Axel Merk: The Fed will likely Pivot Too Soon
Tom welcomes back Axel Merk to the show. Axel is the President and CIO of Merk Investments.
Axel discusses the correlations between real rates and gold. Gold is supposed to be an inflation hedge, but people get frustrated when it doesn’t immediately respond to inflation predictions. Consumers are seeing the problems in their wallet at the gas pump. Real rates are useful for predicting the markets.
The Fed tells us what they want, but they don’t explain how they plan to achieve their goals. Central banks often can’t see the future because they rely on an idiotic backward looking framework. The Fed cares about bond markets. They aren’t concerned about commodity prices. Ultimately, their goal is to keep the banks in business.
The Fed is focused on demand, but doesn’t know how to handle supply shocks. The political reaction to supply shocks is to provide additional stimulus or price controls, which exacerbate the problem. Instead, they should encourage additional production, and that won’t be fixed by taxing and bashing companies.
We’re going to see volatile periods as people believe issues have been addressed only to see problems return in waves.
Axel discusses how gold is the clear benchmark for measuring currencies.
The Fed is petrified of a loss of market confidence; therefore they have to talk and possibly act tough.
We’re in an environment where many things are out of balance. Tech companies have stopped hiring, but other sectors can’t get skilled labor. Ultimately, labor shortages are inflationary.
Geopolitically, things seems to be fragmenting fairly rapidly. We could see a decline in security of the oceans and further conflict break out, which would also be inflationary. National interests globally are becoming quite complex.
The ECB is the only effective agency in Europe, and they are focused on green energy but don’t appear concerned with inflation.
The dollar index is very biased toward the Euro. There are huge problems with energy policy in Europe, and now they are realizing that nuclear may be the only sustainable solution for the environment.
Time Stamp References:
0:00 – Introduction
0:30 – Gold & Real Rates
7:00 – The Fed Message
12:40 – Price Controls
15:10 – Gold & Money Supply
16:00 – Currencies & Gold
17:00 – Gold Miners & Gold
19:30 – Gold & CFTC Chart
21:00 – Fed Pivot Catalysts?
23:30 – Mortgage Rates
25:30 – Peak Inflation?
28:50 – Fed is Reactionary
30:00 – Recession & Jobs
35:30 – Geopolitical Factors
40:10 – ECB Situation
42:35 – Dollar Strength
45:30 – Merk Fund
47:30 – Wrap Up
Talking Points From This Episode
- The correlations between real rates and gold.
- The Fed is unable to handle supply shocks and governments provide the wrong solutions.
- Globally, politics and diplomacy is becoming increasingly complex.
- European Union problems around energy and problems around green energy.
Amazon Book: https://tinyurl.com/4ebpcaew
Axel Merk is the President and Chief Investment Officer of Merk Investments, manager of the Merk Funds.
Founder of the firm bearing his name, Merk is an expert on macro trends. He is a sought-after speaker, contributor, and author; Axel Merk’s book, Sustainable Wealth, describes how the greater economic universe works, how it might affect your finances, and how to manage those finances to seek financial stability. Axel Merk holds a B.A. in Economics (magna cum laude) and an M.Sc. in Computer Science from Brown University.
Axel Merk founded Merk Investments in Switzerland in 1994; in 2001, he relocated the business to California. He has grown Merk Investments into an investment advisory firm offering investment funds and advisory services on liquid global markets, including domestic and international equities, fixed income, commodities, and currencies.
Axel lives in the San Francisco Bay Area with his wife and their four children. Furthermore, he is a marathon runner and a private pilot.