Transcripts
Erik: Joining me now is Alex Gurevich, founder and CIO at HonTe Investments. Alex has prepared a 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, just go to our homepage macrovoices.com, click the red button above Alex's picture that says “looking for the downloads.” Alex, last time we had you on the show, you expressed a more disinflationary to deflationary view somewhat out of consensus with a few of our other guests. Any change in that view? And what is your outlook in terms of inflation versus deflation looking forward?
Alex: Well, Erik, first, thank you for having me back. It's always good to have an ongoing discussion and kind of compare the views. Last time, several months ago, we've had a little discussion about what seemed transitory and got wrong. And I was trying to analyze me being on team transitory, in which ways some things were correct, but which were fundamental errors, and don't want to repeat that. But I'm just saying it's kind of good to have those every several months check-ins and see what happened, what are we wrong about? Not just, I-told-you-so’s, but also what were on the ballot and how do we take in new information. I will say, compare it to a few months ago, there were probably more challenges than confirmations to my view that I’ve had, however, not a huge change. And I will explain why the change is not huge. But I will, as a brief summary, I will say that the time is getting closer to the point that my view will be seriously challenged. So, the timelines have to be moved a little further. And if that certain timelines will not be met, in I would say, half a year to a year, I will be under pressure to keep saying, yes, it's all going according to my big problem. That's how I would summarize it. So the core of my view, behind deflationary view was policy lag. And the fact that everything that happens with rates works with a huge lag. And the core of my position in the end of 2023, was that it is too early to say until second half of 2024. And that's when that was the timeline I pointed out back then, it's not the timeline I'm creating now, that in second half of 2024, it will be too hard to say what effect real rates could even have had yet. So what I see in the narrative so far, I see the disinflationary narrative to me is clear. I think the high inflation period is over. I see no new inflation spiral or anything like this. I know that some people disagree with me, but I see no signs of that. I don't want to get worked up over inflation ticking down 0.1% as people were in 2023, or being like 0.05%, higher than projected for a couple of months. That does not mean there is no inflationary crisis going. But there is no deflationary bust going on.
Also, as I wrote in my quarterly report to investors, it's currently hard to say that the economy is weak. You could squint to look for signs of economic weakness. But overall, the numbers are pretty solid this quarter. What I feel is there is a strong discrepancy. I'm just doing right now an overview to show how complex the landscape is. I feel majority of top-down numbers are fairly robust. You're seeing whatever like GDP type numbers, or anything looking from the employment numbers, though, like any aggregate numbers, look good. There are some bottom-up numbers that certain analysts point out certain areas of weakness, like restaurant occupancy, or amount of delinquencies, amount of bankruptcies, or even late in people showing the new rounds of layoffs. It's not so fine filtering into top-down numbers. And since I'm not a bottom-up person, I really cannot speak to that. All I'm saying is that I'm seeing some serious disagreements between analysts. I am not the person who crunches original economic numbers. I'm a consumer of that research. And what I'm seeing is opposing pieces of research on what is the level of economic health.
Now, inflation and rates and stock market and economic health, all of those things are not the same thing. They're related, but they're not the same thing. For example, we can see deflation and really low interest rates and a robust stock market. We can see a recession and stock market making new highs, on contrary, we can see really weak stock market and really strong and hard running economy. All of those situations, which I think people had difficulty imagining educated goal are possible in the new regimes and regimes of fiscal dominance and the regime of really aggressively reacting Fed. That's what I think blindsided a lot of people in 2020. The fact that while the economy was still weak, stock markets started to run up. Because the influx of cash was just so huge that the buying power was there. It was less challenging for me back then, because I was already thinking about those things a lot by, before the year 2020. Things like why does stock market not go down during a recession? Or does inflation have to go hard during growth period, which people are trained to use, interlinked? I actually just tended to be concurrent, but a lot of concurrency is broken now. So we're navigating this complicated landscape.
Now, my fundamental thesis is that, the most important input for future inflation is current inflation, that inflation leads to more inflation, less inflation leads to less inflation, because there is a certain zone in which not much spiraling is happening. And right now, I think we're at a moment in that zone of inflation. But fundamentally, if you said, inflation was so high during COVID bump, that it created this post COVID wave, then we'll have the bull-whip of coming off post COVID when inflation came down, and that led to patch of low inflation. Now it has bull-whipped, the more like normal post COVID environment. And now the question is, will interest rates do the work to bring inflation down? Now, in my thesis, is that higher real rates are deflationary. Because higher real rates force increasing productivity, higher real rates, cause people to be careful with their balance sheet, cause to draw down inventories, cause to be really careful with their money, and that's the opposite of inflation. And furthermore, currently the yield on, say, something like 2030 year inflation index bonds, which by the way, I think among the best assets out there, right now, it's close to 2.5%. Now with that yield, how can it be even wrong for people to put bonds in their retirement account? And inflation plus 2.5%, you're guaranteed for 30 or 40 years to make positive real yield? That's to reach a proposition, historically. I don't think those things are trading anywhere at the right level, I think they're catastrophically cheap. They're like, default level cheap, the long date, this type of assets. I think real rates on Treasury bonds should shoot and will converge to zero in the long run, there will be periods of negative real rates and positive real rates on Treasury bonds, but risk-free bonds make sense for me that they ran roughly at inflation. So which means that the real yield on TIPS should be close to zero. And right now, they're way undervalued, especially in the long end. So that's kind of the big sin. Now, if you're okay with this, I'm going to move to some charts to see how I’m thinking about that.
Erik: Joining me now is commoditycontext.com founder Rory Johnston. Rory, it's great to get you back on the show. It's been too long since we talked about crude oil, which is your specialty. Let's start with the big picture. Before we dive into the alphabet soup of of Middle East and various other geopolitical risk factors, let's just talk about supply and demand OPEC’s participation of Chinese economic recovery and what that means for demand and so forth.
Rory: Thanks for having me back, Erik. Obviously, this year has been, it took a little while to get started. But it's become a very bullish first half of the year, with prices rising from the kind of mid 70s up towards $90 a barrel, Brent. So I think that is, by all intents and purposes, kind of a very strong crude number in this current environment. And that's been driven by kind of developments over the first half of the year, mainly around declines in inventories. So we've had this kind of realized tightening of the fundamental side of the market. At the same time, as those realized fundamentals or kind of inventory drawers have occurred, you've also seen a gradual tightening of the outlook for the rest of the year, mostly on this idea that demand is starting to look a little bit better than it did a couple months ago. And the fact that I think now the expectation is that OPEC will keep these cuts in place for longer and kind of defend higher prices. So I think that combination of factors has allowed the market, you know, it reflects the market has already tightened and expects a further tightening of the market.
So on top of that, as these prices have kind of rallied higher, you've also begun to bring in a lot of speculative and kind of momentum driven trading, that further push those prices up. So right now, just to kind of give a complete lay of the land, we have reasonably decent inventory positions or reasonably bullish inventory positions, globally are visible inventories, we have a reasonably tight outlook for the market, assuming that demand doesn't falter on some broader macro pullback, and OPEC remains disciplined in its cuts. At the same time, right now at around $90, we do have a lot of speculative or hot monies further supporting these prices. So I think on a fundamentals basis, I've been saying that we've been fundamentally supported, but speculatively driven in this rally. And I stand by that, I think that the immediate near term risk is a kind of a sudden pullback in these prices as that momentum wanes, and as those speculative dollars have inevitably begin to take profits. So I see that we could pull back there. But then after that, we're left probably still in the mid 80s, on a Brent basis with this kind of fundamental backdrop. So I think that's probably where we're standing. And on top of all of this, as we'll talk about at length I’m sure, is all of these varied and very, very difficult to quantify and kind of wrap your head around geopolitical challenges from Iran to Russia and everything in between.
Erik: Joining me now is Uranium Insider newsletter founder and publisher Justin Huhn, Justin 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, just go to our homepage macrovoices.com, look for the red button above Justin's picture that says, “looking for the downloads.” Justin, when I booked you on to do this week's interview a couple of weeks ago, I was thinking, okay, I think the bottom might be in already on the uranium market, let's get Justin on. Well, we're still at a bottom to talk about it. And then last week, I thought oh, no, we missed it. It's going to be new all-time highs by the time next week comes around. But now it seems like we're consolidating back down. So is the bottom in on this correction, or what do you think?
Justin: I think the bottom is in on the correction for the commodity, yes, I probably would go there. Of course, anything is possible. I don't have a crystal ball. But I think most of the industry actually was pretty surprised to see the price pullback as much as it did. And so we topped out at just over $106/lbs on the spot price. That was early February, pulled all the way back to $84/lbs, we're back up to just under $89/lbs currently. So we bounced up off the bottom, but it seems to be taking another breather here. Still, very low volume is being traded in the spot market. But meanwhile, the long-term ticker continues to move up, kind of month over month, it's up 15%. According to UXC, it's up a bit more year to date. According to Trade Tech, the two primary price reporters, as far as the equities prices, I think the bottom is probably also there. Of course, if we have a major washout, the broad market liquidity type event, that's always kind of the disclaimer for anything you own. So that's not unique to Uranium. But the stocks right now seem to have kind of an underlying strength here. I'm noticing intraday, the weakness is being bought up not on heavy volumes, not super enthusiastically, but it feels like accumulation to me. I wouldn't be surprised if the most recent bottom in that pullback is also in for the equities. We've got pretty nice technical setup on the charts. Looking out long-term at URA for example, there's just kind of a big, very multi-long, multi-year, just gorgeous cup and handle that I'm expecting to break out this year in potential for near term catalysts as well. So knocking on wood, probably saw the most recent bottom.
Erik: Joining me now is Larry McDonald, publisher of The Bear Traps Report and author of a brand new book, which is titled: How to Listen When Markets Speak. Folks, as you can tell, I’m suffering some laryngitis, as we're recording this interview, please bear with me. Larry, in the last two minutes before we went on the air, gold took out the 2300 round number, we're at 2301 as we speak, what's really surprising to me is, there's been a very strong inverse correlation between gold and the dollar. And, of course, gold is always competing with interest rates. So usually, as interest rates go up, gold goes down. We're seeing a change in correlations. What's going on here?
Larry: Well, I think the beast is in the market Erik. And first of all, you losing your voice is like, you know, Ted Williams losing the bat in the batting, but you've done such a marvelous job over the years, leading this incredible program of MacroVoices, thank you for everything, and all your leadership and the whole team. But I would say that with gold, the beast in the market inside knows the gig is up. Politically, the Fed, can't really hike. If they hike, if they were to hike, because of inflation expectations, then it's going to blow up the regional banks. And essentially, the beast of the market knows that the Fed really can't do much. And so normally, the last couple of years, if interest rates went up, gold was lower. And now over the last couple of weeks, especially today and yesterday, gold is moving higher with rates. And it's almost like we were going back to the 1970s dynamic, where there's a stagflation probability that's rising, and Washington is really in trouble with that 80 billion a month of interest now, and that it's going to go up to maybe from 80 billion a month to potentially annually 1.4 trillion of annual interest costs over the next year, if the Fed hikes or keeps rates here. So the beast in the market knows that the Fed politically is dealing with a troubled Washington, really a spoiled brat. And I think that’s what gold is telling us.
Erik: Joining me now is Forest For The Trees founder Luke Gromen. Luke, it's been quite a while, we haven't seen you since October. I'm really looking forward to catching up. It feels to me like a lot of what you said last time we had you on has started to play out. And frankly, if we go to a bigger picture, it feels to me, since I've been talking to you for, I don't know how many years now, I've been waiting for the day that Luke Gromen starts to be proven right on the dollar. It hasn't really happened yet, in the sense of the dollar outright failing or crashing. But boy, it sure seems like the leaks in the dam are starting to show. Do you see it that way? And if so, what do you see coming next?
Luke: Sure. Thanks for having me back, Erik. You know, I was on, the last time we talked was October 5 of last year. And we finished up that show, I said the short run outlook: dollar up, rates up, feedback loop isn't going to be broken unless the Fed significantly or unless the dollar is significantly weakened, excuse me. And to be clear, that could be the Fed or the Treasury. And then I also said, hey, oil is probably going to be weakened meaningfully as well. And so, view coming out of that conversation was that, before too long, Fed or Treasury, one way or another are going to need to resume financing US deficits. And they can call it yield curve control. They can call it QE, they can call it not QE, we're only doing this to help the resilience of the Treasury market. This is a QE, whatever they want to call it, that's what they're going to call it, but that's what's going to happen, is what I said. And I said once they do that, I'd encourage people to call it the stock chart of the Argentine stock market, you know, the peso has been a disaster. But in peso terms, the stock market is up like 5x, in like three or four years. And I think the same thing is going to happen here, except it'll happen in dollar terms. So the dollar is not going to collapse against the peso, but it's going to be really good for stocks, it'll be good for gold. And that's when you'll see gold performance, when you see Bitcoin really perform. So that's what we finished up with on October 5. And so, the short term was like, okay, you've got this, this dollar rates feedback loop that was happening. I didn't realize how short-term short would be, to be honest.
The very next day, you had the first of seven Fed speakers, over the next 10 trading days, start to jawbone the dollar down. And it was like they all had received a Talking Points Memo saying the bond market has started, has done our job for us. The bond market has done our job for us. It was like going to church when I was a kid, it's like a chant. And two weeks later, we wrote a report for our clients that said, Fed just touched off third instance of treasury market dysfunction in past 13 months, US dollar liquidity cometh. That's what the title of the report was on October 17 for our clients and it said, look, Fed has driven Treasury market dysfunction again, and right on cue, it appears the Fed has begun jawboning the dollar down. So, if we're right, we could see a repeat of the liquidity injections we saw in March of ‘23, September of ‘22, March of ‘20, September of ‘19. And a lot of investors seem offsides for that, so feels like that particular report and point, as a follow on to what we had talked about two weeks earlier on the show, bought out pretty well. It said, look, this is going to be really bullish for gold, Bitcoin oil, commodity stocks, inflation. So not only did we get that in terms of the Fed jawboning, but then on November 1, we had Yellen shifting issuance, from the long end of the front end, much more than people expected. When you look at the effects of what Yellen did, it was effectively QE. In other words, if you look at QE, historically, what happens as you have a reduction in duration issuance, you have an increase in liquidity, you have an increase in bank reserves, and you have looser financial conditions and stocks up. And so, what Yellen did by shifting along into the front end by tapping the reverse repo, same dynamics, reduction in duration issuance, bank reserves up financial conditions, loosened stocks up reverse repo down. So, basically, you had the liquidity increase that we thought would come whenever the dysfunction came in the Treasury market.
Fast forward to today, is it the moment? I think we're getting near the moment of whatever it means, to me what that means is, ultimately the Fed and Treasury are going to have to continue to inject dollar liquidity into elevated inflation prints, into strong nominal growth, into low unemployment, because the Fed made the mistake in 2022, of not letting inflation run higher for longer. That was their mistake, this time. It's very ironic. Most investors are saying the Fed needs to be brave like Volcker. They need to be higher for longer but because Volcker was operating with debt to GDP of 35%, today, you know, when the Fed started tightening, debt to GDP at 120%, it’s night and day. To be brave this time, like Volcker, the Fed needed to let inflation run higher for longer because they didn't. Now they're going to deal with the consequences, which is yes, they did generate some near-term disinflation, inflation is off the highs, but they put the US into fiscal dominance, which promises a much worse inflationary outcome. And so I think, to answer your question directly, now that the Fed has put the US into fiscal dominance, vis-à-vis, or by virtue of its aggressive rate hiking, I think inflation is going to continue to pick up. And I think the dollar will continue to weaken in an orderly basis, I don't think it'd be chaotic, I think, an orderly basis between now and the election, and then we'll see what happens after the election.
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