David Picton, head of Picton Investments, stated that the bond market would swiftly punish the United States if President Trump appoints a Federal Reserve chair perceived as overly compliant, adding that precious metals remain an effective hedge against political volatility.
"There is some connection between the number of posts Trump makes and the performance of the currency debasement trade—that is, gold, silver, and these commodity-based hedges," Picton said.
Early last week, as the administration escalated its attacks on incumbent Fed Chair Jerome Powell, gold and silver prices jumped, with a "sell America" sentiment spreading through the market. On Monday, precious metals rose again after Trump escalated threats against European nations over Greenland and reiterated the view that the US must control the Arctic island, which has long belonged to Denmark.
The Justice Department has issued a subpoena to the Fed regarding Chair Powell's testimony about the central bank's headquarters renovation project. However, the Fed Chair indicated that the criminal investigation is a pretext intended to punish him for not cutting interest rates more quickly.
The investigation into Powell has intensified concerns about how far the White House might go in eroding the Federal Reserve's autonomy. Key decision-makers, including Republican Senator Thom Tillis of North Carolina, have pledged to subject Trump's future Fed nominees to stricter scrutiny now.
Picton's firm manages approximately C$16.6 billion (around $11.9 billion) in assets. He said he does not believe the Fed will ultimately lose its independence, but he characterized Trump's repeated verbal attacks on Powell as "extremely unhelpful."
"If a new Fed chair were forced upon the market who bowed to the President's will, like Arthur Burns did in the 1970s, the market would punish that very, very quickly," Picton said.
Regarding his investment outlook for the year, the CEO believes there is a strong possibility of a global economic acceleration driven by worldwide stimulus measures. Major economies, including the US and Europe, are rolling out economic support measures through monetary and fiscal policies, which include large infrastructure projects and increased defense spending.
"As that happens, the range of markets and stocks that participate in the potential rebound should broaden," Picton said.
In the technology sector, capital discipline is beginning to emerge as a theme within the AI space, meaning the market will likely separate the winners from the losers within that group, he said.
According to Picton, this paves the way for capital to rotate from tech trades into other areas of the market, such as automobiles, restaurants, non-essential consumer goods, and transportation.
While all these factors are generally positive for the stock market, Picton noted that a market correction is always possible. One potential trigger would be a spike in bond yields, should fixed-income investors begin to rebel against excessive government borrowing.
"The 'bond vigilantes' in the market might have something to say about that," Picton said. His firm has increased its hedge positions to cushion the impact should a correction occur.
Picton is bullish on commodities. "A lack of investment in the sector, coupled with rising demand, will inevitably lead to supply tightness, and we may already be at that stage."
Silver touched $94 per ounce during Asian trading on Monday, extending its stunning 148% gain from last year. This marks the metal's largest annual increase since the late 1970s.
Picton expressed a desire for the silver price to pull back somewhat, because "I'd like to buy a little bit more, and I think a lot of people feel the same way." He stated that silver's supply and demand dynamics, exacerbated by inventory shortages, indicate significant further upside potential. "The silver story is very compelling because you need silver. You need it for electrical transactions, you need it in solar. You just need it in the economy."
Comments