Mark Thornton: The Most Overvalued Stock Market Since 1927? Why Gold Could Win Next

**Mark Thornton** (0:00)
The stock market right now is more overvalued today than it has been over the last 150 years. The only period that was more overvalued than it is right now was 1927 There could be more downside ahead, but I think it looks like a bottom to me.
I think the likelihood of a severe outcome is very high right now.

**Maggie Lake** (0:31)
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You called Warsh's nomination a hit job on precious metals. How so? What do you mean by that?

**Mark Thornton** (1:02)
Well, I mean, precious metals were doing fantastic and they were due, they were definitely due for a correction. But if you'll notice, President Trump nominated Warsh, and of course, the big New York City bankers know about this in advance.
Nominated Warsh, and within hours, the price of gold was tumbling, the price of silver was tumbling, the price of mining shares were tumbling, and suffered an incredible loss right off the bat. I mean, that initial loss was incredibly difficult because Kevin Warsh was the least likely nominee. He was the least likely to comply with interest rate cuts. He was the most hawkish of all the four nominees that President Trump was considering.
And he was nominated during that little bubble period when a correction was overdue and where market players could run through all of the stop loss orders in the marketplace and break the market wide open, and punish all the people who had been investing in gold and silver. And so, you know, he's known as a hawk. He's been playing that up. He was before Congress recently, you know, playing that up saying the Fed is absolutely committed to the 2% target and no inflation and blah, blah, blah, blah, blah. But, you know, these things about 2% target, these things about, you know, balancing unemployment and the inflation rate so that the American household is all well and good, that's just political baloney, essentially. The two mandates of the Fed are to make sure the government can finance its debt and its deficit. And the other thing is to protect the people in the industry that they come from, which is banking, the big city banking. You know, that's who used to actually own the Federal Reserve, but now a lot of the players are, you know, academics and politicians and actual players in the banking industry itself. And so they want to protect banking, prevent crises and all that, but they really want to be able to finance the government deficit and the government debt. Those are the two real mandates.

**Maggie Lake** (3:54)
Do you think gold has found a bottom here or is there more downside ahead?

**Mark Thornton** (3:58)
Well, there could be more downside ahead, but I think it looks like a bottom to me. I think there's a stubbornness in terms of any kind of downward pressure on silver and gold prices. I think there's a stubbornness right now in terms of silver mining and gold mining shares. And I think people are sort of circling around and the smartest of people are reloading with more gold and silver like the Chinese are, for example. I mean, the China and a lot of the other central banks are loading up on gold.
And then people who use silver are loading up on silver inventories. And so I think the smart money is at work right now. But the steering currents of this marketplace have yet to take hold, have yet to influence. These are things that affect speculators in the market, but not necessarily the long run prospects of gold and silver prices. So the speculators, the short termers are looking at things like the value of the dollar, which has been stronger rather than weaker, even though, you know, the charts clearly show that the value of the dollar, the long term trend is down.
The value of the dollar is down. So the speculators are worried about that rising value of the dollar. And then, of course, interest rates. You know, interest rates have kind of stabilized right now.
But of course, if you look at the long term trend that the Fed is fighting, that the Treasury is fighting, that long term trend has gone from a 40-year period of downward interest rates, lower and lower interest rates. And now, in the last couple of years, that trend has reversed to higher rates. And right now, again, short-term steering currents that the speculators pay attention to, interest rates are relatively stable. So you've got the value of the dollar, you've got interest rates, and then you have expectations about central bank policy. And right now, the expectations in the market are for higher interest rates. We went during that previous heyday in gold where, you know, the people, the whole market was expecting lower cuts in the federal funds rate. And then, of course, more recently, those expectations disappeared, and the current expectations are for increases in the monetary policy target interest rates.