Transcripts

Erik 

Joining me now is Tresses, Chief Economist and fund manager, Daniel Lacalle, Daniel, it's great to get you back on the show now, the standard introduction pattern for the first August interview on any financial podcast goes something like, well, Daniel, you know, it's the dog days of summer. There's nothing going on in markets. There's nothing going on in geopolitics. There's nothing going on any place to talk about. What are we going to do? I don't think we're going to have that problem this week. Are we?

Daniel 

I don't think that that will be the case. There's plenty to talk about.

Erik 

So why don't we start with the big picture of where we are, and one of the things I really like to pull you in for specifically, is we have so many of our American guests, we kind of get an American centric perspective, sometimes from a European perspective, how this is being viewed by the rest of the world. How far along do you guys think we are in this story? Obviously, President Trump and Secretary Bessent intended to go and kind of renegotiate the tariff relationship with the rest of the world. Are they just getting started on policy adjustments, or are they finally wrapping this up?

Daniel 

I think that we are 75% into wrapping it up. Why? Because the main frameworks of agreement have been set up. And I think that by now, once the European Union, Japan, South Korea, Australia, in agriculture, or the United Kingdom, etc, all have agreed upon very significant changes for the trade relationships. I think that what is basically left is small details, like which sectors are going to be slightly more delayed in terms of zero tariffs in the case of the European Union, or when and where is Japan going to dedicate its 500 billion investment, All these things. So I think that it's basically very, very close to the end of what would be, I would say, a very successful and quick trade negotiation spree. Think about it. It's very, very difficult to achieve so many trade deals in so little time. And obviously many of them start, like all trade deals, from ballpark and general terms perspective, and then it goes to the finer details, but it's close to 75% I would say.

Erik 

Daniel, let's talk about the market cycle as well. We recorded this interview on Monday morning, so we're a few days before the audience. We may not know what the market has done, but last week we had a couple of down days. A few people were saying, Okay, finally, this is it. The market is topped. It's all downhill from here. Monday morning, we're actually bouncing a bit. So that hasn't played out yet. Where do we stand in this cycle? Are we nearing a market top, or is it just the beginning from here?

Daniel 

No, I think that we are in an upward trend for global markets, driven by the increase in money supply and driven by an absolutely brutal pace of rate cuts all over the world, by central banks, more than 20 central banks cutting rates and money supply growth at a global level that is rising at around a 12% per annum rate, which is insane. So obviously those two things added to an earning season that may not have been the best earnings season ever, but was significantly better in terms of earnings surprise and earnings growth than what many expected, and the fact that a lot of the concerns on the macro environment with these trade deals are sort of left at least as something that the worst case scenario is way, way, way out of investors mind is going to likely generate a lot of money going back to equities, fundamentally, because, as you saw, the record level of money market capital in money market funds was absolutely brutal, so money supply growth, cutting interest rates and the earning season added to a more at least, I would say, transparent or easy to predict macroeconomic and trading environment. All those things indicate that we are in a bull trend.

Erik 

It's interesting that you focus on how many different central banks are all cutting rates. Of course, on the other side of the pond, we're so focused on the fact that the Fed is not how is that perceived? Obviously, it's been politicized between President Trump and Jay Powell from the European perspective. How are they viewing this? And how do you think it's going to be resolved?

Daniel 

Oh, for the Europeans and the Japanese in particular, but also for most emerging economies, it is an absolute present. It's a beautiful, beautiful present, because when the Fed keeps elevated rates at the same time as other central banks are lowering them, what it basically means is that for international investors, investing in treasuries is very expensive and the hedging cost is too high, and it completely eats away the yield of the Treasury. Therefore, what the Fed is basically doing is almost an early Christmas gift to emerging economies, the Euro and the yen. Remember that the Euro and the yen were at all time lows, the 40 year low of the yen and the euro almost close to parity, and the decision of the Fed to maintain rates predicated on a view of tariffs and inflation. That is obviously not happening, and certainly, in my opinion, is quite misguided. It's generating a very, very significant reverse carry trade that is basically allowing a lot of investors to benefit from those elevated rates in the United States in order to look at other options that are not so expensive.

Erik 

Daniel, I think the criticism that could be leveled there from what you said is, well, wait a minute, what's going on really is there's a political conflict between President Trump and Jay Powell, and at least from President Trump and his camp side, the argument would be, therefore Jay Powell is risking a US recession through this politicizing of monetary policy, and we have an elevated recession risk As a result, is that a valid argument? It certainly is a political argument. But does it have any economic merit?

Daniel 

Obviously elevated interest rates slow down the US economy, because we have to remember that the Fed was exceedingly wrong about inflation on the way in and on the way out. And there is something to be said about a monetary authority that is supposed to be using the most advanced technology and predicting applications and methodologies and got so wrong inflation on the way in, and is getting inflation wrong again. So the big problem of that is far more dangerous than just the current debate about whether there should be a rate cut now or not, is that the Federal Reserve hurt families and small businesses in the 2021 2023 period, by keeping very, very low rates and maintaining until 2022 the purchases of treasuries and of assets, and therefore being exceedingly dovish in terms of policy that generated a very elevated inflation. And basically what is going on is that on the way in, families and businesses have been hurt by elevated inflation, and now on top of that, they're suffering from high rates. My perspective is different from the current debate. It's not whether the Fed should do this, or should do that, is that the Fed should not dictate interest rates, is that the Fed does not have the tools, and certainly is ignoring all monetary aggregates and does not have the tools to set rates appropriately, and by doing what they're doing right now, they Create boom and bust cycles. So is there a risk of keeping rates high for too long? A problem? Absolutely, it is. We are seeing it in employment. We are seeing it in investment. Those are areas that are certainly suffering from higher rates. But it's also very important to open the debate about whether the Federal Reserve is doing things appropriately. Because for months, for years, we heard the Fed saying that there was no risk of inflation, and then inflation went through the roof. They said that printing trillions of dollars would not generate any type of inflationary pressure, and that it would be transitory. And it wasn't transitory, and certainly created very big problems for US citizens. So for me, the debate should start to be that the Federal Reserve, like the European Central Bank, etc, in. They should not be fiddling about with interest rates, because they create aggressive boom and bust cycles. And the booms, they don't pay attention to them, and the busts become very, very aggressive, and both of them, both cycles hurt the backbone of the US economy, small and medium enterprises and families suffer from the inflationary pressures and then suffer from the decision to hike rates aggressively when the damage has already been done.

Erik 

Let's talk about the relationship between the United States and the European Union in the wake of this tariff negotiation from this side of the pond, Ms Von Der Leyen did not really look happy to be caving to a tariff agreement with President Trump and the United States. It appeared that that was kind of a we're stuck. We have no choice. We have to make a choice that's unpleasant for us, but let's get it over with. Where does that leave us with respect to the EU attitude toward US, diplomacy, specifically with respect to looking forward to the future? A lot of people have said that this Russia conflict, Russia, potentially allying with China, is eventually going to force Europe to sort of choose between the United States as its ally and and other allies. How is this being perceived in Europe?

Daniel

Yeah, I think it's. It's a bittersweet perception of an agreement. On the one hand, it gives certainty and it reduces the risk of complete debacle, reduces no eliminates the risk of a debacle in terms of trade and in economic terms. And on the other hand, a lot of people are saying, well, we're still getting 15% tariffs, and that is obviously not ideal. Let's start by the last point that you made, which is very, very important within this agreement, in the EU United States agreement, there are two exceedingly important points. One is the energy agreement, and the other is the microchip and technology agreement. Those two are certainly deals that are going to reduce the possibility of the European Union, let's say, as you said, falling into the arms of China and Russia, the European Union in 2024, imported record levels of Russian liquefied natural gas, and this deal, what it basically shows is that the European Union needs to choose between the United States or Russia plus China, and that obviously, if it chooses the second, that would certainly lead to more aggressive negative position for the European Union exporters in terms of the deal, I think that it reduces the dependency of the European Union in terms of Russian liquefied natural gas. It also reduces the risk of being dependent on Chinese microchips and technology. And it certainly is hugely beneficial for the United States, but ultimately, what it shows is that the European Union needs to choose between one and the other, because the European Union does not have energy or military or technology leadership. Therefore, unfortunately, the reason why so many commentators are negative about this agreement is not because the agreement is bad in itself. I think that it's a positive agreement. The reason why they're angry is because it shows that the European Union did not have any aces in this game of cards in order to try to squeeze better trading terms from the United States, it did not have, obviously, the possibility of moving its exports to other markets. It is obvious that the EU negotiators at least analyzed that option. It is obvious that they that the European Union does not have the technology and energy leadership that would give them the advantage to negotiate in different terms, and it's certain that the United States is a much more important market than what we were led to believe in Europe. Therefore, I think that the reason why the European Union, commentators and economists are mostly mentioning this agreement as a negative, is not because it is a negative, but because it basically simply reveals the truth about the weaknesses of the European Union, and at least, from my perspective, this gives certainty and gives a good framework for improving in terms of security of supply, in terms of management of the number of suppliers, and also in terms of reducing dependencies. 

Erik

You mentioned energy prices a couple of times in there, so let's stay on that theme for a few more minutes. We're in kind of a funny spot here. I think 66 handle on WTI, as we're recording on Monday morning, really low oil prices considering President Trump has issued a 10 day ultimatum, basically saying, you know, there will be hell to pay if there's not a resolution to a war that's been been pending for years now doesn't get resolved in 10 days. You'd think there'd be more going on, but there isn't. What do you what do you make of energy prices? Where do you think they're headed?

Daniel 

 I think that it's clear that OPEC+ are happy with lower oil prices, if we think about what they have been doing in terms of strategy, it seems counterintuitive, but it actually makes quite a bit of sense. If you think of what they've been doing, is that once there was an evidence that there was a significant geopolitical risk building up between Iran and Israel, and if you go back a little bit more than what people believe this basically came when the organization of atomic energy issued a very aggressive statement resolution against Iran. Immediately, OPEC announced the largest increase in production that would that would ultimately absorb any type of geopolitical risk simply by putting in the market 1.5 million barrels a day more than was initially expected. So I think that the strategy from OPEC+, and from Saudi Arabia in particular, but also from the countries that I would say share the same strategy with Saudi Arabia is to remain the global central bank of oil and to maintain their position as the As the supplier of first resort, and also as the most reliable and affordable supplier. So the strategy is both to show to consumers that it's that oil suppliers are not going to hurt consumers, that they're not looking to increase prices for no reason, and at the same time to try to show that the alternatives in the energy world are not as affordable and as competitive as some would have expected, particularly in the renewable sector, etc. So the position of OPEC+, and I think it's very important to remember that Russia is included in this decision. And I think that what you mentioned prior, which is the relationship, strategic relationship, strong strategic relationship between Russia and China, is also a way for OPEC+ to show to China as one of the main importers of oil that they're not looking to hurt them in a situation in which there are these trade negotiations and in which exporters would not be welcoming another abrupt increase in prices. So it's a very interesting strategy that we have seen in the past, that in which OPEC+ is basically trying to prove that they can live with low oil prices and at the same time, show to their customers that they're the most reliable and affordable option compared to what obviously, from the perspective of OPEC+ members, is less reliable, shale oil, or alternative energies, renewable energies. 

Erik 

Now President Trump has introduced the notion of secondary sanctions. So the direct sanction would be, you know, if we're sanctioning Russia, that means we do something against Russia. The secondary sanction is, if we're sanctioning Russia, saying they can't sell their oil, then whoever buys their oil against sanctions, we're going to sanction them in order to get even with them. What are the potential economic knock on effects? I mean, is that just a threat that President Trump is using, or is there a potential here for you know, India continues to buy a whole bunch of oil from Russia, and then the US actually does something significant in terms of sanction action against India. That changes, that is that is that coming?

Daniel 

I think that it's very difficult to enforce. I think that it's very, very difficult to enforce because India does not buy  Russian oil because of a geopolitical position or because any, let's say, strategic advantage provided by their relationship with Russia. It's basically because they buy any and every amount of commodities that they can from where they can it's a fast growing economy with a tremendous thirst for commodities, so I think it's very difficult to enforce. And I think that when I look at it from the way that it has been presented, or at least the way that I've read it, it looks to me like it's a way for President Trump to Force India to get a trade agreement as quickly as possible, rather than a fully enforceable sanction package. Because we must also remember, from what I said before about the European Union and its imports of fossil fuels from Russia that in 2024 exceeded the aid to Ukraine now is that it's very difficult to put barriers to such a liquid and global commodity as oil. And obviously a lot of a lot of oil moves from through different countries, origin, washing refined products, all of that. So I think it's I think it's difficult, but I think it's a tactic to do two things. One is to force Russia to reach an agreement with Ukraine, to stop, or at least reach a ceasefire in the Ukraine war. And two, to Force India to speed up its position in terms of reaching an agreement with the United States.

Erik 

Daniel, I want to get your take on this just huge whipsaw that we've seen in copper. And I want to say specifically, I'm talking about American copper, the HG befutures contract, which is for delivery in the US. I think that's way out of sync with LME copper, and the reason is President Trump's tariffs. Where do we go from here? It almost feels like so much damage has been done technically to this market, and you can see that it's all as a result of just Trump and ent. You know, obviously don't care too much about collateral damage, so I don't think the fundamentals have changed, but, boy, on a technical basis, this chart is really, really ugly. What do we do about this?

Daniel 

I think it's very, very dangerous, because it's proven that, unlike other prices, this was, this was a level of of a bullish trend that was very much predicated on expectations of a very, very strong and robust demand in the future. We think about oil prices, natural gas prices, even aluminum, for example, they tend to move more with the changes in supply and demand that are very short term more than the long term perspective. In the case of copper, what we have seen is that the front end of the curve actually was moving very aggressively on expectations of electric vehicles, of expectations of renewable rollout, etc, all these tremendous demand driven bullish messages. So it seems that it was easy for Trump and Bessent to prick that. Let's say that trend with a couple of messages, because they were not predicated on, let's say, step by step, views about supply and demand. So I would be very, very cautious about thinking that this is a bottom and it's going to be as going to assume the same bullish trend as we have seen in the past. It may maintain a certain level of strength from the past five years, but it's very unlikely to catch up to the levels at where it was only a couple of months ago. Because that level even being on the on a contract that was supposed to be discounting the supply and demand of 2025 there was a lot of bullishness about about very long term and probably unchanged trends, but I would be cautious to take a bet against something that was so easy to unwind from few important and relevant messages that need to be included in those assumptions. So I would be cautious about that, without ignoring that the long term aspect of supply and demand for copper remain relatively bullish, because there is simply not enough copper at all, and we need to mine a lot more if the expectations of electrical vehicle rollout and renewables rollout are going to be achieved, a lot of people also are starting to question those trends and whether the implementation and of electric vehicles on a massive scale was going to be something that we are going to see in 2028 2029 and maybe moved it to 2035 2040 which is obviously huge in terms of net present value on the price of a commodity.

Erik 

Let's talk about how all these policies are affecting the dollar index. It seemed like we were coming out of the Trump and Bessent EU tariff negotiation. Maybe we were about to start the long overdue counter trend rally in the dollar. I thought it was maybe going to have legs. We got a perfect test of 100 on the DXY last week. Looks like it failed there. We're back down to 98 and a half, as we're recording on on Monday. What's happening here is the dollar just in a new secular downtrend that's not going to break. Or should we expect some counter trend rallies? Or what should we look for?

Daniel

I think that the problem with fiat currencies is that nobody, no central bank, and certainly no government, is defending the purchasing power of the currency. The Trump administration is not particularly comfortable with a weak dollar, but is not comfortable with a very strong dollar either. The European Central Bank and the European Union are perfectly happy if the Euro starts to weaken, because it's basically going to be a very significant counter effect to the tariff impact for exporters. And certainly we don't have to even debate that the Japanese government needs to continue to destroy the purchasing power of the yen in order to maintain the illusion, the monetary illusion, of its absolutely nightmare, fiscal and debt situation be in a world of relatives, I think that the bottom of the DXY was achieved once the perception of markets about trade deals, was that there was either not going to be any, or that those trade deals would be negative for the United States, which is obviously something that I found quite amusing. But I don't think that we are going to see the DXY go to 110 so I think that the trend, if you look at the trend, it's moving basically a like a ladder, between 2008 2012. The DXY was much lower than where it is today, also at the beginning of the Biden administration. I think that it's likely to remain between the 98.5 to the 100 level. I don't think it's going to go up massively unless the Federal Reserve starts to massively cut rates and leads to a huge move in terms of financial flows into treasuries when hedging becomes much more attractive, and the combination of the hedging cost plus the yield makes global bond investors prefer to buy treasuries than buy Japanese or European bonds. That is something that happened, if you remember, in the in the pay, in the in the path, sorry, to the 50 basis points rate cut of September. And could actually happen as well if the Fed changes course. But obviously that is something that we need to pay attention to, because you would need the Fed changing course, and you would need the massive outflow of euros and yens and inflow of dollars from the trade agreements that to kick in. And that is more a 2026 story.

Erik 

Well, you're lamenting some of the challenges of the relativity of the dollar index relative to other currencies. That, of course, begs the question of precious metals for the absolute comparison. Seems like the gold fundamentals really look pretty strong. Here are we about to see what looks like, maybe a breakout of the pattern we've been in the triangle pattern and new all time highs.

Daniel

I think we will see new all time highs of gold as the decision of central banks of purchasing more gold and less government debt from developed economies accelerates. We are seeing more. And more central banks all over the world balancing their asset base with more gold less Euro denominated reserves, ie less debt and less treasuries. So I think that that is one element that tends to coincide with the September to December period, which is when central banks try to readdress their challenges in their in their balance sheet, if they have them. And also, I think that is very evident, that the growth in money supply that I was mentioning before, plus the very loose policy of most central banks would be with the Fed changing course. So if you have all those central banks cutting rates and increasing money supply, and on top of that, you get the Federal Reserve cutting rates and significantly, then obviously that is going to generate a tremendous move into gold in order to generate more capacity for investors to have stable and de correlated reserve of value in their portfolios. Most, most investors remain very, very underweight gold, and at the same time, central banks are purchasing more gold. So I think that gold, silver, to a lesser extent, and even other precious metals I would look at with a benign view, but more I would certainly be very comfortable with the long gold position at these levels.

Erik

 And how do you feel about the reserve currency status of the US dollar at this point?

Daniel

I think that the reserve currency of the status of the US dollar is unchallenged. The US Dollar is the world reserve currency in the Fiat world, because there is no alternative. If you think about what could be the alternative, the euro. It has redenomination risk. It has enormous fiscal problems, much larger fiscal problems than the than the United States, in countries like France, countries like Greece, countries like like Italy, like Spain, etc. And on top of that, it has issued debt, which is the, let's say, the top of the iceberg, but very few people look at the bottom of the iceberg, which is enormous, which is the unfinanced, committed liabilities of governments, which in some cases exceed 500% of GDP. Therefore, the Euro is is a great currency, and has been doing phenomenally well as a reserve currency despite all of its challenges. But it's not an alternative to the US dollar. To be an alternative to the US dollar, you need to have independent institutions, transparent, full transparency in capital markets. Obviously you cannot have currency controls and capital controls. You need, you need liquid and open capital markets. It's very difficult to be an alternative to the United States dollar in the Fiat world, and it's also very evident by now. I believe that China does not want the yuan to be an alternative to the US dollar. They may want the yuan to be used in more global transactions than currently, but not to be an alternative to the US dollar, because they don't want to eliminate the capital controls, the currency controls, the financial controls that they have in their economy. And the idea that Brazil, Russia, India, China, South Africa, are going to create a currency that will dethrone the US dollar is also very, very challenging simply by looking at the way in which their own state owned exporting companies behave, which is to continue to use the US dollar in everything that they do. And also from my personal perspective, which is an unpopular opinion, but that is obviously why I give my opinion. I don't think that China wants to have a currency with Brazil, Russia, India and South Africa. I think that China wants to increase the use of the Yuan with those countries, but not adopt their inflation and monetary policies within a similar framework. I don't think that the Chinese government sees itself as one that is going to relinquish their position to provide some escape to the inflationist policies of Brazil, for example.  

Erik

I want to run a thought experiment past you, because first I agree with you, the only reason, or the primary reason, that the US dollar is still the world's global reserve currency is because. Cause there is no viable alternative. What if I were to suggest to you, there is a viable alternative, it's stable coins that are tied to the US dollar. Well, you'd say, wait a minute, that's not an alternative, because it's still the US dollar. The stable coins are backed by US dollars. They still create demand for US Treasuries. Yeah, okay, I get all of that, but think about the reasons that we care about this reserve currency status in the first place. You think about triffins paradox and the issuance of currency and the demand and so forth, the creation of artificial demand for the reserve currency by the rest of the world. Hang on a minute, if what is actually being used as the reserve currency are stablecoins. It's not the reserve currency issuer, but rather the stablecoin issuer that's going to start to derive a lot of those benefits of being the reserve currency issuer, or a lot of the benefits that we've historically associated with being the reserve currency issuer, having essentially an unlimited amount of demand where, you know, economic fundamentals don't necessarily matter, just everybody has to have us dollars all of a sudden. What if it was everybody has to have your stable coins? I think that changes the game. What do you think?

Daniel 

No, I think that it does. And I think that it's quite a long term option, obviously, but I think that decentralization is certainly the future in the monetary system. The reason why we find it difficult to believe that there's going to be an alternative to the US dollar or alternative to the euro, etc, is because we need to sort of think of this matrix type of construct, which is the fully centralized monetary system. But what you very well say is that if stable coins take the place of the US dollar, they would continue to support the US dollar, as I would say, the leading fiat currency, but they but the benefits of being the reserve currency would be in the country and the issuer of those stable coins, and obviously the underlying asset can also change. Can move to be gold or others. I agree that is a likely option, but it requires a number of steps, a number of significant steps, which include the fact that you could, for example, have multiple bank accounts in multiple currencies and trade with between them. That is obviously something that needs to be looked at from the perspective of, you know, what is the future going to look like? But it's obviously a long term future, because the commercial banking world as we know it, and the monetary system as we know it, all of them work in this fully centralized position. But certainly, what I would say is the following is that the rise of stablecoins is a very good idea that the US administration has in order to cement the position of the US dollar within the fiat currency world and to maintain and strengthen the demand for US Treasuries, no question about it. But obviously the future would be that those stable coins, and definitely the ones that reach enough level of liquidity to start to be viewed as pure currency, ie reserve of value, unit of measure and generalized mean of payment. All those are something that is going to come from the decentralization of the commercial banking system and the decentralization of the way that we look at money.I think it's inevitable. I think it's inevitable, but it's am I going to see it in my lifetime, maybe, but certainly not in the next five, seven years.

Erik 

Well, Daniel, I can't thank you enough for another terrific interview, but before I let you go. Please tell our listeners a little bit more about what you do at Tressis, also your Twitter handle and so forth, how they can follow your work.

Daniel 

Thank you very much. It's been a great, great conversation. My work is, I'm the Chief Economist at Tressis. I'm also the CIO of alpha strategy consulting, providing strategic and macroeconomic advice to numerous companies. And what I am not just the chief economist, but I also supervise and advise in terms of the funds that we manage. The way to find me, it's very, very easy. You have two Twitter accounts, x Accounts, one in Spanish, one in English, @dlacalle in Spanish, @Dlacalle_IA in English. And you also have my website, which is also in Spanish and in English, and my YouTube channels in Spanish and in English. So as I always say, it's easier to find me than to avoid me. Just key in Daniel Lacalle in Google, and you will find all the alternatives. But always remember that if you come across the Spanish language one, there is an English one as well Available.

Erik 

Patrick Ceresna and I will be back as macro voices continues right at macrovoices.com

Erik:      Joining me now is rule investment media founder, Rick Rule. Rick, it's great to get you back, it’s been years since we've had you on MacroVoices. I was fascinated because I thought

you were going to tell me, Hey, obviously, in the Natural Resources space that you focus on, uranium has got to be the hot story. Let's talk about that first now I'm an oil trader. Have been former member of the exchange. Everything else you told me off the air you think even more compelling than the uranium story, which we both agree is incredibly compelling, is the oil story. I'm an oil trader who didn't know that. Fill me in.

Rick:     Well, Eric, as you know, I've been associated with both oil and uranium for a very long time, and uranium has been extremely good to me, and I think the structure of the uranium market is changing in ways that we'll talk about later. For most investors, however, most investors are better off, probably see
king beta than alpha, defining beta tightly as the outperformance of one sector relative to the broad market, the oil and gas business is a big business. It's a good business. It has some very good businesspeople in it. So, for people who aren't professional investors, I suspect that they're better off in the oil business than they are the uranium business. For people who are professional, for people who are willing to do the risks, who are willing to take the risk, do the work and certainly endure the volatility. I suspect that the outcome is all about uranium. An easy way to say it would be, oil is beta. Oil and gas is beta and uranium is alpha.

Erik:      Well, let's just take the counter argument. Some people would say, wait a minute, even before you worry about the beta, you've got a huge amount of policy risk because President Trump seems to want lower oil prices, but he also has policies that seem to bring about higher oil prices. He's not a real easy guy to read. Seems like there's a lot of uncertainty there.

Rick:     I think in the next six months. That's true. It might come as a surprise to Mr. Trump that the market is bigger than he is. The International Energy Agency would suggest that the oil industry as a whole, including parastatal firms, is now under investing in sustaining capital, never mind New Project capital, to the extent of about $2 billion a day that has impacts in the out years, in things like years two, three and four, one could argue that as a consequence of higher capital costs, both higher debt costs and lower oil equity prices, in other words, a higher cost of capital that you have seen at least a temporary plateau in US Production, unconventional Production, certainly we can bring more oil on in the US if the prices go up, or we can bring more oil on if either the credit market, particularly the non-investment grade credit market, eases, or if the price of oil equities rise. But the circumstance that we have now with low oil equity prices, high debt capital costs, particularly non-investment grade debt capital costs for the domestic oil industry and oil prices that are hovering dangerously close to the total cost of production. And if you combine that with greatly reduced capital expenditures by parastatal oil companies, particularly PAMEX and PDVSA, I think you're due for a surprise in the oil markets in two or three years. I also think that financial markets are echoing your suggestion that there are political headwinds around oil. The Big thinkers of the world, our former president, Biden, my favourite energy physicist, Greta Thunberg, people like that will tell you that peak oil demand will occur in 2030 or 2032 what that means is that when people do a discounted net present value analysis on an oil company, there's no tail, despite the fact that they might have a 30 year reserve life. The truth is, if I'm right, and peak oil demand occurs in 2065 or 2070 there's a very fat tail that's not priced into the market at all. So, for most investors, if I had to choose one or the other, I would choose oil. For somebody like you, Eric, who's already, you know, a sort of a rodeo veteran of financial markets and willing to do the work, willing to accept the volatility, or, in fact, willing to use the volatility, then uranium is a very different story. We can talk about that later in the interview.

Erik:      I want to come back to uranium for sure but before we leave oil, something that I've noticed with great interest, and frankly, I can't explain it, is the term structure and the flat price just don't agree anymore at least, They don't relate to one another the way they used to. What we're seeing in this move, and we got that test of $55 WTI. What was it a couple months ago? We never got anything close to contango in the market. We still had deep structural backwardation, even down at those prices. What do you make of that? It seems to suggest that something has changed about the connection between the physical and paper markets.

Rick:     I think that might be true and to be honest with you, I'm not smart enough to explain it. Part of it, I think, has to do with the fact that there may be greater economic weakness or fear of economic weakness, than we know. You know they call copper Dr copper as a consequence of its alleged ability to predict economic conditions. Oil is pretty cheap. Natural gas is cheaper. It doesn't store well, and it may be a better predictor of near-term uncertainty. I think the longer-term backwardation may have to do with the fact that people mistakenly, I think, believe that other sources of energy will substitute for fossil fuels in the short term, which I don't believe to be true, but my mind is very open on the topic.

Erik:      Let's talk more about oil depletion specifically, because the way I see this lining up, I don't know for sure what's going to happen, but I do know lots of smart people have told me that the only thing that really saved the world from the energy crisis we might have had back in the earlier 2000s is the US shale miracle. You know, this fantastic explosion of production in the US made up for declining production rates around the rest of the world. What it says to me is, when the US shale plays have played out, when the western US is just drilled up like Swiss cheese. And we get to the point where it's not economic at current prices or anything close to current prices to make more shale oil, then I think there's an easy answer. Uranium just takes 20 or 30 years to make that transition that nobody planned ahead for, and I think we're screwed. Am I missing something?

Rick:    Well, no, I don't think you are missing something. Depletion really is a function of price, technology and the cost of capital. At $60 oil, I think it's fair to say that the United States has probably drilled up 85% of its grade A drilling locations, assuming that technology doesn't improve, there's a lot of hydrocarbons left in place in those shales. And if technology improves so that we can extract more of the resource in place, then we forestall the production plateau that you're that you're talking about. If the cost of capital to the oil industry goes down, then we forestall it. If the price goes up, then we forestall it. But it's sort of trifecta, Eric, we have to have one or all of the above occurring, and at present, nothing seems to be giving its worthy to note that the United States and Canada are both well-endowed with shale reserves, and both the United States and Canada have relatively attractive regulatory regimes and great infrastructure. There are other shale horizons in the world that if the right regulatory environment occurred, or if the right energy infrastructure was in place, or the right fiscal structure was in place, could make meaningful contributions to the world's supply of oil and gas. But who knows when that regulatory reform will take place. Who knows when the work required to put those shales into production? When or if that'll take place? Right now, the world's swing producer is the United States, and to a lesser extent, Canada. And if we don't have a break from technology, from capital costs or from price. I think it's fair to say that at least US production is plateaued. There's a lot of room to increase production in Canada, but for the last 10 years, the Canadian leadership, political leadership, the federal leadership, has been anti oil and gas, and that's a really, really, truly ugly headwind. The United States, at least since the election of President Trump, has not faced that same challenge.

Erik:      Now let's imagine that we use up the rest of the spare capacity that still exists in the US shale patch, so we can't expand in the US. We either use up Canada's capacity or Canada doesn't want to play ball politically one way or another. You got to look for more and you it's not like the world's out of oil at that point. You can very easily go to deep water offshore, and you can go to polar exploration in order to solve that problem. What amount of dollars per barrel are we talking about in a premium if you got to go under the North Pole instead of just out in the Gulf of Mexico to get your oil?

Rick:    I need to add, that there's substantial shale capacity in Saudi Arabia that hasn't been exploited. They've just exploited their conventional capacity. And there's substantial shale capacity in Argentina, in Venezuela and in particular, in Russia. So, there's a lot of room for shale.

Erik:      Okay, let me re restate the question. Then I was assuming too much. Once we've played out the western US shale play and we got to find more oil, where do we go, and how big of an increment in cost of production do we get as a result of having used up the what we already know? Have to move on to another new trick.

Rick:    I don't know the answer to that, but I would it wouldn't surprise me if that answer had a, three handle on it. Plus, the beauty that the shale production has is it's extremely predictable. You can model returns on capital employed fairly well, and despite the fact that, as an example, during the Biden years, you had a hostile federal administration with regards to shale, at least you had consistency and regulation in the rule of law, if you add back exploration risk, which the industry hasn't had to deal with, at least onshore for a very long time, the uncertainty of outcome and the capital cost associated with as an example, moving deep water, conventional crude or Arctic crude to market, you're talking about uncertain outcomes with regards to time and return on capital employed. I suspect if you combine that with what I see as the continued deterioration in the purchasing power of the US dollar, you're talking about an incentive price that is at or above $100.

Erik:      Well Rick, we couldn't agree more on where this is headed, and that takes us on to our next topic, which is uranium. Let's talk about that. We've got, clearly, from a policy standpoint, a very clear message from the White House, from Secretary Wright, the nuclear renaissance is on, and it's on in earnest. Okay, great, but the lead times in the nuclear business are extremely long. And as you know, commodity markets have to balance right now or right in the here and now. They're not forward-looking like equity markets. So, I want to believe that all we're seeing so far is just a little bit of excitement we haven't even gotten, I think, to the big event yet in the uranium market. But other people might say, hey, it's doubled in the last few months. You know, maybe it's time to short it. I think we're just getting started. Where are we in this story? How long of a story is it?

Rick:     I think it's a very long story. Erik, I don't mind saying in the very near term, like weeks, but it may be over bought. My former employer, Sprott, raised $200 million in the physical uranium trust, and there's been a big buyer Sprott in the market. When that money runs out, remember, this is a very thin market. It wouldn't surprise me to see the market soften up, but that doesn't reflect the real market. The real market is in structural deficit. And it's important to remember that Sprott itself now has bought over 60 million pounds of uranium in the Sprott physical uranium trust, and that supply has gone to supply heaven, something that I don't think markets have noticed, looking longer term, the point you make is correct. The lead times involved in putting a uranium project in production are measured in decades, not in months. Even in the United States, where you have a change in the federal regulatory attitude, remember that you still need to appease state and local interests. Mercifully for the United States, most of our recoverable uranium exists in Texas and Wyoming and at the state level, both of those jurisdictions seem to be favourable for uranium development. But as you say, these things take a very, very, very long time. While all of this is playing out, we're using substantially more uranium than we're producing, and in other parts of the world, they're building nuclear power plants like mad. What's happening domestically is interesting too, which is to say plants that were scheduled for shutdown, plants where the decline in consumption was modelled into everybody's supply and demand forecasts are being extended. These aren't plants that need to be built. These are plants that were scheduled for shutdown that aren't going to get shut down. This is actually demand that, in effect, has come from nowhere. Biggest swing, of course, has been the pace of Japanese restarts. You'll recall that post Fukushima, the second biggest uranium consumer in the world, went away. 40 million pounds of annual uranium consumption went away. The political winds in Japan have changed, and both the people and the government are pro uranium. Thus far, they have reopened 14 of 40 plants, but their intention is to reopen the balance of their shutdown plants. That's the most important near term demand consideration, because the lead times that you mentioned don't apply really, to restarting what's called a hot shot or properly maintained plant, very important to know. The second thing about uranium, Erik, that's much more fascinating to me, is that the structure of the market is changing entirely in every commodity market, as you well know, as a trader, there's no price certainty in the future. The price is the bid from day to day to day. Something very different is happening in the uranium business because of the extraordinary capital cost of building these nuclear power plants, a term market in uranium is developing where producers and consumers agree to prices and volume within a reference of five years or 10 years or 15 years or 20 years. What that means is that uranium producers can have a contract with a credit grade counterparty Southern Company, Duke Power, Tokyo Electric Power, China, general nuclear that guarantees them both price and volume for a long period of time. Unlike the oil business as an example, where there's no price certainty, or at least very little price certainty, outside the futures markets, in the uranium market. Increasingly, the spot market is a reference point, and prices will be set and are being set in the term market. What that means is that there is revenue certainty for uranium producers, which lowers their cost of debt capital. And I would suspect, given the earnings visibility in the out years and the certainty with which lazy securities analysts like Rick Rule can forecast cash flows that it should lower their equity cost of capital as well. This is an extremely, extremely important circumstance that virtually nobody's paying attention to.

Erik:      Rick I've never understood this market even going a step back from what you were talking about, which is certainty of revenue and so forth. Let's just talk about the structure of the market. Who's selling what to who? Now, if I drive an automobile, nobody expects me to go buy my own crude oil and then hire somebody to refine it and hire somebody else to deliver it. I just go to a filling station. There's an industry that exists to sell me fuel. Why do utilities buy any natural uranium? U 308, at all. Why don't we just have an industry where all the utilities say this is my reactor specifications, sell me EUP finished reactor fuel. And companies that are in the in the oil business, the guys that are in the oil business are in the oil business. The people that consume the oil are in the construction business, or whatever business they're in. They don't try to be in the oil business. Why do these utilities try to be in the uranium business? I don't get it.

Rick:     Often the fuel processors, particularly Russian fuel processors, have been under capitalized, and one response to that has been that the utility will buy the raw material and pay the Russian’s a fee to process it. Remember that over 50% of the enrichment capacity and the original fuel rod fabrication capacity in the world was Russian, and the Russian fabrication industry was historically undercapitalized. That's the primary reason, I think that you see new nuclear utilities in the raw fuel business much more commonly now the utilities are going to refer their purchase orders to traders or to fabricators, or to integrated companies like Cameco/ Westinghouse, which plans to be all things to all people. The odd market that you describe, I guess you described it correctly, as an odd market the user of the fuel was, in many senses, forced to finance the refiner.

Erik:      I mean, it seems to me we just have a very, very broken market where people like Grant Isaac, who's the CFO at Cameco, who's clearly on top of this, agrees with the view that I've heard from quite a few people in the uranium business, which is, we got a major problem, which is the real market is the term market. The spot market is not the real market, but the spot market is the only market that is visible. There is no public term market. The data for the term market is private, and it only gets published once a month. And I hear Grant complain about that and describe the problem very accurately. But at the same time, I can't help but wonder, Grant, aren't you in a position to solve that problem yourself?

Rick:    Even Grant himself believes that Cameco’s term contracts are proprietary. He's a very, very bright guy as I'm sure you've come to learn. But he believes that, given that Cameco is the most important uranium producer in the world, if not the biggest, that his own intentions with regards to the uranium market are proprietary information, I believe Erik over five years. Note that I said over five years that uranium producers who are less opaque with their term contracts will enjoy a lower cost of capital. Because I believe furnishing that information to the market will generate greater certainty with regards to future profitability and will lead to higher share prices and lower cost of capital, but we haven't come there yet. This has always been a highly, highly secretive industry, and those of us as an example, who follow Cameco are often forced to look at the trailing quarter in terms of pounds produced average selling price per pound, juxtapose that with the spot market and try to figure out the status of Cameco term book. It would be a lot more efficient if, as you suggest, they become more forthcoming. I think over the next five years, they will become more forthcoming, because I think that capital markets will reward those producers who are forthcoming and penalize those who don't, just for fun let's look at a non-investment grade, small non-investment grade producer who requires, let's say, $500 million or $600 million to put in mine in production, and currently has a $250 million market cap. That's an interesting challenge. If they were producing any commodity except for uranium, it might be an insurmountable challenge, given that a lender who would be asked to put up 60 or 70% of the capital would have no sense what the selling price of the commodity that was going to be produced was going to be, and what the payback term of the loan was going to be. That same Junior, if they, as an example, got a fixed price contract to build the mine from Westinghouse and then pre sold 60 or 70% of the production over 10 or 12 years to an investment grade counterparty could take those contracts to the bank, and the bank would be much more certain because the producer had already fixed the price of building the plant and had already fixed the price for which they sold the material. Yes, it would take some of the optionality out of the shares, but it would take away almost all of the uncertainty, almost all of the downside. That's why I say that the big shock for capital markets will be continued lower cost of capital for the uranium industry than the uranium industry has experienced for many, many years.

Erik:      Rick, I want to pass a prediction by you that I'd really love your feedback on. I think we're headed toward a meeting of minds here between the tech industry and the nuclear industry, where basically the AI data centre guys recognize, as they already have, we got lots of money. We need lots of energy. The world doesn't have lots of energy. We better start spending our money now, before the world figures out how tight the energy is, so we can lock up as much of it as we possibly can for ourselves. And I think the things we've already seen very clearly evidence that where you've had tech companies with data centre interests literally paying more than current market rates to lock up the next 20 years in order to get a nuclear plant restarted. They've already done the deals and all the nuclear plants that can be restarted. So, you know that capacity is going to be taken up. I predict that we're headed toward a societal conflict where everybody gets pissed off and says, hey, wait a minute, when we weren't looking big tech bought up all the energy capacity. We're pissed off about it. And, you know, let's go have a riot over that. We It's been too long since George Floyd, let's make up the next issue to throw a riot about. I think it could be an energy crisis where people are pissed off that that the capacity got bought out by high tech, and it puts nuclear energy in big contention. Do you think that's realistic? And if so, what does it mean?

Rick:     I hadn't thought about it, to be honest, but it makes absolute sense to me. Big Tech was relatively early to the party, because they had the technological sophistication to understand how nuclear power worked. And I think at least among the younger people in Silicon Valley, they had a real fear about carbon generation, and so they were inclined to nuclear before the broad population was I hadn't thought frankly about the societal impact of the fact that big tech is effectively locking up all of the cheap, non Gen, non-carbon generating base load power available in the country. But now that you mention it

Erik:      Not just the country!

Rick:    Fair enough. I you know, I think what you're talking about is, is precisely the reason that Cameco bought Westinghouse. I think that they see the need for newer types of reactor fabrication and newer types of, you know, fuel enrichment. And I believe that, as you suggest, any spare capacity that this country is going to need, and electrical demand in the United States is apparently going to double by 2050 that tells you that big tech was prescient. And I hadn't thought about the fact that people would be envious over the fact that big tech was prescient, but it makes absolute sense, given the voters track record over time.

Erik:      I'll make another prediction. Big tech aren’t stupid, and I think, unlike other people that have looked at light water reactors and the other options that have been available for more than half of a century, big tech is more likely than other users to say, wait a minute, the design of these Westinghouse reactors is retarded. This is not the right way to build a reactor. We've known since 1958 that water was a stupid coolant for nuclear reactors. We ought to start using the ones that we've known since then are better ones. I think it's potentially a really big positive for the generation four reactor companies and a negative for the generation three. That's maybe that's wishful thinking on my part. So, I was just curious if you had a reaction.

Rick:     I think it might be 10 year forward thinking. I remember participating in a discussion myself, making the mistake talking about the potential proliferation of small modular reactors, and I talked about it as a commercially unproven technology, and one of the technical technology people on the panel said, Rick, have you ever heard of the US Navy? They've been employing SMRs on submarines for a very long time. There's nothing about this technology that's particularly unproven. And the circumstance that you talk about, which is to say, the re-engineering of a nuclear power plant, I think, is absolutely positively inevitable. There is an awful lot of inertia built into existing technologies. There's something like $250 billion of construction underway or permitted and financed that involve around existing technologies, looking out 10 years, looking at what the world needs, and looking at the fact that the money is all of a sudden available to nuclear power, where it's been denied to nuclear power since 1982 you can virtually count on the industry being able to take advantage of all of the technological advances that have happened since Three Mile Island. One of the reasons I would suggest for the technical backwardness of the nuclear power industry is because it literally has been deprived of favour and capital since Three Mile Island, and that's coming to a screeching halt. I look at the political reality in the United States, where five or six years ago, as a uranium speculator, I was vilified now in the inflation Reduction Act, they want to subsidize me instead. This is sort of a sea change in attitude, and I think it brings about the type of technological evolution that you're describing.

Erik:      I definitely think that we're headed towards some interesting times, and I'm hopeful that the big tech guys are going to help the nuclear industry get its act together, because we need to change the way that we build nuclear energy. That's for sure. I know, though, that I am under personal serious risk running out of time on this interview, Rick, and if I don't talk to you about precious metals, my listeners will absolutely lynch me. So, let's move on to gold and silver, and what's going on there, particularly the ratio between gold and silver. How's the market and as much as I feel, and I'm going to go out in a limb here and say, I know you're going to agree with me that the fundamentals are really strong. Wait a minute, the price of gold has doubled in the last few years. Last big cycle we went through, it was about a doubling from just below 1000 to 1900 you know, on a measured move basis, we kind of already got it. So Are we late in this cycle, or are we early in this cycle?

Rick:     I don't know if you remember the last time we talked Erik, but I remember saying that when people ask me when gold's going to move, I say the year 2000 you know, it's had a pretty good move over 25 years, 9% compounded.

Erik:      And Better than the S&P500 for the full 21st Century I think

Rick:    The more recent move has been more dramatic. And I think for traders, if you are somebody who bought gold the last time you and I talked, simply because it was hated or because people were bored with it, if that was your motivation, you might consider being a seller. It's not hated anymore. It's not loved, but it's not hated. In my experience, and given my own read of history, I would suggest to your listeners that gold does well during periods of time when investors and savers are concerned about the maintenance of their purchasing power in fiat currency denominated savings products. And I would suggest that those fears today are very real. A lot of is made of this, but the math around the US dollar is flat, lousy. I mean in an absolute sense, not in a relative sense. I think the US dollar likely does relatively well against other currencies, but in an absolute sense, for US dollar savers, the math is horrible. The on-balance sheet liabilities of the US government are $37 trillion or about 30 trillion net of the Fed's balance sheet. Now, to put that in perspective, in 1982 our national debt was about 32% of GDP. Now it's something like 120% of GDP. But more concerning to me, Erik, is that the off-balance sheet liabilities of the US government, the net present value of unfunded entitlement liabilities, Medicare, Medicaid, Social Security, federal pensions, military pensions. That number, according to the Congressional Budget Office, exceeds $100 trillion to put that number in reference, the gross federal revenue is $5 trillion so think about on balance sheet and off balance sheet liabilities of the US government exceeding 130 trillion with a gross federal budget of $5 trillion now factor in the growth in the on balance sheet deficit of $2 trillion a year, and the Congressional Budget Office cast of the growth in off balance sheet liabilities of another $2 trillion a year. These are bad numbers. The on or off-balance sheet, deficit increases by $4 trillion a year against a gross federal budget of $5 trillion a year. I don't want to be alarmist, Erik, but it sort of reminds me of the Hemingway quote about how he went broke. He said, slowly at first, and then all of a sudden, I think that we need to come to grips with this. I don't think that Congress or the voters is in the mood to stop spending. And I don't think that we're going to have an honest default. I don't think that the voters are going to say to an old guy like me, yeah, right, you paid into Social Security for 60 years. Too bad. So sad. No money strongly or to follow. I think we have a dishonest default, and there's precedent for this. In the decade of the 1970s according to the Office of Management and Budget, the spending power of the US dollar declined by 75% in 10 years. Not coincidentally, the gold price went up 30-fold. I don't think that the gold price goes up 30-fold from here, but I suspect that the only way that we service or pretend to service our debt is by inflating away the net present value of the liability, by reducing the spending power of the US dollar while not fully indexing taxes to inflation. My suspicion is that, if I am correct, that if we deal with $130 trillion in debt by devaluing the obligation, that the purchasing power of the US dollar, again in real terms, declines four-fold. And it wouldn't surprise me to see the increase in the gold price approximately reflect the deterioration the purchasing power of the US dollar, if you believe like that, it's very difficult not to see strong gold prices, likely stronger silver prices, and likely very strong gold equities prices. I'm not talking about the three-month timeframe or the six-month timeframe, but I'm certainly of the belief that over a decade, the US dollar loses 75% of its purchasing power.

Erik:      Let's talk a little bit more about gold versus silver, versus gold and silver mining equities because, boy, Rick, a lot of people are saying Gold Silver ratio is out of whack. You're much, much better off buying silver here. But hang on, it feels to me like a lot of this is really being driven by Central Bank purchases. They're buying gold, not silver. So, I could make an argument for if that's the cause, it's going to continue to be Gold, not silver, that outperforms. A lot of people are saying that the Gold Silver ratio is out of whack. The silver is the thing to buy. Is that the case? Or is it more the case that, because this is being driven by central banks, that we're going to do what the central banks are doing, which is buy gold. That's what's going to outperform.

Rick:     To the latter question, I think you've made a great point. Silver speculators and gold stock investors have been concerned over the fact that while gold is performed, the other asset classes haven't, and you put your thumb on the cause of that, the buyer has been central banks, and they don't buy gold stocks. They don't buy silver, they buy gold. An asset class that had a buyer did well. An asset class that didn't have a buyer didn't do as well. Typical precious metals bull markets are led by the commodity buy gold. When the gold price increases faster than the cost to produce gold, the margins of the biggest and best mining companies begin to do well. And we've certainly seen that over the last 18 months with Agnico Eagle well, with the whole complex they've done extremely well in traditional bull markets, the bull market goes from what I would call the best of the best to the rest. There begin to be valuation anomalies between the very high-quality companies and lower quality companies. Either value arbitrates, take that out of the market, or else the big companies take over the little companies. In my experience, Erik, when the generalist investor comes down into the precious metal space, when the narrative is established by gold and by the gold stocks, silver begins to outperform gold. I'm not sure why, to be honest with you, perhaps it's because the lower unit price, perhaps because of the reputation for volatility. But in my experience, in the three precious metals bull markets that I've lived through, when the generalist investor comes into the space, silver begins to outperform gold. Now, as to the Gold Silver ratio, I've never been a believer in it. I sort of believe it's a factoid. The fact that silver is 16 times more prevalent in the earth's surface suggests that the Gold Silver ratio should be 16 to one. But that argument doesn't go to utility, and it doesn't go to the fact that most of the silver produced in the world is produced as a byproduct of mining other materials, which means that the production cost for 78% of the new mine supply deals only with the cost of extracting it from already mined and processed rock. So I think that there is a disconnect between the supposed importance of the Gold Silver ratio and gold silver markets. I'm not sure as to how one would model that as a trader. I'm not a trader, so I don't do it, but I will observe that the markets the last three markets that I've been involved in once the precious metals narrative has been established by gold and the generalist investor comes down into the space that the generalist investor takes up the silver prices faster than the gold prices.

Erik:      Rick let's move on to gold equities. The old wisdom used to be, look, you buy the gold equities because it's leverage to the gold price. Well, guess what? That has not worked for the last five years. My brokerage statement is proof of that. What broke down? Why did that stop working? And most importantly, how do we read it now? Because, you know, one argument is okay, that doesn't work anymore. So, buying gold equities is dumb. The other argument would be gold equities have underperformed for a long time. They've got a lot of catching up to do. They're really, really ripe for a big move. Which is it?

Rick:    I think the truth is somewhere in the middle, I remember very well the gold bull market, between 2000, 2010. In that market, the gold price did extremely well, almost up seven-fold, and the free cash flow per share among the gold producers fell. It took particular skill for the industry to take a seven-fold increase in the selling price of their commodity and turn it into reduced free cash flow per share. So, the expectation around the gold producers was very low this time. The second thing was that the buyer that came into this market, that moved the gold price up, as you suggest was central banks, and central banks don't buy gold shares. Now this bull market has followed a predictable pattern. It has been led by the commodity. In the beginning in 2023 in particular, not only was the absence of a buyer, which is to say the central bank, an important tenant, but also the cost of producing gold increased as fast as the gold price. So, the increasing gold prices didn't expand. Producer margins that turned around in 2024 and the producers that generated good margins, particularly the companies that generated good margins, that were large enough to attract some institutional capital, have done very well, ones like Franklin Nevada, ones like Wheaton ones like Agnico Eagle, the very high-quality companies are uniformly doubled over the last 18 months. So, the market has noticed, but there's no broad participation in the gold market yet, I believe that the momentum established by the senior golds and the free cash flow that's now being generated by the tier two producers and the less efficient majors, as was evidenced as an example by the Newmont release earlier this week. These are truly spectacular cash flow numbers. And I think we're really truly in now a gold equities bull market. I believe that the market will come to understand that the management teams that were responsible for the capital misallocation in the market 2000 to 2010 have been thanked and excused, and at least for the time being, perhaps until the bull market gets underway in earnest that there will be intelligent capital application in the gold mining industry. I think the next two years, two and a half years will be extremely good for the gold stocks if the valuation discrepancies that exist between the very large index worthy companies that get a lot of passive buying and the rest of the gold market doesn't disappear. That is if value arbitrageurs don't begin to redeploy from the best of the best to the rest, then what will happen is that the large companies with very low cost of capital will take over the smaller companies, and the arbitrage will go away in that fashion at any rate, I suspect now that we are really, truly in a gold and gold equities bull market.

Erik:      Well, Rick, I can't thank you enough for another terrific interview. We got to get you back on the show more often than it's been. But before I let you go; I want to talk a little bit more about what you're doing with your new company. Well, I say it's a new company. It's been probably a couple of years now, which is Rule Investment Media. A lot of people used to know you as the guy who organized most of the private placements in the gold and silver mining industry. You sold that business to Sprott. You ended up retiring from that and launching this new venture. Tell us about it. What does it do and what's going on?

Rick:    Erik, I was part of building two very large consumer franchises, Sprott, which was 275,000 retail precious metals investors and institutional investors, and of course, EverBank. Another 250,000, 275,000 savers. I'm less act less eager at age 72 to be in regulated businesses. When directors’ meetings at Sprott became more than 50% involved with policy and procedure and DEI stuff like that, that's all important, but I didn't have much to contribute, so I had to go away, but I wanted to stay in touch with my market. I wanted to stay in touch with my customers, and so I set about building a business to educate investment professionals and high net worth retail investors about how to invest in natural resources, precious metals, people like Wiley have been after me to write a book for about 30 years, and I don't want to write a book. So, the Rule classroom and Rule l investment media is the way that I impart the lessons I've learned over 50 years to people who are just coming into precious metals and natural resources. Most of the services of rural investment media and the rural classroom are free, a very, very good price. Four times a year, we put on boot camps, which are deep dives into various topics. We've done uranium, we've done silver, we've done the capital stack of mining companies. We've done oil and gas. And once a year we put on a great big symposium. We just got done doing that this year in Boca Raton delighted to say, between live and live stream, we had 2400 attendees, I think, wonderful conference. And so that's what's really keeping me involved. Your listeners who want like what I have to say about natural resources can personalize it if they go to my website Rule Investment Media and they list the natural resource stocks that they own in their portfolio. I will, for free, rank them one to 10, one being best, 10 being worst, and I'll comment on individual issues if I think my comments might have value. This is free. There's no obligation. You need to be patient. I'm about 250 rankings behind. But once again, Rule Investment Media list your natural resource stocks, please. No crypto, no tech stocks, no pot stocks leave an old man to do what he does best.

Erik: Again, that's Rule Investment Media. Patrick Ceresna and I will be back as MacroVoices continues right here at Macrovoices.com

Erik:    Joining me now is Dr. Pippa Malmgren, best-selling author of several books as well as Pippa’s Pen and Podcast, which, of course, is Pippa’s Substack. Pippa, it's great to get you back on the show. I want to start, I know you've been writing a whole bunch of exciting stuff. We've got a link in our Research Roundup email to a piece you just wrote called, O Shocks. It's a lot of great content in that one. I want to talk specifically, though, about Bitcoin and cryptocurrency, and stablecoins in particular, because when I first assessed this thing, I said to myself, governments are eventually going to wake up and recognize that cryptocurrency poses an existential threat to their government or their monopoly over the issuance of money. What I never saw coming was the President of the United States would correctly recognize that, cheer it, and say, yes, let's take away the control of the issuance of money and take away that government monopoly and not let the government have it. Never saw it coming. It seems to me like that changes quite a few things. What are your thoughts on how do stable coins play in?

Pippa:    First of all, it's great to be back on with you, and it's always so much fun just to review where we are in the world with you. I've had a very strong view on the stablecoins, that's been quite out of the market, which is what they're basically doing, is trying to rebalance the entire balance sheet of the nation. Now, that means they got to clean up the debt and the problems of the past, but they also have to build an economy of tomorrow. Now, one of the pieces of the stablecoin puzzle, the Bitcoin puzzle, is that it's a new way of financing tomorrow's ventures, the new Apples, the new Teslas. So, it breaks the lock that Wall Street has had on who gets money. Because normally when you start a venture, you got to go to the venture capital guys, or Wall Street or Silicon Valley, and they give money to almost no one, and you have to be a unicorn, a company that looks like it's going to be worth a billion dollars in short order, which means your regular grocery store chain has zero chance, and most startups have zero chance. So, you can only grow so quickly if you use the traditional equity, venture capital, IPO model, even though it's the American Dream for entrepreneurs, the reality is that it hasn't been a dream for many people. So, Scott Bessent, the Secretary of the Treasury, I think, is one of the greatest minds on national balance sheets alive today. I think he understands sovereign balance sheets better than anybody. And I think, look, he's been running money for a long time. He is the guy behind George Soros who broke the Bank of England. And he looked at this and went, we've got to make it easier for the next Tesla, for the next Apple, for the next grocery store chain that needs funding. So stablecoins being interchangeable with US dollars suddenly allows that to happen, and you can see that the new ventures are not going to go to the equity markets as much as go to the stablecoin markets. So, this is one piece of that.

The second thing is, what is it collateralized with? And the answer is, US Treasuries. So, if you actually create an interchangeable stablecoin with US dollars, you're actually doing a number of things. You're, one, you're creating demand for US Treasuries. So now it's easier to fund the US deficit, the current account deficit through Treasuries than before. And not only that, but you effectively dollarize the whole world economy this way, right? Everybody will need to own dollars if they're going to be in stablecoin markets. So weirdly, it's a backdoor way of financing the United States. So, the way I've been putting it is defi becomes refi. In other words, what you thought was decentralized finance, which was for many people, a way of exiting the fiat financial system actually becomes the mechanism by which you fund the fiat financial system. But there are other features too, and one of them, I think, is really important, is the traditional American government has all these holes on their balance sheet, right? Nobody can explain where all the money is going. And as we saw with Elon Musk going into government with the DOGE process, they found that there were all these payments going out from the US Treasury with no name, just a bank account with no explanation of what is it for. And so now he's mapped all that, there's a much clearer understanding of where the money is flowing. And the answer is, it's not flowing to where it should be flowing. And a lot of it has now been shut down. For example, the whole story with USAID, which isn't really about giving money for aid, it's really about financing all sorts of things that may not be what any given president has approved. And basically, if you are up against what Trump would call the deep state, this is a very easy way to end those cash flows and to demand that in future, they're on much more transparent, digital, blockchain based balance sheets. In other words, in the past, you could make payments and not have to explain where they went. But going forward, everything is going to be tracked and logged and tagged, and you won't be able to say, sorry, George retired, we're not sure where the money went, or we don't have the receipts, or the systems don't talk to each other. No, you're going to see right away where is the money going. So, it's a way of defanging the deep state structure that opposes Trump. So, there are a lot of features to stablecoins, but I think it's a revolution in finance. And I think it's akin to what the British did when they moved from using tally sticks for 1000 years before 1834, and then they decided as a central system of money and accounting, and then they needed to inflate because of war debts, and they shifted to a new technology called paper money. And that shift created the foundation for the financing of the Industrial Revolution. And I think we are on the brink of a similar moment where this new methodology is going to allow us to fund tomorrow's economy much more easily. So, I think it's really a very exciting time.

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Erik:    Joining me now is 42 Macro founder Darius Dale. As always, Darius has prepared a fantastic slide deck to accompany today'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're not registered yet at macrovoices.com. Just go to the homepage macrovoices.com, look for the red button above Darius’ picture that says, looking for the downloads. Darius, it's great to get you back on the show. It's been way too long. I want to start with the market outlook and just what's going on so many people are really saying this has gone too far. I don't know if you caught Lyn Alden last week saying, run your portfolio hot. I think you're more in Lyn's camp. Give us the outlook on what's going on with the market. Where do we stand?

Darius:   I appreciate you having me back on. I'm really grateful when anytime I can be in the same camp as someone as brilliant as Lyn Alden, that's always a good sign. I have tremendous amount of respect for her, and I agree, we've been pounding the table on our paradigm C view since late April, early May, specifically early May in terms of how resoundingly bullish we've been on risk assets, and we continue to see a tremendous amount of structural upside over the long term as a function of our paradigm C theme. Just kind of really quickly, highlighting a chart that can sort of explain why both Lyn and I think the economy is being ran hot, if you go to slide 44 in our slide deck. And by the way, we have our usual customary slide deck for you guys as well, so listeners will be able to access that if they sign up for your Research Roundup email.

Anyway, getting back into slide 44 where we show in this chart, are a collection of major economies through the lens of their sovereign fiscal balance to GDP ratio, their current account balance to GDP ratio. And then we sum those figures to come up with a twin balance. So, if you look at the US, which are the blue, the dark blue lines in each panel, the US is running a record non-war, non-recession, budget deficit, and has been for an extended period of time. You know, really throughout the Biden administration, in terms of this lurching forward into fiscal dominance, that really began back in 2020 with COVID. We essentially stayed there since part of that that's been a driver of our current account deficit, a really swelling minus 4.6% of GDP. And so now, the US is sort of running these persistent twin deficits, somewhere in the 11% to 12% range. And in the 11% to 12% range, we are on par with an economy like Brazil or Argentina or Türkiye. These are types of economies that you tend to see dramatic currency declines, dramatic asset price appreciation, and ultimately, a tremendous amount of political unrest, if you will, as a function of the income and wealth inequality that tends to perpetuate.

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Erik:    Joining me now is Lyn Alden Investment Strategy founder, Lyn Alden. It's probably no surprise there, given the name of the company. Lyn, it's great to get you back on the show. I know you've been saying lately on X that something you've said before on this program, which is fiscal is more important than monetary policy right now. So, let's start there. Why is fiscal more important? And from there, we'll dive into ‘big, beautiful bill’ and all the rest.

Lyn:    Yeah, so thanks for having me back on, and I would caveat that fiscal is more important than monetary policy, currently. There are other eras in macro history. We're in monetary dominance, and monetary policy is kind of the forefront. But in this environment, for years now, I've been arguing that fiscal policy is more important, and there's a couple of main reasons for that. One is that with the existing stock of debt outstanding, as well as the structurally large fiscal deficits, which are partially tied to the existing stock outstanding due to interest expense, that is just a generally more impactful thing for the economy than 50 basis points, or even 100 basis points changes in Fed monetary policy. In addition, it shapes the nature of how monetary policy even impacts me and impacts financial markets. Because if you look over the past four plus decades, really, before we entered fiscal dominance, the main tool that central banks rely on, interest rates, is based on the premise, more or less, that their industry policy will affect the rate of money creation. So, in an era where most money creation is happening from bank lending toggling, higher or lower interest rates can encourage more borrowing or less borrowing. But when the federal government is doing more borrowing than the whole private sector combined—which is currently the case and is an aspect of fiscal dominance—the problem is that they're fairly interest rate insensitive. Basically, the Fed's policies are not really going to adjust what happens to the deficit too much, other than ironically, higher rates can increase the deficit and actually spill more money out into the private sector. And so, that's just a challenge that they find themselves in, where there's really kind of no good answers if you're trying to run a central bank when an economy has over 100% debt to GDP and structurally large deficits. And there, I think there's going to be, continue to be, basically things happening that are different than how most market participants have been kind of trained to expect over the past several decades. And I think we're going to be in this environment for quite a while.

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