If the Next Fed Chair Becomes a ‘Puppet,’ the Bond Market Will Punish the U.S.
①David Picton, CEO of the well-known asset management company Picton Investments, stated on Monday that if President Trump appoints a Federal Reserve Chair perceived as overly compliant, the bond market will swiftly penalize the U.S.; ②Picton believes that precious metals remain an excellent hedge against political turmoil.
Cailian News, January 20 (Editor: Xiaoxiang) David Picton, CEO of the renowned asset management company Picton Investments, stated on Monday that if President Trump appoints a Federal Reserve Chair perceived as overly compliant, the bond market will swiftly penalize the U.S. — while precious metals are still considered a high-quality hedge against political instability.
Picton noted, “The volume of posts on Truth Social, Trump’s social media platform, is currently correlated with fluctuations in currency depreciation trades (such as gold, silver, and commodity-based hedging transactions).”
Early last week, as the government intensified its attacks on current Federal Reserve Chair Powell, prices of gold and silver surged, and sentiment of ‘selling U.S. assets’ spread across the market. On Monday, Trump escalated tariff threats against European countries over the Greenland issue, reiterating that the U.S. must take control of the Arctic island that has long belonged to Denmark, which also caused precious metal prices to rise again.
Picton, which manages approximately CAD 16.6 billion in assets, stated that he expects the Federal Reserve will ultimately not lose its independence. However, Trump’s repeated verbal attacks on Powell are ‘extremely detrimental.’ ‘If the new Federal Reserve Chair becomes a figure like Arthur Burns from the 1970s — subservient to presidential will — the market will swiftly impose severe punishment,’ emphasized Picton.
Currently, the Department of Justice has issued a subpoena to Federal Reserve Chair Powell regarding his testimony on the renovation project of the Fed’s headquarters. In response, Powell stated that the criminal investigation is merely a pretext aimed at punishing him for not accelerating interest rate cuts.
The investigation into Powell has rapidly heightened concerns about how much the White House might erode the independence of the Federal Reserve. Key lawmakers such as Senator Thom Tillis of North Carolina have pledged that Trump’s nominee for the Federal Reserve will face stricter scrutiny.
U.S. Treasury Secretary Bessent previously hinted that Trump plans to formally announce his nominee for the next Federal Reserve Chair around the time of the Davos Forum to eliminate market uncertainty as soon as possible. The main leading candidates include Fed Governor Waller, former Governor Kevin Warsh, National Economic Council Director Hassett, and Blackrock executive Rick Rieder.
Be vigilant against a potential spike in U.S. Treasury yields.
When discussing this year’s investment outlook, the CEO noted that global economic growth is expected to accelerate significantly due to stimulus policies. Major economies, including the U.S., Europe, and China, are implementing supportive measures through monetary and fiscal policies, covering major infrastructure projects and increased defense spending.
“As these measures are implemented, the scope of market participation will expand, and more stocks are expected to benefit from a potential rebound,” Picton said.
In the technology sector, capital discipline is gradually becoming the main theme in the artificial intelligence segment, with the market likely to differentiate winners and losers in this field. According to Picton, this will pave the way for funds to flow from the technology sector into areas such as automobiles, catering, discretionary consumer goods, and transportation.
However, despite these overall positive factors for the stock market, Picton pointed out that the possibility of a stock price correction always exists – a surge in bond yields could be one of the triggers if fixed-income investors begin to resist excessive government borrowing.
“The bond vigilantes may have something to say about this,” Picton said. His firm has increased its hedging positions to cushion against potential market corrections.
Remain optimistic on precious metals prices
Picton remains optimistic about commodities. He pointed out, “Insufficient investment in this area coupled with rising demand will eventually lead to supply tightness – and we may be at that juncture.”
Spot silver prices touched an all-time high of $94 per ounce on Monday this week, extending last year’s astonishing 148% gain – the largest annual increase for the metal since the late 1970s.
Picton admitted to hoping for a pullback in silver prices, saying, “I hope I can buy more, but I think there might be many people holding the same view.” He noted that inventory shortages indicate greater upside potential for silver due to supply-demand dynamics.
“The story of silver is extremely compelling because it is indispensable. The electricity sector needs silver, the solar industry needs silver, and the entire economic system relies on silver.”
