James Rickards | June Rate Cut Is Coming, Not Priced In
Interview Date: January 15, 2020
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TRANSCRIPT (EDITED)
Albert Lu: I’m joined now by James Rickards. He is the author of the best-selling book Currency Wars and also Aftermath: Seven Secrets of Wealth Preservation in the Coming Chaos. We’re pleased to be welcoming James Rickards back to the 2020 Sprott Natural Resource Symposium.
James, it’s great to catch up with you again. How are you?
James Rickards: I’m fine, Albert. It’s great to be with you.
AL: Your book is Aftermath: Seven Secrets of Wealth Preservation in the Coming Chaos. It looks like we’re getting a little bit of a look at that chaos right now. We have the trade war, which you predicted last year. We have impeachment. We have an election. Is this some of the chaos that you thought about when you wrote your book?
JR: Well, Albert I would take all the events you described and others, and maybe some more yet to come. I’m actually working on a long article right now that kind of brings readers down to the present moment, literally in the middle of the impeachment situation, but takes the story forward through the rest of 2020 because this is not going to let up, and I would take all those things and put them on the list of potential catalysts or potential stress points. But, that’s not quite the same as saying that’s what causes a financial collapse. There’s always a catalyst; you strike a match but the forest fire isn’t caused by a match. It’s caused by all the dry kindling, the dry wood, the state of the forest and all the things around us. So, yes, it could start things going but you need a set of conditions for that to turn into a financial panic or even just a serious market correction or prolonged recession. There are a lot of different bad outcomes. They’re all slightly different characteristics.
So, what I focus on in my book, and you’re right these things can be catalyst, what I focus on in the book, Aftermath, is what I call the dry kindling. What are the conditions? What is the state of play in capital markets as a whole that could cause a small thing to turn into a significant financial collapse? There are a bunch of them. We can explore them, but, you know, the rise of passive investing at the expense of active investing, the rise of robotic trading as opposed to human interaction, the dominance of, I have a whole chapter on Richard Thaler and Cass Sunstein they’re the authors of this book Nudge talking about the what they call choice architecture, choice architectures — a way of manipulating behavior by framing choices in a certain way. It kind of looks like you’re getting a choice but you’re really being steered in a certain direction.
So, to the extent that banks, insurance companies and fiduciaries use those techniques, as suggested and recommended by Thaler and Sunstein, it forces everybody in the same direction. And, is that the right direction? I raise the question, what makes them so smart? I understand Thaler won the Nobel Prize and Cass Sunstein was at Harvard, worked in the White House, but just because you have a very high IQ doesn’t mean you have any common sense and does not mean, definitely does not mean, you understand the complex dynamics of capital markets. So, these are some of the things and there are many others: modern monetary theory, what’s going on in cryptocurrencies. I talk about all these things in the book, but these are things that are there. You can identify them. You can pick them out. Too many people ignore them. So many people just, kind of, overlook them or take it for granted. But most, I think, the most dangerous aspect is that people don’t understand how this is adding fuel to the fire — how when a catalyst does emerge, things will fall a lot faster, a lot harder than anyone expects.
AL: Now, wouldn’t you agree that a trade war, an all-out trade war with China, could, in fact, be a serious catalyst? I’m wondering, we’re, you know, two years into this thing. The president just signed what they’re calling the “phase one” trade deal just moments before we got on this call. James, I’m wondering how serious do you think it could have been? It looks like this is not over by any means.
Do you feel it’s a significant threat or could be a catalyst?
JR: Well, I agree it’s a big deal. I agree it’s not over. I think you’re right about those two things and that, with the “phase one” trade deal, there’s a lot less there than meets the eye. Look, China is being backed into a corner. They needed to save face. Trump has the election coming up. He needed to calm things down a little bit. If you look at the stock market action in 2019, and of course it was a great year for the stock market, you could almost tell what’s going to happen every day. There was a bad headline on the trade wars, stocks went down. If there was a good headline on the trade war, stocks went up. If the Fed was hinting about easing, stocks went up. If the Fed was hinting about tightening, stocks went down. So, those two drivers, Fed policy and trade wars which flip-flopped all year, I mean just you look at the 365 daily headlines, you’ll find half of them were bad, half of them were good. And same thing that the Fed flip-flopped a couple times from the end of 2018 really through until today. So, that’s what drove the stock market.
But, as far as the trade war itself is concerned, I think it was a good thing, long overdue. It hurt the Chinese much more than it hurt US people. It gets a lot of headlines, so if you’re in a certain industry — if you’re Boeing and you’re trying to sell aircraft, if you’re Apple and you’re trying to import iPhones from China to the United States, if you’re Huawei and you’re trying to break into 5G in the US — they can forget about it. Might as well pack their bags and go home. I agree, the specific companies could be affected in a material way by specific tariffs. Although, Tim Cook did a good job of spending a lot of time in the White House and getting exempted from almost everything Trump did. So, there were those, I’ll call it, micro effects. But, in the big picture it’s not that big a deal for the United States. It is a big deal for China. The US net exports are just not a big percentage of GDP. The US economy is driven by consumption, business investment to a lesser extent, government spending and then at the end you got net exports. Okay it matters, it could take GDP up or down a little bit, but you have to look at net exports. So, it’s not even gross imports or gross exports, and as a percentage of total GDP it’s really tiny. So, it has a marginal effect.
But then you have to remember all the tariffs we were collecting. The mainstream economists get this completely wrong because most of them hate Trump, so if Trump is doing something, they’re against it. But remember, go back to 2018 and even later in 2018 when Trump was dialing up the tariffs. What did everybody say? And then this continued through 2019 as well. They said, well, you know, these costs – the Chinese aren’t paying the tariffs, they’re going be passed along to consumers. Consumers are going to get whacked. Retail is going to suffer. Inflation is going to take off. None of that was true. That’s what they said, but it was all wrong. Consumers haven’t paid the tariffs, retail sales are extremely strong, Christmas season was great. There’s no sign of inflation. In fact, we have disinflation. Inflation metrics are dropping. There’s no evidence that these costs were passed along to the consumer. Now, it is true that somebody pays them. But then they point to the importer. They’re the US firm that’s buying goods from China. Well, he’s the collection agent. Yeah, the importer’s the one who’s got to write a check to the US Treasury for the amount of the tariff. But that can be passed forward to the producer, or downstream to the consumer, or you can eat it yourself in terms of reduced profit margins. There were a lot of ways that the cost can be pushed around or shared. It’s not as simple as saying our consumer prices. In fact, the evidence is that we did not have our consumer prices.
Now, who actually pays it? Well, go over to China for a second. What did China do? They devalued their currency. So, let’s just say you had some goods that were $100. Trump throws a 25% tariff on, so now, all of a sudden, it costs $125 to get it inside the United States after you pay the tariffs. What the Chinese did by devaluing their currency, they pay their workers in yuan. They don’t pay their workers in dollars, they pay them in yuan. But then, they collect revenues in dollars because they’re selling to the United States. Well, if you have to lower your dollar price, so that net of tariffs it’s not a big price increase in the US, by devaluing your currency what are you doing? You’re giving your workers a pay cut, not in yuan terms, they make the same amount in yuan. But if the yuan is worth less in terms of dollars then, in terms of their own consumption of goods imported into China, they’re a little bit worse off. So, by devaluing the currency, you give your workers a pay cut and they eat the tariffs. So maybe the Chinese consumer who happens to have a factory job and finds that his currency is worth less in terms of US dollars, they may ultimately suffer.
So, my point being, it’s really hard to pin down. You need a lot of data and a lot of time to analyze this. But, whether it’s Chinese workers, profit margins of Chinese exporters, profit margins of US importers, or all of the above, there are a lot of places for the cost to go other than the US consumer. The evidence is it did not go to the US consumer. Meanwhile, the Treasury is collecting hundreds of billions of dollars of revenue that wasn’t in the budget, so this is a really good thing for the United States. And sending a message to China has not affected the US economy that much. By the way, the inverse is true: having a “phase one” trade deal is not going to boost the economy that much. We didn’t suffer much in the first place. We’re not going to get a big boost out of it now. It’s good that it’s over. The fact that you take it off the table is one more factor in favor of Trump’s reelection. But the real cost of this is borne by China, in terms of lost sales and lost profits, and that’s why they had to throw in the towel and come to the table. Now, they will cheat immediately. The Chinese lie and cheat in everything they do. They lied to get into WTO and then proceeded to break the rules. They lied to get into the IMF Special Drawing Right basket, [and] proceeded to break the rules by closing their capital account. So, the Chinese can’t be trusted on anything, and they’re going lie about this. I wouldn’t trust them on this new deal, but it’s a win for Trump. It takes away an irritant ahead of the election. It’s good news for the stock market, but it doesn’t really affect things that much.
AL: James, even apart from China we have issues with the economy — for example, stagnating earnings. Target reported today that their holiday sales came in below projections. They’re saying that the earnings for Q4 are safe, but the sales didn’t meet expectations. What that tells me is, on the one hand, my wife doesn’t shop at Target I don’t think — those boxes must have come from somewhere else — but the other thing it tells me is, perhaps, the US consumer is not as strong as the market was pricing in. The fact that earnings were not adjusted yet the market was still disappointed — Target’s down, Walmart’s down — says that the market was counting on strong consumer spending, strong consumer confidence. The consumer has been robust in past cycles, through Christmas especially. What do you think about the consumer here going forward?
JR: Well, yeah, the Target thing was big news, but what’s difficult to sort out is how much of that was specific to Target, with well over a thousand retail outlets, versus the economy as a whole. In other words, did Target’s losses or lost revenue go to Amazon because people were shopping online? I don’t have the data on that, but I would [look] before I would assume that the consumer is throwing in the towel. I think we have to ask ourselves: well, is this just a trade-off between bricks-and-mortar and online retailers, or is it symptomatic of a decline in the consumer as a whole? Having said that, yeah, bad news is bad news. There’s no ignoring it. I expect the US economy in 2020 to grow around 2.2%. Now, why do I say that? Well, the answer is that the average of the last 11 years is 2.2 %, and Trump’s economy does not look that different than Obama’s economy. You have people cheerleading, like Larry Kudlow, Steve Moore and Art Laffer, running around at the end of 2017, early 2018, saying, hooray we’re going to have this tax cut and this is Reagan, the Reagan revolution all over again. And, growth is going to blow past 3%, maybe even approach 4%. And, it’s going to stay there, and the additional tax revenues from the additional growth will offset the impact on the budget of the tax cut. In the first place, none of that was true. I mean, when I’m reciting what other people are saying, don’t think that I believe it. And, more importantly than what I believe, what’s actually true, what’s actually in the data, the fact of the matter is Trump’s economy in the first three years of his administration 2017, 2018, 2019 looks about like Obama’s economy — growth right around 2.2% — some years a little higher, some years a little lower.
People will point to a strong quarter like the first quarter of 2019. I think it was about 3%, but Obama had quarters that were over 4%, more than one, and sometimes two quarters in a row slightly over and under 4%. So, if you average the two quarters you get 4% growth. But the point is it never lasted. It was always temporary factors, inventory, maybe a little pop in net trade, maybe a little pop in business investment, but it went right back down again. I mean, it would go from 4% down to, in the Obama years, down to 1%. But the point is when you averaged it out, on an annual basis, annualized growth year over year was about, I mean I know the numbers, 2.2-2.3 % for over ten years.
And so, if you’re on a different forecast for 2020, which I don’t I think that’s about where it will come out, you have to tell me what’s different. You know?
Is there another tax cut? Not this year.
Big change in trade policy? No, we kind of got what we got in terms of tariffs.
Is productivity going up? No.
Is population going up? No, and yeah, population is flatlining.
To the extent that the US is one of the few industrial economies with an increasing population in the past ten years – that was due to immigration. It wasn’t due to births per thousand women of childbearing age. It wasn’t due to internal increases [in] populations. It was due to immigration. Well, Trump has shut the door to immigration. So, there are pros …
I’m not here to debate immigration policy — what kinds of pros and cons to that. But, it’s the case that, if you reduce immigration, you reduce the workforce. As far as unemployment, it’s about 3.5%. That’s good. This is a good thing, lowest since 1969. But those figures ignore people not seeking jobs, and I’m not talking about seventy-year-olds. I’m talking about the age group twenty-five to fifty-four able bodies. So, I’m not talking about disabled individuals or people closer to retirement. I’m talking about prime working-age, able-bodied people. The estimates vary, but somewhere between seven and ten million people in that category, who are not working, they’re not counted as unemployed because they’re not seeking employment. They’re not part-timers. They’re not even under-employed. They’re just home.
Now, yeah, some of them are students. Some of them are homemakers. Not everyone. Some of them may be rich and they’re playing golf. Not every one of those people is ever going to be in the workforce. But ten million is a big group to be, kind of, sitting at home watching football playoffs. So, my point being, there is tons of slack in the labor market. This is why the Phillips Curve is a joke, why Janet Yellen spent four years worried about a problem that did not exist, specifically inflation. She kept seeing unemployment go down. She’s actually a labor economist and statistician. She was never considered a monetary maven. But she spent some time on the board of governors in the Federal Reserve Bank of San Francisco.
So she had some experience, but she is basically a labor economist. And so she would believe devoutly in the Phillips Curve. So when she saw unemployment, it was just a trade-off between, as unemployment goes down, inflation goes up. And, as unemployment goes up, inflation comes down. You just plot that. That’s the Phillips Curve. It doesn’t exist. I can describe it, but there is no correlation between unemployment and inflation. She thought there was. So when unemployment was coming down, she kept expecting inflation to go up. She kept raising interest rates, handed off to Jay Powell.
Jay Powell continued that policy, almost sank the economy. We were getting very close to a recession at the end of 2018. Finally, Jay Powell got religion and saw what was going wrong, first to put rate hikes on pause, then he moved to rate cuts and then he abandoned a balance sheet tightening, which was going side-by-side with rate cuts. We were supposed to ignore it, but you know good analysts didn’t ignore it. And so we had a double tightening going on: raising rates and reducing the balance sheet. Powell stopped raising rates, started reducing rates, stopped tightening the balance sheet, and now he’s expanding the balance sheet. He came back to a new form of QE. Although, he says please don’t call it QE. But the point being, that was a reversal of the dead-end that Janet Yellen was driving down, because she believed in the Phillips Curve, which doesn’t exist. So, my point, it was just simple — which is that there is enormous slack in the labor market. I don’t care what the official unemployment rate is. That’s one reason why you’re not seeing unemployment. It’s why you’re not seeing inflation. It’s now the reason why you’re not seeing increases in productivity.
So, am I predicting recession?
No. I think there’s almost no evidence that a recession is on the horizon, but I’m not predicting the Larry Kudlow pom-pom 3% growth either. I would expect it would just be 2.2%, give or take. The problem with that is that the debt is going up, not 2.2% but closer to 6% and on its way to 8%, as a result of the tax cuts, as a result of increased discretionary spending for defense and non-defense items. So when your economy is growing 2%, a little more, and your debt’s going up 8%, you[‘re] going broke.
AL: James I think you make a good point about the 2.2% and growth. It’s difficult to make a case for it being higher than that. I think you can make a case, and many have, that we should expect, at least on average, lower than that. So what do you think about that? How does that fit into your projections for the next say five, ten years?
JR: 2.2% — so, the statisticians call it central tendency. That’s my forecast, but if I’m wrong what is more likely? That it would be lower or higher? The answer is lower. It could be 1.9%. That’s not my forecast, but it wouldn’t shock me to see that. And there are very specific reasons for that. The reason is the global economy is slowing down. China is the second largest economy in the world. It’s more than half the size of the US economy, and it’s the biggest buyer from places like Australia, Canada, Brazil and elsewhere. So, [if] China goes down, it takes a lot of countries with it. And growth is slowing enormously in China. A couple of things, the Chinese statistics are bogus. I said that they’re liars and they are. So they’ve shown the numbers they published showed growth declining from 10% to around 6.2% over the last several years, but the 6.2% itself is bogus and here’s why. About 45% of their total growth is investment, and over half the investment is wasted. I mean, just wasted. I’m not saying, you build a toll road and you didn’t collect enough tolls. I’m saying, they’re building entire cities, not just one or two but 50 or more around the entire country, that are empty. And, I’ve been to them. I’ve got mud on my shoes walking around construction sites in out-of-the-way parts of China. I’m not talking about Beijing or Shanghai, but go south to Nanjing or go out in the countryside.
I’ve been to cities all over China, in western China, and I’ve seen these ghost cities. And, they all have a certain number of skyscrapers, apartment buildings, recreational facilities, golf courses, hotels, shopping plazas, public transportation stops, nearby airports. There’s only one thing — they’re empty. They’re literally empty. There are no tenants. I was offered free rent in one place. He said, we just want you to set up an office so it looks like somebody’s here. Paying rent was out of the question. No one expected that. And, I met with Communist Party officials and others on these locations.
So, look, it’s real steel, real glass, real copper, real asphalt, real cement, real workers. Those things are real, and they borrow the money to pay for all that. And those people get jobs, at least till the construction work is done. And the cement manufacturers and the steel and glass manufacturers, they all get orders. So there’s real stuff there. But it doesn’t pay off. You can’t pay off the debt. You’re not getting a return. It’s wasted investment. If you were using generally accepted accounting principles, you’d be required to write it off the day it’s open because it has no use and has no revenue.
So, we need to take that out. So, take, say, 50% of 45 %, which is 22 % of the whole GDP. That takes 1.5% off the growth right there. So, now you’re down to, kind of, 4.7[%], and then you can do further analysis. I’ve seen some analyses that, by analysts that I have a lot of regard for, show Chinese GDP might be as low as 2.8%.
So they have the same debt-to-GDP ratio problem that the United States has. But their growth is almost hitting the wall, getting dangerously close to recession in the world’s second largest economy, which will have ripple effects all over the world. So that’s the kind of thing that could slow down the US, if they just say, well we’re not buying Boeing. And when, I guess they have to buy the soybeans to feed their pigs and they have to buy pork anyway because they have swine flu. But they’ve got a lot of problems. They’re covering it up. They’re glossing [it] over. Western journalists, for whatever reason, don’t really want to drill down on this. The Wall Street analysts are all conflicted. They’re into the happy talk, but there are some analysts, I would say David Rosenberg, Michael Pettis, myself and others, who are, Leland Miller is another one, taking a hard look at this. And, it’s a very, very scary picture, in terms of what’s going on with China. So, that’s the kind of thing, and if you see the slowdown expand, Europe is practically in recession. They might not be in a technical recession, but Germany’s growth is close to zero, Italy’s close to zero, France doing a little bit better. Japan looks like they’re heading for another recession. Australia’s joined at the hip to China. So, China slows, Australia slows, and so forth. If you take all that, that could be enough to slow the US economy, and not to the point of recession but, yeah sure, it could come in below 2.2% for that reason.
AL: James I’m going try to remember to ask you if your financial models can predict football games before I let you go. Quickly, running low on the time, though, so I’m going to slip in another question. 2019 was dominated, as you pointed out, by both the Fed and Trump, in particular, trade. I think most people, if not all, agree if Jerome Powell doesn’t do an about-face, we’re sitting at a very different place, in terms of the stock market. And, the interesting thing, I find, is that I don’t know if President Trump gets enough credit for the way he can manipulate outcomes or influence outcomes. He’s very good at detecting people’s pain points, whether it’s labeling a political opponent, you know, Pocahontas or small or something like that right? Or, sort of, I don’t want to say sabotaging the economy, but certainly the trade war and the tariffs were a huge distraction and played a big role in Powell initiating the insurance cuts. So, you can say it was the Fed and Trump, but really it was just Trump. And I wonder for 2020 what you think, and this is obviously speculating, but what you think his strategy is going to be? He’s got a Fed he’s trying to manage; he has the impeachment trial — I’d like to know what your opinion is on what the point of that is —, and also the election. So, take those three and let me know what you think about 2020.
JR: Sure. Well, let’s start with the Fed. The thing that’s really important to understand about the Fed is they’re always wrong. I mean always. That means that they’re not guessing. They’re systematically wrong. If you’re guessing you’re going to be right half the time and wrong half the time on binary outcomes — stocks up, stocks down, interest rates up, interest rates down. If you give a trained monkey a set of binary outcomes and ask them to throw darts, they’re going to be right half the time. We’re going be wrong half the time.
The Fed isn’t even as good as a trained monkey. They’re wrong almost all the time, and the reason for it is they have wrong models. Their models are badly flawed. And if you use the wrong model, you’ll get the wrong result every single time, going all the way back, as far back as you want – the Great Depression. But even more recently, the May 2013 taper talk with Bernanke, which caused an emerging markets crisis. Yet, Yellen said at the end of 2014, sorry it was in March 2015, she took out the word patient from the statement, and that meant a rate cut was imminent. Well, we got the rate cut in December. So, she and Wall Street were wrong for nine months between March and December, and then 2016 they forecast four rate hikes. I’m sorry if I said ‘rate cuts’ before, I meant to say ‘rate hikes.’ But, 2016 they forecast four — they did one. In December 2016, and so on, their economic growth forecasts have always been way off.
And so, right now, what is the Fed saying? The Fed is saying, they’re on pause. They use these key words, but ‘pause’ is one of them. They did the rate cuts. They did three in 2019 and then they signaled that they’re not going to do anymore. Well, that means they’re probably going to do one. So, now they will not do one in January, or at the March meeting in 2020. They’re not going to. Assume they’re not going to raise rates. You can forget about raising rates. The question is, do they sit tight or cut? That’s the issue. They’re not going to do anything. They’re not going to cut at the March. Oh sorry, January, March meetings because it’s too soon after making these big pronouncements in December. It’s too soon to reverse course. At the same time, they’re not going to cut rates in July, August or September because it’s too close to the election, and they want to just back away, not appear to favor one party over the other. So, if you can’t do it right now because it’s embarrassing, since you just kept on saying you were on pause, and you can’t do it in the summer or fall, because the election, when can you cut rates without a political backlash? The answer is June.
So, my forecast is they’re going to cut rates in June. Does that mean that, somehow, we’ve hurdled into a recession or growth is horrible in June? No, it doesn’t mean that, but what it means is that they want to take out another insurance policy, I use the word insurance — I think that’s the right word. They don’t really know what they’re doing, but they sure don’t want to cause a recession, which they almost did at the end of 2018.
So, I would look for a cut in June. That’s not priced into the market. It’s not what the Fed is saying, but we’ll get to closer to June, you know March-April, and we’ll see the growth numbers coming. We were just talking about and, if anything, those numbers may be below expectations. And, they’ll say, hey we’re going to be tied in July, August, September, October. We’re not going to be able to ride to the rescue. We don’t like what we see. We better take out an insurance policy, and that means a June rate cut.
Now, since that’s not priced, what does it mean as that becomes more apparent? Well, it’s good for stocks. So, that’s going to give the stock market a boost. And, what does that mean? It means that Trump’s going to be on his way to re-election. I have election models. I don’t have sports-betting models, by the way. I’ll leave that to Nate Silver. He seems to be better in that than he is in politics. But I specialize in politics and in the economy, and so I have proprietary models that do look at election outcomes. Right now, I’m giving Trump a 70% probability of being reelected. Candidly, it should probably be a little higher than that, but I like to be conservative. There’s a theta, time decay element, to it in terms of one of the major factors which works in Trump’s favor. So, I would expect this probability of being reelected goes up about 2% a month for the remaining 10 months before the election. So, I expect to see him at close to 90% by election day.
There are [a] number of factors in the model, but the biggest single factor is that the probability of Trump being reelected is the inverse of the probability of a recession before the election. So, just ask yourself what are the odds of a recession before, let’s say, September 2020? Right now, they’re really low. In three months it’s kind of close to zero. And, even in ten months, it’s not more than 20%. So, you take the inverse of 20%, it would be 80%. I’m giving Trump 70%, but maybe [it] should be a little bit higher. But every month that goes by without a recession, the odds of a recession before the election are that much lower, which means that Trump’s reelection chances are that much higher.
Now, there are a lot of other factors, but that’s the biggest single one. So, obviously Trump’s going to be reelected. It’ll be a bigger margin of victory than the last time but the biggest single factor is the odds of recession. Coming back to the Fed for a moment, that Fed rate cut in June, which I am forecasting, will be the recession insurance. And look, remember, Trump owns the Fed. I mean Trump came in, there were two vacancies. He keeps talking about judicial vacancies. He can’t believe how many Obama left. He said, what do I have 10 or 20? No, Mr. President you have like 150. And he and Mitch McConnell have done a really good job of filling up the seats.
Well, the same thing on the Fed board. By the way, Obama did all this because he thought Hillary was going to win — and so, she could pick safe seats. It was kind of a gift to her, but it ended up being a gift to Trump.
So, right now every member of the Board of Governors, by the way there are still two vacancies they filled them in, but other people retired – Stan Fischer left and others have left. But, right now, every member of the Board of Governors was either handpicked by Trump or, [as] in the case of Jay Powell, promoted from governor to chairman by Trump, with one exception — which is Lael Brainard, who’s a big brain and they really need her on the international side. She’s a Bob Rubin protégé. She must feel like a hostage in the boardroom because she’s the only Democratic nominee. But, the rest of them are Republicans. Now, I’m not saying, I’m not saying that the board of governors of the Fed is going to get on the political Trump reelection campaign committee. I’m not saying that. I’m just saying that they’re Republicans, and at the margin if you have any doubt at all, and you certainly don’t want a recession that’s laid at your feet, you’re going to cut rates. And that’s going to be a very nice boost for Trump.
So, between the low probability of recession, another Fed rate cut, peace and the trade wars, and, as they say, rising stock market, better 401(k)s, and looks like on that impeachment. Oh yes, about impeachment, impeachment will be over soon. It just favors Trump. It just does and here’s why. Impeachment does not change anybody’s mind. If you hate Trump, you still hate him even after the impeachment. If you love Trump, you still love him even after the impeachment. And, if you’re undecided, you’re probably still undecided. And, you may, I think, on balance, among the undecided is there’s a slight tilt? That the impeachment process was unfair, which it was.
I’m, in addition, doing economic analysis and writing a few other things. I’m a lawyer by training. I spent 40 years as an attorney on Wall Street. And so, I know a thing or two about the Constitution, and due process, the Fifth Amendment, Sixth Amendment, right to counsel, the right to cross-examine witnesses, right to confront your accuser, etc. And due process, generally all those things, were denied to Trump. I think you can make a good case that the impeachment itself is unconstitutional. But yeah, that’s not going to get litigated. Save that debate for another day. But the bottom line is I think people see the unfairness of it. It doesn’t really change very many minds. But here’s where it does affect the election in a very substantial way, which is turnout. You know the Trump haters hate Trump. The Trump supporters support Trump. That’s not the issue. The issue is who’s going to get up off the couch and go out and vote on a cold day in November, at least cold in a lot of the country. And, the Trump haters, in some ways, they got the venom out of their system. They started in 2016, we got to impeach this guy. He has to be impeached. They never stopped. Well, he was impeached. Okay, that’s over.
So, in some ways, you got that out of your system. You’re like, okay, I went out. I can go back to my normal routine. But for the Trump supporters, they have something to prove. The easiest way, Trump will be acquitted in the Senate and he’ll be exonerated and that’s good. But the easiest way to show that impeachment was a sham is by re-electing Trump, because remember that two prior presidents have been impeached. Bill Clinton and Andrew Johnson. Nixon was heading that way; he wasn’t actually because he resigned, but it was heading in that direction. None of them were up for reelection. Nixon and Clinton were in their second term and Andrew Johnson wasn’t running for reelection, but Trump is. And so, here we’ll have an impeached president asking for votes and he’s going to get them and so, I think that would be a major motivating factor. Turnout will be stronger. [There are] other factors. I mean, I don’t want to go through every one of them in the model, but the African American factor is huge now. African Americans have, for a very long period of time, split 90% Democratic,10% Republican. I know some of the 10% Republicans, but it’s a small group. It’s a 90/10. You just take the African vote for granted. And African Americans … are about 12% of the electorate. Well, it’s not going to move to 50/50 anytime soon. But, let’s just say it moves to 80/20. Yeah, instead of 90/10 it was 80/20. So, you picked up 10 percentage points of African-American votes. Well that’s 12% of the electorate. Ten percentage points is 1.2% more.
Elections are only being decided by less than 1%. So, if you swing 1.2% in places like Detroit (that gives you Michigan), Pittsburgh (that gives you Pennsylvania), Milwaukee (that gives you Wisconsin), you could see Trump running up an electoral college landslide. And that’s a big factor. So, just a lot of things going Trump’s way. And I don’t see anything that will turn that around, except a recession. But the probabilities and the indicators of recession right now are extremely low.
AL: James you make so many good points. I wish we could keep going, but I know you’re out of time. So, thank you very much. My guest has been James Rickards, author of Aftermath: Seven Secrets of Wealth Preservation in the Coming Chaos. He will also be a keynote speaker at the 2020 Sprott Natural Resource Symposium in Vancouver, details at https://sprottconference.com. James, it’s always good to speak with you. Thanks for coming by again so we can catch up.
JR: Thank you, Albert, and I’ll see you in Vancouver.
