Mel Mattison on the debasement trade and the biggest bull run since the 1950s

Transcript

I don't think people understand the dangerousness of this moment. Because what's going to happen is in order to make everything work the way the powers that be want it to work, they're going to do exactly what they did during the GFC and exactly what they did during COVID, which is create the circumstances where the wealthy get even wealthier. Q4 has kicked off with a bang. The government is shut down and the market loves it. The bulls are back and running fast. Hello and welcome to Milk Road Macro, the podcast that knows that October is just a meme, but so far it's a lot more fun than Rectember. I'm your host John Gillan today is Monday, October 6th and we are joined today by one of the best analysts in macro Mel Madison. Mel is a writer, investor, and former fintech executive with over 25

years of experience in finance. Mel studies history carefully and has been one of the most accurate predictors of the market in macro all this year. Mel's going to give us the alpha on everything to watch out for in Q4. So that sounds good to you, make sure that you like, subscribe, share this episode with someone who's going to enjoy it. And as a reminder, our Milk Road Macro Pro team writes a monthly report on what's going on in the market, breaking everything down. This month's report is called running it hot. What does that mean? What do you need to know as an investor to navigate that successfully? Join our pro community today to get in on the alpha there. The link is below in the show notes. And without further ado, welcome to Milk Road Macro. Mel, how are you sir?

Doing well and thank you for having me, John. I appreciate it. Well, I'm excited for this conversation. I'm glad to get you on the show. Uh I wanted to start out with a high-level view of the markets from you. Um you've described the current trend we're in as an everything, everywhere, all at once type of rally. Uh give us your outlook on the macro picture right now. What's the framework you're using? What are you seeing in the markets right now? Mhm. Yeah, exactly. And I And I think you can look at things from, you know, a long, short, or long, medium, and short term, right? Um long term, that's exactly where I'm at.

And everything, everywhere, all at once rally. And that's, you know, bonds, stocks, gold, Bitcoin, real estate. I mean, you name the asset. And what what's happened and and this is something I've been talking about, you know, literally for years. Um you know, calling for 7,000 S&P, 4,000 gold on April 10th, like at the bottom, you know, if people went back to my Twitter, like I was literally like this is the buying opportunity of the decade, like literally at the bottom. And I'm like piling into things. I'm buying like EEM calls for like 40 cents that are now worth like $7. And I'm like, these are

these are going to be some of the best trades of your life. And and they were for me. I mean, I this year has just been incredible. And and it was because I had this conviction, this belief from the very beginning of the year. In December, I was like, this market's choppy, there's going to be a correction, 15, 20%, but it's going to be short-lived, and then we're going to go on an epic bull run. It's going to be ridiculous. It's going to be like three different decades. And we could put it in the framework of three different decades, the 20s, the 90s, which have been talked about a little bit, but in many ways I actually think the most similar decade is the 50s. And a

lot of people don't bring those correlations to the 50s. And a lot of people don't understand what the market did in the 50s. People think the 90s were a great market, well, the 50s were even better. In the 90s, the average return on the S&P was 18.4%. In the 50s, the average return on the S&P was over 19%. So when when you look back and you say, and this is the other thing that really gets me and I hate this. I totally hate this. All these old guys that are like 80 years old say, this isn't how the market works. This isn't what happens. I've been in the market for 40 years and this isn't what happens.

Guess what? The market's a lot older than 40 years. And just because it didn't happen in the 60s, 70s, or 80s, doesn't mean it didn't happen in the 20s. Doesn't mean it didn't happen in the 50s. And so I'm not saying this time is different. I'm actually saying this time is like all the other times. It's just all those other times are not in investor lifetimes, even the old bulls of Wall Street, even the 80-year-old Warren Buffets have never seen what we're seeing. Because Buffet, you know, he was like 20 years old maybe in 1950. So maybe he saw a bit of the 50s, but he wasn't really in the market in a big way.

So what we're seeing is we're seeing market action that has happened many times before, but not in the living memory of even our oldest investors. And so our oldest investors are sitting back and saying, you know, this is the biggest thing that's all the big correlations are breaking down. Gold to the dollar breaking down. Uh unemployment rate to GDP breaking down. Like the these are fundamental paradigm shifts that tend to happen over 40, 80-year interest rate type cycles that people are looking back and they're saying, when X happened in 1970 or 1980, then Y happened. Therefore, X is

happening now, therefore Y is going to happen. Yet if you say, actually, when X happened in 1920 or 1950, then Y happened, which is a completely different Y than the Y from 60 or 70. And so what we're seeing in like is is it's just incredibly different. It's a paradigm shift. It has to do with interest rates. It has to do with the bond market, which is the center of everything. It has to do with what's now being called the debasement trade, which is scaring me because I'm hearing it on Bloomberg and I've been talking about it for years. And now people are saying the debasement trade like it's some new trade. Um you know, and I'm not the only

one. You know, guys Warren Buffett had talked about it. Luke Grommen, like uh Larry Lepard, like everybody there's there's such a huge kind of X cohort of people that have literally been talking about this for years. And the scariest thing to me right now is that Morgan Stanley and Goldman Sachs are saying the same thing that I was a year ago. Well, it's always nice when they finally catch up. Uh Mel, this is one of the reasons why I wanted to bring you on, right? Like you're such a student of history um that you have a much different perspective and that enables you to make calls like you did at the the April lows and and at the end of uh December of last year. Um so I I really appreciate that insight and that history lesson. That's a really helpful

perspective. Um I want to ask you a question about this. Uh last week I had Jordi Visser on the podcast. It was a great episode. So if anyone missed that, go back and look at it uh cuz Jordi dropped a lot of alpha about AI and many other things. But one of the things he emphasized was this idea of concentration of investment, that this bull run has been in a few key equities, but not really broadly across the S&P. Uh it's been in gold. It's been in Bitcoin. Um but a lot of investors are wondering, is this going to stay concentrated as we go forward or is this going to broaden out into the rest of the market? What are your thoughts on that? How do you see that playing out?

Do you agree that the the investment in the the economic activity in this bull run is going to stay very concentrated as we go forward? Yeah, I I I I don't think it's necessarily going to stay concentrated. And I think there is, although it's just beginning, there is a changing of the guard of SaaS going from the top of the hill to not necessarily the bottom, but somewhere mediocre. And and when I say SaaS, it means software as a service. And this has to do with the fundamental devaluation in the importance of coding, right? And and and this is AI. And and

that's why I I did watch your interview with Jordi. I would say that it like 1 or 2 years ago, so I had actually never listened to people on YouTube until I left financial services. I worked 25 years in financial services. I was a CEO of three different SEC FINRA regulated broker-dealers. I worked primarily in private markets. I was instrumental in kind of um really breaking through how do we take private shares in these large public companies and disseminate them to the public at large. So I worked for three different companies Securitize EquityBee Vested.

All of them, what we did was we pioneered innovative ways, not to get into the details of it, but it was through these antiquated prepaid uh forward contracts that went back to the railroad railroad era to essentially be able to take these private shares and kind of disseminate them out. And um I worked with FINRA and the SEC to to pioneer this. Kind of how I, you know, made what I made so that now I can trade and do what I want to do. But basically, um you know, pioneering this, so I understand that market and I understand what Robinhood is doing, which is one of my favorite stocks and biggest holdings and what Vlad's doing.

And I and I understand what tokenization is doing, which if we want to get into, which is a huge thing that's going to disrupt the markets of the tokenization of equities. But And and other assets. But there there there's just so many amazing things happening. And and so when I when I look back and I think, what type of an era is this like? Like I I really do think of industrial revolution. I think of railroads. You know, there's a great story. There was some small little like seaside village in England that had like 20,000 people living in it.

And at the peak of the railroad boom, like three companies were building railroad lines from London to this village. Like there's no there was no way that that that that there needed to be three railroad lines from London to this village of 20,000 people on the coast. And yet they were building it because it railroads were so transformative. And I think AI and railroads are a great uh corollary. Um you know, you think about what the world was like pre-railroad.

You want to go from New York to San Francisco. Best thing you could do is get on a boat and go all the way under Argentina, you know, like a 15,000-mile multi-month sea journey. That then gets cut to like 1 or 2 weeks on a railroad, right? Uh across land. Because other and and otherwise you were taking oxen, you were taking horses, you had these mount insurmount- insurmountable mountains, you had Indian attacks, you like the entire world changed with the railroad. And people got so into it and literally we had these barons, right?

It's very similar. It is eerily eerily similar. Rockefeller, Carnegie, um you know um Vanderbilt. Like these types of individuals, Ellison, Musk, Zuck. Like So, we're we're going through this big shift. And it's like you go back on these 80-year time frames. This is tied into the financial history. And you say, "Okay, what is this decade kind of like?" And I think if you really look, and this is why I love the 1950s as a corollary.

I think we had two big events in the '40s '50s right? That affected the economy and the world a lot. We had World War II, which I would equate to COVID. And we And a lot of people forget about this, but we had the Korean War, which I actually kind of equate to the GFC. And those happened in reverse order. You know, World War II was before the Korean War. So, for people that don't don't know about the Korean War, it was 1950 to 1952. There was a very big depression or recession in the United States in 1953.

Um I talked about the 1950s being a better decade for equities than even the '90s, an over 19% average return. So, when people say, "We can't have 20% returns for 10 years in a row." [ __ ] We had it in the '50s. You know, you know, don't tell me like, "Oh, this can't happen." Like we we we we get People are going to say, "Mel, what are you saying? We're going to have 10 years of 20% returns? We're going to have a decade straight?" We did it before. Maybe not in any recent investor's lifetime.

Maybe Jeffrey Gundlach doesn't remember it, but it happened. It happened. So, you think that this this rally that we're seeing from AI will eventually broaden out into the rest of the market. Is that what I'm hearing you say? Yes. And not even not even so much so, but I lean towards some of Vissers' leanings that that this is maybe destructive for some of the monopoly type power that some of these Mag 7s have. And so, I think that ironically at the same point that people came to accept index funds are the best, that's when index funds are going to hurt people.

When people are investing in, "Oh, well, you know what? Who can beat the market?" [ __ ] I beat the market every [ __ ] year. Look, the the market is not hard to beat. Warren Buffett said it. Warren Buffett has said himself, "It's easy to beat the market if you don't have to move around $500 billion in capital." Like people that want to tell you, um "You know what? It's impossible and Bogler and you want to invest in the SPX and um SPX is up like 12%."

I I I'm I'm sorry. People can look at my I'm up like over 100% this year on a million-dollar plus portfolio. This is ridiculous. Like you want to be up 12% in this type of a market? You're you're nuts. You're absolutely nuts. Well, I think uh that's it's it's helpful again to get the history lesson on this. And uh yeah, there there there's a lot of opportunity out there. Um I want to kind of pivot this conversation in a little bit of a different direction. Um you know, you brought the debasement trade and how a lot of people are starting to pick up on this now. At the center of all of this and like what's going on with the the dollar and and the bond market uh is the Federal Reserve. Um and something you've been pointing out that I think is is something a lot of people have been

missing is that traditionally the Federal Reserve is said to have a dual mandate of price stability, so like controlling inflation, and low unemployment. Um but you've been very vocal about pointing out that the original act of Congress that created the Federal Reserve in 1913 actually had three mandates listed. And a lot of people are saying that the Trump administration might want to start bringing this back. Could you tell us what is this third mandate? And what would the impact on the market be if the Federal Reserve starts to have a third mandate instead of those two that it's had for so long? Yes. So, so so And this is one of the things um actually I think Jim Bianco made a tweet on this over the weekend. There was some comments made. Uh Nick Timiraos or some other people, you know,

basically like I think it was Wall I I don't know who it was, but but they were trying to point back to the uh purview of Fed monetary policy in like the '20s and '30s. And the point Bianco was making, and a lot of times I disagree with him, actually. He I think he's a nice, very smart guy. And and a lot of times he makes good points. Sometimes I I think he makes bad points. Uh he he notably thought the Fed was making a policy mistake and there's no problem in the labor market. I think there is a problem in the labor market.

He he he said basically the only reason the labor market wasn't creating more jobs is because immigration stopped. And But But I'm digressing there. The point is is that the the Federal Reserve has a very specific mandate that was revamped, um refined during the 1970s under the Carter administration. The official name is like the Balanced Employment Inflation Act or something. It's colloquially named uh Humphrey-Hawkins.

But when people look at it, it gives three specific mandates for the Federal Open Market Committee. And And again, I'm being very specific here. I'm not saying for the Fed. I'm saying for the Federal Open Market Committee because because the the whole way the Federal Reserve used to set interest rates is very different over the decades. They You used to have one interest rate sent by the the the Reserve Bank of Chicago, and that could be different than New York, could be different than Richmond, could be different than Atlanta, could be different than St. Louis, or So, all of these things are changed. So, to go back and say, "Well, this is what we did in the '20s or '30s." is absolutely insane.

It's insane. That we don't have the Federal Reserve of the '20s or '30s. We have different laws that were put in place in the 1970s. So, you can't say, "Well, we did this in the '30s, so therefore we should be able to do this in the 2020s." No. You have to say, "What can we do under the statute?" And under the statute, the FOMC has three distinct mandates. And they are unem- like manage unemployment, price stability, and make sure that long-term interest rates are moderate. And it's very clear in in the mandate. It's not like not listed. It It doesn't say this is like you know, something to the side that you

shouldn't really consider. And And I started talking about it like a year ago. And nobody else is talking about it. A couple people might have on on X. But nobody in mainstream media. And then Moran brought it up. And he said Meron, I believe is how you I say pronounce it. Meron brought it up and said, "Look, moderate long-term interest rates are just as much as our mandate as is unemployment as is price stability." So, it's there in the law. And Powell, I thought got dangerously close to a removable offense um in the last press conference when he basically said, "Well, we don't really consider it because if we take care of price stability and unemployment, we'll

take care of it. Moderate long-term What? That's not for him to decide. Congress said these are the three mandates. You could just as easily say, "Well, if we take care of unemployment and moderate interest rates, inflation will take care of itself." That That's a judgment call type of a decision that is not left up to the discretion of the chair of the of the Fed. The The Federal Reserve is mandated to maintain moderate long-term interest rates.

Anybody that says, "Well, the Fed only controls the short end of the curve." does not understand history. And again, I'm going back pre-Humphrey-Hawkins, but and this is why I love the 1950s as an example is we had explicit yield curve control, right? So, we had a period where the government said, and it was not until the '50s that it was really lifted. It was the 1952. It's called the the Fed Treasury Accord where essentially the Treasury said, "Okay, Fed, we're going to give you some independence again."

But one needs to remember that Fed independence is a gift from the executive and legislative branches. It's not something guaranteed constitutionally. And so at any point in time, the executive and the legislative branches can change the mandate of the Fed. They can do anything they want to the Fed. The Fed is not like it's not like Article 8 of the Constitution establishment of the Federal Reserve. In fact, the Central Bank is something that from Jefferson to Andrew Jackson over history, Americans have radically opposed because essentially what happened in the beginning of our government was we needed funding. And the way the United States used to fund

itself was absolutely ridiculous. We used to like create bonds and then try to sell them in the open market ourselves. And we often sold them at 40 50% haircuts. Like the US would issue a million dollar in bonds and we'd sell it for 600,000 in the market. And we said, "This is ridiculous." And what happened is a bunch of very because in the beginning of our country, all the money was in Europe, a bunch of very wealthy European bankers said, "Let us create a bank and make no mistake about it, the first central banks of the United States were more or less owned by Europeans.

They said, "We will manage your debt and we'll we'll lower your spread between issuance and actually achieved rev uh you know, incoming cash." And we needed it. And why did we need it? Because the world was on a gold standard. I mean because because because you couldn't just print the money. We can now print there there there's actually no need for the Federal Reserve. The Federal Reserve is anachronistic. The Federal Reserve actually perhaps hurts the country more than it helps. I think that getting rid of the Federal Reserve, uh the end the Fed movement um is considered kind of very right-wing nutso.

I think in the coming years it might become more mainstream and people might say, "Why do we have a Federal Reserve? What what what are they doing?" Because at the end of the day, and this is what people need to realize when they look at that symbol that Powell talks in front of. It doesn't say Federal Reserve. It says Federal Reserve System. System is the key because what it is was when it was set up, Creature from Jekyll Island, all this stuff, Effa D. Griffin all everybody knows the history that that really follows this stuff. This was created by bankers. And who owns the regional banks? The regional banks literally the shareholders are JP Morgan, Citigroup, Morgan Stanley. It's like like it is technically owned even

the Supreme Court when they said, "We can't necessarily equate a Federal Reserve to an independent agency because the Federal Reserve is a quasi-private entity." That was a polite way of saying that it's owned by the banks. You know? So so so that's the reality of the world we live in. We The Federal Reserve is owned by the banks. It's not some independent government agency. So this is a a very long answer to to the question, but I I I wanted to let you run on that cuz I think there's a lot of information in there, the context, the history that's really helpful for the audience that they may not have gotten from other sources. Um and I think that that's it's really important for investors to know about.

But bringing this back to the present day, um you know, you you talked about moderate long-term interest rates being part of the Fed's mandate and how the Trump administration is starting to bring that back into focus. You mentioned yield curve control. Um tell our audience what yield curve control might look like and what might it look like for the market if the Federal Reserve starts to to uh pursue that policy path again um like they have in the past. Um and what what what might they do to actually apply that or to try to get to moderate long-term interest rates? Yeah. So I think what they're going to do is that there's no way that they can let interest rates get out of hand.

And in fact this morning we're seeing uh French yields go up. And this is the problem and this is this is this is a huge problem in Europe is the euro is a fundamentally flawed system. The the the fact that France cannot print its own currency or Germany cannot print its own currency. It wasn't that big of a deal when it was Greece that was in trouble because the ECB could just create the bazooka and handle Greece.

But when you're getting to France and Germany, like there's a problem. France and Germany, and this goes back right to the 50s, right? So we had in the 50s a a recognition. There was a brief period after World War II when we were still kind of frenemies with the Soviet Union and Joseph Stalin where we kind of thought we could just let Europe be in on their own. And and what we realized as the United States, and this is what led to the Marshall Plan was if we don't support essentially through money printing and helicopter drops Europe uh Soviet Union's just going to run over Europe. That we just fought

this huge war to stop some dictator from taking over Europe. And what we're going to do if we abandon Europe at this point in 1945 1946 is some dictator is going to take over all of Europe, but instead of Hitler it's going to be Joseph Stalin. And so so and we did the same thing in Japan. Uh we did a very similar thing to the Marshall Plan in Japan. We're doing the exact same thing now. And guess who were the enemies? Japan worried about China. At the time Europe was worried about Soviet Union aka Russia.

And and I think at the end of the day, these are where the fault lines are going to land. And so as much as the Europeans might not like Trump's personality we just had a huge win for Trump uh with the Prime Minister in Japan this weekend, Takaichi. Uh first female prime PM. The Nikkei soared like over 4% last night. You know, the the the Cold War lines are just completely being redrawn. It's it's Marshall Plan. It's the 1950s all over again. And and it's it's Russia and China on one side same thing in the 1950s, United States in the middle with Western Europe and Japan on the other sides. And then kind

of a ancillary conflict type things going on in Latin America which we also had at that same time. Many people don't realize that many South American countries sided with the Axis, right? They Brazil. Uh most Nazis when they left Germany, they went to where? Argentina. So South America has always been a focal point. Um this is one of the reasons why I love EWZ, the Brazil equities. I think that South America is like I would call it like Joe Manchin. Like like some like they're they're in between, right? They can go either way.

And and because of that they're going to get favored treatment eventually. They're starting off getting tough treatment. Trump Trump really raised tariffs on Brazil. Why did he do that? Because Brazil is so important. Brazil is if we didn't have Alaska, Brazil would be a larger country than the United States by land. Brazil is a huge rare earth. Uh Brazil has labor. Brazil has energy. There was some future movie I think in the company the capital of the world was in Brazil. Like Brazil is like it it's it has so much. That's why I love Brazil. I like one of my biggest calls at the beginning of the years was EEM over SPY. And a lot of people

thought that was crazy. Like why would emerging markets outperform the US in the era of American excep- exceptionalism? And I was like the you don't people don't understand how great this is for emerging markets. Like emerging markets, I think the run is just beginning. I think it's like $53 a share right now on EEM. It's going to be $70 a share in 6 12 months. I mean this is where the alpha is is in these types of areas. Uh I like my biggest bets are Bitcoin, gold EEM. Like I really don't play that much in the US to be honest with you. I I I

a lot of times I'll post things on X about the spy or Qs, but that like those are very small positions to me because to me the big alpha is is outside of the US and it's in gold and Bitcoin. And I wanted to just come back to the question about what would what does it mean if the Federal Reserve starts doing yield curve control? Yes, exactly. So so what does that mean? Great for emerging markets, right? Because what is the big drag on emerging markets? It's the currency. It's it's the fact that emerging markets have to typically >> like what does it mean? Like what does that mean that the the Federal Reserve is going to start buying more bonds in the open market? What does yield curve control mean? Like what what would they actually start doing?

>> Mechanics, yeah. Yeah. Okay, so number one, the first thing that they should do uh is get rid of this QT. Because there there is no reason for them to be rolling off their balance sheet. And I have done research on this. And looking at the size of the Federal Reserve balance sheet relative to US debt outstanding. So, if you just look on like an absolute basis and you look at the Federal Reserve balance sheet, we reached over $9 trillion on the Federal Reserve balance sheet at the peak of COVID and we have rolled off over 2 trillion.

Now, one thing I would like to mention to to people, that's more than all of the Treasury holdings of China and Japan combined, right? So, when people talk about, well, these foreigners could start selling Treasuries, uh the Federal Reserve has basically sold more Treasuries than China and Japan hold. So, there's no threat to there's no threat from China or Japan selling Treasuries. When when people talk about, well, China or Japan could start to sell Treasuries, there's no threat from that. It's a very very small amount. People have to understand the amount of outstanding Treasuries there are and what's held by foreigners. They need to look at tick data. They need to look at, you know, where where is the money? It's a So, I've looked at over the decades

where how much US debt is held by foreigners, how much is held by the central bank, how much is held by US holders. And right now, we are in a situation where we actually have more debt held by foreigners than we typically have. In other words, if foreigners continue and keep selling or not buying Treasuries, we're just getting back to norms. That that's actually what we want because and and the reason why we want that is because interest payments are stimulus. I call interest stimulus. I call it interest stimulus.

So, if we're paying 4% on a 10-year, we don't want that 4% going to China. We want it going to a mutual fund in the US that is owned by a pension fund. We want it going to a bank. We want it in the US. We want it going to the Federal Reserve, which then just recycles it back to the Treasury, which essentially means it's not really an interest payment, right? So, the the key to to managing this massive debt load and this is this is the failure of imagination of people like Elon Musk. And this is what I think people need to really step back from their areas of expertise and and where a little bit of knowledge

can hurt a lot. There's a lot of very smart people like Elon uh Colonel Douglas McGregor, uh I mean, I could all over the the sphere of influencers that think they understand finance and they're saying that the US debt is a problem and I don't think they understand that the US debt is not a problem at all. It's an easily manageable situation. Easily manageable. And so, to to to handle this, all we need to do is have the Federal Reserve buy Treasuries. All we need to do is have banks uh load up on Treasuries on their balance sheet without affecting it leverage reserves. All we need is stable coins. And when people say this is what's going to cause inflation, no, it's not because

and in fact, you had a guest, Hanky, uh a great economist. He said people look at interest rates, debt levels, that's not what's important. What's important is the growth of the money supply. Part of the growth of the money supply is V, velocity. Velocity is extremely small and what that means is that even though dollars are being created, they're not circulating through the system at a very high level because there's not a huge level of credit issuance. And so, there's a there's a potential to substantially increase debt levels, stash them in these places, and not create 8%, 9%, you know, inflation. And so, and so, the fact is

just like Japan, which has like 250% debt to GDP, um that has huge amounts of debt, like 100% of of debt to GDP owned by the central bank, there's huge potential for the Federal Reserve to absorb Treasury issuance. So, the Federal Reserve could conceivably, you know, take their balance sheet from 9 trillion, went down to 7 trillion, could I think conceivably easily take it to $20 trillion in the next decade without creating massive inflation. And that's completely against consensus because what people say, that's money printing, they're putting it on the balance sheet.

The reason we had inflation post-COVID was not because of the debt what that was printed because it it was because what we were doing what we were doing in COVID was we were literally sending checks to every American. And then in a supply chain constrained environment, we were telling them to buy. So, if you literally send out trillions of dollars to Americans and say go buy goods because they couldn't buy services because of the lockdown, and then goods are not coming in because ports are jammed and everything else, of course you're going to get inflation.

And that's that's kind of MMT and and that's what MMT offers and I I am a proponent in some regards of MMT, which has a very bad reputation because a lot of people I think misunderstand it and they think that MMT says you can print as much as you want. That's not what it is. >> What's MMT before you go on on this side? Um yeah, I think just define what MMT is, modern monetary theory, like Yeah, modern money theory um is often called modern monetary theory. Some people But the there's there's a couple main guys that really backed it, started it, L. Randall Wray, Warren Mosler. Um And and what they do

is they they basically say that these models that people base things off of are based off of a gold standard system that that that And this is the simplest way I do it. They don't explain it this way. I explain it this way. There is a fundamental change in the way monetary policy works in 1971. When when money was no longer based off of gold, it became a whole different animal. And to try to look at what happened in the '60s or the '20s or the '30s or in Weimar Germany or or in any of these things, it's a completely pointless exercise because at this point in time, we do not have a gold standard.

We have money that is pure fiat. And and and pure fiat money, you have to analyze it in a completely different perspective. And what you have to look at is where does the government create and spend money that then competes with the private sector in such a way that that competition is going to drive up prices. And if And if you have that scenario, you're going to get inflation. Otherwise, how much money the government creates is relatively irrelevant. Uh Mel, this is one of the big reasons I wanted to talk to you to just get, like I said, like this historical analysis and perspective, but also these very non-consensus takes. Um and you know, whether or not the audience agrees or

disagrees, I think it's really helpful to hear alternative ways of thinking about these problems and and solutions that could be discussed about them. Um really interesting stuff. We're We're getting close to time already. So, I'm going to kind of try to squeeze uh several questions into one. But you've been very vocal about um this idea of the gold war, not a cold war. And for the first time in over 30 years, central banks are now holding more gold than dollar-based debt on their balance sheets. Um just uh you know, to kind of like bring this together, I'm I'm particularly curious about two assets, but like you've been very bullish on gold and Bitcoin. Both of them as recently as today, I believe, have been putting in new highs. Um how long is that roll like uh bull run going to go for Bitcoin and gold? How high is it

going to go? Just walk us through some of your thinking on that cuz I think what the audience would really like to come away from this with is not just a history lesson, but like where's the bull run going? Where's top going to be? And just what are your thoughts around that? Well, very short-term, I think we're actually getting to a point where gold is uh due for kind of a a little bit of a rest um very short-term. But and maybe I'll I'll put out a an expose on my charts and and why I think about that. If people want to go to Mel Madison one, I'll I'll do that later uh today. But basically, um longer-term, this is in my opinion just getting started. Like this is people do not understand. I mean, Luke

Gromen talks about the need for gold to go over $20,000 to equalize China's trade balance. Do I think gold's going to $20,000 in the next 2 years? No. Do I think it's going to $20,000 in the next 10 to 15 years? Yes, absolutely. Um gold what's happening and and this is it might seem antithetical to what I just talked about about we're not on a gold standard, but what it is is it's the recognition that this fiat system, the way it's currently structured, has fundamental flaws. And this is Triffin's dilemma. This was talked about by Keynes during Bretton Woods um in 1944, where he basically said, if you

basically just have USD as the reserve currency, it's going to force the dollar to to to go into total deficit um to foreign creditors because there's going to be this global demand for dollars. It's like it's an unsustainable proposition. It was sustainable, but for 60 years uh or no, actually closer to 80 years, but it's it's no longer sustainable. And so, what's happening is people are going back to what has worked before and what what Keynes wanted back then was gold to be part of a not like a a strict gold standard system. He he he thought so he called it Bancor, which is like a French word for

for gold. Uh if people want to research Keynes, Bretton Woods, the Bancor. Um the way he thought about how do you manage international currency dynamics? And he basically believed that USD as the one reserve currency was fundamentally flawed. Later, a decade or two later, an economist Triffin came out and he kind of really formalized it in what he called Triffin's dilemma. But we're seeing that breakdown. And and Scott Bessent talked about it in a Manhattan Institute interview about a year ago where he said we're going through a reset. I want to be a part of it. This was before he was Treasury Secretary.

And and and China is figuring out ways to essentially buy oil from Saudi Arabia and net settle in gold, do things through the Shanghai Gold Exchange, different things because they have a closed capital account on the yuan. And this whole entire like secondary system is being set up and it's all based around gold. And why are they basing it around gold? Because gold it's worked for thousands of years. It it has that history. Essentially 1971 to 2020 is basically a 50-year aberration in in hundreds of years of history where where where gold it just works. It just works.

It and it's not because I think part of it is cuz it's yellow, to be honest with you. Like like No, honestly, because platinum is a better metal, platinum is more rare, but it looks like silver and you know, kind of palladium. And like the yellow metal, like and this might sound ridiculous to people. Well, the whole world monetary system is going to go based around an element because it's yellow. People are crazy. I mean I mean what do you want me to tell you, John? People are crazy and and and it and it works.

And they got There's two reasons. People are crazy and it works. And gold works. It it it can be mined, but it it can't be forged. It can do things that Bitcoin can't do. Uh Bitcoin has a trail. There's a decentralized ledger. Uh gold, you know, Switzerland could send 10 billion dollars of gold somewhere. That country could melt it down, reformat it. Nobody knows where it comes from, what what happened to it. Uh gold gold has attributes to it that are amazing. Now, Bitcoin I see as digital gold and that's being accepted. So, I think basically what's happening in in in these two neutral reserve assets, these are the two things they're going

to do. They're going to absorb monetary premium because the his the history has been absorbing monetary premium into the stock market and the real estate market. And when you do that, you you create really big problems for society. And we did not get into societal problems, which I see as the biggest threat to our economy going forward, is a potential civil war, uh which would be a whole 'nother conversation. But basically, you know, this we don't I don't think people understand the dangerousness of this moment.

Because what's going to happen is in order to make everything work the way the powers that be want it to work, they're going to do exactly what they did during the GFC and exactly what they did during COVID, which is create the uh circumstances where the wealthy get even wealthier. And that wealth inequality, which everybody complains is a big problem, is going to get worse, not better, in the coming years. And that's why there is going to be a point where you want to pull back from this bullishness because there's there's going to be societal effects. We're seeing it with Mondami. We're seeing it in different places. So, we have Charlie Kirk assassination, all these things.

So, we are at a point that is in parlance, a fourth turning. And and there's going to be big disruptions happening. In the meantime, the markets are going to run, but there's going to come a point where certain things are going to start to break down. SaaS models are going to break down. Social cohesion is going to break down. And so, I don't know if that's 2027, 2029, 2031, but I think that right now the play is to ride the wave. And then there's going to be a point where not only do you want to reduce, you want to just get out of risk. And you're going to want to essentially even gold, everything's

going to go down. And and and you're going to want to actually just hold cash because but but but I honestly think that's at least 12 to 24 months away at a minimum and possibly longer. Yeah, so I really appreciate you bringing the history lesson back to the present day there and kind of helping our audience think about these things. I think, you know, what I'm hearing from you is this debasement trade, this chronic systemic issue we have with central banking fiat is something that is starting to become mainstream news and understood. The Secretary of the Treasury knows we're going through a reset and is trying to, you know, be part of that.

Um and yeah, just like you say, like I think a lot of people who are macro analysts can see the storm clouds on the horizon. Um and the current administration is trying to see if they can, you know, clear those up before we ever get there, keep kicking the can down the road and like, you know, come up with some solution to get us through this. Um but for their audience who's watching this, right? Like it's important not to sit on the sidelines during this bull run, but it's also important to pay attention because things can shift quickly. And uh so it now is a really important time I think to be educated, to be nimble, um and to just, you know, just pay attention basically. Uh Mel, really appreciate your time and the the alpha and the history that you've shared with us and our audience. Where can we

send people to find more of you and your work online? Yeah, um Mel Madison 1 on X and uh my website is melmadison.com. I also wrote a financial thriller called Quoz, Q U O Z, Quantum Oz, about a world where AI and quantum computing take over the markets and central bankers conspire to essentially remove the dollar as reserve currency. Basically, it's Brazil and not Brazil, India, China, and and Russia. But, you know, those are great things. One last thing I would add just really quick is like in the '90s that and this is this is why it's important to be nimble and not get out right now.

Is in the last like 18 months the Nasdaq went from like 2,000 to 5,000. And so, when you're in these periods that many investors haven't seen, I had already graduated from college at that point. I know I look young, but believe it or not, I turn 50 next month. So, I I was a college graduate in the in 1998 and in in and was investing during the dot-com boom. Those were crazy days and and I was working at a brokerage firm and I was working with guys and they were buying things and I mean, they were making insane amounts of money because it was a true bubble and the there's only been really two true bubbles in the last 150 years and

that's really the the late '20s and the late '90s. And if you've never lived through one of those, you don't understand what the markets can actually do. And so, a lot of people are looking at this market and they're saying it's ridiculous, it can't go higher, it and it's like normally that's true in a bubble environment, which I think we're heading into, it can go a lot higher. And a lot quicker. Mel Madison, thank you so much for being on Milk Road Macro. I really appreciate it. Thank you.

And thank you all for joining us. I hope that you all learned a lot. I sure did. Um so, until next time, stay safe, stay bullish, stay educated, and we will see you all in the next episode of Milk Road Macro. Thanks, everyone. Want insights into what's really moving markets and how we're trading each event? Subscribe to our channel, then join the Milk Road Macro and Macro Pro newsletters. This show is for educational purposes only. Nothing we say is financial advice. Investing is risky. Never invest more than you can afford to lose.