Transcripts

Erik: Joining me now is Bloomberg macro strategist Simon White. Simon prepared a slide deck to accompany this week's interview, registered users will find the download link in your research roundup email. If you don't have a research roundup email, it means you haven't yet registered macrovoices.com. Just go to our homepage, macrovoices.com.

Look for the red button above Simon's picture that says, looking for the downloads. Simon, it's great to get you back on the show. It's been too long. I want to dive right into your slide deck 'cause there's so much to cover today. Let's start on page two. You say Infl. Is a three act play that we really need to be thinking about a return to secular inflation.

And a lot of people said there was no catalyst. I think we got our catalyst, didn't we?

Simon: Yeah, in, that's I think that's that's absolutely right. Eric, I think this is playing out in a way that's very analogous to the seventies, which is why a there and I think most mispriced at the moment, I think mispriced before this war with Iran started, and I think it's even more mispriced now.

It certainly seems that transitory is back and forth. If you look at the CPI swaps, for instance, they show a quite sharp rise in inflation over the next few months, expected maybe peak out 3%, then very quickly goes straight back down, and 12 months. I think we're looking at 0.8% and spot C, which is basis points higher.

Term break have to five, maybe 20 basis points. The started, but the has five to basis points and I think the memory is kicking back in. Inflation will always go back to target. I think that's I think that's quite complacent and that's why it's helpful to look.

Is perfect. But, the seventies does have an uncanny amount of common commonalities with them today. And also the one thing that doesn't change is human nature. Human nature is immutable and inflation is as much of a psychological thing as it is an actual, financial phenomenon or an economic phenomenon.

So the chart on the left was something I first used 22, so almost four years ago. And it was uncanny because I updated it. And so the blue line shows the CPI in like level, not the growth from the late sixties into the late seventies, early eighties. And the white line is today. And so I updated it on today at the end of Act two.

So the way I thought about it's act one was when inflation first hits new highs. So this time round, that was the pandemic. First climb round in the seventies. It was on the back of we had a lot of fiscal because of the Vietnam War. We had LBJs, great Society, Medicare. We already had quite loose fiscal policy.

Inflation started to creep up much higher than expected. And then we went into act two, which was like the premature all clear.

Inflation, a temporary phenomenon wasn't gonna be much of a problem. Gonna back in fairly quickly, and that feels like where we've been over the last couple of years. But you, inflation not back to target, stayed Target. So remains elevated. And if you look actually where act two ends, match October. The beginning of the yo Kippur war.

And that in itself is a comparison work looking at, there's a lot of differences with that war, but there's actually a lot of commonalities that definitely makes it looking compared to, what we're seeing today. So back then it was a surprise attack. It was the Arab states led by Syria and Egypt on Israel and attacked.

It was a very short war. It was only three weeks, so this war is not yet three weeks. Initially, it was expected to be short, but that's looking less likely now. I think as an end of April ceasefire now down to 40% probability from something like 65% not that long ago. And you had obviously a major oil shop in response to this this war because what happened after the war, after the three week war was that the US state aid to Israel and the Arab states decided to have an embargo on oil.

And that created this huge oil shop. So oil prices managed to quadruple in a matter of months. That's quite a significant oil shop. That led to the Act three, which the comeback, this massive in inflation the end of the decade. And it really didn't end until you got in this exceptionally high interest rate heights, the Saturday night special that really managed to break back inflation.

Look the further commonalities,

the Middle East

also. Next slide. You look at the then, so market, back then, this was the time of the nifty 50. So this was a set of stocks that everybody thought they had to own. They had great earnings, they were great businesses, and pretty much everyone owned them excuse me. And similar to today.

So we had very narrow leadership. In fact, it wasn't until the tiny, the banks and the magnificent seven that we had such narrow leadership again, as what we had back in, in the early seventies. Extremely narrow leadership as well. Before, just after it started, stocks had already sell off maybe 10% the months before the following year, they sold off another 45% and that the largest sell off we've seen since the since the great, so we saw significant stock sell.

Now, that's not to say, that we're gonna get the same thing playing out here. There's a lot of differences obviously today. The US is a major oil producer. This is not the same, exactly the same states that are involved. The choke point here is not an embargo, it's the of hor. And there is still nonetheless, choke point in the supply states.

But I think it's worth bearing in mind that, as a non, just given, we're in a sort of not similar situation and kind of nail the coffin, if you like in some ways for why be. To the, is that even though this massive in market in

and also households compared to financial assets, which much lower back then it's much, much higher back to date. So really it's the number of reasons why. You could see things, we're not see a more deterioration obviously, or to get anything like that, but given some of the commonalities, I think it's worth in, especially when you look at the market today, it just does seem, again, there is some complacency in stock market been to believe.

I think that there is some sort of tackle on the way and therefore, it's not really worth market trading down too much. Even if you look at the food spread. So the V went up initially a lot of that was, first of all it was driven by cold spreads falling, and then it's driven by food spread rising.

So people were putting on insurance, but then they quickly monetized. I think those monetize those edges and that spread start to come off. And so the V has started to come off. So really I think the markets getting to the point where it feels like, you know what, this isn't gonna be a major issue.

We don't have too much to worry about here. Not ready to obviously rally and making your highs again. So get overly knickers. I'd argue along with inflation, that's something that is beginning to look a little bit complacent.

Erik: Simon, let's go a little bit deeper on some of the both differences and similarities between the Yom Kippur war and the present conflict.

The Yom Kippur War was really a war of solidarity. As you said, the US had sided with Israel. Basically all of the Arab states together went in on the Arab oil embargo. You have a very different situation today where the US has once again sided with Israel in a conflict with Iran, but now Iran. Does not have solidarity of the other Gulf States.

In fact, it's attacking the other Gulf states that are allied with the United States. It seems to me there are still similarities, but there are some almost diametric opposites in some aspects of this. How do we sort that out and make sense of, what extent the economic outcome might be the same or different?

Simon: Yeah, I think as hundred percent, I alluded to that there is a number of differences. And so that puts you in a point where, no analog is gonna be perfect. But I think when you combine it, as I say with the overall inflationary backdrop, where we're in terms of this free in the seventies, you could argue that what happened in the seventies were a series of kind of quote unquote bad luck that inflation rising.

Inflation, as I mentioned, we had already the war, we had the fiscal expansion on the back of the society. And then you had, 1971 was Nixon closing the gold window. Then you had the Arab oil embargo, the war. You had the end of the decade, you had the Iranian revolution. You could argue all these things were bad luck, but they're also hitting a situation where inflation was already in a different regime.

So I think that's the thing to, to note the differences of when you're an inflationary regime, lots of things can happen, right? Things will always happen. But if they hit when you're already an inflationary regime, they're much more likely to have bigger inflationary impact. You know that's where we are today.

It's very uncanny if we happen to look, compare the two analogies that almost to the month when you get this sort of premature all clear ending. When the yo war started as when the attacks on Iran started. Yeah I wouldn't wanna over the point in terms of the analysis, the there's so many precedent that makes it worthwhile looking a little bit deeper into, for instance, another one that's very interesting is an underappreciated fact that in the seventies the food shop was actually much bigger than the energy shop.

Effect on C. So if you look at the weighted contribution from food and from energy in the 1970s, it much bigger for than it was for energy. In fact, food inflation was already rising before energy. This time around we have the disruption to the straight of our moves. That obviously doesn't just affect energy prices, it affects energy products.

Lot stuff that goes re produced in that region or has travel through that region. So Iran itself produces a lot of, there's a huge amount of sulfur flows through the, all these things go into and in fact further into presentation, if we go to lemme just find this slide. If we go to slide eight.

We can, there actually, you can see the two shots. So the Blue line chose the good shot after OPEC one the shot. And you can see again after OPEC two, the Iranian revolution, both times the, and today already we have, if you look at the contribution to CPI, the US CPI, that is from food. It's it's higher than ER energy already.

So if you have this effect getting into, fertilizer prices, and that's what I to show on the chart on the right, on slide eight, you can see this fertilizer include some of these I mentioned along with things like bot, when that starts to, it's a very reliable by the six months that CPI will start to rise.

So I don't think that. And especially I think if you take account have very unlikely you're not gonna get some second. Feed into core inflation. And you get the sticky inflation that we saw in the 1970s, and that's a lot more troublesome for the Fed. In one sense, it should make it easier because the Fed can then go, if we see inflation, that's something we think we can do something about. We'll high, but with the. Mute, muted. Sorry. Next, Kevin coming in, whether he's gonna lean towards the do the spectrum I certainly think he's more likely to be more like an Arthur Burns who was in the, in seventies times.

He's likely be

I 19. So I think that further complicates the matter in terms of what the best reaction functions gonna be.

Erik: It seems like the analogy that's most relevant is the Yom Kippur War only lasted a few days, but the Arab oil embargo lasted quite a lot longer than that. So the question is, once the direct kinetic conflict is over, how long can Iran continue to disrupt the flow of traffic through the straight of four?

Is that the right thing to focus on? And if so, what's the answer?

Simon: Yeah.

Key message, I think from that period was the war itself was very short. Say it was about a few weeks, but the impact was felt way through all through the decade. And I had a number of consequences. So again, no analog perfect, but the human side of things, it doesn't change how humans respond. Human nature responds.

It doesn't really, in fact, I can see that this two nature of the two different shops, if we go to slide then six. So we've got two more charts there. And this brings me to another point, which I think needs to be made is that I don't think the yield curve is pricing in what's looking to be much larger inflationary shop than for instance has been picked up in the breakeven market.

So the left chart we can see there is whats did. OPEC two. Both cases they ended up, did rise quite considerably, but they long after, if you liked CPI, already started rising kind late. But both times they did rise. And if you look at the chart on the right there, you can see the two, the nature, the different nature of the two shocks.

So OPEC one was definitely more of a permanent shock to oil prices. So really oil prices never really revisited. Pre OPEC one or pre-war, pre war levels, again they just kept rallying through until OPEC two hit the Iranian revolution in 1979, they sharp again, but nowhere near as much in percentage terms as they did O one, and then they gradually start to fairly soon after.

OPEC two was more transient, the more transient, but in both cases, if you look at the bottom, you can see core and in the interim, OPEC both made a higher. Early eighties, and again, it wasn't until Paul Volker got his hands on monetary policy that he was really able to put an end to this this huge inflation that it had through that decades.

Erik: One of the theories of secular inflation is that it's a self-reinforcing vicious cycles. So as you begin to see inflation, it changes consumer behavior. People start stocking up on things because they wanna buy it while the price is still cheap before the price goes up more, that causes more consumption than.

Is inflationary and it all feeds on itself. And you, it's like a fire that once you've started it, you can't put it out. Are we already at that point in terms of this coming inflation cycle where the fire has been started and can't be put out? Or are we still in the need to look at this and see what happens?

Stage

Simon: We're in, we're already in that my quite clear that what began in 2020 with the pandemic large spike in inflation was the beginning. That, that cycle starting and really what's happening underneath is that why 2% inflation for whatever reason, an but 2%, around 2% inflation overall, like over the whole economy tends to be fairly stable.

And I think that's because all the different actors that are taking price signaled off one another when inflation is not moving around that much. They tend not to go out sync. Once the cat outta the bag, like once you have this large rise in inflation, which we saw in the early 2020s, they get all, it'll sink and it takes a huge amount for them to get back.

And and you end up with inflation remaining elevated. So you can split CPI up, for instance, into, components. So you can look at essentially non components and what you noticed in 2020 is structural start to fall, but the structural one remained more by the time the structural fall, because you can tell by his name cyclical has started to rise again and start to reinforce.

Structural inflation was already elevated and we're right in that period again, now where structural had stopped to fall at a higher low, but the cyclical part of it is already rising again, and this war is just gonna make it worse because obviously the immediate effect is on headline inflation.

And so straight away you're gonna see that feed through into the cyclical side of things. Once again what was 0.4% we're now C 3% and pce, they're gonna look like again, equivalent to what we saw in the mid seventies after the, this is the point where we start to see a rise again. I know how far it goes.

Again, the U US is much more insulated and than it was back then. But I think you do see a re-acceleration. And the real kind of, if you like, the real kind of tinder in this is that as I say, going back to Kevin War, you've got someone that's coming in that nobody's really sure is gonna be an inflation fighter.

In fact, quite the opposite, quite possibly. Which is actually a bit odd, just the slight deviation. But connected is, it's strained. If you look at real yields have been rising. So real yields have been rising since the war, and that's been driven by higher rate expectations.

So that's part of the rise in nominal yield. So evens have moved a bit, as I mentioned, but really the bulk of the, so far have been real. And that's on the back of as say, expectations are gonna higher seems a little bit, given, and the conditions that, not conditions, but the circumstances under his nomination.

And a president who still makes no bonds about being absolutely determined to get lower rates immediately. He was saying so only a couple of days ago yesterday. So I feel that is also adding to the structural kind of impediment for inflation to, to keep rising. Go back to the yield point I was mentioned.

So I think yields as say, are not priced for an shock. And I think one, one thing we'll see, the yield curve will steepen. So if we go to slide seven on the look, basically how grays and real yields behaved in the seventies. Now, there was no real yields in the seventies because didn't start trading until 1997.

But you can synthesize real. So you basically look at how reals have traded laterally versus a whole bunch of different economic market indicators. And then you can back it out and look at how and build basically a series of in the seventies. So far there we can see again the dip, OPEC and OPEC two and how the yields behave.

So in both cases breakevens rose. Pec what happened is that you put shock to greats, but then we had equal opposite shock to, that's textbook sta what happened in pec pec two even buts stayed largely static. And I think that was basically for two main reasons. One, the US response to OPEC one.

So the US became less energy intensive and more energy efficient. And a lot of non OPEC production came on street completed, like Alaska and the North Sea. And on top of that, you had, or very soon after the Iranian revolution, you had Paul Volker at the Fed and that kind of cushion under how far uhs could fall.

So in OPEC one, the maybe didn't amount.

Steep. And he as mentioned earlier for not believing that central bank much, let shock inflation was of the view that by and large most inflation shock couldn't be solved by a central buyer. And in fact, he was the guy when he was at the bed he got staffers working on some of the first measures of core inflation.

And then to the decades he kept on taking out more and more core inflation and a frantic hope that something would be going down which he discovered wasn't the case. We, we have this very banker who doesn't really believe central banker, who doesn't really believe that inflation is something he can do much about.

So short yields fell. So steepened, OPEC one and OPEC two. Little bit, but had Paul Volker who massively curve flat. But this time I think in some ways be

rise. So I think that move, thus that we see this muted move, I don't think that'll last. And that this should rise more from, the relative status.

You're gonna see lower weight. So I think I would lean curve seating.

OPEC one is as similar to what's happening today. There are, as we covered to some similarities, but there's a lot of differences as well.

Erik: If this was 1973 all over again, and clearly you've said that it's not exactly a perfect analogy, but to the extent that there's a lot of overlaps, 1973 was not a good time to have a long-term bullish outlook on buying and holding stocks for the long haul.

What does this mean for equity markets for the rest of the decade?

Simon: I it's interesting now. It depends who you speak to. So I've got a lot of stuff, some friends and people I know that speak to commodity people. And they're overall a lot more bearish than rates.

People you seem to be overall less pessimistic. I think, again, going back to what I said earlier, I think that there's still this sort of belief that there's some sort of an attack on. Even more than that. I think the big difference is that ultimately there's atop and if things get really bad the Fed can step in.

I'm not saying that's what's gonna happen right now, but you're always gonna have that tail covered. So the commodity markets can really price in extremely kind of negative outcomes. They don't have a less lender of last resort, right? So there's nowhere to go. If your commodity market sees for whatever reason, there's nothing really can be done.

There's no backstop in the way that you have for financial assets. And so I think that sort of explains why we have that today. And, 1973, I don't think we, we had that to the same extent. It wasn't this belief that the Fed was always gonna protect efficacy returns. So that's why you probably had that situation where you had this huge shock, much bigger than the energy shock we've got today.

Combined with a that was yes, it was overall more dubbish, but this is the decade monetary policy where, policy came back, then you tightened it, and then you're like, oh, listen policy again. Back and forth, back and forward. There's huge amount of volatility underlying there obviously.

Makes it more likely or yeah. Increases the chance that you can have deeper falls in the market. And so you don't really have some of that today. But it does seem, as I earlier, that feels the market overall being more complacent. Even with that in mind, that there is a backstop, that there is still a potential for some sort of still seems to be some sort of complacency.

What especially.

Initially there was the response to let's hedge some downside, but very quickly that reversed. It was almost as if like the market went, oh, maybe I don't need such outta money here. Maybe the market's not gonna sell off that. In which case I don't need this insurance right now. So again, that, that sort of me, just because distribution are still very right there still a lot of moving parts.

Most unpredictable. Back in the seventies we had a lot of volatility, political volatility. Again, I don't think he had anyone quite as volatile and he was able to obviously voice his volatility in such a realtime manner than we've gotta, that puts a lot of people in a sort of frozen moment, like move money.

They're fearful that they can't really put much risk on because so much could change.

Erik: Simon, on page 11, you say gold is a hedge against both tails. Elaborate on that please. But also I think it's relevant to point out if we're looking at the analog as being the 1970s. Private ownership of gold wasn't re legalized until 1974.

So there was a very big transition catalyst there where it became legal once again to own gold bullion, which probably disrupts the data. How should we think about this in the 2020s?

Simon: Yeah, that, that's a good point. I think. I think there's also another disruption at the yellow side as well because the data on this chart goes back to the late twenties.

Thirties was essentially the USSC gold ownerships gold, I think 20 so quite possibly could up in that period. I think. I think that's why gold misunderstood though, was that it's to some extent an inflation hedge. It's not a perfect inflation hedge. It's not dependent. Inflation goes very high. You're in that sort of environment. It does a good job because you've got the things and the general kind insurance against system.

It's appreciated that it's also a downside tail as well. And I think what has been driving a lot of the rally recently in is this is the lack of alternatives. If start thinking about, I dunno what's gonna happen, I, whether we're gonna basement world where there's a lot inflation, I dunno whether there's gonna be a massive credit event.

And that's gonna be deflation rate. These are potential threats to the financial system. What can I own? You record of protecting a portfolio in such an environment and there's really not much else other than gold. I think people ran through all the options. They're like that would work.

That work Bitcoin that hasn't been tested and they landed upon gold. And a lot of people that. Generally openly admitted. They've never, ever really tapered gold. They've never been a fan of gold. They never understood it, are never nevertheless starting to add or have started to add some exposure to their portfolio.

So I think as an uni of collateral really is what's driving it. And although struggled a little bit over the last few weeks. I think it's premature to say that's the end of the primary trend because a lot of the main reasons that driving it are still valid today. There's still a need for diversification from the system.

I still think there's obviously geopolitical volatility. Hasn't. Central banks I don't think are suddenly like market central banks. They were the ones that initially kicked off the rally a few years ago. I don't think they're gonna turn and start selling in any great size. They, they bought some and they may stop buying it, but I don't see why they were suddenly turned tail start selling on mass.

And there was a story that Poland was mooting selling. Some of its foldings. There were, the reason why they were thinking of selling them was for defense. And that doesn't really strike me as a great sort of a gold bearish kind of reason for selling gold overall. So I think, yeah, the general environment still very conducive to gold still generally keeping to its primary.

And it's struggling right now, perhaps because we've seen some marking up of short-term rates and the dollars had a little bit of a rally, things like that. Overall I don't see why, it would take a big seller to come around to really force into a massive bear market. I just don't see where that's gonna come from.

Erik: As you said, unfortunately, what has not gone away is geopolitical excitement, for lack of a better word. The thing that's I've noticed just in the last few weeks is there was a very strong, positive correlation. The next time a bomb drops gold spikes upward. And what we've seen just in the last few weeks is a breakdown where, when oil is up hard because of geopolitical, bombs are dropping, gold's actually moving down.

What's going on there?

Simon: Yeah, I say I think potentially it's because of, the real has risen. That could be partly the little bit of the rally in the, it should also be in times of if there's any capital repatriation going on, maybe in the Middle East. I know for sure, but, gold can often get hit in the shorter term people need to liquidate.

That's unfortunately. Asset. Asset is it's

narrative.

Anything more than just, obviously we've gotta remember the market has rallied extraordinarily much in recent months. So there's partly respectable for it to have. The kind of pause that it's having right now, like it can't continue in that sort of trend indefinitely, but I don't think that means that the trend is over.

Yeah, I mean I think silver is a far more obviously volatile, but a far more questionable kind of response to that kind of overall idea on trade. But gold to me seems certainly more, more secure just because, as I say, the reasons underpinning it rally all seem to be mostly intact still.

Now,

Erik: Simon, we've been jumping around in the slide deck. Let's go back to page four because you've basically said you're rewriting the Risk Off Playbook. It seems like an important book to read. Tell us more about it.

Simon: I'm certainly not gonna rewrite it myself, but my point here is really know.

We analog guide, I think you have to keep in mind as rules change. So I think standard, playbook, can the dollar rally and risk assets sell off? And that might not be the case to the same extent as, so for instance, take so quintessential. Risk really was the gsc. And then the gsc, the dollar rally.

So I think that's a lot of people's you know what, that the one therefore safe. But really if you look at what drove that and then necessarily say in position to rally quite as hard as it did back then. So the chart on left there, you can see that the glue line shows the bond flows inflows from foreigners.

They slowed. Equities were tiny back then. Equities much today as far are concerned. What actually drove the dollar, the rally repatriation. So the US basically funds and banks had led to various European entities. And it was these guys repatriating that led to the dollar rallies. It wasn't the case of foreigners channeling money in or meeting dollars to cover like structural shocks.

It was really just US entities repatriating, and that led to the dollar rally. Now this time around the cash flows are the structure of this is different. And so bons are much smaller now because we've had, because the US has now not seen, ies not seeing as much a safe haven and equity falls are massive and the US Outfalls are not as large as they were back in net impact.

Exposed to equity. So in a sort of risk off environment that we're in right now, it's conceivable that more capital repa and some of that is equities in the tend be is a dollar negative, and you don't have the same cushion of dollar repatriation. Yeah you wouldn't expect to see the dollar necessarily rallying as much, and that could be seen even more if you look at the chart on the right.

So after the Marla Accord all the talk of the dollar disruption, the tariff, that didn't lead to sell America trade, but I certainly think it made people think twice about their exposure to, and that can be seen. Say this chart, just the bark. So the white line shows the dollar reverse.

And what you tend to see is the blue line, which is a reserve in denominating dollars. So when the dollar weakens, IE see the white lines rise. Manager

and time

yet in attitude to global demand for dollars. So I don't necessarily see, and I think it's all a rally will be as big as time and thus far, the DXYI think is up about one half, 2% since the war started. Slide at say commodities. So as asset of seen as well recession, general interpretation that isn't always the case either if you have a commodity in recession and if we gonna get recession chance that at the next few months.

But that could change if the war continues. And the negative effects spiral. Happens then is that commodities start to sell off before the slump and growth. But the, that, that sort of sell up and commodity prices eases the growth. And actually that allows commodities to rally through the rest of the recession.

So that might, may well happen again. We get a commodity induced recession, say later, this is your next year. That's not a prediction. But if we were to get one. I wouldn't automatically assume that commodities are gonna sell off through that.

Erik: Simon, let's move on to page nine. The title of that slide is it takes a war to bring down an economy This Strong, let's start with how strong the economy is.

But then later you say it would take a protracted war. So I guess the question is, how protracted does it need to be in order to take down the strength of economy that we already have and where is this thing headed?

Simon: Economy is actually remarkably strong. Given I think the length of time of the and that really surprised me when I was looking at this.

And it's also a little bit ironic I guess that, coming into this war, the US was fing in all cylinders. And as mentioned, I mentioned war is perhaps just take to derail it. You have number cycles for the US economy that everyone knows about the business cycle.

There's also the liquidity cycle. There's the housing cycle, there's the inventory cycle, and all of them are actually in pretty good shape. And so the business cycle, if you look at leading indicators, has been turning up the liquidity cycle. So that's the chart on the left there. And I look at excess liquidity, which is between real money growth and economic growth.

This liquidity gonna have on markets. So the bigger gap between liquidity and economic growth means the economy needs less, but that more to go into risk assets that has been vacillating around, as you can see the chart, but turned back up again. And even taking into account, we've seen some tightening in financial conditions since the war, but overall they've not been massive.

As I di alluded earlier that the dollars rally hasn't been huge either. Thus, so the s in pretty good shape and the, the general business cycle is in pretty good shape. Even taking into account the job market slow down, it's possible to have a job as, and some of the things that I would look at to see if it was a slow down in growth coming, such that temporary help is actually rising, not falling.

Hours worked kind static. You would expect to see that fall as people cut, start people. I think it's, you've remember that we have companies still very strong. The balance are generally in good shape and you've got this massive amount of government money still filtering through the system.

And so there's maybe not the same acute needs in the shorter term, at least. Lay and that global, the global economy is also in good shape. As that's the chart on the right there, you can see that we're in the midst. Global cyclical upswing. If leading indicators around world almost all are turning up on six basis.

And then if look at inventory, that looks to be turning up as well. Leading indicators are putting in it to continue to rise. Sales inventory ratios have started to rise. Housing cycle is not as in good shape, it's okay. Okay. Housing growth sales growth has slowed down and things like that, but one of the best indicators for housing is building permits.

Building permits are doing okay. And they're actually led by mortgage spreads. We'll see quite significant compression in mortgage press spreads for bears, such as falling bond volatility, and so you can't see that the housing cycle in particularly bad shape. We have credit, we go to slide 10 the listed credit market.

From a fundamental perspective, my leading indicator there on the chart on the shows that on fundamental are to tighter spread. So things like lending conditions are particularly tightening in a particularly rapid way right now. Personal savings is still quite low, which means there's more money to be spent, which goes into back to corporates their, to their profits.

So you've got this general kind of listed credit markets. The weakest though is private credit. And private credit I think is the one you do probably have to be most aware of. Obviously it's very ap, unlike the listed markets. I've seen a number of cockroaches. To be popping up with a little bit more frequency that probably most people would like.

We had redemptions redemptions in waters funds JP Morgan loans, and was limiting the amount of lending it was doing to, to private and really what kind of triggered this latest little bout or weakness. Concentration of software companies that private credit companies probably have exposure to.

And that was on the back of this massive kind of like content leap in the performance of AI coding agents, which leads lot software companies, business models maybe of them are, it's not existential for a lot of them, but it certainly means that they may not be able to charge as high or get as high margins on their businesses.

Then they have before. So we're seeing this mark down valuations in their stocks, and obviously that's reflected in the loans as well. And we're getting this visible. We can't see the loans themselves obviously, because they're okay. That's a selling point, the USP of the market, but we can see the shares of BDCs.

Business develop companies and they've obviously been B because the market is obviously what they have underneath loans they have aren't good shape. And because used to be, I remember something bad happens that be contained, these guys are kind, insulate the rest of the financial system. That's case. If you look at the banks have been lending to private funds and if you look at lending to non financial institutions that has mushroom in over the last couple years, you're really number of loans been know, extended from banking, a lot of private credit.

So there's your kind of vector of risk right there. And if there is something well happens in private credit, it. The credit markets, and then it's feasible, of course that, that's bad for the rest of the economy. We've obviously been here before, credit markets are big enough that they can do a lot of damage and if they turn down very rapidly.

So that's where we are in terms of the overall economy is strong. Credit market, again, fundamentals look okay, but the weakest link is private credit. And that's obviously the one to watch or watch as much as you can because of its opacity. It's typical, other than just watching red banner headlines coming up telling you which fund is doing what with redemptions.

Otherwise, it's very difficult to really get a proper handle unless you're in that particular space yourself of really what's going on. But certain that's. As the US economy's in a pretty good spot. And the one thing I think that could really derail it would be a protracted war. You asked how long it's protracted.

I, I dunno. But the longer that we have straight or moves blocked, the more the longer it takes to switch things back on. So the longer things are all streamed, the longer it takes to switch back on. So whether that's, if you power down refineries or refineries of damage. M them off six months to bring them back on.

And so there's many of these effects that will start to kick in. I think that's also one of the reasons why a lot of people in space are more bearish because they're kind seeing this and they, they can't see any upside. They're looking at disruptions going way out, probably well into next year and that's when the basis of, even if the war stopped in quite short term.

So I think that does up to color your view and a protracted war would definitely.

Erik: Simon, as you talked about, private credit, it was concerning to me because frankly it, it echoes in my mind to about 19 years ago, the summer of 2007, when we were also talking about an opaque, not well understood in the broader finance community.

Small little piece of the credit market that couldn't possibly disturb anything else. And the reassurance at the time was. Don't worry, it's contained to subprime. There's nothing to worry about. Is this another setup like that?

Simon: It looks very much like it. I think that was Bernan himself who said contained.

Look, I go back to my axiom that the one thing that doesn't change is human nature. I think we're seeing that even within the private credit space in terms of when people have opportunities to make money. Off grid. They're away from regulation. The standard kind of emotions of greed and fear will kick in greed initially.

And people will start to take inflated risks to essentially earn money. Now, what are risks later? Hopefully they can not be around when the proverbial hits the fan. So I don't see why it wouldn't be any different. There was even a story today. One of the credit funds, if you look in the private credit fund is yet, it's a black box, but within it, there's even more black boxes.

That straight away reminded me of CDO Square. So here we had CDOs, which are already niche deriv products, but people started making up these CDOs or CDOs themselves. And I'm sure a lot of people at cyber are thinking this probably can't end well. And, here we're again, there's nothing new in finance.

Erik: Simon, I can't thank you enough for a terrific interview. Before I let you go, I'm sure a lot of listeners are gonna want to follow your work. You have to be somebody special and have a Bloomberg terminal in order to access most of it. Tell 'em for those who are lucky enough to have that access where they can find your writings.

Simon: Sure. And thanks again for having me on the show, Eric. So on the terminals, I have a column called Microscope. Tuesday and Thursday. I also write for the blog, which is four hour, five days. Follow all the latest market developments.

Erik: Patrick and I will be back as Macro Voices continues right here macrovoices.com.

Erik: Joining me now is Bianco research founder Jim Bianco. Jim, no shortage of things to talk about this week. Let's discuss the Iran conflict, what it means, what comes next? How are you looking at this.

Jim: Being that we are financially oriented and that's our real interest is we have to look at this from a financial standpoint.

What does that mean for financial markets and potentially the economy, global economy written in general? And obviously the answer is. What does it mean for the price of crude oil? And in the immediate short term, we've got a problem in that the crude oil is not moving. Crude oil is like the circulatory system of the world.

It, it gets pumped, it gets put in the storage, it gets put on the tankers, it gets sent to refineries and the system. Constantly has to be moving. Right now we have a big blockage and that blockage is in the strait of Hormuz. Now, the good news is we have not really done any damage to the system.

Not that I've seen in terms of stories. We haven't blown up a bunch of infrastructure or pipelines or wells or ports or anything that would cause an extended period of time to repair it. We've got a bunch of ships sitting around waiting. For the ability to go through the straight and keep that circulatory system moving.

So the hope is that this is a short term problem. Short term being two to three months, a couple of weeks to get this resolved, and then six weeks to two months to maybe get that circulatory system moving. The concern is the longer this goes. The more we keep lobbing missiles at them and they keep lobbing missiles at us or their neighbors, the higher the probability that they're going to break something that will take a significant period of time to fix.

And that will create a bigger problem for the energy markets. So for right now, the hope in the energy markets, and I share that hope for right now, is. All we're doing is we're waiting for the Strait to get hope in so we could start moving that the moving the crude oil again we haven't sunk any of these ships or anything, but the concern is the longer this goes in the middle of a kinetic war, the longer it goes, the higher the risk is we break something

Erik: Let's talk about what the impacts are. If something does get broken and it delays the ability to deliver crude oil, it seems to me like obviously there's a cost to the economy, which is the most immediate effect of all a sudden energy costs much more, and it's crippling on the productive economy, but I think there's a lot of knock on effects. The first and biggest one in my mind is the inflation wave that creates. Inflation tends to be self-reinforcing, so you get the potential that you've started a fire you can't put out. And then there's probably several other feedback loops.

So when you think about what if they do break something that results in even after the the piece has been made. It's gonna take a long time to fix those broken things before we get the oil delivery system back to normal. What are the knock on effects that you see financially?

Jim: So first of all I'll measure the knock on effects in a very market oriented way.

If you look at the forward curve in the credit oil futures market, it is in record backwardation by Sunday night. On March 8th, it hit minus 25%, meaning that the six month out the September futures for WTI was 25% lower in price than the April futures, which is the current contract. And that is the most extreme that it's ever been right now.

So one way you can look at that is that the market is still pricing and hoping that this is gonna be a short term thing. If we break something of significance, how do we know it? I think you would see that backwardation start to narrow a lot because those deferred contracts would start to rally to meet where the spot contract is.

But you're right, if that were to happen, you're probably going to see. More inflation now. All things being equal, we've been doing a little back of the envelope calculation with the price of gasoline in the United States in the last eight days. The war, the day we're recording March 10th is the 10th day.

So we've got nine days worth of data. Price of gasoline is up 18% or 55 cents. All things being equal, that's probably is gonna give you a March CPI report of around six tenths or seven tenths. That is probably gonna push year over year inflation over 3%. For March. Now, every economist will say, oh, but that's temporary, that's just an inflation thing.

Correct. Unless of course those deferred contracts and rally the backwardation narrows, and then you could start talking about April being elevated. You could start talking about May being elevated. As well. I don't think this is gonna produce big inflation like. Seven, eight, 9% inflation.

But what it can do, at least in the very short term of the next three to six months, if not longer, is keep the inflation rate around 3%, if not above 3% higher if the crude oil situation worsens. I've been arguing that the Fed cannot. Cut rates, if that's the inflation rate. We have gotten used to, and we are still used to that 2010 to 2020 period, where no matter what the Fed did, they couldn't get, or no matter what the economic circumstances were, the inflation rate never got above 2%.

In fact, it averaged around 1.6 during the 2010 to 2020 period. So at any wobble in the economy, print money cut rates to zero, print more money. And that mantra remains to this day that whenever markets or economies wobble print, you can't do that if we've got inflation. Because if you print.

What you're trying to say is the economy's wobbling financial markets are under stress. We need to create easier financial conditions by cutting interest rates or expanding the Fed's balance sheet. But in this environment, if you do that, then you're saying the bond traders. We don't care about your real returns.

You have a fixed income investment and we're willing to risk inflation going up. Even though your investment's fixed income, you should sell bonds right now. And so if they were to try and be easy in this type of environment, you could wind up with higher interest rates and actually making things worse, making it actually tighter.

So one of the things about the higher inflation. Is it takes the fed off the table, even if we get worsening employment numbers, even if markets start to wobble a lot more, because the re the reaction would be, oh, markets are in trouble, or the economies just weakening. We have to cut. Yes. And then if 10 year note traders run away from the 10 year note and those rates start soaring.

You've made things worse. They're gonna want some assurances that they're not gonna lose money because inflation's gonna go up. So that's where I think the the nuance is gonna come in. This is not the 2010 to 2020 period, and if we have enough inflation now because of the rising crude oil that we've seen in the rising gasoline, we've seen now to keep the inflation rate above three.

The fed is just off the table. They just cannot step in and start cutting rates under that environment.

Erik: Jim, at the risk of nitpicking semantics, I wanna come back to your language around saying the Fed cannot cut rates. I think you just made an extremely good argument for why they should not cut rates.

Are you really convinced that they won't?

Jim: Oh, yeah. I guess you're right that in a semantic argument I would argue they should not, because the risk is they make it worse. That's what I meant by cannot, is that. They need to be very careful. Now, obviously, if things were to deteriorate to the point where you would argue that they would overwhelm whatever higher inflation you would get, that the economy would be so weak that even with higher energy prices, it would offset that, that you could then see the fed cutting rates but.

We're talking about like a, almost like a rerun of 2008 or 2020 in that type of scenario. And as we're talking now, the stock market isn't even 5% off of, its all time high. So we're nowhere near that type of scenario. But you're right, I should have said they really should not, because the risk is that in the attempt to try and make easier financial conditions by cutting rates, they spook bond traders.

They're not acting in their best interest. They sell rates go up and you actually wind up making tighter financial conditions and you wind up making it worse.

Erik: Jim, let's take that a little bit further and talk about the next step with Warsh. Taking office as Fed chair, you'll have to refresh our memory on exactly what date that becomes effective.

It seems like we don't have a really clear signal. A lot of people thought he was more hawkish, but then again, it seems like he's extremely loyal to Trump. He's gonna give Trump whatever he needs. I agree with you and what you said about the reasons the Fed should not cut here. I don't think President Trump got the memo on that and if Warsh is gonna do whatever Trump wants. And I'm not sure if that's the case. It seems like there's a potential that the Fed does cut. Am I missing something?

Jim: No, you're not missing anything at all. Just as a quick aside I'll remind everybody that, donald Trump is a real estate guy, and I've yet to meet a real estate guy who has not met an interest rate that he doesn't think should go lower.

So I'm not surprised that at every turn he just keeps demanding lower and lower interest rates. 'cause every real estate guy does that. Now, as far as Kevin Warsh goes, you're right, the problem. We face right now is we're all saying he's hawkish, and why do we say he's hawkish? Because we're going back and looking at what he was saying in writing.

Back when he was a Federal Reserve governor during the financial crisis. I hate to date us all, but that was 20 years ago, 19 years ago. At this point, and we don't really know where his thinking is currently, because in the last eight months he's only given two public appearances and he was vague on where he stands on this now, hopefully.

When they do get his confirmation hearing scheduled, he'll have an opportunity to explain his thinking a little bit more fully. And as far as the date goes it's May 15th is the last day. For Jay Powell. So all things being equal, Kevin Warsh would be the chairman at the June meeting. So that would mean the next two meetings, the March 18th meeting and the early May meeting will be Jay Powell will preside over those.

So he's got two meetings left and then we'll have Kevin Warsh, unless there's a snag in his confirmation hearings in any way. The bigger issue I think he's gonna face other than, he will articulate a comment or a view, I assume, that will say that we should be cutting interest rates, is that the Federal Reserve has been changing its stripes.

The individual members of the Fed have been really talking a lot more independent than they've ever been, and they've really been acting more independent. We've seen. Way more dissents in the last three or four meetings than we probably saw in the last five years combined. And I don't think that's a fluke, and I think that's gonna continue so much that I've argued that Fed watching is no longer about parsing the individual words of what the chairman says, but it's really about listening to all the voters and putting them in the cut hold or hike column and asking the question.

Which one has seven votes and whichever one has seven votes, that's what the fed's gonna do. And as of right now, as I look at the Fed's speech broken down, of the 12 voters, fully 10 of them have made hawkish comments. Basically Stephen Marin has made he's still pretty dovish. And you might argue Chris Waller is on the fence, but the rest of them are pretty hawkish. So given all of that, if we had a Kevin Washer Fed chairman right now and he said, look, we have to cut rates. I would just turn around and say, where are the other six votes you're gonna get to approve that rate cut? 'cause if they're gonna vote the way they're talking, and I assume they will.

I don't see where those votes are coming from, so I think that's gonna be the next big thing we're gonna see when we get this new Fed chairman is how much of it is really gonna be about parsing his words and how much of it's gonna be really just about vote tallying and just trying to figure out where all the votes are coming from.

Erik: Let's talk about the broader economy and where the market was headed before this whole oil shock happened. Even before the decision was made to go ahead and have an attack on Iran, it felt like the market was rolling over and, maybe we're heading into a soft patch here. We've just tested the 200 day moving average at least very briefly in the overnight session on the S&P.

Is it over? Is it at all clear or are we really just back to where we were of wondering if it's time for this market to run outta steam?

Jim: I think you, when it comes to the economy, that there's really an issue that is difficult for a lot of economists and a lot of other people to really get their head around.

And that continues to be the story about labor supply. We got the February employment report back, last week, the week before we're recording, and it came in at a stunning number of minus 90,000 jobs. And yet the reaction in the market was very muted. You would've thought, you would've saw interest rates, plunge, and you would've thought, you would've saw maybe the stock market, take it poorly.

And it largely didn't. Now, part of that might be because it was still wrapped up in paying attention to oil, but I do think that it really comes down to the other issue, and that is what is the biggest driver of labor? Because labor is the most important aspect of any economy. How many people have jobs?

How many people are gonna be able to get a job and. The biggest aspect of labor I think comes to population growth. And we have no population growth because of the slow of what's happening at the border. And there's arguments to be made that the number of jobs that the US economy needs to create is somewhere around zero to 50,000.

Probably with an average closer to 15 to 25,000 jobs a month, that's all the US economy needs to create. Right now, it's not 150,000 like it used to be a couple years ago. And again, that's because if you don't have population growth driven by immigration, the number of 15 to 64 year olds, or 16 to 64 year olds, excuse me, that's the working age population isn't growing.

And if that's not growing, you don't need to create a number of jobs. That's why I think we also have this other instance where if you go back to the summer of 2024, the US economy on a 12 month average basis was creating about 150,000 jobs a month in the year ending July, 2024. In the year ending in February of 2026, that fallen from 150 to 9,000, but the unemployment rate hardly moved.

It was a 4.2% in July of 2024. It's 4.4% in February Of 2026 up two 10th while we lost all that job growth. Now why isn't it higher? 'cause we don't need that many jobs, is really where I think it is. And that really gets to the other issue too, is that. If we don't need that many jobs and none other than Jay Powell talked about this at his last press conference, maybe at these very low numbers that we're seeing with employment, we are still in balance and if we are still in balance, the risk you face is that if you overreact to these supposedly weak numbers and cut rates too much, again, that could be perceived as overstimulating when the economy.

Doesn't need it. So I do think that when you look at the market, I don't think it's necessarily looking like it's gonna roll over on the idea that the economy's weakening, because I think that the numbers have so fundamentally changed here right now, and it's a, admittedly, it's a hard thing to get your head around because, when you say that the population growth is down, then people ask, can you be more precise? And the answer is not really, because demographers have never been structured to give us high frequency updates in the population of the United States. 'cause they've never had to. And so what about, labor force participation, those numbers are constantly revised. But we do know that the population growth has come from immigration 'cause of the low fertility rate, and we do know that immigration is most likely negative right now. More people leaving the country than entering the country.

Erik: As we're recording on Tuesday afternoon, we're looking at about 5,200 on the gold price. Something I reported last week on Macro Voices is, feels like there's been a change in the reaction of gold to geopolitics. We had last Monday we had a situation where. Bombs are dropping, oil is going straight up, and gold was down literally $400 over the course of just 10 hours.

We saw the same thing on the Sunday futures open, where it was just a moonshot on on oil prices, in reaction to escalation over the weekend in the straight of Hormuz and so forth. And obviously oil is the direct affected commodity. But you didn't see the expected gold up with oil.

It was actually gold down. Feels like somebody is either selling gold to raise money to cover their losses on something else, or selling into strength or something. It feels like there's been a disturbance in the forest with respect to precious metals. What do you think is going on?

Jim: Sometimes the easiest answer might be the best answer is that first of all, gold and silver, as we know from early February, had that massive reversal and while they haven't followed through on the downside, their up their upward momentum is stalled.

So you've got a lot of people that have a lot of unrealized gains in those. And when you look at markets wobbling and you wonder that if people need to sell something, there's the old adage on Wall Street, you sell what you can. Now what you want and what you can sell is the thing that has big unrealized gains and no momentum.

So whether it's to meet a margin call or a perceived margin call, like Sunday night when futures S&P futures were down two and a half percent at their worst point, or in oil because of the big whipsaws we've seen in it. So somebody's gonna get hit with a margin call. Where are they gonna get the money from?

They've got this other thing here. We assume that they're holding, that they've got a big unrealized gain and they can sell it. So I think that there might be some of that going on with gold because you're right. Normally speaking, all things being equal. If you've got geopolitical stress, the textbooks say gold and silver or precious metals are the place to go.

But they have definitely not been the place to go since February 28th because they have not been responding to this.

Erik: Jim, that, as you said, was the the old school adages precious metals. Of course, the new age version of that would be cryptocurrency. How has that fared since February 28th?

Jim: It's been more of the same.

It's really struggled to do anything right now. Now it's very volatile. You could say it's up five or 6%, but in Bitcoin, five or 6% is an average day. So it hasn't really done anything to establish any kind of an uptrend as well. But I also think that they're also stuck in a.

Different type of cycle as well too. Bitcoin peaked at the end of October, $126,000 at its lows. In February, it was down 50% from that high. So it is definitely broken momentum as well. And I think the narrative. Behind Bitcoin has been changing. Right now. The narrative used to be that institutions, retail investors through wealth managers, and everybody's gonna buy it through these new products like the ETFs and.

They're all gonna say the old gold story. Remember, if all, if only anybody, everybody owned the old, 5% of their portfolio in gold, it would go to the moon. That was the argument that they were using with Bitcoin, was that everybody just bought three or 5% of their portfolio in Bitcoin.

It would go to the moon. I think that narrative is over with right now. Now the potential for a new narrative is out there, and I think the new narrative. If that old narrative was permission that the regulators were giving you permission with it, that Wall Street was creating products to give you permission to own it.

The new narrative for it might be replacement instead of saying, 'cause I've seen on social media a lot of bitcoin enthusiasts saying don't worry. Larry Fink and BlackRock are talking about tokenizing every asset in the world and that'll be bullish for Bitcoin. I was like. Why are you waiting for Larry Fink to do it?

Why doesn't the Bitcoin development community do it instead of him? So maybe the next narrative will be replacement instead of waiting for regulators to approve it, waiting for Wall Street to create products for regular people to trade on it. Why don't you create an alternative system and say, this is better than the old system.

Let's go play on that game and let's play it in this way.

Erik: Jim, you told me off the air that you heard my interview recently with Michael Every about stable coin statecraft. And that comes to mind with what you just said because talk about an asset to tokenize that's already been tokenized. It's the US dollar.

What if Trump and Bessant were to say to the whole world, look don't worry about what your government is telling you. The rules are in your country. Don't worry about what your banking system says in your country. You can skirt the whole system and just buy us. Dollar stable coins on your cell phone regardless of what your country's rules are, and you're backed by the US government that could potentially replace the petrodollar system with the stable coin system and shore up the US treasury market.

Do you think that's a realistic scenario and would it play into what you just said about, the market, creating those tokenized assets without waiting for anybody?

Jim: I think that in that case, that is a realistic scenario. And in fact you could argue that has already started to happen. If you look at countries like Venezuela, Afghanistan, even Iran, and other hotspots around the world. I'll take Venezuela as my example. If you wanted to go and find out what is the black market rate for the Venezuelan Bolivar, their currency, the most credible source that I have found is ance, giving you a tether to Bolivar rate rate. In other words, a stable coin. A stable coin is really where they, where that they operate.

And when you dig deeper into it, you'll find out that in countries like if Afghanistan and Iran to some degree, and Venezuela, definitely those are dollarized economies, they are now trading in commerce in dollars, but it's not. Stacks of a hundred dollars bills. It's on their electronic wallets.

They're owning the dollar stable coin, and they're trading it back and forth. So in the respect that the dollar is going to get a leg up on remaining to be the reserve currency in that, it's going to have a digital version of it in the crypto universe in a stable coin. I think that's already happened now.

It's gonna be a while before we see that. Come to say Europe or the United States because. Our financial system is more stable. We don't go to bed every night worrying that our banks are gonna fail and we don't go to bed every night worrying. I'm talking about Europe, the United States, Japan, that our currencies are gonna get seriously devalued.

At least we don't yet. Or maybe I should say we don't now. But. So we don't really need it, but in a lot of places around the world they do. So I agree that's coming and I agree that to some degree it's already here. Now the second part of that is what Scott Bessent is trying to argue is this will be hugely beneficial for lowering interest rates in the US because as trillions of dollars of stable coins are created.

They're gonna have to be backed by US treasuries, and that's gonna create a demand for them. The problem I have with that argument is. Where is that money coming from right now? That money that would go into a stable, into a dollar based stable coin was probably already into some degree in the financial system to begin with, and it was already backed by a dollar.

So if the argument is we need to pass the Genius Act, and once we get the Genius Act passed, that Americans are gonna start opening up electronic wallets and they're gonna be buying hundreds of billions of dollars worth of stable coins. I understand that argument. I just don't know whether or not a stable coin will be more attractive than a current bank account is, at least not now.

But even if that were to happen and they start buying hundreds of billions of dollars worth of stable coins, where's that? Hundreds of billions of dollars coming from. It's gonna be coming out of the banking system that's already backed by a treasury security. It's gonna go into a new secure, a new instrument, a stable coin that's backed by treasury security.

So it's purely a substitution effect is what you're gonna get. You're not gonna get any really big net buying. Now, you might get net buying out of places like Venezuela, Afghanistan, Iran, because they're not backed by dollars and they put their money into a stable coin. But, They're not gonna be enough to move the needle when you have a $40 trillion deficit.

It's really gonna be the developed world that's gonna be able to move the needle, but I just don't see where you're gonna get that net new money. But let's go back to the first part, the fact that everybody is now using stable coins and they're using them through electronic wallets and they're using them.

In order to affect trade, the dollar is maintaining its dominance as the reserve currency. It's just that if you're looking at the traditional numbers of currency and circulation and how much trade is going on, how much are being held by the banks in reserves you're not gonna see it.

You're gonna start, you're, but you're seeing it at the margins where they need it the most in the countries that are most vulnerable. And that's what people are doing is because remember that in, even in the poorest countries in the world. Cell phone penetration. Smartphone penetration is still 80%. Even in, you could pick the poorest countries in Africa, 80% of the people have a cell phone and they could download an electronic wallet and they can hold a stable coin and add electronic wallet and they could transfer it to another phone, and that's how commerce is being done, and it's all backed by dollars.

Erik: What do you think about the statecraft argument of it where scent and trump intentionally basically tell the rest of the world? Look, the model that we used to have where you guys thought your central bank was in charge of things like managing your own currency, now we're in charge. Now we're going to just tell the entire world that the settlement.

Currency for all international transactions is US dollar stable coins, and we're gonna bypass any monetary policy that other countries try to implement because we're calling the shots. Is that scenario something they would do intentionally?

Jim: I think in a fact that is the scenario that we're having now.

Whether they're trying to intentionally do it, it's very possible. But, the idea is they are giving you a frictionless version of the dollar that everybody can own. And more importantly, unlike the old system that you're, that cannot be regulated by a different country. So if you're in Iran and they wanna say that you can't use dollars because the government will punish you if you use dollars.

In the old system, yes, it was hard to do that you couldn't hold it in a regulated bank account in that country, if you wanted to use dollars, you had to physically carry around money with you, a sack of a hundred dollars bills, and you were subject to crime, somebody trying to steal from you. But now you just walk around with a phone like every other person, and they have no way to know whether or not you own that.

So they are providing. A global standard to the rest of the world, and they're saying to other countries, if you run your financial system poorly. Or you try to devalue your currency a lot. We don't have to say a word. Your population is gonna migrate to our currency, the dollar through a stable coin, and the Federal Reserve will become the World Central Bank by default, whereas your central bank will then start to lose influence.

So I definitely think that's effectively what's happening. I'll assume that's what they. Don't mind happening, but they haven't said it directly, but that's in reality what we're getting.

Erik: There's another topic where it feels to me like the winds are changing, Jim, and that's artificial intelligence.

I don't mean recent developments in ai, although there have certainly been some of those. What I'm talking about is the public sentiment and reaction to it until very recently was, oh boy, this is just the coolest thing ever. It's gonna, enable so many things, it's gonna be great. I'm hearing a lot more of the fears of, it's taking our jobs, it's putting us out of business.

We're going to end up losing a lot of industries, losing tens of thousands of jobs, and it's going to make our electric bills triple because we're competing with AI data centers for electricity and there's not a lot electricity to go around. So you've got the public sentiment seems to be changing. And meanwhile, the military sentiment toward the AI developers, if you look at the pissing contest that Anthropic just had with or is still having with the US State Department.

It seems like we're getting to a showdown where the US government is saying, no, look, we're gonna tell you what to do. You don't get to decide what your technology gets used for or what you wanna sell it for. You're gonna sell it to us on our terms, whether you like it or not. It seems like things are heating up on, on both fronts.

Where do you see this going?

Jim: Yeah, you're right. There was a recent poll done that was put out in the last week or so asking people their favorability, unfavorability of of certain topics and. AI scored near the bottom of the list. The very bottom of the list, by the way, was people's opinion about Iran.

So at least people like AI more than Iran, that's all they've got really going for them at this point, but not much more. And of course, as you pointed out, the real reason that AI is look down so much is we've been told by the media it's a threat. It's either a threat for our job. Or it's a threat for our electric bill that we're, that our our local utility is going to be, we're gonna be competing with the data center in order to pay for, putting the lights on in our house.

Right now. And bear in mind that in some places, and I'll give you the state of Wisconsin for, as a matter of fact, state of Wisconsin has a lot of data centers in it. Very popular place to put those. The electrical consumption of data centers in the state of Wisconsin is larger than the 6 million people.

Residents of Wisconsin. Now, to keep this number in perspective, about 60 or 70% of all electrical usage in the United States is commercial and industrial and data centers are part of commercial and industrial, but they're larger than residential UDI usage right now. So that's part of the thing that gives people a lot of pause about AI Now.

I have a little bit different view on it. And, just by background I've said this before. I subscribe to the pro version of every data, of every AI right now. I use all of them and I'm learning that they're not all the same. It's not like switching from Coke to Pepsi. If you go from open AI to Claude with this Anthropic they all have their strengths and they all have their weaknesses depending on which one you wanna use.

But what has changed in the last 90 days that has really brought this on forward is what's called agentic AI. In other words, we're all familiar with when Chat GPT, went to its free service in late 2022, it's called generative AI. That's prompt and response. Ask it a question, get an answer. It's Google search on steroids.

But what Agentic AI or AI agents is. Give the AI control of your computer. Tell it. It has the ability to read your files, change your files. Execute commands without you doing it. So don't tell me how to do it. Just go do it. And that has been the thing that has really opened up people's eyes why the software stocks have been tr struggling because the most o obvious application is as in coding and in development right now, that people have been using AI to basically.

As an assistant as opposed to just something you ask questions for, and I do think that is going to be transformational. Now, as far as jobs go, I have a different view on it, not necessarily a unique view but what is a job? A job is a series of tasks. You do a number of things and put 'em together, and that's your job. Now...

Some of those tasks tend to be boring and tend to be repetitive, and you don't wanna do them. They're usually around compliance, accounting, answering emails, putting together slide decks, updating Excel spreadsheets. I'm speaking from a financial point of view filling out expense reports and all that.

AI can be very helpful in all of that stuff, in streamlining or automating a lot of those processes in order so that you don't have to do 'em. Now, that's gonna free me up or anybody else up that uses AI to do more of the higher end stuff. Collaboration, creativity communication. These are things that humans are clearly better at than AI.

If your argument is. Oh, if AI's gonna do all this other stuff, answer some of my emails, help me, take the one hour process of putting together my slide deck and make it five minutes, filling out my expense reports automatically. I could go home every day at one o'clock 'cause I don't have to spend the other three hours at work doing that other stuff.

Then your job's in trouble. But if you say, no, I have three more hours to do more higher end stuff at my job, then your job necessarily won't be as much in trouble. But, so I'm not of the opinion that it's necessarily something we should be afraid of, but I understand why everybody is because they're only told you're gonna lose your job and you're gonna pay more in your electric bill.

And most people haven't yet fully recognized that this Agentic AI is here. And they're saying, for what? For a Google search, why am I gonna lose my job over a Google search? Why am I gonna have to pay more in electrical bills over a Google search? And so I do think that this industry is moving so fast.

I'll give you one fun anecdote and somebody told me to do this with Claude. On on Claude. If you asked AI. Right now, how do I use you? How do I use AI? It'll give you instructions on how to use it, which are three months old, which is not even the latest version, so it's moving so fast, it can't keep up with itself right now.

Erik: I couldn't agree more with that. I use Claude and chat, GPT both extensively. I agree with you that they're completely different in their, I hate to say the word personality, but I don't know how else to describe it. They're completely different tools with different characteristics.

There's something that nobody's talking about though, which I think they should be, which is, we've heard one side of this argument, which you just articulated perfectly, and that is. The argument in favor of AI is that it enables humans to do much more than they ever could have done before. It means our economy could be much more productive because you can literally write and publish a book in a week or two using Claude that just.

Wasn't possible previously. You can do a lot of things. The thing is the energy consumption side of it, and it seems to me that the solution to this is if you change the rules and you told the tech companies, look, you guys are really good at innovating and doing things more quickly than a lot of other industries are.

The new rules are we're gonna open a whole bunch of doors for you. We're gonna take a lot of barriers outta your way, so you can have the growth in everything you want, but it's a two for one. Not only do you have to build your own energy to support your data center, but you have to build double the amount of energy that your data center needs and sell it back to the grid so that.

In the course of getting your AI running and doing everything you're doing, you're supplying more energy to the rest of society, not consuming net energy that we can't afford to spare if we un. Regulated a bunch of things so that Google was allowed to build power plants all over the countryside and could do things like work with, acquiring an advanced nuclear company, investing.

We just talked to AALO last week about mass produced entire nuclear power plants. If the hyperscalers. Could buy into something like that and start building nuclear faster than electric utilities can do it because frankly the tech companies are pretty good at innovating technology and deploying it quickly.

I think you could see the AI industry supplying net energy to the rest of the world. Problem is, there's protections in place that only utilities are allowed to build power plants and so forth. I think we should re-architect this and open the door for high tech to build more than enough energy to, than it consumes.

What do you think of that idea?

Jim: I think not only do I agree with it, I think that most of the high tech is on board with that idea full scale, that they would be more than happy to

They're trying to do

Jim: it right,

but the rules don't really

Jim: allow it. And the biggest problem with the rules is that you now run into the environmental lobby and the environmental lobby is full sail against a lot of these rules.

Because one of the things, as you mentioned. They're saying, yes, I'm ready to do that. Yes. We actually will build up energy sources to not only power our data centers, but overpower our data centers so we can sell back to the grid and they'll go You one step further. The energy sources that we have don't produce any pollution.

You go okay, what is that energy source, small nuclear reactors? And that's when the, the environmental groups then throw up the wall and go, hold on a minute, hold on a minute. We're not building more nuclear reactors. And they're like, oh, yes, that is the answer. These small nuclear reactors, they're the size of a two car garage and they will produce tremendous amounts of energy and they exist.

Their safety record is very good. They'll try and demagogue them by that. This is the environmental groups and saying that they're dangerous and that we shouldn't be using them, but they, but there's no reason to think that they are dangerous right now. It would just be demagoguery that we would say it, but, so that's really where the blockage blockages.

Now maybe there is a sign that this is coming because in the last week. The Trump administration has given at least Department of Energy approval, if I've got it right for a new nuclear power plant to be built in the United States. The first one in 50 years that's gotten approval doesn't mean it's gonna, it's not done with all the approvals, but we are moving in that direction.

So I do think you're right. If you allow the tech companies to, build your power, build your data center, bring your all, and then construct the power to build it, they're all for it. You've gotta let them do it. And you can't say we're gonna do it, but then we're gonna go through the same rigamarole that we have right now.

You wanna build some power plant to, to palm fund it first we have to have 10 years worth of studies done. Then we have to have five years worth of public hearings, and then maybe we could build it, if you're still interested in doing it at that point, cannot have that game being played anymore with this.

So that's really where the fight is gonna be is really with whether or not the environmental lobby will allow this to happen.

Erik: Yeah, that announcement that you're talking about was terror power and their sodium cooled nuclear reactor. It's the first time in the 52 year history of the Nuclear regulatory Commission that they have ever approved a civilian power reactor that was cooled by something other than water.

They're finally moving off of 1952 technology to something more modern, and the NRC is not in the way as they've been in the past. So I think that's a breakthrough, and I hope that we see more of it.

Jim: I agree, and I really do hope so too because we need it for a lot of other reasons too. Because as AI comes not only.

There's a thing called Jevons Paradox, that when the cost of something goes down, you get a lot more of it. So if the cost of creating software and the cost of using a computer becomes easier, and I'm talking about a. My personal cost. Your personal cost that we're just at the point where you just talk to your computer and it does things for you, or it runs things for you automatically.

You're gonna have more of these and you're gonna demand more of it. And we're gonna have more power demands for us, not just for data centers, but even for our personal use too. So as you make the cost of things go down, you get more of it. And we're gonna need more power in order to meet those demands.

Erik: Jim, it seems like you and I agree on a lot of the Jevons paradox example, as well as just the big picture of AI as a good thing, not a bad thing, but I think there is an angle we haven't acknowledged yet, and that is we already see a lot of divisiveness in the US and in the western world in general.

Let's talk about what AI really does. It enables smart people to be a hell of a lot more productive, but it also does, I think, legitimately eliminate a lot of jobs for dumb people. The office worker that had to do the grunt work, the. Because the smart executive, needs that assistance.

Yeah. Smart executive can pretty much be self-sufficient with AI and doesn't need the grunt workers anymore. Does this create a further worsening of the K shaped economy where the people who are well educated, intelligent enough to know how to leverage AI and use it to their benefit, start to really do well?

The guy who's not smart enough to figure out what it is really in trouble.

Jim: Oh yeah. You can even think about I read this a couple years ago, and I assume it's still true, that the IRS puts out these lists of whenever you fill out your tax returns, they ask you what your occupation is and you write it down.

And they did a study of that. And the biggest occupation listed in the United States is the word has the word driver in it. Taxi driver, truck driver, forklift driver, bus driver, fill in, whatever. But the word driver, like millions and millions of jobs all autonomous driving is coming and AI is gonna power that.

AI is going to power 50% of all. Of minimum wage jobs have the word cashier in them. That's gonna be done by AI as well. So you're gonna see a lot of these lower end jobs that can be automated away. Now the funny thing about AI is the more science fiction side, you could argue that AI can help scientists cure cancer.

But if you asked AI to power a robot to fold laundry, it's still struggling to do that part of it as well. So there's gonna be other roles that are gonna be, that it can't really do right now, but the concern that I have with it is, and we saw this during the Industrial Revolution, that as we first get this new technology, industrial Revolution, AI, it automated away a lot of jobs.

200 years ago it was, farming jobs and the like, and all you saw was job loss first. And then the job creation came second because keep in mind what we're talking about. If you automate, I'll use my example of driver. If you automate driver and all, and the world is reduced to 50 million or 75 million autonomous taxis that run 24 7, 365 in autonomous delivery trucks.

The price of transportation is going to plummet and it's gonna cost you practically nothing to ship either yourself to the airport or a product somewhere else. That is going to make business models that are not economic now. And we don't even think about 'em 'cause they aren't. Will be economic in the future if you want a near term example of that.

The Apple I store opened up business models such as Uber, Airbnb to be able to compete with taxi drivers and hotels. Because they had this new technology that you could now put an app out and people could use the app to book book somebody's room in their house or book a private car to take you from A to B.

And so it created a lot more jobs. So I do think that. What technology has always done, and I do believe is a net creator of jobs. So ultimately, yes, we might lose that driver job. We might lose that cashier job, but we're gonna create whole new industries and we're gonna need those people in other industries, the concern is the jobs get lost first.

The new jobs get created later, and in that gap. People get angry. All they wind up seeing is job loss. All they wind up seeing is what they perceive. Is it making things worse? and in The 18th century when we had the industrial revolution, we got a pushback. The pushback was Frederick Engles and Karl Marx writing the Communist Manifesto and pushing back against the capitalist system.

We might get a pushback against this now. It won't be communism. That was a pushback to a different era, but it'll be some kind of collective socialistic type of argument to put up a barrier from putting this together. So I hope that the AI industry, and I hope that the AI proponents understand that if all we're going to do is say, great, we can automate this and fire all these people and everything is better, it won't be better in the long run.

It might be better for the very short term, but if it's gonna be, we're gonna create new opportunities at the same time. You lose your job here, but there's gonna be this new industry here begging for people to help doing whole new things that we haven't figured out yet because of that new technology. I think that transition will be much softer, but that is a real risk right now.

Erik: Jim, I can't thank you enough for a terrific interview. As always, before I let you go tell our listeners who are not familiar with what you do at Bianco research a little bit more about what you're up to. You've got WisdomTree now following your work with an ETF that basically follows a fixed income index that you created.

Tell us more about that, how people can invest in it, as well as your Twitter handle and all that stuff to follow your work.

Jim: We put out Bianco Research, which is an institutional research product at biancoresearch.com.

If you're interested, you can sign up for a free trial there. Otherwise, I'm very active on social media, under my bussiness name Bianco research on Twitter X, on YouTube, on LinkedIn. And also we started a couple of years ago an in fixed income total return index, which has its own website, Bianco advisors.

It's a Managed index to try and beat the benchmarks in the bond market. And we have an ETF with our partners as WisdomTree as you mentioned, WTBN, WisdomTree Bianco, Nancy as its ticker symbol that tracks our index as well too. So you can find out more about it by looking up more about WTBN or looking at biancoadvisors.com.

Erik: Patrick Ceresna and I will be back as Macro Voices continues right here at macrovoices.com.

Erik: Joining me now is Matt Loszak, founder and CEO of Aalo Atomics, a company that proposes to mass produce not just modular nuclear reactors, but entire modular nuclear power plants in a gigafactory for the express goal of rapid deployment at scale. Aalos initial market focus will be on data centers where rapidly deployable power solutions are most critically needed.

In the interest of full disclosure, I am personally a private equity investor in Matt's company, Aalo Atomics. Matt, it's great to have you on the show. Thanks for joining us today. 

Matt: Thanks so much for having me. Great to be here. 

Erik: I wanna start by playing devil's advocate and describing the most commonly held view in the conventional nuclear power industry, despite the fact that I personally disagree pretty strongly with that view.

The common wisdom says that the pressurized water reactor originally designed for the Nautilus submarine back in the early 1950s has evolved to become the gold standard of nuclear power alongside its close cousin, the boiling water reactor, most seasoned. Nuclear industry professionals share the view that the operational experience that we've gained from running these lightwater reactors as they're called for several decades now, is the most important safety consideration that we should think about.

And so they question why anybody in their right mind would even consider deviating from what's already been proven to work for nearly six decades. Thousands of reactor years of commercial service. For those reasons, they strongly advocate focusing the formative nuclear renaissance on building more of them, more lightwater reactors like the Westinghouse model, AP 1000.

And a lot of these people think that experimenting with different reactor designs, involving coolants other than water, is just asking for trouble both economically and from a supply chain perspective. Matt, you and I disagree with the consensus view. What's wrong with the narrative shared by. So many of your peers in the nuclear industry that we should just stick with what we already know, which is lightwater reactors that have been proven to work for decades.

Matt: If we had to boil it down, I'd say it's that essentially the current solution is a local maxima, but not a global maxima. So if we think about some of the problems that have happened in the past 20 years of nuclear deployment, we saw Vogel go 10 years over schedule, $15 billion over budget. And essentially the problem is that you have a industry where every reactor that's been built in the past.

75 years is bespoke. They've been one-off projects. And in that world, the best way to try to lower cost is just make the reactors bigger and bigger, and stick with the same design you've been doing before. but as we know, there's two ways to optimize economics. One is make things bigger, and two is make a lot more of that.

The interesting thing is the idea of making a lot more of nuclear reactors has really not been attempted properly. In other words, there's no single large factory we can point to globally that is mass producing along the lines of Henry Ford's cars nuclear reactors. The reason to switch off of water is essentially this emergent realization when you start to explore and ask yourself.

What is the best design to mass manufacture? And if you're no longer just going bigger and bigger and you wanna get a better design that can be maybe transportable on everyday roads, then you start to look at these other coolants things like liquid metal, sodium molten salt, or even gas. And especially sodium and molten salt.

Allow you to make the the vessel of the reactor much smaller. So in other words if the vessel was the same size for all these coolants with sodium and molten salt, you'd get around anywhere from two to 10 times more energy out of it. So you can imagine that's much better from a mass manufacturing perspective.

And so you also get other advantages, things like, more Inherent safety. And something I think we might talk a bit more about later around when you can achieve higher temperatures, you can service things like industrial process, heat and so on. But those are some of the core reasons for exploring other technologies beyond just water-based gigawatt scale reactors that we have today.

Erik: Certainly the high tech boys have recognized this case, and I know that's where you're focusing a lot of your business. Help our audience understand what this advanced nuclear industry really is all about. One of the most commonly held views among institutional investors is, look, we don't wanna invest in science projects.

We don't wanna mess with unproven technologies. So even if you're onto some great idea, that's gonna completely change the course of human history. Eh, it probably belongs in a research lab at MIT. Not in a startup company like Oklo or Aalo that proposes to actually be selling nuclear reactors to data centers in the next few years.

So we really only wanna invest in stuff that's already been proven to work and proven to be deployable in a commercial context. How much do we really know about all this advanced nuclear technology and to what extent is it proven to be viable and how much technology risk is involved in deviating from that accepted norm of, essentially lightwater reactors forever, which is what a lot of the industry wants to focus on.

Matt: I think a lot of people don't realize that advanced reactors actually do have quite a bit of operational history. So water cooled reactors definitely have the most to the tune of thousands of cumulative years of operational history. But sodium still has around 400 operational years. Gas has maybe a hundred and molten salt has on the order of just a few years, it's the least one on molten salt. But the, these have been built before. And the interesting debate in nuclear is why these technology branches on the tech tree weren't fully explored. And, our argument essentially, my belief is that it was largely for political reasons.

If you look at the history that these reactors did not get further explored. And one interesting anecdote is EBR2 which is one of the reactors that we take the most inspiration from operated from essentially for 30 years at 20 megawatts of power. And it was a real success. When they decommissioned it, the sodium had bit, the look of metal had been so compatible with the stainless steel that the welder's etchings were still visible inside the pipes.

And it operated with a very high capacity factor for that time as well. And interestingly, they did a test where they basically tried to make the reactor melt down by removing all the backup power and leaving the control rods, the brakes on the reactor fully open and or the operational open level and what they found.

Is that the reactor was able to safely shut itself off inherently 'cause of the physics of the system without depending on human control. So it demonstrated good capacity factor, good safety, but you'll never guess what happened 12 days after that test occurred. Chernobyl. It's some of these different sodium reactors had different political challenges that caused them to slow down development.

But I think that, taking a step back, the thing to realize is these advanced Fision reactors are not really for example, fusion, where there's Nobel Prize winning discoveries that have to be made, or new science has to be unearthed in order to make it feasible they've already been deployed. And the kind of best analogy in my mind is.

Some of these advanced coolants, like sodium are like SpaceX with landing a rocket. Is it easy compared to water? No. There's a bit of extra engineering challenge, but if you can do it, it unlocks a holy grail of economics. And if you get a smart team together with a bunch of capital and the right environment with the right customer, in this case, AI data centers we think you can really make this work.

And so I think that's what's most exciting about this technology. 

Erik: Matt, you mentioned a holy grail of economics, and that's what I wanna focus on next. Not so much what's possible in the next few years, but let's zoom out and talk about the future of nuclear energy and what it's going to take to truly change the course of human history and deliver a new source of energy that will eventually be able to replace fossil fuels and give us a cleaner, greener, better future.

The more I've learned about all this nuclear energy technology. And more that I've come to realize two things. Number one, we're never gonna really and truly change the world and be able to scale nuclear up enough to replace fossil fuels until we get to something called a breeder reactor economy.

The second thing though is that breeder reactors at least. As they've been developed and deployed to date, have generally not proven themselves to be economically viable for commercial deployment. So that's a real conundrum. Let's start with what is a breeder reactor in the first place? Why is that important?

Why do we need breeder reactors to eventually change the world completely with nuclear energy? And then what are your thoughts on how we overcome the fact that. Frankly, breeder reactors haven't proven themselves. Economic, at least not yet. And how do we get to that eventual infrastructure that we need?

How does the evolution occur and why is that important? 

Matt: Currently the nuclear fuel supply chain is primarily based on uranium 2 35. And if we were to burn all of the known resources on U235, it would probably have a similar life span to oil and gas and lasting us another 200 years maybe. But if you can do a breeder, it unlocks different fuels still in a nuclear reactor like thorium.

And uranium 238, which are both much more abundant than U235. So essentially that enables you to expand the usable fuel lifespan of known reserves on Earth to 4 billion years. That's what's really exciting is when you think about scaling up in the future of energy production on earth really it almost seems inevitable.

That this will become the main source of energy that replaces oil and gas on earth. And certainly inevitably within a 200 year timeframe, but we think much sooner because of the demand from AI data centers and nuclear being the best fit for powering them. That's the kind of bottom line now. So if that's the case, why are we not doing breeding right now?

The answer is it's a bit more expensive right now, and there's gonna be a crossover point in the supply chain of U235 and U238 when it makes sense to actually do the extra step of recycling and reprocessing the fuel to access the resources within spent fuel and to switch the mining supply chain to beef for thorium and U238.

So there gonna be an economic crossover point when that occurs. For the time being, the cheaper, faster, short term path is to use standard low enrichment. 5% uranium dioxide which is what we're doing at our company. But yeah, that's essentially how we see it is it's an inevitable move that'll happen in the coming probably couple decades.

But for now, the cheaper, faster approach for the customer of the day data centers is to use the existing supply chain and the existing reactor technology. 

Erik: I think there's a point here that a lot of people don't fully appreciate, which is they've heard about these breeder reactors being able to use this fuel.

The, only less than 1% of uranium that's mined out of the ground is U235. The kind of fuel that's actually used today, the other 99.3%. U238, and when people think about it, they hear, okay we're wasting all of that U238. We're not putting it to use, but hey, the cost of the uranium's not really that big of a deal to run a nuclear power plant.

Let's not worry about it. What I don't think people really understand is we're not just wasting it in the sense of not putting it to good use. We're literally creating so-called nuclear waste spent. Fuel waste is mostly all of that. U238 that. People think is just this horrible, awful, toxic stuff that stays around forever really.

It's perfectly good nuclear fuel that we could have used to make energy. We just didn't do that because we didn't build the style of reactor that we've known about. Since before I was born that can use that U238 fuel. So I want to talk about this nuclear waste. Now a lot of experts say, don't worry so much about it.

It's a public perception problem, but technologically speaking they shouldn't worry 'cause it's not as big of a deal as they think it is. And I think that those technical experts are missing the point because the public perception that this nuclear waste is horribly dangerous is really I think the biggest thing that's holding back the growth of nuclear energy.

So talk to us a little bit about, and we've been hearing these stories that some companies are coming up with technology. They can actually take the stuff we call nuclear waste that's been sitting around for decades, burn it up and use it as fuel in order to make more energy, which covers.

Two, kills two birds with one stone. One is we're making energy that we don't have to mine new uranium for. But the other thing is we're getting rid of all that nuclear waste that everybody's so concerned about. Are we back to science projects here? Is this brand new unproven technology or is there really a way that's available today that we could get rid of those 250,000 metric tons of spent nuclear fuel waste that's sitting around in dry cask storage all around the world and get rid of it by actually making power from it.

Matt: So there, there definitely is a way. And again, coming back to EBR two, the reactor we spoke about earlier that was actually the first time we demonstrated what's called closing the fuel cycle. Essentially the way to think of this is as follows. First of all, nuclear waste. The fears of nuclear waste were somewhat propaganda driven by, in large part the oil and gas lobbyists in the seventies and eighties.

That created fear around something that really hasn't ever harmed anyone. Is pretty easy to store and there's tiny amounts of it. I have to be empathetic to. Fears of nuclear meltdowns and radiation, causing relocations. And that's something we also can avoid through technology.

But the nuclear waste issue, I think is almost entirely propaganda and not really at all technological, technologically, it's a solved issue from a safety perspective. But to your point, it's not just about keeping it stored safely.

It's also about the fact that when you have nuclear waste, it's actually a very useful substance. There's still 95% of the energy still in there what's happening around the world today is France is currently recycling most of their fuel and they're extracting. So once fuel is burned, some of the, what's called Fisile isotopes, like U235 and plutonium are still in there.

You can make what's called mixed oxide fuels by recycling the fuel and just extracting those leftover facile isotopes. But, With the approach of using breeder reactors, we can then tap into the other 95% of the energy that's still in there, which is the U238. And in doing so, you can really get a lot more energy out of the fuel and also reduce the volume of waste that you have to even store to begin with.

So to give you an anecdote the entire history of nuclear power production in America. So 70 years for 20% of on average, 300 million people has produced only a football field of waste stacked around 10 yards tall. And if you were to do waste burning and use the useful stuff in that leftover fuel, then.

The height of the true waste would only be six inches on that whole football field. It goes to show you, a waste is not really this existential problem for nuclear. It's actually one of the main selling points because everything produces waste. Oil and gas puts waste into the air we breathe.

Solar panels have an end of life and must be, put under the earth or expensively, recycled. Same with wind turbine blades. So everything produces waste when it reaches end of life. But nuclear's, main selling point, or one of them is that there's such a small amount of waste and it's so easy to maintain.

And what we conceive of as waste today is actually, like you said, a very useful substance. It's a very valuable substance that we actually want to to use in future reactive. 

Erik: Matt, you and I share a vision that the way we get from where we are today to the point where nuclear energy finally becomes cost competitive with energy from oil and gas, is that we need to mass produce.

Not just components to build modular reactors, but we need to do factory assembly line mass production of entire nuclear power plants in Gigafactories, so the whole power plant just gets set up and configured on site like IKEA furniture as opposed to having to be custom built on site the way we've built all of the nuclear plants that exist today.

I'll save my own reasons for thinking that's important for another podcast. What are yours? 

Matt: At a high level what we're trying to do. I think what the ideal solution here is to turn nuclear from being a project into a product. And I'll give you a few examples of that. But the key advantage, if we're asking why does it make sense to do this for the current customer of the day data centers, it's all about speed.

And if you can mass produce your nuclear power plant, again, not just the reactor, but the whole plant in the factory, you can do a lot mo more in parallel and essentially deploy hundreds of megawatts in under a year. Whereas normally it would take five or 10 years eventually. The goal is to be deploying 10, 20, 30 gigawatts per year by doing a lot of sites, a lot of reactors, a lot of nuclear product in parallel.

But that's essentially what's the key unlock for AI data centers who will pay a real premium in return for speed. Clean is nice and base load is important, but speed is really one of the most important things there. In our view, the key to achieving this is extreme vertical integration.

And maybe we can talk a bit more about this later, but that's a really key part to achieving that scale and speed and essentially cost reduction will follow from that scale and speed. And nuclear, a big part of the cost today is actually interest. 'cause it takes so long to build all this major hardware.

So if you can build it much faster in a more predictable, repeatable way, costs come down. And then that unlocks a whole bunch of other markets for whom a gigawatt scale nuclear plant would've been just too big and too expensive and too slow. But when you get faster and below a certain cost threshold, let's call it seven to 10 cents a kilowatt hour, then it opens up all these other markets like large industrial onsite loads.

For example, desalination, industrial process, heat, small utility, even large utility, and then microgrids for powering EVs hydrogen production, ammonia, et cetera. So those are some of the biggest reasons to mass produce a slightly smaller nuclear product that. C major cost reduction and then unlock entirely new markets that were not previously available to nuclear.

Erik: I wanna stay on this topic of scale 'cause I think it's the single most important thing we have to think about. It's been a lot of hype in the industry about, Hey, we're gonna triple nuclear by 2050. Sounds great. A lot of people are skeptical that's even possible because that's a lot of old school nuclear power plants to build.

If you build them the old way, the thing is what you'd need to replace fossil fuels is not tripling nuclear. It's literally 25 times the amount of nuclear that we have in operation today. So my view is the most important thing is get the cost down to the cost of energy from coal and gas. Because when you do that, it unlocks what I call the nuclear Henry Ford moment.

And you alluded to Henry Ford and his automobiles a little bit earlier. I think this is really what the game is all about because there's 10. Terawatts of nuclear generation capacity 25 more than we have today that could be deployed if we could somehow get the cost down to where nuclear costs the same as coal and gas.

I, I don't think it's at all an exaggeration to say we could change the the course of human history in a way that it is more impactful than the industrial revolution. If we could figure out how to get the cost down and really scale this up so that we could actually build 25 times more nuclear than we have today.

But we're struggling right now just to get back in the business of, building nuclear power plants. So I wanna talk about the future. Do you think that vision can ever be realized? And is it mass production that gets us from there, from here to there? And if not, what else do we need to worry about in order to achieve that vision?

Matt: It's gonna be really hard. But I think it's possible. If you think about the pathway in going from 10 reactors per year to a hundred to a thousand to 10,000 and in doing so, you go from, at our reactor output, a hundred megawatts per year to a hundred gigawatts per year. You can imagine a lot of different things in the supply chain will break along the way.

And I think this is all very doable, but it requires a very ambitious effort from a company really thinking about the future and how to break down those barriers in the supply chain at every step along the way. So if you think about what it takes to deploy 10,000 reactors a year, for example. In the short term, you can deploy a bunch of reactors let's call it 10 per year with the existing fuel supply chain, pump, supply chain, turbine, supply chain, heat exchanger, supply chain.

But different parts of that supply chain will break as we go in that journey. For example, in a hundred reactors per year. Vertical integration on the heat exchangers becomes important. At a thousand, the company will have to make its own turbines and at 10,000 a company using sodium might have to create its own sort of industrial conglomerate that does things like sets up a reactor at Salt Lake City to separate sodium from chlorine and the salt that's there and manufacture its own sodium at scale.

So none of this is really impossible from a first principles perspective, it's all very doable. It just takes the right team, the right effort.

What this unlocks, if you look at some of the technical economic models, is you can very rapidly get below 10 cents per kilowatt hour. Let's call it n equals 20 reactors. By then, you could probably get below 10. And then to get to, for example, maybe 3 cents one day, which would really unlock a whole bunch of new markets and really beat oil and gas across the board.

Call it two to 3 cents, might require a different kind of learning. For example, to get down below 10 might involve just construction learnings turning it more into a product versus a project. Building most of the modules in the factory and keeping onset construction to basically a very simple concrete slab with no excavation and really productizing nuclear.

But then to get it down to 3 cents might require, much more of a, I just referenced with the extreme vertical integration in the supply chain to achieve way faster greater scale, faster deployment, lower costs. But I think that is the core way to. Allow nuclear to really do stand a chance of replacing oil and gas almost wholesale in the next century or so.

Erik: Back in Henry Ford's day, automobiles were like, private jets are today. Everybody knew what it was. Everybody wanted one, but nobody except the super rich could afford to actually have one. And I've contended that the same thing is true of nuclear energy. It's the safest, cleanest, greenest form of energy that's known to man, but it frankly just costs too darned much.

It seems to me, if you think about Henry Ford's challenge, he wanted to bring the cost way down, but he needed at least a small number of rich guys that could afford the bespoke automobiles in order to get his business going before he could really build his assembly line and bring the cost down to the point that the common man could afford one.

It seems to me, if we take this analogy forward to the 21st century, the hyperscalers. And their AI data centers are the rich kids who can afford to buy private jets. They're the guys who could afford. If you said, look, we can deliver your data center energy from an auto atomics nuclear plant that we can roll out in a period of months rather than years, they can afford to pay extra for that, is that the strategy is to use the budget of the data centers to get this started and then eventually scale it up to mass, really big mass production from there.

Matt: Our kind of top secret master plan is to start by servicing data centers because they have a high willingness to pay with a lot of urgency. So they'll pay a premium for speed. And as we come down the cost curve, we can go after all these other markets that we talked about. Industrial process, heat desalination, large utility, small utility.

For whom, if you go and talk to them today. They would say, come back and talk to us when you're below 10 cents per kilowatt hour. But once you get down below 10 cents, it really opens up this whole other set of markets. And like we were referencing earlier, eventually you can imagine going after the developing world with around 3 cent per kilowatt hour electricity to bring the world out of energy poverty.

So in the long term, that would be our goal. I think that's a good goal. But, I think it's important to realize, like we talked about earlier, there are two main ways to make nuclear cheap. You go bigger or you go more numerous, and the beautiful thing is the hyperscalers have a huge amount of demand.

We're talking a hundred gigawatts in the next five years. In the US alone for a it's a huge amount of demand for a very consistent product, and they want a reactor that's a bit smaller because then you can deploy a fleet of smaller reactors and have a higher availability. Meaning if you have a single gigawatt scale reactor, it has to go offline for refueling for a month, every two years.

So you lose the whole gigawatt, which puts a big strain on the grid. And then you see data centers being bad Samaritans with their local communities, putting a strain on the grid. So if you have a fleet of these smaller reactors, you can refuel one by one and essentially always have power available at a high availability.

So it's cool how these customers, they want exactly this product, which almost is inventing this new nuclear product that can then, once it comes down the cost curve, go after all those other markets we talked about. Essentially allows you to go from large bespoke reactors to small, repeatable mass manufacturable ones.

And the fact that it's clean is essentially a nice to have right now, but frankly will benefit everyone in the long term. That's the last kind of, benefit of doing this approach. But yes, I think the hyperscalers are arguably the core unlock to this new model in nuclear that we haven't really seen done before.

Erik: Now I want to touch on what has to be the hottest marketing trend in the nuclear power industry. Something called SMRs, small modular reactors. I have to confess my naivety, when I first heard that phrase, I assumed that they were talking about nuclear reactors that would be both small and modular. Given the name Small Modular Reactor frankly, I don't think either of those things are true for products like the Westinghouse AP 300 or the ge Hitachi BWRX 300, which seem to have taken over that marketing phrase of small modular reactor.

So let's just talk for a minute about why would small be better than large? In the first place. 'cause as you said the whole trend of the 1960s and seventies was to go to much larger reactors for the sake of economy of scale.

So why do you want to go from large to small in the first place? And how small does it have to be in order for that benefit to actually be realized? And do these SMRs, like the AP 300, achieve that goal? 

Matt: In terms of achieving the Henry Ford vision for nuclear, there is a sweet spot in terms of size and that size of all the modules for the reactor and the whole plant.

But if you think about it, a reactor that's too small will have very bad economics for physics reasons, it has a very poor neutron economy, and if you go too large, you can't ship it on normal roads. So if you're trying to build one reactor a year. Then, yeah, I'd say build a bigger reactor. But if you're trying to.

Ship 10,000 reactors per year. You've gotta have something that's the right size to ship normally on everyday roads and the rest of the global transportation network. So that's the thinking between that's the thinking behind what is the optimal size for mass production and for rapidly achieving the scale that data centers are desiring.

But the other kind of thing to highlight, so the SMR term you correctly highlighted that. They're not small nor modular, but in my view one of the other major disconnects and maybe the biggest flaw in the SMR vision so far in terms of how it's been expressed is that traditionally those modules all come from different factories.

So a single company for example Westinghouse or Okolo, they could be a reactor. Designer, but something that often surprises people is ok. Low, for example, is a fully remote company. They don't have a factory. So what happen is the reactor designers send the design of their SMRs to dozens of different companies who each have their own factory.

And when those mod modules come together at site, they don't fit. They have reworks and slowdowns, and that's why Vogel went 10 years over schedule and $15 billion over budget. So if we think about. The best approach to SMRs in our view, what that would be a single factory that takes raw materials in and outputs modules that we know will fit together.

In fact, we've integration tested them in the factory, and then when they come together at site, it's way faster and way easier. And by the way, they're all sized properly for mass transportation. That's what we think is really the proper incantation of the SMR vision. And so that's what we're working on at all though.

Erik: I think we're very much aligned in our thinking because I've always said that what matters about small is it's small enough that you can ship it in the existing container, ship based and, flatbed, truck based global infrastructure of logistics. But the other side of this is. The time to actually build the onsite part of it.

And it blows my mind when I see Westinghouse bragging about this is gonna be great because with the AP 300 SMR, we're going to be able to build the entire reactor in only four and a half years. And I'm thinking, wait a minute, isn't that how long it takes the Koreans to build a conventional nuclear power plant?

It seems to me, Matt, that we should be striving for four and a half months at most to take a entire nuclear power plant that was factory built and set it up and hook it together and I don't mean the site work and grid connections, but once you've got the site prepared and you ship in all the stuff that comes from the factory, I think it should be months less than a year to completely set it up, hook it up, and get it running.

Is that realistic? And how long will it take to realize that vision? 

Matt: I think we might talk about this a bit later, but our first power plant we are building currently. All in, it'll be under a year in terms of start to finish on turning that thing on. And the whole goal here again is to turn nuclear from a project into a product.

And so if you're doing more in parallel in the factory it allows you to, at the site really reduce the work that's involved. For example. If you're trying to make nuclear deployable more quickly and more predictably, a really dumb way to start is by digging a gigantic hole. Because different sites have different water table, different rock hardness, and that can introduce a lot of variability between sites, which can slow you down, and you really wanna try to make it so that every project is the exact same.

As predictable as possible, and that's where you see the speed benefits. So yes, we believe that it will be possible and it almost already is to deploy these reactors at this scale in under a year. And that's even accelerated further by some of the new licensing pathways under the current Trump administration around DOE authorization, categorical exclusions for NEPA and more.

So the somewhat short answer is yes. That will be possible, and it's gonna have to be to keep up with the pace of development that the hyperscalers are demanding. 

Erik: Matt, you've mentioned something called industrial process heat a few times in this interview, so I want to come back to that and understand in a little more bit more detail what that means.

Only 38% of global energy is used to make electricity in the first place. What we normally think about when we're discussing nuclear reactors, of course, is making electricity. Now another 25% of global energy goes to transportation fuels, but almost a full quarter. Of global energy consumption. That's nearly as much as we spend making all of the transportation fuels that we need combined to power the entire global economy. The rest of that last quarter of global energy production goes into something that's called industrial process heat.

Examples of that are smelting, steel, making concrete, and so forth. Why are light water reactors poorly suited to delivering process heat? And what's better about advanced nuclear reactors in order to better solve that problem 

Matt: with light water reactors, the reason they can't go to as high of a temperature is because water is the coolant and water boils at around a hundred Celsius.

So the. The way that water-based reactors have essentially made their designs to date is they apply a lot of pressure, hence the name pressurized water reactors, to allow the water coolant to go up to as high as 300 Celsius. But if you look at industrial process heat applications, most of the applications occur at temperatures greater than 300 Celsius.

So with advanced reactors using high temperature gas or sodium, or mold and salt. You can achieve temperatures in the range of 500 to 800 Celsius, and that unlocks essentially roughly half of all industrial process, seed applications globally, which could be decarbonized and replaced and powered by nuclear in order to reach the higher temperatures.

Still, you could. In theory, you use more advanced nuclear designs or electrical assistance to reach those higher temperatures. So it's still possible with nuclear. But at the lower temperature from 500 to 800, you get a really nice benefit on efficiency. Because traditionally when you make electricity with a nuclear reactor.

Two thirds of your heat energy overall is going to waste heat and only a third is converting to electricity. But if you are doing industrial process heat, you can essentially use the heat coming straight outta the reactor and use a hundred percent of it or much more of it using, much more efficiently than than the electrical use case.

So it has extra economic benefits there as well. But yeah, fundamentally you can think of it as data centers will be the ideal initial customer to bring the cost down and it unlocks all these other markets to help bring industrial process heat to be decarbonized with nuclear around the world.

Erik: Matt, I can't thank you enough for a terrific interview. But before we close, I want to give you an opportunity to pitch what your company is working on, because frankly, you're the only advanced nuclear company that I've found that shares my own vision for mass producing, not just nuclear reactors, but entire.

Nuclear power plants in Gigafactories for the sake of cost reduction. It's that Henry Ford concept of bringing the cost of nuclear way down by mass, producing it in a gigafactory, so that all that has to happen on site is setting it up and hooking it together as opposed to any kind of custom building of anything.

Again, listeners, in the interest of full disclosure, I am an investor in Matt's company. Matt, give us the elevator pitch on Aalo Atomics. What are you working on? When will your technology be ready for commercial deployment? And where can our institutional investor audience find out more about your company and its business plan? 

Matt: Thank you again for having me on this. This has been a real honor and privilege. We are all atomics. We're mass manufacturing nuclear power plants that are purpose built for powering AI data centers.

We started around two and a half years ago, and at that point we were two people. Now we're 140. To date, we've raised 180 million and we're on pace to turn our first nuclear. Power plant on in under Just a few months. I can't say exactly when that's confidential, but it is very soon. So hopefully when I say that, the audience is shocked.

Because going from fanning to fission in three years is very unprecedented. But right now we are raising our series C. It'll be 500 million to a billion, and the use of this fund will go towards the first gigawatt factory. So scaling out our 40,000 square foot. Pilot factory space that we've already built into a million square foot facility that will have the ability to mass produce at least one gigawatt per year initially, and then scale up to five and then 10, and then likely around 20 gigawatts per year per factory in the not two distant future.

So essentially we're turning the first plant on in the next few months. It's a 10 megawatt plant that's purpose built for powering and data center at the end of the year. It'll achieve full power operation. And that's the aggressive internal goal on powering the world's first cot, nuclear planted data center.

And it'll be a great demonstration of something that I think we'll see a lot more of in the years to come. Yeah, thanks again for having me on and it was a real pleasure. 

Erik: Matt, I'm really excited about what you're doing. That's why I invested in it. But I just want to probe a little bit on the business plan because first of all, I think you're doing exactly the right thing, but selling a nuclear power to data centers sounds to me like selling private jets to rich guys.

Is your strategy eventually to get to the point where you can bring the cost down enough mass, produce these nuclear power plants at a price point where you don't have to be an AI data center to afford one. And can you give us a rough sense? I know it's it's probably an unfair question, is that two years out, 10 years out, 20 years out, when do we get to the point where factory mass production brings the cost of nuclear down to the point where it starts to compete with the cost of fossil fuels?

Matt: So I think the interesting is right now, if you look at the Hyperscalers builders of data centers. The price point they're seeing for net new natural gas production is in the 10 to 15 cents per kilowatt hour range. We're seeing as the current pipeline gets tapped out, new fracking, new pipeline expansion has to be.

Built out. And that also adds costs and delays. So the interesting thing is, even at the speed that we're talking about right now for, and the scale for powering data centers today we can come in at a price point right around that same range initially. So by, by many measures coming in right off the bat, being competitive with the ideal oil and gas solutions for this customer.

But as in order to. Displace much more of oil and gas. It'll have to get cheaper. And we believe within n equals 20 to 40 or so. So in other words, after the first 20 to 40 reactors, which would be around, five, call it five to 10 pods getting well below 10 cents is fully within range.

So it doesn't have to be in the thousands to see a very good price point, but in order to eventually get to 3 cents, which is a very aggressive number, it's our, essentially our company mission. That is more of the multi-decade effort, but I'd say probably in the early 2030s to mid 2030s getting below 10 cents is very achievable.

Erik: Matt, I'm really excited to be investing in what you're doing, and I just wanna say that I hope that other companies will come to the table and share your vision and my vision of mass producing nuclear energy in factories so that all you have to do is set it up and hook it up on site as opposed to custom building anything on site.

And I think it's really going to be important that the western nuclear industry embrace this idea because frankly, the People's Republic of China. Gets it. And they're working hard on this too. And if we wanna be competitive in the west, more companies need to follow the lead that Matt's company is taking.

So that's my soapbox for this episode. I wanna move on now and encourage everyone to stay tuned for our post game segment. After the feature interview, ironically, we happened to go a little bit off of our usual macro theme for this nuclear focused episode in a week where the world went To Hell in a hand basket.

And we've got lots to talk about around Iran, the evolving geopolitical situation and so forth. And that's coming up when Patrick Ceresna joins me as Macro Voices continues right here at macrovoices.com.

Erik: Joining me now is Jeff Currie, partner at Carlyle Group, and also well  known as the former Commodities chief at Goldman Sachs. Jeff, it's been way  too long and it's great to get you back on the show. Since you're Mr.  Commodities, I've gotta ask you, I think what we're seeing is the stock bull  market of the early 2020's is giving away to even bigger commodity bull market  of the late 2020s, is that what's happening? And if so, what's the macro driver?  Why is it happening?  

Jeff: Oh, absolutely. I think started back in October, 2020 through the middle of  22. You know, oil got up to like 130. We saw a big run up in commodities  during that time period. The drivers of, you know, we, in fact, we made a call  when I was at Goldman, you know, for a commodity supercycle. 

In October of 2020, and I'd argue every point that we made at that point in time  are valid, even more so today than it was then. So if you liked it, then you really  gotta like it out. So why don't we just kind of go over the big drivers and, you  know, from a supply perspective, you know, it. You know, the, the  underinvestment, you know, you know, years of poor returns going back to  2014 saw capital redirected into other sectors, you know, like, like tech. 

And as a result, you know, you look at like, whether, if it's metals or, or oil or  yeah, agriculture. Most of these real assets have faced years of underinvestment  with, like with oil. This year is the last time you have. Big surge in non OPEC  production. In fact, it was in, you know, this coming month of March. 

That's it. There's really nothing behind it. Refineries, there's nothing behind it.  Copper. I can go down all the metals, you know, you, you, the underinvestment  thesis it's been in place since then. Still very much in power. And when you  look at metals, they've just been a straight line since 2020 actually, you look at  the equal weighted you know, commodity indices, like, you know, the  underweight oil, and we'll talk about oil a little bit later. 

It's just been a straight line since, since 2020. So what were, you know, the, the  drivers on the demand side and I really the same three are there, and it was  deglobalization. Decarbonization. Well today you call it electrification, but let's  call it electrification for current term, current terminology. 

And then the third one was redistribution. So another way to say it is the you  know, the deglobalization is the war on free trade. The decarbonization was the  war on climate change. And the redistribution is the. War on income inequality.  So let's go with the first one. The, on the, you know, the, the, the  deglobalization.

It is so much further than what I ever envisioned. You, you know, whether, if  it's defense spending supply chains, you know, like to say we've weaponized the  periodic table. It's gotten so severe since then with, you know, China curtailing  critical mineral supply in 22 natural gas you know, even more recently with the  US sanctions on Iranian and in Russian oil, you know, all of it's been  weaponized. 

So that story, that theme is just turned up in volume. And that's even what's  driving gold because ultimately. You de dollarize 'cause you don't want any  own, any dollar assets. 'cause the Americans can employ sanctions on you  through the Swift system. So even gold is going up because that, so that de globalization theme you know, alive and kicking and you know, again, another,  actually another data point Europe. 

5% of GDP committed to defense spending. It's all commodity. So anyway, that  theme as, let's go to the next one. You know, we called it decarbonization in  2020 today called electrification Turbocharge. By the way, US, I'm putting US  Europe and China record installation of renewables in 2025 and 2026. 

And in China, as you and I are one of our favorite topics to talk about, nuclear  capacity installation. China is just leading the world in that. So electrification  that story, you know, is, and then you throw data center demand on top of that  electrification story. It's far stronger than we ever dreamed of in 2020. 

And then the, the third one, the redistribution. And that really goes to fiscal  policy. And the need to you know, redirect capital into lower income groups to,  to deal with the civil unrest and the problems that are associated with which are  all over the world right now. And when we think about the spending, and this is  the argument and you, you and I have talked about in the past, Eric, is when you  money goes to the lower income groups, you get a proportionally larger spend  on commodities. 

So you put it together you know, demand even in oil. Surprising to the s upside  for many different reasons. We'll talk about oil later, but we're seeing across the  board, and I just wanna address one last point here before we leave this topic. A  lot of people are gonna go, you know, curry, you're so wrong on oil. 

Yes. I was so wrong on oil. It went down. And we think about commodities, all  the ones that have a atomic number associated with them that are in the periodic  table and the, I like to say the weaponization of the periodic table have gone  straight up anything that has a carbon hydrogen into it. Really struggle.

What's carbon? Hydrogen hydrocarbon. So oil gas in coal carbohydrates like  corn, wheat and so forth. What do these organic chemistry commodities all have  in common? Affordability. They drive inflation. And when we think about.  What, you know, the primary driver of every politician in the Western  hemisphere in the Western West is get inflation down at all costs. 

And so we think about what happened is that we go back to 22, 23, and we saw  that the drop of inflation was globally synchronized. It occurred against record  demand of commodities. Very strong US, GDP growth, relatively good GDP  growth in China. So it really could not have been demand, it had to have been  supply. 

Because again, globally synchronized strong demand. So where did they get the  supply? Turn a blind eye to Russia, Iran, Venezuela. Hey guys, turn up the  volume. And then you look at immigration. Where did, how did you get the  wages down? I mean, just tell anybody, go back and look at immigration across  us, Canada, Europe, and the rest of them's a line going straight up. 

Get your wages down. How did you get the food prices down? We don't care  about what's, you know, the palm trees in Philippines, or you know, the, the  land in Latin America, just harvest as much as you possibly can. Turn a blind  eye to environmental. Regulations. So they did that. Now, what problems are all  these countries facing with right now? 

Well, US went into Venezuela. You got a problem in Iran, you got a problem in  Russia. You're not doing that trick again. These guys are producing at max.  Then you look at, and so you're, now you're turning them off again. And then  you look at what happened with. You know, with immigration, you know, by  the way, places like Canada were up, I think like two or three X, and here in the  UK was up like a hundred percent. 

US was up 50%. And now you're getting the backlash from that. So, you know,  I'm not gonna say, you know, I'm not there. I know there's a lot of sensitivity  around immigration. I don't wanna put it down, but, but I think the key point  here is those CH commodities, those affordability, anything associated with  affordability was forced out. 

Eventually you're running out of those tricks. There's no more insurance  policies. Next, this next time around, you're not gonna be able to open the  floodgates on immigration. You're not gonna call up Iran going, Hey we don't  care. Start exporting again against the sanctions. This is not happening again.

Anyway I think you get the point here is that story started back at the beginning  of this decade, continued on in the, in the metal space in the Organic chemistry,  the ch commodities, grains, and oil and food and fuel. It was delayed. And I  think what we're witnessing right now, and especially with the hype of AI  settling down that commodity supercycle is reasserting itself. 

And as you point, I think it's not, it's, it's a continuation story, and it's only  gonna get bigger as we go to the end of this decade. I can say, where are we in  this right now? We're in the foothills of the Himalayas,  

Erik: Jeff, A quarter of a century ago, you wrote a piece called Revenge of the  Old Economy. You were diagnosing what went wrong with the.com bust and so  forth. 

You told me off the air, you've recently written a piece. I'm not sure if it's titled  The Revenge of the Revenge of the Old Economy, but basically the same theme  is back. Why is it recurring now? What. The new piece about,  

Jeff: Yeah, we just bas I basically was a cut and paste of what we wrote back  quarter century ago,  

Erik: a few years back. 

How's that?  

Jeff: Yeah, yeah. Okay. Alright. All right. But the, but I think, let, let's talk  about what we observed there. By the way, at the time I thought it was a one off  and I'd seen something that, you know, and now I realize it's a cycle, so let's go.  What I thought about in 2001 is that the story we told was due to poor returns. 

In the in the old economy. And by the way, the stat that we had for it in in, you  know, 2019 99 was that US emps destroyed 27 cents on every dollar they were  given during that decade of the 1990. So they, they, they returned, they kept 73  cents of it. You know what that number is? In the 2000 and tens all the way up  to 2021, 54 cents was destroyed. 

That means they kept 46 cents of it. So you know that that's the type of wealth  destruction that that occurred back in the, in the 1990s on that slide. So all the  capital chased where the returns were, which was the new economy. Eventually  you choked off so much investment into the old economy, you got shorted.

And by the way, that bull market really started in the late nineties, early two  thousands. And then took a breather around September 11th, and then the whole  thing came crashing down in, you know, late 2001 2002. And then you had that  rotation. The story, why we called it the revenge of the old economy was pretty  simple. 

Lack of investment in old economy. You starve to the capital it needed and then  you are off to the races. Then you throw in a demand shock like China on top of  it, and then it got turbocharged. Now let's go back, and I'm gonna say at the time  I thought, oh, it's unique. Then we started realizing, no, this stuff happens all the  time. 

And what are the two most important industries in the global economy?  Technology and energy. If you can't, you know, if you can't turn the lights on  nothing ever happens. If you don't innovate, you never progress. So technology  and energy are the two most important sectors, and all we do is rotate over time  between technology and energy. 

And in fact, I saw somebody put this chart going, what are the big themes in  investing? You look at it, you know, they don't really observe. They call it, oh,  it was China, or something like that. But reality, you're always rotating between  those two. And lemme give you, so I really realized it was about 2022 or 2023. 

It's not old economy, new economy. It's actually asset light, asset heavy. And by  the way, in what is a commodity supercycle. Or a, a asset heavy boom or an old  economy boom. It is nothing other than a CapEx cycle. Really simple. And if  you, you look at some of these charts we have just look at the CapEx cycle and  that's, these are, you know, 25, 30 year cycles and that's what, what, what  happens here. 

But I wanna go back to the nifty 50. Let's start there and why do I wanna use the  term asset light? So we, we, we begin the 1960s. We have excess commodity  supply from the rebuild from the, the, the, the second World War. This put  downward pressure on on interest rates, so you got low and stable inflation and  boy equity markets like low and stable inflation le leads to low interest rates. 

You know, you had LBJ Browbeat, Arthur Burns get interest rates down as  much as you possibly can, and then he started spending. And so that you laid  the foundation of those low interest rates. Now, what do low interest rates do? a  lot of people think low interest rates should lead to CapEx boom because  money's cheap.

No, it leads to a duration. Boom. You go, you, you wanna buy growth way out  in the future when interest rates are low. And what were the nifty 50?  McDonald's, Coca-Cola, they're all brands franchise. Think about McDonald's.  It's identical to Microsoft. It was infinitely scalable at zero marginal cost  because it was a franchise. 

So it had that long-term growth story. It was all the same stuff in that 50 as the  dotcom boom was in the nineties because it was all long-term growth.  Technology companies, again, software infinitely scalable, zero marginal costs.  And then in the 2000 and tens, when you had the low and stable inflation, it was  like Google. 

And so you look at the rotation in like 1968. Coca-Cola was the most valuable  company in the world, and like Exxon was at the bottom. Fast forward to 1980  after you ran out of commodity supply, you had a huge inflationary shock.  Exxon was at the top end. Coca-Cola was lower down. But I think the point  here is don't underestimate the demand shock. 

What was the demand shock that caused that inflationary boom in the, in the  seventies? It wasn't you know, OPEC just turbocharged it with the Arab oil  embargo, but the real cause of it. Was LBJs great society. Remember guns and  butter. And then we go into a period of a commodity. Boom, you, we  debottleneck the energy. 

And then you go into the, you know, the eighties and the nineties interest rates  low. You get the.com boom. Now it's Microsoft at the top, Exxon at the bottom.  And then you run out of supply. And then your big demand shock was ch, was  China. Note that all those demand shocks were policies. It was LBJ in the late  sixties with his, you know, war in Vietnam, plus the the, the, the war on  poverty. 

The Chinese one was a decision by policy makers to let them into the WTO.  And then you get to the, the the twenties. It was COVID, you know, it was a  shock to the system on their investment. Now what is it gonna be this year?  2026. Big, beautiful bill. Germany with, by the way, you have a fiscal policy  bonanza this year. 

You've got big, beautiful build. You have Germany, you have Japan, you have  China. I think we, we haven't seen this big of a global synchronous pop to the  system, actually, I would argue since, since COVID and look what COVID did.  So I, you know, I, you know, I'm taking a long thing about why these cycles  here.

So just, I think the way we, I could think about it now is it's. Rotation between  asset light, asset heavy. Asset light is usually tech. Asset heavy is usually  energy and, and commodities. Now there's one last twist, and I know I'm, I'm  dragging on here, Eric, so bear with me. Is that if you can think about the, the  asset light booms being driven by bits and the asset, heavy booms being driven  by atoms. 

One thing that is really different, and this is the core, the twist in the piece we  put out. Yesterday is this time the bits meet the atoms. And how do you get the  bit atoms take about? Think about what is AI compute? The, the technology  companies are becoming asset heavy. They're putting steel in the ground and as  they put steel on the ground, the bits meet the atoms. 

You get a bit atom commodity called AI compute, by the way, you know, it sits  on your Bloomberg screen. You can trade it. AI compute, send I think dollars  per hour. And you have cryptocurrencies or mining where you're burning vast  amounts of atoms to get a bit. So we're in a new world where the bits meet the  atoms, so they have, that may be a normal rotation. 

But I think it's, we're in an exciting new world and, and I think it's just gonna  create even more demand for the physical world. Think about AI requires less  labor, more commodity. So this one's gonna be bigger than the ones in the past.  But I think around a long answer to your question these are big cycles. 

We're in the beginning of new one. I'd say it's the bottom of the first ending.  

Erik: Jeff, you mentioned China several times. I want to come back to that and  I'll get to AI and energy demand in just a minute. But first, let's just touch again  on China. They are stockpiling everything like it's going outta style. 

Actually, let me correct myself. They're stockpiling everything. As if they are  preparing for either war or major sanctions and embargoes. Is that what's  driving this? I I, I, you know, are we headed imminently toward a US China  conflict and what will it mean in terms of commodity markets if it happens?  

Jeff: By the way, everybody's hoarding. 

It goes back to the geopolitical. Going back, what was one of the key drivers to  the supercycle call? It's the deglobalization. And, you know, deglobalization in  the war on free trade, you can't get it. And if I'm China, think about this. I'm  China. I watched the US go into Venezuela, just cut my oil.

I put a hundred billion dollars into that country to develop all that oil. And they  just stopped it and they, the Russian escort to the tanker just got stopped, pulled  over. My supply is being curtailed. And by the way, I, we wrote a piece recently  talking about Venezuela, Russia, and Iran. These guys are all Chinese colonies. 

I mean, let's just be blunt about it. But I think the key point here is if you are a  consumer of oil, you're China, you're India, you are Europe world's really  dangerous because the US just cut your supply off. 

You know, there's these sanctions, particularly if you're India or China. So  whatcha gonna do, you're gonna hoard, what did President Trump just announce  the vault? He's hoarding critical minerals. You know, I can go down the list. I  mean, if you're, if you're sitting there and you're, you're procurement officer in  one of these companies, you gotta be going, Hey, how does my supply chain  look like for tomorrow? 

So I, I think what you're, you're arguing whether you wanna say you're  preparing for war or whatever. Bottom line, the world's more dangerous. And  let's put gold into this story. Why is gold into the moon? You're hoarding gold.  Why are you hoarding gold? Because owning dollars is dangerous. So it's all of  the same story. 

Look at the US in the Comex it's hoarding all of the world's copper into the  Comex. Why fears around tariffs? So the list goes on and on and on. So you're  absolutely right. China is hoarding all sorts of commodities, but we're seeing  this everywhere and people go, oh, what's going on in, in, in China? It's gonna  end tomorrow. 

Let me remind all these listeners that the US hoarded oil like this in the 1980s,  late seventies, from 77 to I think to like 88 or 89, for over a decade, it doesn't  stop. And so when we think about how long this can go on, it can go on for an  incredibly long time. And by the way, we, I don't, in fact, I do wanna get into  this oil glut narrative. 

I've never seen that a narrative take hold with zero credibility or evidence  behind it. You know, 'cause this stuff is demand. It's real demand. And I think  gold is the one that's most sim symbolic of it.  

Erik: Jeff, I definitely want to come back to gold and silver and the oil glut. But  first I want to go a little bit deeper on what you said before about AI and the bit  atom connection.

It seems to me like AI is something that has become an existential, if you will  an arms race of AI technology. Its military implications are so strong that. You  can't just say, oh, well AI started to take off too much energy. Let's scale it  back. They can't scale it back because it's an arms race. So I think we're gonna  get into AI becoming the bad guy on the public stage that used up all the energy  and made everybody's electric bills, you know, double. 

Is that a realistic fear? And if so, how do you see it playing out  

Jeff: by the way, the, the digital demand for, for power. It is just a steady,  upward trend. It was crypto before AI. It was big data. It was cloud, big data. It  keeps going back. This has been going on for two decades. People talk About,  it's just a steady upward trend. 

It's just becoming so large now that it, it, it's now starting to put some demand  growth in places like the US where we haven't seen it before. Am I willing to  say it's going to be the primary driver? I mean, at the edge we're talking, you  know, moving from flat to two to 3% or maybe even 4% starts to put a lot of  pressure on it. 

But I, but I think that people are underestimating the technological innovation  and the ability to do this stuff. You know, I look at the, the, I always compare  AI to the shale revolution. You know, on the eve of 2014 or 13 on the eve of  the, the collapse in oil prices you know, everybody was investing in shale  because they, it was gonna be the demand. 

Everything's gonna be there wasn't the demand that destroyed shale. What  destroyed shale is the engineer pumped out three times more than what anybody  ever thought. They, you know, I had to say, don't bet against an engineer. Give  them enough time and money. They, they'll solve the problem. By the way, in  2013, they loved energy and they hated tech. 

By the way, there was a tech supply glu back then. You didn't, it was peak pc.  Demand. Didn't wanna go near it. Just wanted energy, energy, energy. But the  reality is. Did those engineers create an oil supply glut in 2014 and 15? I think  when we think about what's going on in AI today, I would argue, you know,  

that, that by the way, you look at AI compute, yeah, it's going down because of  obsolescence, but that price is weakened from like three bucks down in like to  the $2 range. 

And part of it is they just get better and better at. So I would be cautious about.  Ai, by the way, where everybody's focused on the oil supply glut today, and 

nobody thinks there's an AI compute glut. I'd be a lot more worried about an AI  compute glut because these engineers are so bright than I would be of an oil  one. 

Erik: You're worried about an AI compute glut, too much computing capacity,  including the energy to run that computing capacity? Or do you just mean too  many computers  

Jeff: too, too many that the price of compute goes down. By the way, if it goes  down, they'll even use more of it and use more energy. But the the, the ability  to, by the way, every single one of these technological revolutions always ends  in tears for the equity guys always. 

You and I live through the, through the shale one. And by the way, the shale  one looks identical to the AI one. Even the SPVs, the, the structures of the  financial engineering identical. It's like they took the pitch books from the shale  guys, rubbed out the names of the energy companies and wrote in all of these  open AI and the rest of it and just redid it. 

'Cause, think. They had the MLPs. The only difference is, is the oil guys went  downstream into the MLPs Here. The data center guys go upstream into the  power guys. Other than that, it looks identically the same. So, you know, I I, I, I  look at, that's why, so I wanna say it, AI compute blood. I'd be less worried  about energy collapsing than I would the price, because remember, there's a  commodity called AI compute. 

It's H hundred. Look at silicon H hundred on your Bloomberg terminal. It's gone  up. It's at 2 42, but it's still well off the $3 range. So I think the, the key point  here is I would be, I'd like to say don't bet against the engineers. Give them  enough time and money they can really surprise you  

Erik: on that theme. I'm convinced that the give them enough time and money  for the AI compute demand ultimately is going to lead to a really increased  nuclear renaissance, because that's the right technology solution for AI energy  demand. 

The problem is until we get off of conventional lightwater reactor technology  onto something better, and that's gonna be a while. It takes just too darn long to  build a new nuclear power plant. I think it's going to create a natural gas boom.  It's an interim boom. You know, from now until we can really build out the  nuclear, I think we're gonna have to figure out how to build more energy some  other way.

And I think natural gas is the obvious benefactor. Would you agree? And if not,  why not  

Jeff: a hundred percent agree with that? And by the way, I'll be very careful.  While I say the price of computes going down, it doesn't mean I'm saying that  it's, it's gonna lead to less energy demand. I just think they're gonna get more  efficient at it. 

But the, when we think about the, about the demand out there, ultimately when  we think about AI, where are the bottlenecks gonna be? It's gonna be the natural  resources and the data you feed the LLM bottles, that's it. Everything else, that  margins are gonna get crushed. And so you wanna own the commodities and  particularly power, and you wanna own the. 

You wanna own the, the, the data that gets fed into the LLMs. And so if you're  think about power, you know the place that you're gonna get the, the, the most  efficient increase in power is gonna be through, through nuclear generation. So I  absolutely agree, but that's not gonna happen for another two decades or decade  So what's your best bet for today? 

It's gonna be natural gas. It's the easiest, fastest way to bring on power. So I,  hundred, you a hundred percent agree, but I know people who put that trade on  last year and it's been a really rough, rocky road we went up to. $7 recently and  came crashing back down to three 20 of where we are today right now. 

But I think the, yeah, the key message there though is I think you're absolutely  right. You start to get the summer of this year, summer of next year. I think  natural gas is gonna see a lot of upsides.  

Erik: Jeff, let's go back to gold and silver. We just had a, I don't know what to  call it, a gut wrenching correction. 

$1,200 correction in gold. The catalyst probably that triggered it was the market  misinterpreting the Warsh nomination. I think it was really just the, the market  was so overstretched, it needed a correction. I thought with something of that  magnitude, surely it would take months and months and months to consolidate  before we could move higher. 

But the news, I think this week, at least so far as we're recording this on  Wednesday afternoon, is gold has moved above the 61.8% Fibonacci  retracement. The, the old adage in technical analysis is once you're past the 61  8, you're probably headed to a hundred percent retrace. If we get a weekly 

signal, if we're above 5166 on gold, and I'm looking at 5224 as we're recording,  if we're above 5166 at the end of the week, it says to me that, you know, maybe  this is already recovering and headed higher. 

Could that be true this soon after such a big correction?  

Jeff: Absolutely. And if you think about the period in the 2000 supercycle, it  was incredibly volatile. I like to point out. You know, these, these super cycles  are just sequence of, of price spikes. You know, I, they go, oh, you know, it's  down, and then you catch, here's the way I like to think about what happens,  particularly in silver in this case. 

Is the, the system gets overstretched. Investors buy it and they run the price up  so high and demands pushing up against supply constraints. Eventually, the  demand gets so high, demand collapses underneath it, then it falls off, the  supply constraint comes crashing back down. Then people go, oh my God, this  is cheap. 

They start buying again and boom, smashes into the supply constraint again.  Explodes. And it just does that over and over and over. And by the way, that  discourages the investment. 'cause everybody gets scared. Oh, it's gonna  collapse again. It's gonna collapse again. And so you don't get the investment on  a long-term basis. 

And that's why you know, the initial phase of these super cycles, they get really,  by the way, you remember like aluminum and power back in 2001 and 2002. It  was that same type of dynamic. It was like you're going up and down and up  and down and it makes it nearly, you don't trade this stuff and you don't, unless  you absolutely have to. 

And so I think, you know, that's, this is gonna be what you're seeing in gold and  silver is we're gonna see this across the the, the com commodity complex. And  that's what all these super cycles. It becomes a common feature of, again, the  equities. By the way, the equity trade for the, for the metals and energy has been  a nice, smooth, easy ride. 

So, by the way, if you, if you want this nice, easy, smooth ride, own the  equities, don't own the commodity but the commodities, it's gonna be, it's gonna  be a rough rock. Like we're just talking to natural gas, seven bucks to three 20.  And by the way, we, all it takes is, you know, get you throw in some more  weather and, you know, put some data center demand on it.

You'll be up the races on that one too. So, you know, I think, hang on and on  gold this, I don't see how you come up. It's not as price sensitive as silver or  natural gas. And the underlying theme there in this environment, it's like the  Swiss Franc as strong as it's there's, there's no end in sight. 

And I, you know, what the demand is coming out of. Not only people hedging  themselves against the Debasement trade, but you have de Dollarization going  to buy central banks all over the world afraid to own dollars for sanction  reasons. And then you gotta own the stuff for diversity reasons in your  portfolio. 

Everybody's still under invested this space. You know, I could point out the  metal space. 200 billion a market cap. You know, so, you know, you start  throwing money and it's explosive. Anyway, I think this is a feature of a, of a  Subaru cycle and expect to see a lot more of it. And I, we're gonna go higher. 

Erik: Let's talk about silver. Some people have suggested the dynamics there  are different because silver had really gotten ahead of itself before the  correction. Some people thought that that was really a result of the people who  were pimping it, the Wall Street, silver, and all that kind of stuff. And. 

Maybe after that blow off that we saw it was certainly, it, it, it is recovering, but  it's not recovering on a percentage basis as strongly as gold is. And it was  outperforming gold before the correction. What do you see ahead for silver?  

Jeff: I mean, you're, you're back to 91 right now. Yeah, it briefly got up above a  hundred and hit I think 120 at, at, at, at the high. 

You know, long run, you know, it's a turbocharged version of gold. I mean, that  was one of our favorite picks back in 2020 when, when we first made the  supercycle call because it, you know, it has the same underlying precious metal  dynamics as gold, but it's a key input to all this electrification. 

Back then we called the decarbonization today, we call it electrification solar  panels, and, and it's a core input. To all of that electrical equipment that places  like China make, and again, China short this stuff, which is part of the reason  why China has been, you know, a big buyer of it. And again, the demand from  corporates to afford it and things of that nature. 

I'm not in the forecasting visits anymore, but some of those banks I think it's  BOFA, Michael Wi, I think, does he have like 170 or something like that? He's 

been doing this as long as you and I have. So I, I, I, I think there's a, you know,  the potential here, there's, there's a, you know, for significant upside still. 

Erik: Jeff, let's come back to the inflation outlook, which you mentioned earlier  in, in your first answer. With all of this appreciation that we're seeing in gold  and silver, what are we really seeing? Is the price of gold going up because of  greater central demand, are we really seeing the value of the dollars that gold is  priced in going down? 

Jeff: I think it's a combination of both the, the initial surge, the de dollarization  occurred the first time the Trump administration used sanctions against the  Russians back in 2018. That was a shock to the system and you realize you own  US bonds, you got problems. Then it, then after you look at when it got  turbocharged, soon as the US sees the Russian Central Bank assets in 2022,  after the invasion we're off to the races that is d Dollarization. 

You don't care. You're getting rid of your dollars. 'cause you don't want to get  sanctioned in votes on you. And at this point, emerging markets are doing this  all over the world. And now they just continue to add to the reserve. That's not,  that has nothing to do it. The debasement demand, which is mainly from  investors. 

That's what you're talking about. But you put the two together, it, you know, I  like to point out dollar. Yeah. It's trading what, 1.34 against the pound sterling?  Well, 1.17 against the Euro. The only, the only currency out there that it's just  been, you know, slaughtered by is the the Swiss bank. I think it's trading 0.77  against the dollar. 

So there, yeah, I think a story you're talking about the rest of them, you know,  it's, it's, it's not that big of a shift. And when we think about the, you know, the  dollar you know, it's, it's weakened, but in nowhere, think about an oh eight at  the end of that commodity supercycle, it was trading 1.61 against the Euro. 

The Euro. That was the peak of the dollar against the euro. And so we're at 1.17  today. That's a long ways to go. So the answer to your question, there's been a  little bit of it, but this is real. Like, hey, all these currencies are in a bad shape.  Another way to think about this is, this is not the dollar being singled out as  being the bad character. 

this is FIAT currency been singled out as the bad character. 

Erik: Let's come back to the oil glut narrative that you said you wanted to  debunk. I couldn't agree with you more that the notion that there's a  fundamental oil glut is crazy. I think that the long-term fundamentals for oil are  extremely bullish, but hang on. 

Between now and the midterm elections, president Trump really doesn't have  anything more important on his agenda. Than keeping energy and affordability  prices low through the elections. So it seems to me like there's likely to be a, a  lot of invisible hands at work trying to keep energy prices low for the next six  months. 

Would you agree with that or are we looking at fundamentals that nobody can  manipulate?  

Jeff: I'm gonna have to answer that question. Is I think there is gonna be a, a  tipping point where it can't be manipulated, but there's no way. How, how do  you manipulate it? I, I look at back at this. And I asked myself, how did this  happen? 

I've ne I've, I've been doing this 30 years. I've never seen a narrative without  any real fundamental evidence. And when you look at the actual fun, the real  data inventories are low. You know, they're in the OECD countries today.  They're lower today than they were a year ago. A lower data a year ago. 

That's, that's the real data they have. Yeah. You may have the satellite data.  Some, and even there, they showed that the inventories floating at sea have  turned over. The curve has been very backwardated. You and I both know a  

backwardated curve is bullish. Refining margins are really wide. Spreads are  early. 

Yeah. The OSPs of the, the, the, the OPEC countries have come off, but they  come off from relatively high levels. I'm just going, what are they looking at?  And I don't know where the narrative it, how did they get started? And where  did it come from and how did it get it go on for 18, 19 months? You know,  

when we think about AI in the productivity gains. 

You know, the one thing is that is, is that you, you gotta verify the results of ai.  We don't know if it is, is telling the truth or not. And as people in workplaces  start using it more and more and more, you need more humans to actually verify  that what they're doing that's not measurable is right. And you could think of it  about the same way in in markets, you have more markets being traded by  algorithmic trading than we've ever had before.

They tee off sentiment numbers and things like that that can drive it down  because every other measure that you and I know says this oil market is bullish  except for the flat price. But the flat price can trade off the sentiment, but there's  nothing there left to verify because it's too expensive to verify it. 

And I think that's, you're gonna see that in the productivity. The, the workshop's  gonna go, Hey, the cost to me to verify this is so much, and the potential for it  error becomes so great, they're just gonna quit using it. And it's the same thing  going on in oil that is being driven by algo's trend followers and the sentiment  to a point.  

Where it cannot correct itself unless you can go down underneath and go at the  micro level and create enough upside to it. Maybe it's the, you know, an  invasion in Iran or something that gets us outta this trap. The price level is  driven by liquidity. 

Not by fundamentals or anything like that, and the liquidity's been drained out.  People are just, they don't want trade. I thing is that a lot of people have lost a  lot of money trading oil, whether it's short or long over the last two years. But to  answer your question, it's gonna happen. When is it gonna happen? 

And the you a crude awakening. And so yeah, it's, you know, is it between now  and the midterms? Is it, you know, a potential with Iran? It could be. But I think  it, it's definitely it's not a question if it's a question of when.  

Erik: Jeff, final question. You told me off the air that you're expecting an  explosion of liquidity. 

What's that about? And the other thing I wanted to follow up with you on is  you've been in touch with our good friend, Josh Crumb, founder of Abaxx  Technologies. Those guys were doing some really exciting stuff specifically  around liquid Natural gas and futures trading and so forth. Do you have any  update? 

'cause we've had a lot of interest on our listeners for an update on what Abaxx is  up to.  

Jeff: Yeah, I think they, the, the, this discussion just goes hand in hand. You  know, when we think about the liquidity explosion, I like in, you know, what  we've seen in the Genius Act Web3 0.0, I don't like the word crypto.

Call it DLT, distributed ledger technology, or whatever it might be in ai. You  put those three together, it's just like the CFMA act of 2000 and Web 1.0 that  unleashed a liquidity explosion in commodity markets like we had never seen  before in the two thousands. Why? Because the technology allowed you to go  

downstream and trade things we could never trade before because of Web 1.0  was big data and what we're on the cusp of right now. 

You put, you know, Web3 0.0 combined with ai, combined with the Genius and  Clarity Act, I think you're ready to unleash a, a liquidity explosion like the  world has never seen before. And what's really gonna be allow us to get down.  Really what it's gonna do is allow us to go downstream and trade things that  we've never traded before. 

And how is it going to do it? Is, is, is Crypto was never made for human beings.  It was made for machines. It's clumsy, it's hard to do. We're gonna have AI, bots  trading, crypto, or trading you know, tokens. I don't like the coins. I don't like  the crypto. I like the d the, the technology. I like the tokens that are in  commodities like gold and silver, real world assets. 

Tokenized real world assets that we can partition into levels that are going  downstream, unlike ever before. And like to point out in the first wave. At  Goldman Sachs, we could never trade plastic because we couldn't get  downstream enough into the plastic markets because they're so fragmented.  When you put AI and crypto together, we're gonna be able to go and make  markets there. 

And we take somebody like, like Abex, and it's doing this in natural gas and  getting into markets that you couldn't make before. The technology is allowing  us to, to make market in natural gas, LNG hubs all over the place, getting into  lithium carbonate power markets that are further downstream. So, you know, I,  I'm really excited about the future of trading. 

You know, I'm. I'm a NED and a, you know, a non-executive director at, at  Abaxx. And you know, I, I, I think the technology is extremely well positioned  as we go into what we have to say, a liquidity explosion.  

Erik: Well, Jeff, I can't thank you enough for another terrific interview. Before  I let you go, please tell our listeners what you do at Carlyle Group. 

I know it's only institutional, so you can't help our retail audience directly, but  for our institutional listeners, what services are on offer there? 

Jeff: I'm with the energy teams and, and do work with like the aerospace and  defense team. And going back to this, this supercycle theme and theme around  deglobalization, let's forget, you know Carlyle caught space in the aerospace  defense sector. 

So Carlyle's extremely well positioned as we go into this commodity  supercycle, whether if it's in, you know, the energy team. You know, he is got a  long history of, you know, developing assets in, in, you know, the upstream and  refining and, you know, obviously given the defense spinning going around the  world. 

So I, I'm super excited about the opportunities at Carlyle,  

Erik: Patrick Ceresna and I will be back as Macro Voices continues right here  at macrovoices.com.

Erik: Joining me now is Michael Every, global strategist in the Economics and  Markets team for Rabobank. Michael, I've really been looking forward to this  interview and getting you back on the show because frankly, I've noticed that  you have an uncanny ability to translate what President Trump says into what  he really means and even go. 

The next step is to intuiting what maybe he intends to do next. Frankly, I'm  confused by a lot of the things that are going on right now. It seemed like the  president was signaling that he was. Really gonna go just Max Dovish on his  choice for Fed chair. Then he picked Kevin Warsh, which surprised a lot of  people. 

Then we had absolutely positively striking Iran. No, wait a minute. The entire  fleet's on the other side of the planet. We're repositioning the fleet. Now we're  gonna strike Iran. Now we're not gonna strike Iran. Oh, maybe we made a deal  

with Iran. I, I don't get it. Can, can you help me sort out the geopolitics and  what's going on? 

Michael: Thank you very much for that hospital pass, as we say in, in British  football. Yes, I'm very happy to be back on the show and very happy to try and  be some form of Trump whisperer there. But what I would say first of all is A  welcome to 2026 and B, welcome to President Trump because these are, these  are things we have to get used to when we're dealing with both of those  particularly, you know, conflated together. 

Let's start. With what you mentioned in terms of Kevin Warsh, I've, I've  mentioned already in writing that I really think that the market got things wrong  in terms of portraying this as a hawk dove decision because. First of all, let's get  down to the brass tacks of it. Everything that Trump looks for in a new  appointee is loyalty, first and foremost. 

And you know, Warsh has a close relationship with Bessent at Treasury, which  is incredibly important. And he's the son-in-law of one of Trump's friends, Ron  Lauder. So, so that already speaks volumes in terms of why Trump may have  wanted to look to him. Secondly, and this is, you know, more in terms of a  political economy, architecture above and beyond the fact that we now have one  where being close to somebody matters more than it did in the past. 

Although, although I think it always did matter, to be honest with other  presidencies too, is that what we are going to see unfold this year. And in 2027  and 2028 as well, I'm quite sure is a new fed because if we have economic state  craft to the fore now as the driving force in the US and we've spoken about that 

on more than one occasion recently, so I don't want to go over that again, but I  think you understand what I mean. 

And I hope most listeners understand what I mean by economic state craft. It's  really completely irrelevant or just a complete tangent to reality, to worry about  whether the fed is hawkish or dovish. In fact, it reminds me of that old adage of  you know, the from feminists in the sixties, a woman needs a man, like a fish  needs a bicycle. It's just two different things that you are looking at because  where interest rates need to be low is abundantly clear in the US economy. 

Where interest rates probably need to be high. If you're trying to reshape the US  economy in a certain direction, which Trump is and Bessent, is he's also  abundantly clear and you don't have one interest rate to do that. I, I, if the Fed  were to be really Dovish and slash rates to 2% or 1% purely hypothetically, I  think, you know, you, you would be immediately eager to say where you think  markets would go and where the investment opportunities would be. 

But that's not economic statecraft. Economic statecraft is where do you need the  USA Inc to be? What does the ship of state need to look like and maybe parts of  it get where they need to go with a one or 2% rate, and parts of it do completely  the wrong thing. So in other words, Warsh is being brought in A, because he's  

loyal to Trump. 

B because he's friendly with Bessent, but C because. Obviously, although he  won't say it out loud and he shouldn't do politically, he is going to be  completely on board with this new reshaping of the Fed into a very, very  different institution with a very, very different toolkit, which I think will sit  under treasury, under Bessent, under economic statecraft to try and make the US  and the world around it look very different.  

Erik: Ok, that's a huge difference from the theoretical and I, I do emphasize  theoretical concept that the Fed was designed entirely for independence. It's  theoretically not even part of the government. So you're saying it becomes a  subordinate under treasury, you know, do what you're told kind of organization.  

Michael: It already is to a degree. 

In fact, I, I,  

Erik: well, I've noticed that, but they, they used to pretend that it wasn't, 

Michael: well, pretend is the accurate word, because let's not get into real  conspiracy theory stuff here. Okay. But let's just be honest. So the Fed is much  younger than most other central banks. Most other central banks in the western  world was set up. 

A long time before the Bank of England, of course being, you know, the  grandfather or the grandmother, the old lady at Thread Needle Street as they call  it, that was set up specifically to help the government fight a war against France.  So there was no pretense whatsoever of it being independent until 1997 which is  pretty recent, you know, even in market terms. 

And the FED even thought there has been previous iterations as you know in  american history. Only got set up in 1913. It's always been a quasi-government,  quasi-private entity. If you actually look at the architecture of it, it's not  structured like modern western central banks, which are purely in the public  realm. It's always been a, a kind of hybrid. As soon as it gets set up in 1913, it  gets dragged into World War I. 

Well, there's an opportunity for a bank to show that they're only interested in  market forces. He said sarcastically. So of course it was involved in statecraft.  Within a year of being set up. Then we have the 1920s, which are absolute  chaos globally. Then we have the 1930s with the Great Depression, which are  absolute chaos globally. 

Then we have the 1940s and World War II, in which the Fed proudly says on its  own website, they helped win World War ii. Nothing to do with being  independent there, and it isn't until 1951. We actually have any kind of compact  where the Fed turns around and says, you know, in the Korean War, if we have  to finance that, finance that too. 

Now that the economy isn't locked down like it was during World War ii, it's  gonna be really inflationary. And only then do we start moving towards any  kind of pretense. Of independence. But what I want to add on top of that is in a  piece that I wrote fairly recently looking at the structure of the US economy, I  said, if we are really genuinely cynical and realist and take a step back, the US  economy now is overly financialized. 

And I think you would agree with that, that term most people objectively would,  but the part and parcel of that is that asset prices in the US have to be high if  you want. Cash to flow in from the rest of the world, capital to flow in from the  rest of the world to fund your trade deficit. Whether that's a good thing or a bad 

thing, and we can have a separate conversation about that, you need to have  assets for them to go into. 

Ergo, those assets can't just crash left, right, and center. So the fed's role is to  make sure that assets are un affordably high, to foreigners effectively. It doesn't  say that anywhere. It talks about financial stability. So I, I really think we have  to be quite cynical and realist in terms of how we're framing it and recognize  that that role of the Fed doesn't help the US anymore because the trade deficit  doesn't help it anymore. The capital inflows from large exporting countries like  China don't help the us. They're a hindrance as it needs to re industrialize. Ergo,  there is no way, shape, or form. The Fed as the tech quote, neutral, apolitical,  technocratic animal that it pretends to be, which it's not, is gonna be able to  carry on with the same techno Babylon gnostic nonsense that Greenspan and,  and his ilk were coming out with year after year. 

And whether it admits it or not, it's going to have to be part of usa, Inc, Inc, to  try and get it out of the foxhole that it's currently in.  

Erik: So it sounds like your perspective is essentially Bessent sits down  probably behind the scenes with wars and says, look, if we make you fed share,  do you understand that the name of the game in 2026 is economic state craft? 

We're, we're changing the world. We've got a big agenda. You work for us, you  do what you're told and you're gonna be part of our negotiating toolkit. Do you  get it? Warsh says, yeah, I get it. And that's how the nomination comes about.  Obviously it wasn't quite that blunt, but is that. The gist of what you're saying,  

Michael: well. Let's try the conterfactual to that because when you put  something forward like that people may immediately push back. Let's put it the  other way. You have a US administration, which I think everyone would  recognize is running really radical policy in almost every direction  simultaneously, whether it's in terms of domestic things, economic things,  international things. It's really pushing the envelope everywhere, all at once. 

And you think against that backdrop where it's trying to reshape everything it  can. They're going to appoint a Fed Chairman and say, most important thing in  the world for us is 2% CPI, oh. And keep the stock market out please. But apart  from that, do whatever you want. Make whatever political statements you want  you know, adopt whatever position you like. 

We really don't care because that's the most important thing. I, I really think I've  a bridge to sell you. I don't mean you personally, Eric, but I mean anyone 

listening who thinks that's how the world actually operates. Very clearly what  you just said is what did happen.  

Erik: Okay. So if that's the agenda, help me with the next step, because it  seemed like, and this is very much consistent with what I'm trying to understand  of the president's style of diplomacy, which as someone recently said, is kinda  like. 

Throw a hand grenade into the room before you enter, and then as the dust  settles, sit down and say, Hey, you wanna make a deal? It seems like we've had  a lot of really heavy messaging. Boy, you don't want to be Iran. They're about to  get hit. That's it. It's a strike. It's, it's coming. It's coming. It's coming. 

We're moving the fleet into position. Then there's a tweet over President's Day  weekend saying. Maybe we're gonna make a deal and there's an economic you  know, transaction to be had here. Maybe there's an investment. Was this whole  strike ran thing a, a lead up to a negotiation on some economic front? 

Michael: On that one, we have to wait and see. I think we won't have to wait  long to see vis-a-vis the fed, even though it's still a few months until Warsh  officially gets in, I think from Iran. We'll have to wait and see another few  weeks at least until all the pieces are in place. You can absolutely understand  that Trump doesn't want to get sucked into another Middle Eastern war because  if his one thing ahead of the midterm elections that wouldn't go down with  either independence or his base, it's, Hey, we're in war in the Middle East again. 

But that didn't stop him bombing Iran last year and very pointedly in the run up  to it. The media were completely fooled, completely fooled you know, that  there was a disagreement between the US and Israel, whether there was or  wasn't going to be an attack. And people thought that the US had basically  chickened out and wasn't prepared to do it, and had talked tough and wouldn't  attack. 

'cause no one actually well at least in the mainstream press, thought that he was  prepared to bomb Iran's nuclear sites because of what they saw as the, you  know, the fat tail risks there. Is that going to be repeated here? I think in his  heart of hearts, Trump would very much like to avoid doing that because  Venezuela with Maduro went as well as something as risky as that can possibly  do. 

And while Venezuela has not been quote unquote dealt with or sorted out, the  message was sent globally. The geostrategic and geopolitical table was. 

Definitely reset in a way that many people were shocked by. And if he tries  again in Iran and that fails, and you do get sucked into a war, the US is very,  very significantly weakened. 

E. E equally if you knock out the Iranian regime, but what you get coming back  is ISIS in the broader region, an absolute chaos. That's not such of a big win for  the US either. But if he can manage to get them to agree some kind of deal, and  I actually think the chances of that are extremely low. But if he were able to do  

that without any fireworks, that would be a geopolitical win. 

Where again, the US can say, look, I talk tough, didn't have to do anything.  Now I've gotta Iran on board. That's, that's something he would aim for. And if  that doesn't happen, if you look at the continuing day by day movement of  military power. Into that region as we speak. That's continuing to go on, and I  would imagine on the day this podcast goes out, it'll still be going on in the  background. 

It seems very hard to climb down from that tree because all the geopolitical  credit as a, you know, as a tough guy that he got from acting completely by  surprise in Venezuela, and even though he had a fleet off of Venezuela, it was  still a surprise when it happened. That would be squandered if you then move  everything to the Middle East and actually don't do anything. 

So I would say that the local intelligence in that region still suspects that you  have an irresistible force meeting an immovable object when it comes to Trump  and Iran, and that will end up with military action. And then we have to see  what happens on the other side of that.  

Erik: Let's talk about the road in this environment as you describe it, of  economic statecraft, the road from here to the midterm elections, because it  seems that one thing is very clear, which is President Trump is not the  personality type to say, Hmm, seems like the Democrats don't really approve of  everything I'm doing. 

Maybe I should back down and moderate a bit. That's not his, his mo. So. It  seems to me that he's very committed to the Hail Mary, passive. He's gotta do  something to win the mid midterm elections, because let's face it when he was  impeached twice, they didn't really have a whole lot of dirt on him at the time. 

The Democrats, regardless of whether you think President Trump is right or he's  wrong, or he is the best or the worst president ever there, there's really no room 

to debate that His actions in this presidency have been. More aggressive and and  more radical as you put it, radical policy than in the past. 

So if we get to the Democrats taking the House of Representatives, and  especially if they got both houses of Congress it seems to me that we're back to  impeachments and gridlock and nothing but that. Would you agree with that  forecast? And if so, does that mean that the economic statecraft is all going to  be focused on somehow making sure that Republicans keep the House of  Representatives in November?  

Michael: Yes. And yes, because on one hand it's crystal clear that were Trump  to lose, first of all the house and of course the House and the Senate. It would be  a political disaster. It would be for any sitting president and very much so given  the, the radicalness of what he's trying to achieve on multiple fronts. 

All at once. So on that basis, it was very clear to me from last November when  the special elections didn't go very well for him that he would pivot  immediately to being as radical as possible on all fronts. But that includes  focusing on affordability. Now, I'll admit the messaging on that I think is not  getting through to some of his base. 

For example, if you say the DOW is up to record levels again. That doesn't  speak to people who haven't got, you know, a couple hundred bucks to put  together. And that's exactly the kind of language that we saw from president  after president in the past, which just sailed over people's heads and actually  ended up with people like Trump elected, but that doesn't mean he isn't actually  trying to move things significantly to genuinely put money in people's pockets.  Let's just go through a few. Obviously there have been a couple of different  measures floated, but not yet acted on housing to try and get mortgage rates  down. I expect we're going to see a lot more being done on that. 

Over the next couple of months, we've had attempts to try and get credit card  rates pegged down to 10% temporarily. Again, very controversial. Obviously  credit card issuers don't like it. I'm not making a judgment, I'm just listing that  makes a big difference for some people's income. Short term, you've had tax  against meat packing companies, particularly foreign owned ones. 

Of course, that's a long-term issue. But again, it's focused on affordability.  You've got this new discounted drug company where you know you can get the,  the fat jabs. Much, much cheaper now than they were previously, which is you  know, an interesting policy move. But you can actually join that one up in a  couple of ways because if people have more money in their pocket because 

they're not spending money on other drugs because they've managed to bring  their weight down to a manageable level rather than being really big well on  that level they have more money to spend on other products. 

And guess what? You might be able to afford a Made in America one if there's a  one-off price shift. Cost basis that you know, if it's made in America one off, it's  gonna cost you more than in China. And then after that it will level off. The  price will maybe even start to drift lower so you can join lots and lots of  different dots. 

And in fact, it's a no-brainer, an absolute no-brainer if you understand what  economic statecraft is to see that it would be foolhardy to think of anything  other than that being the policy backdrop for the next couple of months. And in  fact, I think that would be the case in any normal election anyway that you want  to do within November. 

But doubly triply, so this time.  

Erik: Well, let's talk about what that's going to mean for financial markets then,  because as you said, the Trump administration has already taken a bit of a risk  by, you know, telling everybody, look, stock market's at record highs, that's all  because of me. Which means if that starts to reverse in any way you know, it's  going to be a loss of credibility. 

But it seems to me markets don't like uncertainty and. If you assess this  situation objectively, again, regardless of whether you love President Trump or  hate him, you know the best that can be hoped for is if his radical policy works  and he is able to save the midterm elections so that Republicans keep both  houses of Congress well. 

The best you can hope for is his political opponents will be even more pissed  off, and we will have gone through a period of great uncertainty because until  that election is actually over, nobody really knows that that's the outcome. On  

the other hand, the market, I think, is going to start discounting well, wait a  minute, what if he doesn't keep? 

And particularly what if he loses both houses of Congress? Then we're going to  have basically I think a hard stop on all of this radical policy as a new Democrat  controlled Congress intervenes to block it, and we end up with the last two  years of this presidential term basically being a gridlock.

That's about, you know, the next 17 reasons for impeachment. So. How do we  get to here to November without the market really being subject, I think, to a lot  of headwinds from uncertainty?  

Michael: Well, there are only two things that I would add to that. The first one  is that were Trump to suffer that political setback. 

The logical thing for him to do is if he can't enact as much policy as he'd like to  just move over to executive orders, which he's already relying on anyway, and  then probably have to be even more radical again. To try and use them to clear  the way through to 2028 for whoever succeeds him. And at the same time, of  course, presidents traditionally, when they have trouble at home, do even more  internationally. 

So that can also be very radical because there are lots of ways in which what  happens internationally now directly interfaces with what happens in the us like  trade deals, for example. I wouldn't think that it ends just in November. That's  the first thing I would say. And the second thing, and this is not in any way to  try and segue because I think you're asking a very good question. 

I'm making a very good point. It's this, a lot of what I think we're seeing in  terms of market volatility over the past few weeks. Even though it's very related  to Trump's agenda at core isn't actually being driven by anything he's said or  done specifically, it's much more to do with the AI effect, which is something  that Trump, of course, is very aggressively backing as I think any US President  would in this particular situation because it appears to unlock so many magic  boxes as well as Pandora's boxes. 

But that. That destabilizing impact, of course, is just rolling through markets  like a herd of elephants. And that I think is going to absolutely guarantee  volatility going forward. Even if we were to see Trump suddenly have a  complete change of heart and say, okay, here's complete predictability over  everything I'm going to do, and no one's gonna stand in my way or do  something bipartisan, even if those very unlikely scenarios were to unfold. 

That wouldn't change the fact that on a almost daily basis you are seeing  suddenly some new sector of the economy where people hadn't thought up until  recently, well, that doesn't need to exist anymore because of AI suddenly  thinking, well, maybe that doesn't need to exist anymore because of AI. So  yeah, it's, it's, it's, it's already what you were saying, but it's even more on top.

Erik: So what would the opposite scenario be? 'cause frankly, I'm having a hard  time seeing one. I do see where there's significant left tail risk to markets.  Things could get uncertain heading into the election. We're, we're definitely at  nine months out now where we're in the scope of where the, the timing is right  for the election outcome to start. 

Impacting the market. I see the left tail risk. Is there a right tail risk where  economic statecraft is somehow fantastically victorious and somehow takes us  to, you know, much higher highs on stock markets?  

Michael: Well, yes and no. Let's, let's take the yes part first of all. If you  actually look at the leading indicators, not on your Bloomberg screen, but  looking at logistics, and this is, this is publicly available. 

I'm not talking about proprietary sources. Freight companies are now saying that  they are seeing the signs, the early signs of a really significant industrial pickup  in the us But what they're finding interesting in terms of the amount of freight  that they're shipping is, it isn't coming in from US ports as it traditionally  would. 

IE. The US is importing more, particularly from China, for example, as a  precursor to the fact that it's gonna invest more or consume more? No, no,  actually this is shipping freight around within the US as part and parcel of  

making things in the us. You are starting to see that, you know, just under a year  into the admitted chaos of these new Trump trade deals and Liberation Day,  some of the dust is settling and potentially it's, it's, you know, it's not a done  deal yet, but they're starting to see it could be, we are going to get a genuine  endogenous pickup in US manufacturing. 

Now, a lot of that may be driven again by robotics. A lot of it may be driven by  AI. It may not be as labor intensive as it used to be, but it's exactly what  economic statecraft aimed at. So watch that space really carefully, because if it  were to unfold, it is a significant feather in the cap, for Trump and whether it  can be translated across to a voting populace, I dunno, but it's really important. 

Where I was going to say no though, is at the same time, alongside that, you are  seeing, of course, extreme price pressures and overheating in some sectors of  the economy. Again, primarily led by AI, but also linked resource areas. And on  one level, people will turn around and say, well, that's where I'm going to make  my money.

I'm not gonna be able to make my money in services anymore, which is where I  thought I was gonna, or in it because AI is destroying that. But I can go into raw  materials. But statecraft again, isn't about making easy money. It may sound  completely character intuitive 'cause Trump obviously doesn't dislike the stock  market and doesn't dislike people making money far from it. But, statecraft as a  whole even if it's not Trump's iteration of it 

Is not the kind of entity or thought process which says, okay, the Fed's gonna  cut rates to 2% because of statecraft. Therefore you need to invest your money  here, here, or here to make a 10 or 20% return. I've made that point to you  before. I don't think that's the game anymore. And if it looks like, well  resources, that's the area to go. 

Well, no. The state will step in and say, we're capping that we we're gonna do  everything we can to make sure that price inflation doesn't get outta control one  way or another. And so expect a lot more. Leaning on, or you know, fingers on  the scale there, which will again, make it more difficult to invest because what  you're looking at logically and rationally within a free market environment isn't  the environment you are in anymore. 

Erik: I wanna come back to something you said a couple of minutes ago, which  is when things are not going ideally well in the United States, a lot of presidents  have tried to divert attention by getting much more active internationally. Okay.  Well, the usual way that tends to go down is Middle Eastern wars, but as you  

said, president Trump is strongly incented not to do that. 

So are you thinking when you said that in terms of a military escalation in other  parts of the world, or are you thinking about. Trade deals or, or tariffs or, or  what kind of international distraction would would come to mind.  

Michael: Well, I'm in no way thinking of a wag the dog scenario where a war is  started to distract people's attention because even though you can get a rally  round the flag effect, I, I don't think that would last very long. 

And I think it would be a very, a very foolish move. And certainly one that, you  know, any American. Would tell you he's unlikely to play well with Trump's  space, which he needs to motivate. What I was implying instead, or what I I'll  state openly rather than implying is that yes, this sits firmly within the world of  trade and investment deals, and particularly what I expect to be with a new Fed  chair on under Warsh a shift towards dollar stable coins as part of the nexus of  US trade.

And of foreign investment flows coming back into the US as part of those trade  deals, which we're now starting to see crystallized, particularly vis-a-vis Japan.  South Korea, South Korea, we are starting to see those two countries in  particular being given blueprints of, we need your money to go into these  sectors right now. 

And by the way, they're not the 10, 20% return sectors that you might do if you  are a private sector investor, just trying to maximize your return, you know, in  the shortest possible time. These are long-term strategic plays, which are good.  

The USA Inc. Which will therefore be good for Japan Inc. And South Korea  Inc. 

And I think a lot more of those will be Inc. And one of the levers to get us there  will be dollar stable coins.  

Erik: You know, that really set a light bulb off in my head when I joined that.  With what you said earlier about the outlook for Kevin Warsh and the Fed, are  you imagining a scenario where Kevin Warsh takes office and says, okay,  everybody first press release or pre first press conference? 

I have a slightly different view than Jay Powell. The Fed is going to lead. The  charge on replacing the US dollar as the world's global reserve currency with,  you guessed it, the US dollar stable coin. And the Fed is going to champion this  and it's going to be a new digital CBDC type of move that we're making. 

But it begins with US dollar stable coins, which are tied back to the US  currency and we're going all digital. Is that the, the kind of thing you're thinking  of?  

Michael: Lemme caveat that. I don't think it will be CBDC, which is a central  bank digital currency. I think quite the inverse. I think it will be private money. 

Very similar to what we had pre World War I. In, in Europe in particular, but  globally, which were called Sterling Bills of Exchange, where the most  commonly used trade currency was tied to sterling, which was tied to gold, but  it wasn't the Bank of England issuing it. They were just basically promissory  notes issued by private sector firms, banks. 

Trading houses, individuals, etc, etc. And everyone thought they were as good  as gold and they were literally, but the Bank of England had nothing to do with  it. So I think that's what will be replicated. But yes, it'll be digital. I'm not  forecasting this will happen to be abundantly clear.

Okay. But if it were to happen, I would just whistle and, you know, look eyes at  45 degrees, like, wow, who's surprised by that? Because it's entirely logical.  Were that to happen within Thes a of what we have heard from Bessent from  Iran. What we are seeing being chatted about in Warshington in terms of how  they want stable coins to work, where we only have one piece of key legislation  waiting. 

To be finalized, which is the Clarity Act, which is going to determine whether  stable coins can effectively earn a yield or, and it won't be called a yield. Of  course, it'll be called a fee, but whether you can get paid a fee for holding them  similar to a bank deposit. And of course, banks don't want that. 

But the, and what the Fed thinks banks should or shouldn't be doing in the US  will be part of this equation. Once that's passed, you've got the new Fed chair,  you've got the Clarity Act. Following the Genius Act, you have these new trade  deals. You have these pledged investment schemes coming in, which are  basically capital controls being steered into the US at the highest geopolitical  level and geo-economic level, and a very, very good guardrail or mechanism to  encourage that capital to come in where you want it to go and to make short  term borrowing costs in terms of Tbill, much, much lower, which will therefore  of course mean you have a low Tbill rate inside the us, but. And this is getting  technical, but not necessarily the same low cost of borrowing offshore. 

It could be a significantly higher interest rate in dollars and stable coins  offshore, which is an interesting weapon for the US to have, interesting  arbitrage opportunity for some. If you were to have all that, it makes perfect,  perfect logical sense within Statecraft. But again, if you're not starting with  Statecraft, every single point of that will appear madness and unconnected. 

Erik: Now, it occurs to me that there's an angle here that I'd have to think  through, but you know, all investors understand there's a profound difference  between holding a large. Cash balance in US dollars as a bank deposit versus  holding Tbills, which you know, carry the, the full faith and credit of the United  States government. 

And you, you don't have to worry about bank failures and so forth. Do you  envision a stable coin being engineered that has all of the same safety  characteristics of a tbi? But you can transact it more like a bank deposit because  it seems to me that could be somewhat revolutionary. And if the Fed were  driving it and basically saying to the world, look forget about swap lines.

We're going, those are antiquated mechanisms. We're gonna replace it with this  new idea of the US having a major stable coin reserve. That's, that's backed by  US Treasuries and anybody who holds those stable coins both. Earns a yield  like they do on a Tbill, but they also have the same safety characteristics of  holding T-bills as opposed to a bank deposit. 

That would be revolutionary.  

Michael: It would be. And it's what I think they're aiming towards. And just to  add to that, of course, banks don't like that. Of course they don't. I mean, this  feeds back to, you know, investment angles. And should you, shouldn't it be  holding the financial sector? I don't give advice on that, but I'm just talking  thematically. 

Lemme ask you a question before I, I continue. Making this point off the top of  your head, Eric, do you know what percentage of US bank loans actually go  into productive capital in terms of capital stock? As in we're gonna build a  factory here. We're gonna build something with a machine that makes  something have, have a guess what percentage of US bank loans do that? 

Erik: Productive capital, not consumer capital. So we're not counting buying  SUVs. A, a very small percentage. I don't know a number, but not much.  

Michael: Yeah, it's around 20%. So four out of five bank loans don't do  anything to help build up the capital stock, which is absolutely crucial at the  moment. They are for consumption or they are just to other financial entities. 

So it's just money for money on money. That's just financialization for you  basically. So if you are the Fed. And you have got statecraft in mind because  that's what the treasury has in mind. Obviously, you don't wanna blow up the  financial sector, that's the last thing they want to do. But what uses of financial  sector, if four fifths of it, don't do anything for you if, if four fifths of it are  doing everything to inflate the parts of the economy, which you have the least  use when you're trying to take on China in any different dimension over any  timeframe. 

What's it for? And that, that of course flows back to the question I asked you  when we first talked. You know, what is GDP for? That's what economic  statecraft is all about answering. So it wouldn't surprise me to go back to that  stable coin if you do end up with something whereby it is a form of threat to  banks to a degree, because banks then have to get with the program, they have 

to realize, okay, we can't just have this asset base, which is purely consumer and  financial. 

We need to be getting approval from the treasury to actually start doing more  useful stuff, and then, then we get a gold star and a pat on the head rather than  being hit with the stick. And that's a way in which you can use a market  mechanism and it's still a market mechanism to actually achieve a statecraft  outcome, which is what it's all about. 

Erik: Do you think there's an angle to that that plays out as part of this now to  the midterms timeframe? Because I could imagine Kevin Wars coming in as the  new fed share and then the White House making an announcement saying look  with the, the new Fed in place don't put your money in the bank. You can now  buy these, you know, consumers. 

Can get a much better return on your savings by just directly buying stable  coins. You don't need banks anymore. Now, Scott has been messaging pretty  hard that it's time for Main Street, not for Wall Street. Is there room that the  Trump administration kind of does a frontal assault and says, screw the banking  system. 

You know, we're gonna fix the money system through our reforms in a way that  Wall Street's not gonna be happy about. But we're not here to take care of Wall  Street. We're here to take care of Main Street. By the way, make sure that you  vote for us and. November I I is, could it all happen that quickly? 

Michael: Thematically and logically, I think it could. I'm not saying it will, and  obviously you're walking a razor's edge doing that because this is a fed, which  everyone knows, has always been there for the financial sector. That's what it's  there for. I already made that point earlier suddenly saying, that's not what we're  there for anymore. 

That's not who we're there for. And you know, the, the, the pushback would be  enormous, particularly in terms of lobby groups going into the midterms, if  nothing else. Also looking at, of course the, the macro effect and the market  effect. But I do think that is the logical game plan. The question being how you  get their, you know, with, with the least bumps along that particular road, and  they would be the best arbiters of that, those individuals, they would've the best  read on the economy. 

But I, I think there's, again, taking the counter counterargument, which is how I  try to do everything. Nothing else makes sense if they're not going to do that. 

And this is the same fed with a different person running it, just moving a  mechanical fed funds rate, which is less and less used to anybody, less and less  of a guide to anything up and down, which is either inflating all of the economy,  the good bits and the bad bits, or deflating all the economy, the good bits and  the bad bits. 

How does that help anyone achieve anything? Not just in the midterms, but but  longer term? So yes, logically I think we go there. Yes. Logically, I think stable  coins are part of that journey, and I can't tell you how few people actually grasp  this yet. And I understand why. It took me a long time to get my head around it,  and I'm, I'm not even looking at the technology of how it works. 

I don't even focus on that side of it. I'm not, I'm not a tech bro like that, but I'm  just looking at the geopolitics, the geoeconomics, and the balance sheets of it.  And if you can suddenly get. A flood of funds going into T-bills and not just  from within the US but internationally too. 

So you have a flood of dollars going into the US, a flood of dollars going into  T-bills, which pushed down the TBI rate significantly. You can refinance a lot  of treasury debt, the short end of the curve at a much, much lower rate, and  suddenly you can be spending a bit more into the midterms too or you can be  pumping up the military industrial base and getting back into shipbuilding, etc,  etc, or at least saying, vote for me. 

And we continue to do this. We've just broken ground on that. We need another  couple of years to, to really get, you know, the, the steel pouring. I think it's a  very, very powerful combination with big risks, with big caveats that it can be  done wrong, but again, I think it's a more logical outcome. Than forward, just  going back to where we were and moving something mechanically up and down  and hoping for the best. 

Erik: If these stable coins are transacted internationally on open digital markets,  does that open up a whole new realm of investment capital for the US treasury  market? In other words, in lower yielding countries where, like Japan until very  recently, where the, the interest rates are next to nothing. There wasn't a good  way for the average, you know, individual investor to buy US treasury bills. 

If they were a sophisticated investor, they might figure out how to do that, but  it's not something the average guy knows how to do. If buying these stable coins  was simple enough that everybody in the world could do it on their iPhone, does  that potentially create a whole bunch in of indirect US treasury paper demand?

Michael: Trillions and while there may be large entities where it doesn't play  well, and I, I would think Europe, for example, it won't pay particularly well in  Europe for, you know, patriotic, political and even economic reasons that you  have the Euro. So why would you look at anything else? Fair enough. But in  most of the emerging world, which is a big, big slice of the global population,  provided that they can manage to make them attractive enough that su supply is  less than demand. 

And yet supply is still significant enough to help the US achieve what it wants.  Yeah. You can manage to make sure that there's a decent yield on that, which  competes with any local currency. And as you said, it's on your iPhone outta  reach of the tax man outta the bank, even so no one knows where it is and you  can still transact in it. 

Domestically within that network and internationally, and you've effectively  dollarized much of the global economy alongside, you know, the existing Euro  dollar network, which frankly operates for the financial system and for the, you  know, the global commodity trading system and at the highest level. But for the  man in the street, unless you are somewhere like, you know, parts of Africa or  Southeast Asia where they still have physical dollar notes, it doesn't work the  same way. 

Now, it can, as you said, it can be on your Android phone, on your iPhone.  Trillions and trillions, trillion. And then on top of that, just to add to that, you  can even start saying that US importers, you know, huge, huge import demand  globally, start saying to people, well, we're gonna pay for you, sorry. We're  gonna pay you in stable coins. 

So for example, a US importer instead of sending dollars to a factory in  Southeast Asia, hypothetically, they send dollars to a stable coin issuer in the  US who use them to buy a Tbills again, Tbills go lower. They get that stable  coin and they send what is a digital token, not a dollar, a digital token backed by  a Tbill, which stays in US hands in the US funding the US government at a low  rate to that Southeast Asian entity. 

And from there, that can flow on and on and on. You can either say, okay, we  now want you to bring that back into the US as investment capital and build a  shipyard here for us because you have your government assigned a trade deal  with us, and that's part and parcel for that. So it's buy one, get one, and you get  

it invested back into the us.

Or you can say, do whatever you want with it. There are no guardrails. Just  don't send it to this country or that country because if you do, we'll, cancel it,  because electronically the US can. So amount of power. That puts in us hands  potentially if it's done right, is phenomenal and it is market moving in a way  few people realize. And it takes us from a two dimensional world into a three  dimensional world. 

And most balance sheet thinkers can't conceive of how it's going to work, but I  can assure you it could, and I think it will.  

Erik: Michael, the, the light bulbs going off in my head are just phenomenal in  this interview. I'm just thinking from all of my travels around the world I've  never met anybody in Latin America who trusted their own nation's currency  and who didn't want to keep any savings they had, although most of them don't,  unfortunately, have very much savings. 

What they do have, they want it to be on US dollars. In a lot of those countries,  the government restricts banks and doesn't allow them to offer. US dollar  denominated accounts to to retail banking clients and so forth. But you could  easily see the Trump administration go on a crusade to announce to the world  on X that look a lot of the world's corrupt, and we're gonna fix it for you. 

And the way we're gonna do that is by making it possible for anyone on the  planet who's got a cell phone to invest in. Something that is, first of all,  eliminates the foreign currency risk of staying in your own home country's  currency. You can invest in US dollars, which across most of the world, most  people trust much more than their own country's currency. 

And you can do it all in your phone and your government can't stop you and  your government can't even know what you're doing because we are going to  engineer the system So you can. Deal directly with us, the US government, and  our banking system, and our stable coin system. Oh, by the way, there's this  fellow named Don Jr. 

Who just might be launching a a business associated with that pretty soon. And,  and that would make Trump a hero in Latin America. That would mean that a  lot of the Latin American immigrants that maybe were otherwise inclined to  vote Democrat in November might change their vote. There could be all kinds  of consequences to this. 

Michael: Absolutely. And in fact, you've hit the nail on the head. I'm glad the  light bulbs are going off because I do get, for example, resistance from some 

people who, you know, very, very smart people who have said, well, you're  basically just substituting a Euro dollar for, you know, a token, a digital token  rather than an actual dollar outside the us. 

Why would anyone agree to that? And I said, for the reasons you've just stated.  

Erik: I never met a guy in Chile who was buying Eurodollar futures. I know  lots of people in Chile with cell phones that would love to buy US dollar  denominated savings that their banks and their government doesn't know about. 

Michael: Well ex exactly my point. But secondly, I mean, these tend to be you  know, from Europe, these people. But then they turn around and say, well, you  know, well we wouldn't want that. You know, we are happy with euros. Why  would we accept that? And I'll say, because the US can make you because of  nato, because of others, you know, other forces, energy, etc, etc. 

But above and beyond that, it's even more devious or clever or cunning than that  because think about the balance sheet dynamics of it for a moment. I know this  is really dull and dusty, but just for a second, indulge me. Imagine you've got  one of these countries, you know, country X, and within Country X, somebody  wants to hold that dollar stable coin and they've got local currency. 

Well, the way it works is they're going to have to contact a stable coin, stable  coin issuer. They're going to have to basically transact and give them their local  currency. That local currency at some point is going to be given back to their  central bank. Their central bank is gonna swap that for the requisite number of  dollars. 

Those dollars go via by the stable coin issuer to the US Treasury, which issues  the T bill. For the stable coin, which it's given to the individual who's buying it,  right? You follow me? That's a very simple dynamic, but what are we having  there? The dollars are sucked out of that economy. FX reserves disappear, and  they're replaced by stable coins. 

So not only do you have this liberalization where everyone can get hold of  them, and they will do, but the, the financial tier, which again goes back to  banks and the 80% of their loans are financial rather than productive. That  global tier of Euro dollar liquidity at its at the base of collateral, the actual FX  

reserves starts a decline. 

So suddenly countries which are reliant on the Euro dollar have a euro dollar  squeeze, which pushes up the interest rate even more, which makes a stable coin 

even more attractive. So, so you basically lock others into a spiral where they're  just rewarded more and more and more for doing it. Now can it blow up? 

Sure. Can it go wrong? Absolutely. They, I'm not, I'm not here to say there  aren't ways it couldn't go wrong. Right. But I think it's a very, very, very  misunderstood. And a tactic which I think is likely to be deployed well, as I  said, as soon as this Clarity Act is passed and of course you can see why  lobbyists who don't want it to happen, don't want it to happen because it upends  so much of what remains of the global system, but it will be a very different  system on the other side of it. 

And I think one in which America sits a lot prettier and potentially so does Mr.  Trump.  

Erik: Michael, this just tracks very closely with a lot of the, between the lines  that I've been trying to read from Scott Bessent. It's very clear that they have an  agenda to do something big, and I wasn't sure exactly what it is. 

And, and you've just painted a, a picture in my mind as to what it might be. I do  want to move on to another topic before we close. At the beginning of the  interview, you said that you think the market got the message wrong about the  worst nomination. Now, one of the things that happened in reaction to that  nomination was just a huge correction in precious metals, both gold and silver. 

Just really took it on the head. Did the market get that wrong? And I, I think  clearly they were, they had been on a, a, a very overextended run, so they were  overdue for a correction, but. Did the market misinterpret that? Is the market  still misinterpreting that? You know, should, should we expect this to continue  for a long time? 

Or is this gonna be, oh, wait a minute, we got that wrong. And we move back to  the trends that we were on before?  

Michael: Well, we were just discussing one kind of revolution. And let's be  clear, everybody who's piling into gold and silver, unless you are just a trend  follower, you are of course, and, and, and very often openly banking on a very  different kind of revolution and saying that fiat money is over. 

We're going to go back to a gold standard or a silver standard, or some kind of  biome, Methodism, etc, etc, and everything around us, which is based on fiat, is  done. That's a really revolutionary stance, and we take it as normal because that  faction have always been in the markets. And if you look at the, the debt levels 

in many Western economies, and if you look at the, the bill for, you know,  reindustrialization and for building up a defense base, again in most of them to  say nothing of, you know, future welfare requirements, you can understand why  some people are voting with their feet like that. 

But it's still a revolution that they're marching towards in doing it, whether they  recognize that or not. And what worries me is that while the logical arguments.  Is there number one, you are talking about something which is supposed to be  the ultimate safe haven and which, you know, gold bugs in particular will  always tell you, you know, under gold we didn't have any inflation. 

That's not true. Actually. On average you didn't, but you had massive inflation  followed by massive deflation. And so that the, you, the average was low, but  you had incredible swings up and down. And ironically that is what you're  seeing here. Now, you're seeing something that's supposed to be a safe haven  trading. 

Trading like a crappy meme stock. Which is not very reassuring. So that's one  thing that I think everyone should be cognizant of. Whatever they, whatever  they're doing with their money. But the other one is this. If we are looking at  this potential revolution via stable coins, and I think we're, but again, you know,  that's open to debate. 

And you've got issues over Bitcoin in the background, which is having a terrible  time a bit. But you know, is the US gonna potentially move towards using that  in some form too? That remains to be addressed. They promised they would,  but they haven't so far. 

Gold in particular is still being held up by some as a potential new architecture  as I just said. But I wonder how many potential new architectures you can have.  So if for example, you backed the view that I just put forward, that dollar stable  coins are gonna be a big thing, is there really room in the marketplace for that  and for gold at the same time? 

Erik: Well, what if it was dollar stable coins and gold stable coins and Bitcoin?  What if those were the, the three digital assets and the Fed was actively  promoting all three of them, including a strategic Bitcoin reserve?  

Michael: Well, okay, that's, that's an interesting question. I think you are more  likely to see a duality in the US where you have dollar stable coins and Bitcoin.

And where that would happen, for example, to give a very complex answer very  quickly, is that I think people who US allies will be using dollar stable coins.  And if they're not allies, now by dollarizing them, they'll become them. And  people who really push back and say, we're not going to allow that to happen. 

Capital controls, you know, whatever is necessary to stop that happening, fine.  We're not dealing with you. You are gonna use bitcoin. You're not gonna get  Euro dollars from us the way that you used to. We're just gonna switch to  something neutral instead. So that's what I think the US may do, but that has yet  to unfold. 

And at the moment, as I said, Bitcoin's having a bad time of it on a lack of faith  in that which, which may be justified. But in terms of gold, I don't think that the  US is going to do that because dollar stable coins are still fiat, but a digital  token for fiat. And so you're expanding the Tbill supply albeit into what you  hope is productive sectors rather than financial areas or consumption areas, but  it's still fiat, so then go to gold at the same time. 

Seems to be really. Mixing your metaphors from a monetary policy perspective,  I don't see that helps the us I can see there may be revaluing against gold, which  is a separate argument people make, but then basically cashing in and walking  away from it. It's other countries I believe, that have been leaning towards  talking about maybe trying to do some kind of stable coin back by gold, but  that, and this is a critical point to make in 30 seconds if that were to occur. 

We don't have a global architecture anymore the way we do now. We have  multiple. Global architectures. We have different currency blocks the way we  did in the 1930s, a US block, a US stable coin block, and a gold back block  doing their own thing, their own way, and not trading so much with the US  block. But that's the risk that's always been there. 

And that is certainly something that still should be at back of mind and in fact,  front of mind when you're looking at these assets move. 'cause it's ultimately  about who you think has the power and who sets the rules and draws the board  game for the 21st century. That tells you what you should and shouldn't be  buying. 

Erik: So if I draw an analogy to the 20th Century Cold War arms race, we  could be looking at a 21st century stable coin arms race where the US says,  look, the, the answer here is US dollar stable coins, Russia and China. Partner to  counter and say, no, no, no, no. That's, that's basically stable coins for fiat  currency.

What you really want is stable coins that are backed by gold and we're the ones  that are gonna give that to you. And you end up, as you said, with blocks where  there are some countries that are. Gold-based through a gold-backed stable coin  and others that are US dollar based through a US treasury paper backed stable  

coin. 

And you have very similar dynamics to, as you said, the 1930s and different  country, different economic blocks in different parts of the world. Is that part of  the future that you foresee?  

Michael: Again, not a forecast. It's a, it's a tail risk, which I've been warning of  for over a decade, which you can start to see. 

Gradually emerging. Just a few caveats that are really, really important. If were  that to happen, what you will immediately see is the other block. Basically  saying what you use is not tradable here, so there's no clearing. So in other  words, if you're using dollar stable coins, don't even try and get a market  exchange rate on your screen for our Gold Bank stable coin into that dollar  stable coin. 

They're just different things, which you've had in the past. We did during the  Cold War, you couldn't transact between the Soviet ruble and the US dollar.  Except very narrowly at a ridiculous exchange rate via a couple of guys in  Moscow. So if that were to happen, supply chains from upstream to midstream  to downstream, downstream have to fragment because you have to have two  different blocks for everything with everything you know, in contained within  them. 

That's the first point. Second one is, of course, you know, in China's case, they  still have massive fiat. I mean, you know, they, they're borrowing and printing  money, like no one's business, just like everyone is. So it's not as if I would  actually be You know, gold based in the way that you would expect. It's just  that because they run a huge trade surplus, they can afford to, you know,  nominally peg to whatever they want because it flows to them, except it  wouldn't flow to them from the us. 

There's no exchange rate here. Which would allow trade to clear. That's the  clear, that's the key point. Don't think that if China were to do that, somehow  the US devalues against that and therefore the US and China are friends again,  just at a different exchange rate. No, they're separate. Don't talk to each other.

Berlin wall between them and, and the last point very quickly is you've probably  seen the headline that came out last week. There are rumors going round,  although they haven't been substantiated, the Russia is already saying they want  back in onto the dollar system and walking away from any talk doing something  China. 

The big players potentially are more flexible than one might think.  

Erik: Michael, I always enjoy our conversations. I'll look forward to the next  one. But meanwhile, before we close, I want to touch on what you do at  Rabobank. Tell our listeners a little bit more about the services on offer and  what your team in the global strategy in economics and markets is all about. 

Michael: Sure. Well, that's the easy part. Basically, it's what I was just talking  about to you there. We don't give investment advice. We talk to stakeholders  from, you know, farmers to the C-suite, trying to help people understand what's  going on in the very chaotic world around us. And trying to explain what we see  as the underlying themes and drivers that are emerging and to try and translate  that into effective strategies for them to then implement because it's as much  about risk mitigation as it is looking for opportunity, and both of them have to  go hand in hand. So that's that part of the story. And of course, Rabobank is the  leading one of the leading banks in the Netherlands and the world's leading food  and agri and energy bank and is attempting to, you know, grow a better world  together. So those two sit alongside each other.  

Erik: Patrick, Ceresna and I will be back as Macro Voices continues right here  at macrovoices.com.