The theme in the markets this week was all about increasing government control of the economy and the money supply. The Chinese government poured liquidity into their banking and housing sectors causing equity markets all over the world to rise. There’s new evidence that the government intentionally and unnecessarily killed Silvergate bank. We explain why and how it relates to other illegal use of government power. The Fed cut rates a week ago, and predictably, the price of gold hits all-time highs. Alternatively, the value of gold isn’t rising; but rather, the purchasing power of the dollar is falling. OpenAI, the non-profit that created ChatGPT is considering going public. Based on what we know now, we approve. We’ll explain. DKI has recently been critical of the economic plans of Democratic candidates for political office. This week, we take President Trump to task for a bad plan to “help” those facing high credit card bills. The end result will hurt more people than it helps. In the past, I’ve suggested that the squirrel who lives in my backyard would be a better choice for Chairman (Chair-rodent?) of the Federal Reserve. If this nonsense continues, I may need to make a case that my backyard rabbit should be Secretary of the Treasury.

No idea if they’ll make things better, but I promise they won’t make our finances worse. Would you prefer Powell and Yellen, or these two?

This week, we’ll address the following topics:

• Chinese stimulus. More liquidity and a housing bailout. Great for $LVS.
• Operation Chokepoint 2. @MartyBent and @CaitlinLong_ explain how the government killed Silvergate bank unnecessarily. What were the real motives?
• Gold has been rising for the past few years. The recent Fed rate cut accelerates that trend. We’re now at all-time highs.
• ChatGPT may be going public. Would you want to own a part of this?
• President Trump proposes a cap on credit card interest rates. DKI points out that the unintended result will be loss of access to the credit system for many.

As market volatility increases due more to government action than fundamental performance, the one thing that remains unchanged is the rock-steady performance of DKI’s interns, Andrew Brown and Alex Petrou. They’re back in school, and somehow, their work quality remains unchanged. I’m continually impressed with both of them.

Ready for a new week of market results driven by politicians and regulators? Let’s dive in:

1) China’s Stimulus: Providing More Liquidity:

China’s economy has been feeling a little deflated lately—literally. But don’t worry, the PBOC has swooped in with a playbook full of moves to pump things back up. To combat the deflationary pressures that have been haunting the country, they’ve cut the one-year loan prime rate by 10 basis points, bringing it down to 3.45%. And with mortgage rates slashed on $5 trillion worth of home loans, it’s clear that despite the CCP scolding their subjects that homes are not for speculation, the government is in full fight mode. Homebuyers are getting a sweet deal with down payments for second homes dropping as low as 30%—a move that’s expected to breathe some life into the property market where many Chinese people save and store their wealth. Plus, the Required Reserve Ratio was lowered by 0.25%, releasing billions of yuan into the banking system.

Chinese banks just got additional liquidity. Graph from TradingView.

DKI Takeaway: The stock market wasn’t left out either. The PBOC pledged 700 billion yuan (about $100 billion) to prop it up, with 500 billion yuan in liquidity for institutions to buy Chinese equities. Big names like Alibaba and JD.com are already feeling the love, with shares up 7% and 6%, respectively. DKI subscribers benefitted from the move as expectations of more money flowing into Macau helped DKI stock pick Las Vegas Sands $LVS rise from $42 to $51 this week.

2) Chokepoint 2.0: Banking, Bitcoin, and Financial Freedom:

In their enlightening interview titled Operation Chokepoint 2.0, Marty Bent @MartyBent and Caitlin Long @CaitlinLong_ explored the chilling details behind Silvergate Bank’s closure. Thanks to Elaine Hetrick’s affidavit, it was confirmed that Silvergate was solvent and returned all customer deposits when it voluntarily wound down—debunking previous claims of financial mismanagement. Under pressure from the White House, Senator Elizabeth Warren, and key regulators, Silvergate was forced to drop its digital asset customers, reflecting a broader government strategy to stifle Bitcoin and other digital assets. This is part of a larger initiative, dubbed Operation Chokepoint 2.0, that leverages regulatory power to suffocate lawful industries without passing legislation. Marty Bent and Caitlin Long did a stellar job exposing how the government continues to deny Custodia Bank a master account, despite its fully reserved status, unlike “safe” fractionally reserved banks.

Source: Operation Chokepoint 2.0, The Fed v. Custodia, and the 2023 Banking Crisis

DKI Takeaway: As DKI sees it, this isn’t just regulation—it’s about preserving the government’s monopoly on fiat currency at the expense of financial freedom. The US government has been using pressure on banks to enact policies where legislation would fail. For years, they’ve been pressuring banks to deny service to companies in industries they don’t like despite the fact that these companies are engaging in legal business. This is now extending to killing banks that provide service to clients who custody digital assets. If the government wants these industries to be eliminated, then they should try to pass legislation. Denying banking services to legal companies is a misuse of power – as is killing banks that have enough reserves to satisfy all customer withdrawals. Whether you’re on the left or the right, do you want the government and an unelected bureaucracy to have this much power? (Before you answer, remember what it was like when the party you dislike was in power.)

3) Gold Surges Post Rate Cut:

This week, gold experienced a big surge, driven by heightened economic uncertainty and lower yields on the dollar following last week’s Federal Reserve rate cut. Historically, gold tends to benefit from such uncertainty, acting as a safe-haven asset for investors. Year-to-date, gold has risen by 29.7%, significantly outpacing the S&P 500, which has gained 21.5% since the start of the year. This current gold rally is a sign that investors are understanding the growing risk of sovereign debt and the worldwide slow transition away from the dollar.

Gold investors have waited for years for this kind of move. DKI has been involved.

DKI Takeaway: Over the past year, various global events, including escalating conflicts in the Middle East, the Russia-Ukraine war, rising concerns over sovereign debt, and contentious elections around the world, have strengthened the case for investing in both gold and Bitcoin. An important factor contributing to gold’s price rise is the sanctions the U.S. imposed on Russia at the onset of the Ukraine conflict. These sanctions have signaled to the rest of the world that the U.S. will use the dollar’s status as the world’s reserve currency to punish countries in opposition to Washington DC’s preferred policies which change every few years. Meanwhile, countries like China and India have significantly increased gold reserves, a move historically associated with financial stability and a shift away from reliance on the dollar. For deeper insights into the current trajectory of the gold market, check out our conversation with Onramp Media.

4) Is OpenAI (ChatGPT) Going Public?

Since OpenAI launched its flagship large language model, ChatGPT, in November 2022, the world has witnessed an explosive new AI race. OpenAI has emerged as a leader in the field, attracting over 200 million users weekly. Founded in 2015 by notable figures such as Sam Altman, Elon Musk, and Peter Thiel as a nonprofit aimed at benefiting “all of humanity,” the organization has since evolved in a different direction. In 2019, Microsoft $MSFT invested billions into the company, signaling a shift toward a for-profit approach. What was initially an open-source initiative has now become a closed-source model, making the name “OpenAI” somewhat ironic. This week, the company announced potential plans to fully transition into a for-profit entity, with Sam Altman potentially receiving around 7% ownership. Currently valued at $150 billion, they would adopt a corporate structure like Anthropic and xAI.

One of the more complicated corporate structures. Source OpenAI.

DKI Takeaway: Despite recent challenges, including lawsuits from Elon Musk and the resignation of their Chief Technology Officer Mira Murati, OpenAI’s new structure could unlock more capital and provide increased transparency for investors. Over the past decade, the number of companies going public, and the overall count of public companies have sharply declined. This trend signifies a shift towards private financing through venture capital and private equity, as companies seek to avoid the high costs and regulatory hurdles of public markets. Public companies play a crucial role not just in the market but for society at large. When innovative firms like OpenAI go public, it enables individuals not connected to the venture capital or private equity worlds, to invest and participate in wealth creation. At DKI we’re always in favor of the most innovative companies going public.

5) President Trump’s 10% Credit Card Rate Cap Proposal:

This week’s investor education topic focuses on the potential impact of President Trump’s proposed credit cap and strategies for responsible credit card use. Earlier this week, the former President announced a plan to cap credit card interest rates at 10%, a move that could significantly disrupt the industry. As shown in the graph below, the rapid increase in consumer credit over the past four years has become a major concern for voters. However, capping interest rates could ultimately restrict access to credit for those who need temporary financial relief.

A massive increase in credit which doesn’t include fast growing Buy Now Pay Later (BNPL).

DKI Takeaway: Here at DKI we strongly believe in paying off your credit card at the end of the month if possible. When used responsibly, credit cards are a powerful financial tool. They offer protection against fraud, and can provide financial rewards if managed properly. However, if the proposed limitations on interest rates is implemented, it will lock many people without high credit ratings out of the credit system. This could lead to increased upfront fees and higher transaction costs for both individuals and businesses. Restricting access to credit would have detrimental effects on consumers who should have the choice to pay off their bills or pay monthly interest expense. While high, in many cases, credit card interest expense is lower than late fees on things like rent or other scheduled payments. More government intervention in pricing is never the solution. Instead, increasing awareness and providing education about the potential debt trap that credit cards can present would be a more effective approach.

 

Here’s the video version: https://youtu.be/sqinhOhDZO8

 

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