Transcripts

 

Erik: Joining me now is Michael Every, global strategist in Economics and markets for Rabobank. Michael, it's been a while since we had you on, obviously the really big topic this week is going to be the Trump Summit with Putin. Now we should let our listeners know we're actually recording on Sunday evening US time.

So it's just after the wrap up of that session our listeners are gonna have three or four days of news flow that we don't have yet in terms of what's happened afterwards.  I hate to put you on the spot, but based on what we know now, immediately after the the wrap up of these sessions, we don't even have all the news flow out.

What's your take on the big picture of where this is I is headed? Are we about to wrap up and maybe wind down this Ukraine war, or is this just President Trump as he puts it, weaving his deals and maybe not really expecting anything to happen quite yet?

Michael: In this job you and I are both paid to try and look well beyond three, four or five days.

So yes, there is gonna be news flow between what we're recording now and when people will hear it but hopefully what we have to say still has value over that particular, time gap. The view that I have is that it's likely to be not the end of the war per se, but the end of a phase of the war, and we could.

We could address it as a pause to refresh. And then the issue is who is it refreshing? Because obviously we all want a cessation of the terrible violence, President Trump does. Russia certainly does in terms of the fact that its economy is struggling at the moment and it needs that breather.

Ukraine is being ground down. Everybody benefits from the fighting, pausing. But where we go afterwards is a very different question. And I think there are multiple scenarios. But the most likely ones, which, we can unpack are that I think it's probably good for the US on balance. It may be a disaster for Ukraine or it could be very good for Ukraine.

And it could be very bad for Europe or extremely difficult for Europe, but something that it emerges stronger from in the end.

Erik: That's a lot to unpack, isn't it? There's a whole bunch of things that could go one way or the other way, depending. So we better dive into the, depending on what.

Michael: Basically I've been saying for a long time, that Trump would attempt to introduce what I've been calling a Noxin strategy, which is a reverse Nixon, because in foreign policy circles, they've been talking about a reverse Nixon.

I said NOXIN, that's an Noxin where you try and. Make nice with Moscow in order to peel them away from Beijing, which is of course what Nixon managed to do with Beijing vis-a-vis Moscow, albeit after they had already had a spat. And here the two haven't had a spat yet. So that makes geostrategic sense. Except of course at Moscow and Beijing are currently very tight.

And so I've also been making the quip for many months. That Noxin wouldn't work because it starts with no, and it's got Xi in the middle of it X I. So that still remains the underlying assumption, but that doesn't mean that Trump can't manage to patch things up with Russia to a certain extent by taking themselves out of the Ukraine loop and giving them some breathing space on that, both Russia and Ukraine.

So I think what we'll see at the summit between the UK EU leaders, president Zelensky of Ukraine and Trump on Monday. DC and it's Monday here in Asia as I'm speaking to you is Trump basically saying, look, the deal is going to be this, the land that Russia has already taken is going to remain in Russia.

Ukraine cannot get that back. Realistically, certainly not Crimea. And realistically, most of the other territory too is now effectively Russia. So the greater likelihood is that the border is drawn a along the river, Dnieper. And then there are questions over certain pockets like Donetsk, Oblast, for example, which Russia doesn't control all of, and Ukraine would say why do we have to give up all of that particular province when Russia Army controls half of it, Etc Etc.

So there are a few questions of where the line draws, but pretty much it's gonna be around 20% of Ukraine is going become Russian at this point, which is a victory for Russia. But for those expecting the US to say we're gonna, we'll fight Russia, absolutely. To get that back, which Europe has been very vocal about too.

Clearly, that isn't in the US grand macro strategy interest. They want to pivot to Asia rather than fighting Russia over Ukraine, which is of marginal concern for them strategically. So that's not gonna happen. And for those who say the US and Europe together should be sanctioning the hell out of Russia.

And putting secondary sanctions on everybody else who deals with Russia such that Russia has to surrender well, they have to understand. That means putting secondary sanctions on China, which means if you think you have an issue with tariff inflation coming ahead in the US it'll be enormous because you would have to basically lock China out of the global economy straight away to punish them for dealing with Russia.

And if anybody wanted to do that, they could have done that for the past couple of years. Nobody wants to, they're too integrated. The pain would be too great. So those sanctions are simply not gonna happen. I'm not saying whether this is a good thing or a bad thing, I'm just describing it. And the US isn't gonna step up militarily.

So then Ukraine is gonna turn around and say we need a security guarantee. We can't just sit here and give up 20% of our land for peace with Russia, because Russia can then use that pause to re-arm, which certainly will, and we'll come back and nibble again and again, and start taking more and gradually eat us whole.

So then what's the security guarantee? What's that gonna look like? And here, I think the US is going to say, Europe, over to you. We will sell you as many weapons as you need to defend Ukraine. So that's good for the US military industrial complex. That helps Europe also build up its own factories, again, which are really struggling at the moment, but very much as part of US focused Pentagon focused.

Supply chains supply. So that kills any hope of European strategic autonomy. Europe becomes a subset of the US from an industrial perspective. And at the same time, the US is already leaning on Europe and others as part of trade deals and saying, we expect you to invest hundreds of billions of dollars in factories in the US which surprise, surprise will be making inputs or directly those weapons, which it sells to Europe.

So it's what some, including myself are calling reverse Marshall Plan. Europe is helping to rebuild the US rather than the US rebuilding Europe after World War II. Now the the roles are reversed. So if that happens, then effectively the US can pivot to Asia.

It's selling lots of weapons to Europe. Europe is really subsumed into the US economy. It has to invest in the US and it has to buy from the us. The US is in a better position, and I think we'll discuss this shortly to roll out stable coins and Europe won't be able to say no because its economy and its security framework is based on the US so we can't reject them.

Hopefully Europe then says with that backing we are prepared to put troops on the ground in Ukraine and ensure that the 80% of Ukraine remains, a buffer state between Europe and Russia, but it remains perfectly safe and viable as an entity. And if it does that Ukraine may not, have a future in Europe in the immediate future or in nato, but it could certainly, exist If Europe doesn't do that.

If they can't agree, who's going to decide who's going to pay, how they're going to pay and who's going to fight? Because that's very much on the cards now, or at least in principle. Who would fight then? Who is gonna defend Ukraine? And then really you see that 20%. 20% of Ukraine becomes 20%, a 20% peace in our time.

If you think back to Neville Chamberlain, and it may mean only 20% peace, P-E-A-C-E in our time, which is an extremely worrying backdrop. So I've tried to give a very brief summary there. Lots to unpack, but there are huge implications for lots of different markets and for geopolitics as part of that.

Erik: What I found most fascinating was you used the phrase, pivot to Asia talking about where the US may redirect.

Some of its military might. It seems to me like really the Iran and Gaza conflict is going to acquire more US attention than China will, at least initially. Am I reading that differently than you are? Or how do you see Gaza and Iran fitting into the chronology of all of this as the US. Pivots toward Asia.

Michael: Remember the Middle East is part of Asia. Technically it's Western Asia. We often tend to overlook that what we've already seen play out in the Middle East vis-a-vis Iran. And what continues to play out in Gaza is the US attempting to put down a very strong footprint as minimally as possible from its own side.

And, but it doesn't want boots on the ground. It doesn't want any repeat the two Gulf Wars, but nonetheless, ensuring that oil rich, energy rich region stays very much in its pocket, not in Russia's and not in China's. And that is critical in order to gradually advancing towards China. And I would say again, just as what the US may be about to do today, my time tomorrow your time as we're recording.

Vis-a-vis Ukraine, which is gonna up upset a lot of people, particularly in Europe. But what I think is geo strategically advantageous for the US overall, and I'm not saying that as a moral judgment, I'm just saying that, objectively looking down helicopter view from above, they've achieved the same thing in the Middle East.

Because while again they may be very unpopular in terms of what's transpired recently, the actions vis-a-vis Iran demonstrated to Beijing. And to Moscow. When push comes to shove, even if the US doesn't want a major war, as Russia is currently carrying out in Ukraine, it's prepared to use enormous targeted force to get what it wants.

tIran was strutting around, a few months ago as part of an alliance with China, with with Russia, with North Korea, and trying to expand regionally by its proxies. It's really been put back in its box. It's rocking on its heels. And in fact, if you read them at least news, you'll see that at the moment, Iran is close to running out of drinking water completely.

And I'm not exaggerating that they really are running outta water. So on that basis what Trump did in striking Iran's nuclear program helps the lay footprint, which says to them at least, look, we are still here to stay and we expect you to be in our camp fully. Except Iran, of course, but Iran's gonna be in that box when push comes to shove.

If push comes to shove, oil is going to remain priced in US dollars, and we're not going to let China make any further inroads there. So I think people have failed to join the dots on what's already been achieved there, and Gaza still grinds on. It's a horrible process. Process. Once that eventually is resolved and hopefully very soon, then I do think you'll see a regional. Realignment politically, which will further back that US footprint.

Erik: Now, meanwhile, as all of this geopolitical stuff is going on in parallel with that, we've got essentially musical fed chairs where we're having a very, public and visible process talking about who might be the replacement for Jay Powell.

At the same time, Steve Bessent seems to want 150 to 175 basis points of cuts on Fed funds, and I get the impression that somebody has an idea to essentially re-architect the Petrodollar Recycling system as a stable coin recycling system. How do we integrate those things? It seems like there's this economic agenda that the President and Secretary Bessent are working at the same time as this big geopolitical agenda.

How do we reconcile those two things and figure out what the market does in between?

Michael: Great question. Let me try and unpack that like this. First of all, I have to rewind back to something we spoke about last time I was on your show, which is we can't look at any one policy area in markets or geopolitics.

Separately, we have to see all of them now as interlinked because we have left the previous world of economic policy where you talk about monetary policy, fiscal policy, foreign policy, and we've entered the world of economic, military, and political state craft where the economy, the military, and of course politics are all integrated together and every element of the economy is integrated together to try and achieve key strategic national security and foreign policy goals. So what I was just describing in terms of how the Middle East fits in with what's going on in Ukraine, vis-a-vis targeting China, and I think many people can probably join those dots once I've, put them on the page the way I just did. You have to understand too that the larger question that's always asked there is what is GDP for and clearly in the US cases to make sure that we stay number one and China is a long way behind relative to us and we stay global hegemon, that's what GDP is for. So if we accept that, what's the fed for? I can assure you it's not about 2% CPI. And it's not about purely maintaining financial market stability. It's not about maintaining a certain level of unemployment. And it's not even about maintaining, moderate borrowing costs longer term, which actually is part of its remit and people tend to overlook.

It's far more concretely about helping the US achieve that particular goal. Now, if you're a market purist, you can say the best way to do that is to keep CPI at 2% and low unemployment, and I would say rubbish, absolute rubbish. It may be a subset in certain fair weather, but your central bank with the enormous power that it provides has to be cognizant of what the US grand macro strategy is.

And has to work alongside the Treasury and the White House. It's quite insane to imagine that you're implementing a grant macro strategy similar to a wartime footing and the Central bank saying we're not part of this. We're just gonna look at 2% inflation. It's quite frankly, ludicrous when you describe it like that.

So very clearly, we have pressure being put on the Fed in terms of the floated appointments of the next FED chair. Many months before Powell is due to, to step down. And even some of the names being floated as current FOMC members, which would be incredibly awkward. Imagine you're sitting alongside in a meeting knowing you are gonna replace him in nine or 10 months.

What's that gonna do for dynamic? But this is all being done not just to pressure interest rates lower, which is clearly something that the US needs to do to keep paying its bills easily. That is a subset of it. I think most people in markets can understand that. But more broadly, to get someone sitting there who understands all the tools they have available to them, such as Fed swap lines, for example, and realizing that they can be used very effectively as a weapon.

And at the moment, the Fed doesn't do that. And I'm strongly of the view that at some point soon it'll start to do that. Now, let's go to the second part. I apologize, I'm going on a long time here. The stable coins issue, you mentioned the petro dollar. Now of course, that doesn't really exist anymore. It's been replaced by the Euro dollar, which is just the broader international usage of fiat dollars everywhere.

And the key point there is that offshore parties lend dollars to each other. They lend them into existence and you create a huge pile of offshore liabilities for the dollar, where only the actual US has the ability to create those real dollars. So you have anywhere, like no one knows exactly, but it could be 120 trillion of offshore liabilities in dollars.

And actually you only have around 7 trillion in FX reserves abroad. It's a terrifying ratio. And of course, the US via the FED And the treasury can, step up and pump liquidity in whenever they need to. But they're the only ones who can do that. Everyone else can rehypothecate, but the only actual dollars they've got are those 7 trillion and half of them are in China and can't be touched.

So that's already a powerful weapon. But the quid pro quo for that is that the rest of the world gets to create those dollars and in creating them part and parcel of that process very often is earning them from the US via trade and that has absolutely, even though you'll have a long list of other people on this podcast saying it isn't true, it's that has helped to deindustrialize the US because when the US runs large trade deficits, which are a quid pro quo for the fact that everyone internationally needs and demands these dollars, that sucks jobs and industry out of the US.

It's not the first country to experience it. It won't be the last. But it's an exorbitant privilege, which comes at a cost. And right now that cost means it can't actually produce enough military hardware on scale to maintain the top dog military position that it's used to having. For example, you've got a magnificent navy, but you are gonna be retiring ships far faster than you can build them at the moment.

So the long run horizon for us military power doesn't look good vis-a-vis others. If we carry on the path we're on now. Okay, so now we get to stable coins. What are stable coins? I was a skeptic of them for the longest time as I was most things crypto, because I couldn't see what the point of them was.

I understood what they were doing, but I couldn't understand why they were doing it. If you're now gonna create a legal framework, which you have with a genius act whereby US dollar stable coins must be backed one-to-one by T-bills, you are creating. A demand for both T-bills at a time when the US is funding itself more and more at the short end of the curve, and a demand for stable coins one-to-one.

So they both feed each other. Now it's good for the US front end of the curve, as I said, and that's good for, its for its fiscal framework, even if it would look very dodgy anywhere else. But it also means that stable coins can start to be used in international trade. The US could. Quite literally at some point soon turn around and say, right when you sell to the US we are only going to transfer to you a stable coin rather than the US dollar.

And the US could lean on Saudi Arabia and the UAE, who are now much more in its pocket again, after having bombed Iran and say, we want you to tell everyone who buys oil globally, they have to pay you in stable coins. Bingo. You've just managed to recreate demand for stable coins internationally, the way there's demand for the dollar now, and how does that benefit the US?

One for one, you have to start getting demand for T-bills while you do it. And alongside the tariffs that the US has got and the promises of innovative, inward investment from all the countries who are in the new trade deals, it's put together. You gradually start to build those countries and those economies into a US dollar or a US stable coin block.

Because people at home or even private businesses in Europe around the world will start having stable coins on their phone in an app outside the banking system. So you can absolutely not dedollarize as people are talking about, you can ize and the great joy of stable coins above and beyond. The fact said that they're one to one with T-bills is you can turn them on and turn them off.

You get to control the on off-ramp for them. So effectively you have created a walled compound within which your allies are forced to effectively dollarize and become part of your supply chain and value chain, which helps reindustrialize you to help keep you top dog militarily. So it's a pretty clever package if you see all of it together, but you are going to need a fed chair who understands how to play that game.

Erik: I'm gonna push back a little bit on this because I see it a little differently, which is, I agree with you that in the short run, stable coins, clearly the, especially with the Genius Act legislation are one-to-one, creating that demand for US dollars. Replacing the Petrodollar system, if you want to think of it that way, we've got the US dollar demand, but longer term, it seems to me what you're also doing.

Is you're training all the central bankers and other holders of reserve assets around the world about stable coins and how to use them. Once you've done that, it's so easy to just switch out of your US dollar backed stable coin into a bricks, backed stable coin or some other stable coin that's tied to some other currency.

So I see it as creating an off ramp further down the road to make it very easy to get. Out of the one stable coin into a different one if there's a competitor. I look at this as why is there no replacement for the US dollar? 'cause there's no viable alternative and I think we're creating one.

Michael: It's a good point, but let me push back on your pushing backing, If I may, in the part and parcel of what I think the US will be doing via this, is trying to create the largest network effect as quickly as possible. And as we know from anything tech related as well as finance, once you've got that network effect, it really matters.

It will be very hard, without Chinese style fi, Chinese style firewalls for countries all around the world to prevent people just having. US dollar stable coins on an app in their pocket. So countries that previously would never allow the dollar to circulate would, could effectively dollarize.

But I do think very specifically, number one, the US is aiming to use this for allies only. I actually don't think they want geopolitical rivals using this. They don't mind trying to maybe undermine them and have it in private sector pockets, but they don't want the governments having anything to do with it or having any kind of official role.

So I do think it's deliberately. Leaning towards a bifurcation. That's part of the strategy to make sure that there are US centric, US stable coins, supply chains and value chains and the other, and we don't go near the other. And secondly, while the BRICS can talk about it and the technology isn't that hard, I mean there are very technologically capable block.

If you look at India and China in particular, putting it together. So it works on the ground, so that you actually have. Economic block where supply matches demand, where you have upstream and downstream demand and where you don't have some countries running vast surpluses and everyone else running vast deficits because the US will be attempting to narrow its trade deficit by doing this so that its allies run more balanced trade with it.

So it's a more balanced US-centric block. The power is with the US, but not via running deficits the way it is now. I don't see how the bricks can replicate that. I've made that argument in detail for many years. If you do a very boring trade breakdown of who exports and imports what to whom within the BRICS, it's a very simple story.

Nearly all of them are major commodity producers. China buys the commodities, makes everything else, and sells them to everyone else. Now, on one level, you can call that hub and spokes, but it isn't good for India , an I within the bricks it doesn't help anybody else industrialize, and it means everyone else runs balance of payments deficits over time.

So it's one thing to say the bricks can adopt it. Sure. It's another thing to actually do that on the ground. And even if it did, as I started my, my argument here by saying the US wouldn't be unhappy with that, provided they get the lion's share of all the countries that they want, by hook or by crook. That's the kind of bifurcation, I think they're perfectly willing to live with.

Erik: Now, Michael, you've described this concept of a grand macro plan that sits behind the various day-to-day events in the macro economy is Steve Bessent architecting a grand digital asset plan, which incorporates stable coins and of strategic Bitcoin reserve and a Fed chair who understands this stuff and a bunch of other things.

All is part of some concerted strategy that comes together towards some unified goal. I'm starting to get a feeling there's more to this than just president Trump's son is interested in Bitcoin. It seems like it's getting bigger than that pretty quickly.

Michael: I've given you two very long answers, so now I'll give you a short one.

Yes.

Erik: Okay, Michael, that's fair enough. Let's move on to another topic that I think you'll have a little bit longer answer for, which is, okay, look, European Union and United States really since the end of World War II, that relationship has been pretty darn tight through thick and thin. Is it winding down and ending?

Is it changing in a permanent way? It feels at least in my lifetime, relations between US and Europe are, not looking really comfortable.

Michael: There's certainly not, if we actually go through the history of it, we've had repeated episodes like this. I vividly remember the whole episode with with Freedom fries rather than french fries and silly things like that.

So we've been here before, but maybe not to this extreme. And the ironic thing is everything that Trump has told Europe to do, stand up, spend 5% of GDP on defense. Stop only exporting to us buy things more, more from us. Narrow that trade imbalance are things that every previous US president all the way back to Kennedy had been saying too.

And yet they didn't happen for decades and decades. Now, I'm not trying to praise Trump, I'm just saying that's subjectively true. And Europe is now reacting to it. Now they're bitterly resentful and very unhappy. But they are. Finally pivoting under pressure. Now from the European side, there is much talk, and frankly, Europe does specialize in rhetoric.

Much talk about the fact that they're gonna try and strike out and achieve strategic autonomy. Now, the shopping list for that is very long. The bill is absolutely exorbitant, and I've always said the possibility of achieving it was like walking a razor's edge. You could do it. But incredibly hard to do and it's a very dangerous fall.

I decide. And if we look at what's likely to transpire in Ukraine today, or vis-a-vis Ukraine, I'm sorry. And if we look at the backdrop vis-a-vis stable coins, which is really accelerating quickly. I think the shopping list and the shopping bill for Europe to achieve strategic autonomy is now ridiculous.

I I don't see it as realistic anymore. So while Europe may be sullen and angry and resentful, I think that ironically the relations between the US and Europe will grow tighter, but not as equals. Europe will absolutely be, subsumed into a greater US production system. And as effectively the lieutenant responsible for guarding Europe within a, within a US security umbrella.

And they won't like that. They'll continually to be chiding about it, and that's completely natural. But I don't really think they have many realistic alternatives at this point. To put a specifically. I sat through many angry conversations with Europeans telling me that they absolutely would not spend 5% of GDP on defense on nato.

They all are, except for Spain and I think maybe Luxembourg, maybe Belgium too. Mostly they are and then Europe. Absolutely. Telling me again and again, we will not sign an unfair trade deal. We're just not going to do it. They did. We can be given the next set of, we are not gonna do X, Y, Z, in instructions and, and the real politik tells me that. Yes, they will.

Erik: Now, meanwhile, the Financial Times, I think used the phrase inflation nutter to explain who they feared might be put into the Fed position next, at the, US Federal Reserve. When. The FT is talking about the perspective next. Fed share as an inflation nutter tells me that their editorial perspective may have become a little bit I don't know, reserved about the, their perspective on US monetary policy.

What feels to me li like we're in this Europe is stuck. They have no choice but to cave. So they're gonna cave, but they're not gonna forget this. Is the feeling I'm getting. What could they do if they're gonna not forget this to eventually act on it?

Michael: Nothing. Now I'm being flippant, but let's, we have to be realistic. And i,

Erik: But I just wanna clarify. Are you disagreeing that they're really not gonna like it? Or are you just saying there's nothing they can do about it?

Michael: There's nothing they can do about it? No they really don't like it. But listen. I am absolutely on board. I want all listeners to understand this.

So I'm on board with very valid criticisms that appointed many of the things that the Trump White House is doing offending recent norms. Okay? I completely get that. I've worked in markets in nearly three decades. I fully get it. What I don't get, and I always try and point out in equal measure, is the absolute hypocrisy of the people saying that about not pointing out how equally ludicrous things have been done by many others that they didn't criticize at the time, and are still being done by many others that don't criticize too.

We have a slew of central banks that are cutting interest rates right now when there's no sign whatsoever. The core inflation is fully under control when there's absolutely every sign that the macro environment that they're living in, particularly in terms of the need for rapid re armament, is going to be inflationary, highly inflationary in some sectors, and yet interest rates come down.

Now you could say they dunno what they're doing. Fair enough. That's very valid criticism, but I don't see that as headlines. I don't see the financial time saying this Central Bank doesn't know what it's doing. Or you could say that they're just preferring to look the other way and hoping somehow that by lowering interest rates, they can paper over all the cracks and that everything I'm describing in terms of a grand macro strategy won't be necessary and we can just carry on doing things the way we always have, which I rather flippantly refer to as because markets.

Which, even as someone who's worked in markets, as I said most of my life, and having, a markets discussion here I still think is idiotic. The world is not about because markets, there are far larger battles at play, literally at the moment. And markets come secondary to that.

They don't determine the outcomes. So yeah that commentary, I just wanted to make that feedback on it. But there's nothing really that the rest of the west. Because if they were going to do something about it, it would revolve around a massive structural change in their political economy, but then they're exporters and they net export to the us.

Fair enough. If they want to massively expand domestic demand so that they don't need to rely on exporting to America anymore. There you go. Now you can suddenly be more in control of your own destiny if they decided to spend. Three or four percentage points of GDP on their military for the last 20 years rather than on social spending.

And I'm not making a value judgment. That's just what they did. They wouldn't be in a position to be begging America for help with nato. They'd be standing on their own two feet. If they'd acted more strategically in terms of energy resources, a long time back like China did, they wouldn't have be any kind of domestic energy shortages or energy price issues.

So all those choices were available to them decades ago. They didn't make them. And now when you put that conflation of different issues and problems together on the plate, and you say you've gotta digest all of this in order to really do something against America, it's almost impossible to conceive they're gonna do it because in order to win, they would've to get involved in a multidimensional spat with America, which would hurt them far more than just having their wings clipped, which is what's happening at the moment.

Erik: How should we interpret President Trump firing the head of the BLS? Obviously, his critics are saying, look, he didn't like the data, so he is, don't like the message. Shoot the messenger or castrate the messenger in public ceremony to make sure the next messenger knows better than to, to make that mistake.

But wait a minute. I think you've pointed out in some of your writing, the BLS was pretty darn screwed up. Maybe firing the BLS head wasn't such a bad idea after all.

Michael: Yeah, look again, in terms of commentary, I absolutely understand why the market is freaking out about the fact that the head of the BLS was fired and that we've got a new guy in who, is not exactly a fan favorite, shall we say, within the statistics industry.

Fair enough. And that certainly fits a certain profile of, banana Republic style economy, but equally, as you were just alluding to. From to my mind when I'm talking to people who, work in markets, those who understand the BLS have been a banana, a public style joke for a long time anyway, even with the best of intentions sit in one camp, and another ones I prefer talking to and everyone else who thinks that every piece of data you're getting from America is absolutely kosher, transparent, completely trustworthy, and absolutely captures what's really going on.

I really don't have any time for them because they dunno what they're talking about. It's not been like that for the longest time. One very simple fact, and again, I'm not trying to be political here, but let's look at the payrolls report. We all know how important that is. Markets still revolve around it.

I presume they probably always will, unless they stop publishing it, which is what the new guy is threatening to do. But it's a joke. Payrolls is a joke as a number. You've got like a nine digit. Say 50, 60 million, something in that particular range. That's the official number anyway. You're talking about a monthly three digit change, and the market trades off of the derivative of that, which is normally a two digit differential from a three digit number based on a nine digit number.

This doesn't mean anything. It's a rounding error, and we're taking it as some kind of signal. They're constantly revising it. It's based on a birth's deaths model where they assume jobs into creation. It's got a very low survey feedback right now. So they're having to impute or guess more and more it doesn't capture structural changes in the economy.

And most incredibly, of course, and again, I'm not trying to be political, but it's a, it's a widely accepted fact. Anywhere between 10 and 20 million people arrived in the US in the past four years who aren't officially in the statistics, but are somehow being captured. Or maybe they're not.

In which case we're not even capturing 10 to 20 million people. Either way, it's a joke. But no one seemed to be prepared to say, this month after month, traders all sit down, wait for that number to come out and trade off the back of it because it's what we do. It's just what we do because markets, it doesn't fit into a grand macro strategy.

So I certainly hope we don't go the Banana Republic route, where every single month we get a great jobs figure and everything's wonderful. That would be a joke. I certainly think what we have now is also a joke, and it would really behoove both America and the rest of the world and everyone to have really good real time economic information that we could use to try and understand where our strong points are and where our weak points are.

Erik: Let's try to assimilate everything that we've talked about into outlooks for markets. It seems like a lot of the things that we're discussing are related to geopolitical risk, hedges, things like gold, Bitcoin, Ethereum silver and so forth. I've been trying to decide where some of those risk hedges are headed anyway.

'cause on the one hand, you can make the argument if we're really maybe about to wind down the Ukraine war, that should be risk off for gold you know, it's a risk hedge, we should be unwinding it. But wait a minute, if what we're doing is winding down Ukraine so we can pivot to the next war in a bigger theater, that's not time to, to sell your hedges.

So is this, a bullish or bearish moment for precious metals and other hedges?

Michael: First of all, as I don't give investment advice. So full caveat on that, we're just having a hypothetical discussion. I think you frame it very well. In the, when you see the word peace coming through, one's initial market reaction might be in one direction.

But if you take a bigger picture view and understand that's only part of resolving one issue, and actually by the way, passing the buck to Europe and saying yours so that you can then focus further east and that the underlying pressures for a bifurcation of the global system. Which is what I keep emphasizing here arising then, yeah, it still makes a lot of sense to be looking at all kinds of hedges for all kinds of products in all kinds of ways.

The very simplest kind of market call that you can see ahead is the fed's gonna be forced to cut rates, ergo everything goes up. Yeah. Obviously there's some very simplistic validity to that as if things haven't already gone up enormously anyway, which they have. But we are entering uncharted territory.

Because nearly everyone who's working in markets now, and I think I made this point to you last time we spoke, it just by dint of their age, has spent all of their working career in an environment in which it was a one world economy, one market. And sure, there were certain areas where you had to get in or get out of tactically, but the assumption was everything was fully integrated.

And it's just, where do I pick up yield? We're going to be heading to a world where certain sectors can't be traded or where returns are fixed by the government, either at a higher or low level, usually low. And where certain environments are just completely, untouchable. For example, if you look at what's happened at Bridgewater recently reading that particular headline and suddenly, reversing position on China, very belatedly by the way.

We can probably expect to see a lot more of that happening if we are moving towards a world in which one has to make geopolitical choices, which will be part and parcel of currency systems and clearing systems. And payment systems. So if you're going to be within a US stablecoin system, maybe you don't get to be in other systems.

And if you're in other systems, maybe as I said, you don't get to be in stable coins. Or if you do, it's via a VPN being naughty in the background rather than with any kind of government permission. And, will markets find a way? Sure, markets will find a way, but it's not going to be the same, flat world structure where you've got a world map on your wall in most offices and you can put a pin in where whichever part you like.

It's gonna be complicated. And one very clear example of that, just to wrap that point up, is, previously few years ago, tariffs weren't an issue unless you were dealing with one particular complicated emerging market where you have a lot of paperwork to do. You didn't worry about what the tariff was.

It was gonna be so marginal, you could ship from A to B. Have you seen the table of US tariff rates now? But the exemptions and potential changes coming up and country by country, sector by sector, it's a telephone book. And that's absolutely deliberate. That's the strategy. Make it complex, therefore make people do things more locally.

And where you are doing things more locally. Money will eventually change hands more locally.

Erik: Michael, before we close, let's touch briefly on oil prices. We're on the low side at least compared to the last year or two. Are we headed higher as some people think? We got plenty of backwardation in the markets, so I'm not sure what to make of this.

Michael: We have a really interesting standoff in terms of the go-to research on it, like the IEA versus OPEC+ and what they're, what they're both printing. I think, again, no geologists whatsoever, so I'm not gonna get into that side of it. You need to look at the geopolitical backdrop. Now, obviously, we had that spike earlier in the year around Iran, and of course prices came way off once the US got in and got out and sent that message without getting sucked into a war.

And I think we need to recognize that low energy prices are a key plank of the Trump grand macro strategy. How that's going to work out within the US energy sector, because obviously low prices mean people don't wanna produce and Trump doesn't wanna be importing. He wants the America to be exporting or at least producing, even if prices are low.

That remains to be seen. There will have to be some jiggery-pokery to get that to work. I can assure you there will be, but the secular envelope. Is that Trump wants to see low energy prices because most upstream commodities to him energy, most and many others are seen as inputs to more value added production downstream.

So in other words, let's get cheap inputs so we can make more cheap outputs and more of those outputs. It's no longer every sector of the economy from upstream to downstream being equal. Because markets. some people now are just not as important as others. Some people are there basically to do the equivalent of serving you drinks for very low tips and that's unfair. It's not very nice. That's the way life is.

Erik: Michael, I can't thank you enough for another terrific interview, but before I let you go, tell us a little bit more about what you do at Rabobank, how people can follow your work, and what your Twitter handles and so forth are.

Michael: Sure. As global strategists in economics and markets, my job is to think cross asset, cross geography, and cross disciplinary, to be honest.

To try and draw out what are the big picture themes. So it's not just about whether you're, long this or short that, that's not specifically what I do. It's to try and draw all dots together to say what is actually happening. And if you assume that's what's happening logically, what would then flow on from it?

So your narrative building to an extent rather than telling people how to manage money. But it's been a very very successful strategy for the past couple of years in that, not. Seeing the bigger picture has really been problematic and I think it's gonna be more and more important going forward.

Even if I'm talking my own book a bit, doing that talking my own book there. In, in terms of where you can follow me, I am on LinkedIn, for Rabobank clients Rabobank knowledge would be the place to go and check out, but you do need to be a client to get our good stuff there. And I enjoy conversations and interaction with people on these topics.

On X and my handle is @themichaelevery, all one word. And yeah, please do just come and join that conversation 'cause I'm always keen to interact with others and to see what you are thinking because when you've got a global role, the more input you have, the more voices you have, the better your view of that picture becomes.

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

Erik: Joining me now is Saxo Commodity Chief Ole Hanson. Ole 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. Look for the red button above Ole's picture that says looking for the downloads. Ole, before we dive into the slide deck, let's start with the big picture In the wake of Trump's, tariffs and everything else, where do we stand with commodities? It seems like in general the theme is very much toward hard assets over financial assets ought to do very well for commodities.

Some are doing quite well, some doing not so well. How do you think about the overall market?

Ole: Hello Eric. And yeah, thank you very much for having me back. Interesting times to say the least. And and also developments that obviously are impacting the the commodity space as we, we see it.

We've seen some big moves already this year. A lot of that is is obviously to do, the world as we see it. It's the uncertainty that, still prevailing, that's driving demand, for hard assets, especially for the investment metals. We're seeing an energy sector that is, fairly stable.

The questions about the, lag of oversupply in the short term. Also, a bit of a difference between, I would say, what the forecasters are looking for and what the prices are currently telling us. So there's a bit of a mismatch there that needs to be explained. We have shenanigans going on in some of the markets.

Some of that driven by Tariffs, which is really creating in, some uncertain times for traders. Great opportunities for some and big losses for others. So that's also part of developments. And then. I would say from an inflation, from a food perspective, even, I don't think, many people really feel that food prices are behaving nicely.

I think we if we look at the prices in Denmark, it's they're really going in the wrong direction. But actually looking at the producer level, we are having another very strong production here. So key crops are at multi lows. We've got ample supplies.

We also know there's a story in the US where cattle prices are have gone through the roof as well this year so generally a mixed bag where we. We're trying to, not to get too involved in the day-to-day noise. But at the same time we also have a market which is trying to work out what's gonna happen to to FED policies, what's gonna happen to interest rates what's gonna happen to the energy transition. How's that gonna impact? How's, what about geo geopolitics, the de-globalization, the reindustrialization especially in the us. So a lot of things which I think ultimately Eric in the short term creating a lot of noise, perhaps not the best or the strong moves that we would perhaps have been looking for.

But I think ultimately still setting the foundation for strong gains in the future. And also, creating the reason why investors should be not big, ignoring commodities, but at least have that as part of their portfolio.

Erik: Diving into the slide deck, we've got the commodity performance overview chart on page two.

Precious Metals, the big winner this year, orange Juice, the Big Loser. What's going on in, why don't we just talk through the, these first few slides that, that talk about the commodity performance generally, give us an overview of where we're headed in this market.

Ole: If you look at precious metals, it is a phenomenal returns.

We've seen 30 this is just this is more or less up to date. And again, these are total returns, so we have to remember that one thing is what the futures price were was at the beginning of the year comparison. Now you have to just to take into consideration the. The rolling of contracts and the the cost to carry and so on, and also whether there's tightness or not. So these are total returns. Gold is up 30%, still the same with silver. So they're really having a having a strong year. There's a bit of a pause right now. I think we are waiting five.

The probably Jackson Hole is the next major potential trigger. But then also whether we are seeing a dovish tilt from the FMC towards lower rates that could lead to the next move higher. And I think one one, which I think we're, I've been calling it Sleeping Beauty for quite a long time.

And finally it woke up and took off and that was platinum. And really it is the best performer this year. 50% we.

Perhaps still some further upside to be had there, especially if gold continues to higher, because then platinum looks historically very cheap. As I mentioned, the brand, the energy sector is is fairly low. But it's interesting there to note that the WTI Brent, on a total return basis are down a couple percent.

But if you look at the futures prices, probably down more than close to 10%. So that's obviously the backwardation in the futures market that supports a long position there, which is which is underpinning and of reducing the. The loss that the price action otherwise has dictated the copper market or that industrial metals in general?

Doing very well. We can talk about the tariffs and the big jump we had in copper, but it's, it seems like data from China is holding up. It is still the world's biggest consumer raw materials and that's providing some underlying support. And then this whole weakness across the grain sector I was at a party at the weekend. I met a farmer who's got a massive production here in Denmark and he was complaining already. And that's how it is when prices are too high. That's, that tend tends to be seeking, low production, which is not good, but now prices are low and that's seeking

Very high production. And he says, I just have to work even harder because I have to shift all this production to, to make the money. I would've do in another year where price were higher, but perhaps where the production was lower. But that's good for the consumer.

Ultimately, we have ample supplies for the coming coming winter. Then elsewhere the livestock sector is really one about, it's really US or these are US traded contracts and they really mostly reflect what's happening in the US market, where there's some tightness right now.

And then the software, some of these massive moves, which were rather related in cocoa and coffee. They have abated somewhat recently, but still holding above long-term averages.

Erik: Let's move on to page four, where you're showing the supercycle concept. Why would we expect commodities to have longer overall cycle patterns than we see in the shorter, business cycle and therefore market cycle and equity markets?

Ole: Because commodities tend to these are long cycle markets because you don't increase or reduce but, or you don't increase, especially production overnight and production requires a certain amount of revenues in order to be increased. So generally we see these long cycles where periods of Ample supply lowers investments and that sets up the next stage where.

Where we then run into period where production struggles to keep up with demand. And that's where we see the big moves. And and literally since 65, I'm not disclosing my age, but we're not far from that that starting point. We've had a few major moves in commodities and it also highlights that, the, commodities can, as a whole be boring for decades for quite a long period of time. But when they move, they do move quite substantially. Obviously there's always big moves within the individual sectors and individual commodities. But as a whole, we can see we had these three major or two major moves since the mid sixties.

And and right now what we are trying to work out right now, whether the next major cycle that that is really the fifth cycle that we had since since modern day. And it started in in 2020, whether we can call this a green transition the rally in the market simply because the green transition requires.

So many different commodities in in, in major, in, in major quantities in order to be achieved. That is part of the story behind the the next cycle that we potentially could see has started to unfold and we are. We have doubled up in, in price terms since since the low point, which obviously happened around the Corona or the COVID times which is so maybe a little bit cheating when it comes to that.

But generally we are higher and we are looking for that green transition over time. But I think also. The way the world is developing right now, we are dis, we are seeing a world that's dislocating. We are seeing production is no matter, no more a question about where is produced cheapest.

But it's a question about where is produced safest or closest to home. So you don't so you don't run into supply problems. And that basically means that that we will see some investment going into to commodity and co and to the ability to produce commodities in the coming years.

That may not, and that may not necessarily be the cheapest, but but there are basically other reasons why we are, we're seeing this and just talk about the, we talk about the US the reindustrialization, whether they will succeed or not. That will obviously require a lot of investments into the US and and that will require commodities.

Erik: Let's talk a little bit more about that green transition commodity demand and how it translates and when it's gonna translate. Because it seems to me like what's going on is with the transition to the Trump administration, the immediate emphasis on climate mitigation I think is coming out of the system to the point where that doesn't exist.

But what I think a lot of the market is not yet seeing and it's coming is. AI demand and everything else is gonna create so much electricity, demand, and so much demand for copper. That aspect of copper demand, which is driven by something else, I think is gonna be even bigger than the than the climate driven copper demand that was perceived previously.

What do you think about that and how long do you think it takes before the market figures that out? Because I don't think it has yet.

Ole: It will take some time because because it doesn't happen, it doesn't happen overnight. But I think we are well into the, to that transition.

And I think also, yeah it's really important to, to call it the energy transition, not the green transition because it's not all a question about that we all that it's all energy has to reduce from unreliable sources like solar and wind. But it's simply that, that we are electrifying the world for various reasons.

Demand pattern moves more and more towards electricity per from some of the fossil fuels, the fossil fuel based energy forms that we have been used to for decades. And as you mentioned, the the one thing is the increased need of electricity for data centers.

I can just, at the. Given my, at my age and I'm an old hack. I've been around for a long time. But when you then could progressively go down and be to the younger people, they obviously much more digital savvy than probably I am. But if I just look at the kind of way that I use AI already than imagine what younger people younger generations, what they are using and it just means it all boils down to a lot of

Power that needs to be produced in order to produce all that data that is being requested every single second of the day. So that's one thing, but but then we have the, the electrification as such is also a question about the a, a global population that is still rising.

It is the industrialization of emerging countries. It is the move from country to to, to cities. It is the need for more cooling as the as. Certain parts of the world heats up. Then, so it just all boils down to more, the more demand for power and that demand, that power has to be produced.

And that's where we the kind of the. Some part of the sector really don't like the green part of it, but it's it will continue to grow. And I would say probably solar, especially because that's technology. The other wind is just mechanics. But technology can be improved.

So that will continue to grow, but we need some more power and we need that to come from gas and we need that to come from uranium. And then one thing is to what the demand for the power is. Another thing is actually how do we supply the power? And that's where you. What you mentioned about copper area comes in because we need the we need the infrastructure to supply all that the electricity.

And and that's why I put in on actually we a little bit further down when we get to the copper that some of the big winners this year is in the last year is not is not the actual underlying copper is up, but it's not up that much. But those, that has to provide or to build that infrastructure, these are really some of the.

Big winners that can easily compete with some of the big tech companies because they're running flat out to with orders to build power stations to to build out the the infrastructure. So I think it's a fascinating and very interesting part of the space. And copper is one thing, aluminum is another one.

Natural gas over time will be be one. And when will it happen? I think the next it could happen sooner than we expect especially if we start to see the. Supply of these commodities struggl to keep up. And that's really where the focus, I would say is in for something like copper.

Where the the, it is a mined metal. We just recently saw the accident in Chile and how suddenly a certain amount was was caught offline. But if the numbers that are being thrown around in terms of hubs, how much more copper we need in the coming few decades compared to to the past.

Then we are, we will be struggling. We will be very busy and copper needs to reach levels that really incentivizes miners to go all out or go all in.

Erik: Ole with respect to copper, I want to talk specifically about page 10, because this has been bothering me. Something that's very clear to me is that President Trump and Secretary Bessent clearly they've got some policy objectives that they feel are very important for the country.

That's great. I don't think they're taking seriously enough the collateral damage that they're doing in markets, because as you're showing on the left side of page 10 the European LME copper market looks just fine. It looks like a healthy market. The US copper market looks like a nuclear bomb just went off, and it's all a result of this market being effectively whipsawed up and down by President Trump.

Intentionally giving misleading, bluffing as part of his negotiation around tariffs. And I guess what's on my mind is, look the president has the authority to bluff about such things if he wants to. Do they understand what it's doing to markets? And would you agree with me that the damage that happened on this technical chart, I mean that triggers a lot of technical funds.

A lot of CTAs, trend followers, they're going to be potentially doing things in markets that create. Recession invoking risks is a result of what I think. I'm on a soapbox here, obviously, is what the President and Secretary Bessent just did to the American Copper market. Am I crazy? Am I over? Am I exaggerating to have this reaction?

Ole: If you're crazy, you're probably both crazy. Because it's the it's the line of thought that that I have as well because it tariff is, has become a very popular weapon to to get your to to, to use as a negotiating tool. Obviously tariff only works if you really are sure that you have the alternatives in place because tariff is all about, yeah, one thing is to make some extra revenues, which again, can always be discussed who's paying for it.

That, I don't think we should get into that. I think we, I think most people has a clear understanding of who pays for tariffs. But another thing is if you raise a trade barrier, that is obviously in order to incentivize. Production at home. And and this is where it, this thing just went off rail because you even contemplating adding tariffs on a metal, which is paramount important for the us as everyone, as other, every other country in the coming years.

Not only given the the re industrialization that the US wants to embark on, but also this being being number one within AI and data centers and so on. This simply doesn't make any sense that you suddenly make domestic copper prices 10, 20, 30, 40% higher than what what your competitors elsewhere are paying.

The fact that the, you can increase production in the in or an increase in production in copper in the US may take five to 10 years. The, at the minimum, the fact that refining, which is obviously a major issue because a lot of copper in, no, not refined, the scrap copper in the US is being re-exported simply because there's no refinery.

Capacity in the US to to chair to switch the scrap back into into a refined copper. And so that's where, really, where they should start. But who, who wants to who wants to run these businesses? And so all in all, this is, this was a, this was one step too far. This was certainly hitting a market where the the potential or the gain they wanted to to achieve from raising tariffs were not going to be successful or going to be achieved.

Anytime soon. And the only thing you you would succeed in was raising prices domestically at a time where for critical metal that is, will be in, in hot demand. And yeah it has created some some major disruptions now across the global market and it's clear for all to see that.

That the winners here are the physical traders who are, who've been able to handle or source copper around the world depleting stocks levels in Europe and in Asia, and shipping it to US sell the futures against as long as you get the copper here onshore before the tariff war was was was erected.

And and that basically creates a windfall. But but. As the tariff were suddenly removed or took, taken off the table then obviously the spread had to come back to a normal. And in the short term, there's probably risk now that the US is stuck with a lot of copper that they don't need.

And that is now that now needs to find its way back into the market. So we could potentially see a period where us traded copper or highgrade copper futures may trade at, or perhaps even below international prices.

Erik: It certainly seems to be the case. I, my call on this was, boy, the way we just got whipsawed here.

This is a buy the dip opportunity on copper. I think I'm the only one buying this dip. It certainly feels that way.

Ole: It will take us, it'll take some time to to even out. But at the same time, as long as the cost of storing it is not too high, then then yeah, demand will, will be there in, in the coming years.

But but it was a way, it was a bit of a, I would say a wake up call for for the administration that tariffs cannot be applied to. It doesn't work for, it doesn't fit every product that the us would like to to, to onshore.

Erik: Ole, I got so excited about copper that I skipped ahead a little bit.

I wanna go back to page seven where you brought up rare earth elements. That's stuff like neodymium that they make the magnets out of and so forth. This graphic on the right is a little bit disturbing to me. You've got 70% of what we rely on. And by the way, some of what we rely on this stuff for is weapons systems like important national defense stuff.

So 70% of this we get from China, that's the country we're. Trying to start a war with 13% comes from Malaysia. That's a country that would, in a war situation with China almost certainly fall under China's pressure that we wouldn't be getting any favors outta Malaysia. What could go wrong in this story?

Ole: Well, a lot of things can go wrong. And and what the, what China has obviously realized that they, that even though errors in terms of in terms of turnover, in terms of monetary value is relatively small. It's, it has a paramount, it is paramount important and the same thing goes for europe, they've fallen sleep by the wheel

The production of rare earths is done in China because they have the refinery capacity. But the rare Earth is not rare as such, it's found across the world and can be dug out the ground. But the rarity comes when it, in the production of, or the refining of the, all the material in order to to get these these small amounts of individual errors.

And that's really where China holds a lot of cards right now. And, and we'll see how that plays out. But but they do have a they do have a, you can almost call a weapon that that the US cannot mitigate anytime soon. But we have obviously seen some steps being made, both in the US and I, but in general outside at China.

And that's where probably I hit myself a little bit over the head with with something because it's clear that there would, there was going to be a very. Big focus on US production capacity or ability of rare earths. And there's really only one major company, which just a few years ago were almost non-existent MP materials.

It's gone up 300% since late May. And because they've also made a contract, I believe, with Pentagon. And they will, they'll get all the, they'll get all the finances they need to to try to achieve some of this some of this independence from. From from China, but there's also other countries around the world where, which will, which probably will become in, come in focus in terms of being able to deliver some of these rare earths, but again, rare earths that we all put 'em into one box.

But as you mentioned, a lot of these are. Are specifically used for in, in high? They are all in high technology, but also within the weapon industry. And some of these are just extremely difficult to to get hold of. It is, for now it's the probably China, one of China's biggest cards that hold against the us.

Because of the importance, even though in, in terms of size it's very small.

Erik: It seems to me like there's a potential speculative trade here, which is I think President Trump very much wants to secure America's access to all critical things when he figures out that there is a a problem here and frankly I think he thought that he was gonna negotiate to get Ukraine's rare earth elements.

Took a while before he figured out that Ukraine doesn't really have rare earth elements. Despite Javier Blas jumping up and down for weeks on Twitter saying, Hey guys, it doesn't make sense. What. What would be the play? Let's imagine that President Trump figures this out and says, we can't be just reliant on China for rare earths.

We've got to go and make a deal with Country X and get all of their rare earth and lock 'em up for us because we can't have this risk with China. Where would the play be? How do we front run that and get ahead of President Trump figuring out this play?

Ole: Oh, that's a difficult one. And again the, it would probably have to be some of the countries where there are established production already, but again, it all boils down to who wants to build up?

This refinery capacity, which which as far as I understand is extremely polluting and is a very dirty job. hence the reason why the countries in the west had basically said let someone else let someone else take care of this and we'll just buy the finished product.

I don't, I haven't got the answer. The only thing I know is it's going to it's going to be extremely expensive. Because setting this up and from an environmental perspective, there also has to be some compromises. I think found in order to to be able to set this up.

And the same thing goes some like copper refining. Again it's not it's not the cleanest of businesses that you can find out there, but it, if it becomes paramount important, then it probably will be done, but. The question is who will do it and where it can be done. I haven't got a, I haven't got a good answer to it, but I think it, it'll still take time and in, in that in that meantime it probably means that the rhetoric towards China we obviously getting close to the next deadline here around mid August.

That we have. We're probably not going to see the same kind of militant response, I'll say from Trump because again, they learned from this as well. And what what kind of cards the Chinese Chinese hold. And we just saw overnight that, that Trump basically was asking the Chinese to quadruple their purchase of soybeans as a way of bringing down the deficit.

The only problem there is that China hasn't booked one single cargo for soybeans from the us as a vendor, as the end of July for the new season. So something really big. Dramatically needs to change there on, on that front. So really it's, so us wants to buy the high tech at the same time they what they can offer.The other direction is low tech.

Erik: Let's move on to page eight. Talk about the oil complex.

Ole: Yeah. What is that to say? Really, Eric? I'm just a little bit confused, but at the same time also and confused in terms of how well the market has actually been holding up. Considering the fact that we have been that OPEC has has increased production.

I at least has agreed to be able to increase production by two and a half million barrels now since. Start of the year. There's obviously few, a couple things happening there. First of all, some of these are currently producing above their agreed quotas, so they will not increase.

That's countries like Iraq. At the same time some others have been struggling to to, to increase as per that new quota. And then we just gone through I would say quite a strong demand period during the peak season in terms of summer demand. And that's also helped disguise some of these, this increase in, in, in production.

But I think in. I listened to one of your previous guest a couple weeks back. And I think it's very very important to, and I agree to decipher between short, medium term developments and longer term develop developments because the question is really whether we are.

Whether we have the en enough appetite for the continued investment into the sector, because I think it's clear to see right now, oil demand is not gonna fall off a cliff. We are still seeing an in increased demand for energy around the world. Some of that is is obviously due to living standards, but also demographics the industrial industrializations and urbanization and so on.

So the demand for crude oil is not going to work. Disappear anytime soon. And that basically means investment to find the next barrel needs to be there. And that's really where you can start to be a little bit worried that in, in, in four to five years time, that we may struggle on that front, which potentially depends.

Then could see oil prices trade higher, but at the same time oil at 70 bucks. Now I'm looking at Brent. I know others like to love the WTI. Brent is really just also looking at expectancy, positioning. Double tier positioning is quite weak. It's being used it's, it has become a little bit of a domestic market even though it's still the main futures market, Brent is, has been trying to to preempt any impact of potential secondary sanctions against Russia and and and also this increase in production from OPEC.

So I think the. I think it would be struggling above 70, at least in the short term. But I think the longer term trajectory is still for higher prices. And that, that also means that even though we are, even though we are not seeing seeing the price really moving going anywhere fast, we still have a market that is in is somewhat backwardated.

And that basically means that as I as I mentioned earlier, even though the future's return so far this year is around. Minus 10, 11%, the total return is actually only down 2%. So you, it's not costing a lot to try to bet on higher prices in the future, but at the same time I'm still a little bit concerned that as we move into the autum months, that we could see this overhang of supply start to have a negative price impact.

And we potentially could trail back down towards the low end of that. The, that brains we have established. And as you can see on slide eight, what we don't know at this point in time when we're recording this is what will happen on Friday in Alaska Between Trump and Putin. Whether we are going to see any deal that that is tolerable by, not only by Ukraine, but I say also by Europe and what kind of impact that potentially could have on sanctions and and whether that also on, on prices.

So I, I think in the short term, there might be some risk of of lower prices. But I think the long term outlook is for higher prices simply in order to. Make sure that production is being incentivized in a world where demand for energy is not going to go away anytime soon.

Erik: Ole let's talk a little bit more about the backwardation that you mentioned in this market. I find it absolutely fascinating. I don't know if I'd quite go so far as to say it's unprecedented, but it seems striking to me that at a time when really I don't think $65 oil is particularly expensive.

It's not really high prices yet or anything close to it, but boy, the backwardation in the market is. Pretty darn significant. What do you make of that? It seems to me, given various other risk factors, there's more backwardation at this price level than I would expect.

Ole: That's true. And and there's also and I think sometimes we say that the prompt price can be can lie because the prompt price is there's a lot of other factors impacting the prompt price speculative interest and so on.

But the curve is seems to be a little bit more of of a, of the smart guy in the room. That tells us a better story than what the prompt price is doing. And the curve is. It's telling us that right now, that there is a demand that in the spot market that is, is strong enough to to to make traders pay a higher price than what they can they will have to pay in the future.

And looking at the, if now we're flipping a little bit around, but yeah, we just to, if you take a look at on slide 14 where let's talk about the cut report. We can talk about that later. But just on the far right hand side of the, of this table, which I produce on a weekly basis, I just show the one year.

Spread between yes, basically between spot the for front contract and the one year. And you can see in, in the crude WTI. We and Brent we are picking up a small premium. It has come down a bit, but but the fact that it's still positive does indicate that the market is is still recently tied, obviously, where the most of the time has been recently is in in gas oil and and the products.

Where. Where where some of the storage levels has been quite tight and that, that really has kept that backwardation quite quite high. But talk about that. It also indicates why some of the other markets are really suffering. Look at natural gas.

You natural gas prices in a year's time has to be at least 29% higher. Before you start making any money we have the metals, which is mostly about funding. And then you have the agricultural sector where again, prices needs to be before and we need to see a 15% rally in in corn in the next 12 months before investment worthwhile.

And that really is attracting short sellers, whatever. There is a pause in the market. We are seeing rallies from time to time, but as long as you stay in the contango, as soon as the market. Runs outta steam and the contango is still there, then you are being rewarded for rolling a short position on a monthly basis.

And you can see those that are highlighted in red. These are the ones that, that, that continues to struggle. amid this this focus in the market on how you make return from either being long or short.

Erik: We covered copper earlier. Let's move on to gold on page 11. What's the take there?

Ole: Gold is only that several things, but first of all that it's it's taking it's having a bit of a break. It's having an extended summer holiday. We're struggling and not struggling, but we're stuck in I would say 200 range. 3250, 3450 big numbers. And and it's taken quite a lot of the recent use on the chin without really attracting much much in terms of movements.

I think the, you can argue that they, it's a, it that's both bulls and bears can can argue that case, but I think the bulls probably have it right now because having run up by 30% and then only managing. Actually then only managing to trade sideways. Not even correcting lower, gold could go down to 3000 and will still be in an uptrend.

The fact that we haven't corrected much in the last three to four months basically means that the, it looks like the correction in gold for now is just a sideways or is just a consultation, not a correction. But at the same time it just tells us that, that. Market is looking for more in terms of the, of a trigger to to get some life back kicked back into the market.

And I think that's where we need to look ahead to, to action from the FMC, we need to see whether we're gonna get this double shift. We are need to, we need to see whether the, might increasingly get worried about the US debt situation. That they are, that they're just prepared to to, to support the market through through cutting rates, but with, without thinking about what happens in the long end and what happens to inflation. So that would be key as well. And then I think the central bank demand physical demand probably dried out a little bit just like everyone else with I think if you are a fiscal buyer, you're probably sitting a little bit on your hands here.

You just really want to see it. Can, it really makes does really make sense that we're not having any 10 or 15% correction after such a big run up. I think there will be some. So that's why if we once if, and once, and if we take out these these highs, which I think we will some time into the autumn months.

The next move could be quite quite significant. And I put in some of the reasons why precious metals are still such a, as such a demand. And I think the really, the key is it's political neutral. It's it's compared to other investments, it's recognized and it's not linked to any countries credit worth and there's not, I think that would probably be an increased focus in the coming years.

Erik: Now some people are saying, okay, this gold market has already had its move. Silver has been lagging. Boy, the trade here has gotta be silver. You want to be in silver because gold already had the move. Its silver's turn to catch up. The counter argument is, wait a minute, what's driving gold is primarily been central bank purchases.

They're not gonna buy silver. There's no reason to expect them to buy silver. Stick with gold. What's your take on that?

Ole: Has been that has been one of the reasons why the gold silver ratio has been ticking higher simply because silver has not enjoyed, not been enjoying that underlying demand.

And that also means that whenever we've seen a small. Correction in gold, silver has corrected by a lot because it just felt anyway, every time there was a correction in gold, there was this big clunking fist just being put in under the market, just picking up whatever there was was came to them.

That was silver. Didn't have that luxury. So it is still gold. It, but on steroids and that basically means that it, the movements are big, but also the rewards are similarly similar, big as well. And I think at this point in time, we're 55% from industrial applications. Some of them that we still see will be, is a.

We we experienced an increased demand in the coming years with over, above ground inventories stock levels, relatively relatively weak. And with the production not being price sensitive, simply because silver is mostly produced as a byproduct from other mine metals. So it's not as if suddenly price silver goes through the roof, that you'll increase production from mining.

That has to be tied with some of the other metals. And I think just recently, the the fact that silver's been holding up as well as it did after the collapse in the copper price in New York, that that also speaks speaks volume. So both silver and a gold currently up 30% if a bit more than that.

And you just have to look at the chart that going all the way back to 2010. For, in order to buy gold these levels, you have to believe that it will hit a new record high if you buy silver. Here we are still. Quite a few below that high from 2010 or 11, which also makes it an easier proposition for some to to trade.

Erik: Let's move on to grains on page 13.

Ole: Yeah, it's as I mentioned it's it's been a it's been almost been a perfect storm of bearish News this year. It started up just as we started the planting season, there was a few concerns not only the US weather wise, but also in, in the around the Baltic Sea, but that really, no, not about the Black Sea, but that really has has been.

Put to rest. And we are, we just got a, we got a monthly report coming out from the US government on Tuesday, I believe just before this one goes out, which would give us an indication of where the US government sees production this year of corn and soybeans and some, and now we are looking for some bump upgrades.

What does that do? It basically means that. That if you are short in grains you are not only seeing the prompt price moving down, but you're also seeing a monthly or whenever you roll your contracts being profitable. And so we, we need to see a, we need to see the tightness in, we need to see some tightness emerge in the spot market for this trade to to unravel.

But and that for now that we are not gonna see that for at least next six months. We now with the next. Big season is the next South America season. We need to get so I'll say six months down the line. So obviously there can be movements in between. Again, if China signs a deal with the US to buy a massive amount of soybeans, that could that could shift the tone.

But right now, speculators are holding onto. To quite elevated short positions in corn and wheat. Wheat has been short. They've been holding short positioning wheat, as you can see on that little insert all the way back since 2022 for three years nonstop. There's not been a net long position in the wheat market, and that just highlights the predicament that this market in is in.

So the combination of prompt prices on the pressure and the contango in the market basically makes these very profitable trades for speculators in the futures market. One of the most powerful tools that we have in commodities markets for gauging investor sentiment is the commitment of traders reports published by the government.

Those reports in the raw form are pretty cryptic and hard to read. You provide a free service completely free, as I understand it to anybody who wants it. To basically reshape that data into a much more user-friendly graphical form as we see here on page 14. Tell us a little bit more about that, including where people can get ahold of it.

Yeah it's as you mentioned, it is, it's data that is provided by or given to or demanded by the CFTC on a weekly basis from the large from the last clearinghouses. And and sometimes and often get asked why do you only look at money managed money account? Because that's obviously only a part of the.

Part, the open interest, but we have to look at the futures market. And that's really where it's it commodities I think is fascinating because one thing is looking at the S&P future or the the 10 year, 10 year future, there's so many other things going on. So whether the market is long or short, you can't really read anything into that because quite often there's a trade on the other side.

But when you look at the the futures market for commodities think about the open interest as the cake, as the full picture. And then you can break this cake into into participants. And that's where. We tend to focus on managed money account. I used to be a I used to trade for hedge fund in London back in the days.

And and some of the way that these funds behave today is also how we were taught to, to trade market. So it basically means that they are not married to the positions. They seek a divorce if something goes wrong. And that means as well, they're most, they're very responsive to any change in the technical or the fundamental outlook.

So that's why we keeping track of what the managed money traders are doing, that's the hedge fund, CJs and others. Basically doing trading for leverage trade trading the investment on, on, on the leverage. And it, it boils down to obviously long and shorts and with the nets.

And what we watch is the obviously how the net position, how it develops over time gives us a idea about how extended or if something starts to get a big. Bit extended, then there has to be a darn good reason to, for that, to to happen. And, but the same time also gives us a warning sign that if there is any change in the outlook, then then potentially there could be a bigger than expected move simply because some of these positions that need to be be reduced.

And these are big, a lot of these traders are like oil tankers. If they see that they need to change direction it doesn't happen. It's not a u-turn. It takes quite a while. So hedge funds, they can easily take two or three weeks to to, for, to, to change the position around.

So quite that means that if you suddenly have a week where there's been a big move. Opposite direction of the position. The position reduction may not actually be that, that big because it takes time. But if it stays at those new and changed levels then that, that will continue to attract either short covering or longer, long liquidation.

So that's one thing. Open position relatively to extremes, that's just relative to the highs and lows we've seen within the last year. Price change in recent weeks. Long, short ratios quite liked by some, just indicating how extended is the market. That basically means let's say go for instance, right now, there's a long short ratio.

Six, six to six to two six. One, two to one basically means for every short, there are six six longs. And that is in. It's good to know, maybe not so much for gold again, because there's a lot of different other activities. But if it, if there is a market where really the go-to place is the futures market, then if that ratio becomes too too large in one direction, that basically means that if suddenly it changed around let's say in the example of, we can take feeder cattle or yeah, feeder cattle towards the bottom, or actually take hawks. Right now there are 12 longs per each short. If suddenly that if there's market starts to trade turnaround, then these 12 longs. We'll be looking for a very small amount of shorts that wants to close their shorts out, and that's adding some pressure to the downside.

So that's why long short are interesting. And then just finding the forward curve as we talked about earlier, Eric how the the ang backwardation also impact how investors they look at these markets.

Erik: Just to make sure that I understand the long short ratio. For every long futures contract, there has to be exactly one short futures contract to match it.

So what we're really talking about here is the long short ratio within the managed money category. And that's the reason it doesn't have to balance out one-to-one.

Ole: Absolutely. Because what you, quite often you will find that who's, who tends to hold the short position. That tends to be the one who producing the damn thing.

So they're short they're short a commodity in order to hedge their physical production. So that's so even if the market goes up, they may not necessarily want to they may not necessarily need to to buy it back. But if you look at the other side of the equation, the if, whereas the managed money account they would be much more responsive to to any move if, especially if the position is very overextended.

Yes, it is the longer short ratio within this. Managed money category, and you'll quite often find that the opposite is is found among the producers and consumers, not producers.

Erik: Ole, I can't thank you enough for another terrific interview, but before I let you go, please tell us a little bit more about what you do at Saxo Bank where people can follow your work.

And particularly you have a podcast, a daily podcast that's just about commodities. How can people follow that?

Ole: Yes, indeed. I've, I work at Saxo Bank. It's based in Copenhagen. I've been working there for 17 years. I've been covering commodities for the last 15. Just trying to make heads and tails of the market and put that in rain rising towards our clients client base, which is global.

And just trying to help them navigate these markets. And also what to be aware of when when things starts to starts to unravel. You can find what everything we put out is obviously on a, on the Saxo trader. If you're not a client yet, you can find it on analysis.saxo that will, that's where me and my colleagues put out everything that we produce. You mentioned the podcast is run by my colleague John Hardy. We just recently changed it back to a daily format. It's getting a lot of traction already. I tend to join him. When something breaks or something happens, or at least then on a once or twice a week.

Do see that as well. And obviously finally I'm still on x where I where I take information in, but I also try to give as much relevant information back as as I can.

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

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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