Trump, Deficits, Inflation and Gold
November 9, 2026 | In this issue of The Institutional Risk Analyst, we update our readers on the latest results for the WGA Precious Metals Top 25. Subscribers to our Premium Plan have access to the 50 stocks and ETFs in the test group and the latest rankings. But first we wanted to share some reflections on the midterm elections last week and the key issue, namely affordability, a/k/a inflation.
Liquidity & Inflation
One of the reasons why we are so bullish on the prospects for gold and other hard commodities is that neither American political party is able to address inflation or its root causes, namely deficit spending and the related growth in aggregate demand. Add to this general cause of inflation the periodic need to bail out the government bond market and it is a wonder that the reported levels of price increase are still under 4%.
Why does the Fed need to bail out the debt markets? Because in the absence of adequate liquidity, the US Treasury would default on its debts. Of course Congress could and probably would command the Fed to buy debt directly from the Treasury, something that is currently prohibited by federal law. But such a canard would have very limited utility. When Alan Greenspan said that the US government would never default, he was very wrong.
Liquidity is something that everyone in the market needs but nobody can define or even measure. Banks and nonbanks alike have rules about maintaining minimum levels of capital and liquidity, but most well-managed, efficient commercial enterprises actually operate with net negative working capital. The workings of the US economy depend upon private companies being able to borrow working capital. Thus rising bond spreads and falling credit ratings for tech companies is a very bad sign.
The Federal Reserve Board models aggregate market liquidity as a percentage of GDP, but within that huge aggregation are a multiplicity of counterparties who have different levels of risk appetites and liquidity needs. As we learned in December 2018 and again in March of 2020, liquidity can disappear in a matter of hours, leaving the central bank with the unenviable task of replacing suddenly absent cash in order to prevent the markets and the entire global economy from tipping over.
As interest rates and levels of delinquency have risen in 2026, the topic of liquidity is again top of mind, both in the mortgage market, the bond market and even the world of global equity. Whether one speaks of rising defaults in the world of private credit and AI, or the market for government insured mortgages, liquidity is the topic de jour as 2027 begins.
Inflation and Politics
One viewer of “The Wrap with Chris Whalen” hosted by Julia LaRoche said the following:
“I value your thoughts but think you are underestimating the damage ‘moderate’ Democrats will do to what’s left of our freedoms at the state and federal level. Single party rule left 100 million dead in the last century and with 20 million new Democrat voters since 2022, single party rule in the U.S. appears inevitable.”
Of course conservatives always feel this way when the Democratic Party does well at the polls. But as we keep reminding our colleagues, the Democratic Party has been an authoritarian organization since the New Deal and, as a result, is now in serious danger of breaking into several pieces. The electoral success on November 3rd may make that disintegration inevitable.
The ascendance of Donald Trump to titular head of the Grand Old Party reflected a similar authoritarian construction in terms of governance, one reason why we view the midterm election defeat of Trump as a Godsend for Republican Party. Trump cares nothing about inflation or debt, but somehow convinced a majority of Americans that he had a plan to “make American great again” as he played chess against the "Deep State." Remember this nonsense?
David Jensen wrote on Substack last week:
"If we believe that a guy whose companies were bankrupted 6 times could play 12-D chess, that might make sense. And if we were to believe that Trump who was a pro-abortion, limited 2A gun rights registered Democrat from 2001 to 2009, really was conservative and fiscally responsible and was going to “make America great again”, that might make sense."
By ending Part II of the Trumpian Fantasy two years early, Republicans can rebuild the party along more traditional lines and values. But cadres in both parties should realize that, their personal political ambitions aside, there is only one issue facing voters and the nation: inflation. Everything else is just noise.
When the The U.S. Bureau of Labor Statistics reported that nonfarm payroll employment rose by 165,000 in October, and the national unemployment rate dipped to 4.1%, it never occurred to anyone in the Big Media that this hot economy evidences rising inflation.
Having a $2 trillion deficit that is 6% of GDP almost ensures that the Fed will never hit its 2% target for inflation – at least not without a catastrophic market correction. But wait for it.
Just as ending the Trump project early will benefit Republicans, the Democratic win in the midterms focuses increased attention on the contradictions within the party and its leadership. How does this schism impact business and markets? Very nicely, thank you. Gridlock is good.
We suspect that the Democrats will now be forced to move right to defend their new won positions in a number of reliably red states. More, we think that the infantile leftwing appendage known as the Democratic Socialists of America (DSA) will now be marginalized by the more moderate Democrats who won most of the new seats from Republicans in Congress last week.
Ponder the sage wisdom of Erik Engquist of The Real Deal:
“Pessimists have been worried that after the election, Mayor Zohran Mamdani and a larger-than-ever contingent of socialists would drag Gov. Kathy Hochul to the left on measures like statewide rent stabilization. But the pessimists are wrong. Hochul utterly crushed her Republican challenger, Nassau County Executive Bruce Blakeman, by 20 points — 15 more than in her wobbly win four years ago. She’s going into 2027 stronger than ever, with a mandate from voters and buoyed by moderate Democrats’ wins in congressional and other down-ballot races.”
Trophy Office Rents Hit Record
Americans like to talk about politics, yet just about everything in America today is about inflation, aka “affordability.” Whether we talk about the propensity of the US Treasury to issue T-bills or diesel fuel stocks bottoming out in the Eastern US or the blue wave in the midterm elections, inflation is driving the conversation regardless of what our so-called leaders think that they want to discuss.
Consider an example from a long-time reader named Paul who works at Jones Lang LaSalle, which just issued a report on office rents in trophy properties.
“NYC Trophy rents have hit $300 per square foot (psf). That's 6X the $50 of 1998. The top lease, at $375, is 7.5X. And $300 is becoming standard 3x faster than $200 did: in 4 years vs 14. What happened to the post-COVID predictions of office doom?”
Well Paul, outside of trophy properties in midtown NYC, office doom does continue in moribund cities like Los Angeles, Seattle and Chicago. But more from Paul:
“NYC office inventory has declined since its 2021 peak, and Class A and B vacancies have been falling since 4Q2023,” he continues. “Meanwhile, trophy vacancy is at a record low, with virtually no near-term new development in the pipeline. That means more competition for the remaining space, for trophy and non-trophy occupiers alike. Why does $300 matter to all tenants? Because the top of the market sets the pace for everything else. Putting it in financial context, since 1998:
• Trophy rents at $300 psf = 6X
• S&P 500 = 13X
• Gold = 14.17X
• The dollar's buying power measured by the CPI since 2008: -51.4%
“Does $300 today feel that different then from the $175–$200 trophy rents of 2007 and 2008? So, what does this signal mean for business planning? When evaluating today’s pricing, a good place to start is a company’s occupancy cost ratio: how does it compare with the ratio when a current lease was signed?”
Bottom line: We like gold and trophy real estate more than fiat paper dollars.
The WGA Precious Metals Top 25
“Goldman Sachs has lowered its gold price forecasts for the end of 2026 and 2027, citing the Federal Reserve's increasingly hawkish monetary policy stance and its impact on investor demand,” reports Fiona Craig at Yahoo Finance. “However, the investment bank maintained a positive longer-term outlook, supported by substantial central bank purchases.”
Gold prices have been falling all year, but global governments led by China continue to buy physical gold in quantity. The People's Bank of China extended its gold-buying streak to 24 consecutive months in October 2026, adding 830,000 troy ounces (about 25.8 metric tons) to its official reserves, Bloomberg reports. The move is significant because central banks have been among the biggest drivers of gold demand in recent years.
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