five years before we re-establish deterrence against China and Russia and Europe. Um, five years before we do that and all the expenses. And during that time, we may we have lost deterrence, and what that means is there could be aggression by the Chinese and Russians and all the expenses associated with dealing with war. Uh, we we have entered a whole new world that we cannot imagine. The world that was built by our fathers and grandfathers after World War II, the stability that we enjoyed, our parents enjoyed by their sacrifices is gone. We've squandered that legacy. Who knows what tempest we are handing our children. This is comparable to the tragedies that our great great grandparents handed the world going into World War One. It is incomprehensible what we've done. And it's up to us to begin fixing it.

SPEAKER_02 28:25

You have compared it to a roller coaster. We just need to hang on and have patience and see what happens in the future. Philip Deal, thanks so much for joining me today. Thank you, Mike. The global gold forecast. That's what we've been looking at in this series on our podcast, and it's something that's very interesting with the economy. We don't know what's coming up next, especially with AI. Plan for the worst, hope for the best, and hopefully AI gives us an A plus, but it may not be that great. We'll just have to wait and see. That's all the time we have for today's episode. On behalf of all of us here in the U.S. Money Reserve Studios, thank you for tuning in. If you have any questions or you want to learn more about today's episode, you can call the number in our episode description and speak with one of our friendly account executives. They're going to be more than happy to answer any questions you may have about precious metals and the strategic role they can play in achieving a secure and comfortable financial future. I'm Mike Barnes. We will see you next time on America's Gold Authority Podcast.

SPEAKER_00 29:26

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