Transcripts
Erik: Joining me now is Bianco Research founder, Jim. Bianco. Jim, it's great to get you back on the show. I want to talk about a topic that I know you've been spending a lot of time on in the last couple of weeks, which is, look, the Trump administration's making all kinds of bold moves, but the big elephant in the room is the national debt of $36 trillion. It's tempting to say they don't even have a plan for it. Actually, there is a plan forming. It involves people like Zoltan Pozsar, the very well respected economist who used to work for the Fed, then Credit Suisse. I think he's moved on to another firm now. Who are the players? Let's start with that. How are they seeing the problem? Do they have the President's support? Let's just start at that level, and then we'll dive into what are they going to do about it?
Jim: Yeah, so there is a plan. And it starts with, I think, Stephen Miran. He was in the Treasury Department under Steve Mnuchin right at the end of Trump 1.0 and he moved on to Wall Street, worked for Hudson Bay Capital, and now he's been appointed the Council of Economic Advisors Chairman for Trump 2.0 in November. He wrote a piece about global trade, and he wrote a piece about dealing with all of these issues, the fingerprints all over that report were Zoltan Pozsar’s fingerprints, as you’ve pointed out, he's moved on to his own and used to be at the Fed and formerly a Credit Suisse. Both of these guys have the ear of Scott Bessent, and Scott Bessent has been giving policy type speeches going back a year now that sound very similar to what they're saying, and some of what Trump has been talking about, he’s also very consistent with all of this. So that's the players and so now the question is, okay, what is it that they're talking about? It's a three-pronged process. Number one is about tariffs. Now, that's the thing that is eating up all the oxygen in the room, is that Trump is tariff man. Tariffs have two potential meanings. Number one is, they're used as leverage or a club to get something. The great example of that is what recently happened with Mexico and with Canada. You know, I'm going to put tariffs of 25% on all your products, unless you put 10,000 troops on the border or appointed borders are in Canada and do something about the flow of fentanyl and illegal immigrants. So that's the club part of it, I need you to do something else, because we, in Trump's thinking, have an unfair relationship, and so therefore I'm going to use this club to try and balance it out. The other one is to put tariffs on for the sake of raising revenue. And famously, Trump has said it's the most beautiful word in the dictionary, and that he wants to start an external revenue service, an ERS to collect tariffs, as opposed to the Internal Revenue Service, which collects income taxes. So, tariffs is the first one, and it gets all of the oxygen, and everybody knows about that. The second one is fairly new, and that's the sovereign wealth fund that they came up with. Now officially, Trump, last week, signed an executive order to establish United States sovereign wealth fund. Scott Bessent was asked, how's it going to work? He said, we're going to monetize the assets of the United States. No one quite knew what that meant, but it was in the report what that could possibly mean. The US has a lot of assets that are not being fully appreciated. The big one that has been pointed to is gold. Between Fort Knox and the basement of the New York Fed, US owns about 8 tons of gold. It is valued at $42. Price of gold the day we're recording, went over $2,900. For you to take that 8 tons of gold and revalue it for $42 to $2,900, that's about $800 or $900 billion of assets. Okay, there's $800 or $900 billion of assets for the sovereign wealth fund.
Bitcoin, a lot of people in the Bitcoin community are getting excited that there's going to be a Bitcoin reserve, or Bitcoin is going to go into the sovereign wealth fund, or the government's going to buy Bitcoin. Let's be careful, because these terminologies all mean different things. Now, if they want to put Bitcoin in the sovereign wealth fund, that's really easy. Over the many years, the Justice Department has had fraud investigations that has led to them owning 207,000 Bitcoin, or about $12 billion worth of Bitcoin. They haven't been able to really figure out who the owners of these are, because they've acquired them through fraud investigations, and you know, if you're on the blockchain, and you don't know who the owner is, so they could take that thumb drive, hand it to the sovereign wealth fund. There's another $12 billion worth of assets. Now, let me stick on that for a quick second. That's just a transfer. There's no actual buying a Bitcoin that's going on there. What about a Bitcoin reserve? What a reserve means is that you're backing the US dollar, which is a pure fiat currency, by something like gold reserves, or in this case, Bitcoin reserves. We don't back the dollar by any reserves. We back the dollar by the full faith and credit of the United States government, which is, some people said, is really the United States military, that if we were to start to back it by something, the idea that the Federal Reserve or the Treasury Department would buy Bitcoin and say that every dollar in your pocket has some percentage ownership of Bitcoin could make it extraordinarily volatile because the price of Bitcoin gyrates around, so would the value of that dollar in your pocket, and the US Treasury of the Federal Reserve has no ability to control the price of that Bitcoin. It's not a good idea for them to go that route. Could the sovereign wealth fund buy it, or could the Treasury buy it as a naked speculation on the price? Look, Michael Saylor says it's going to go to 13 million. Tom Lee says it's in 20 years. And Tom Lee says, it’s going to 250,000 this year. Why don't they just buy it as a naked speculation, betting on that? Okay, but the problem there is they would have to borrow billions of dollars in the treasury market to do it, at a time when interest rates are up and people are complaining about mortgages costing more because of the higher interest rates, you're going to increase the supply of 10Y notes or 5Y notes, so you could buy a speculative asset on the idea that maybe it'll 2x or 10x or something, and then be able to pay off that debt and turn a profit for the government? One, I don't think that's the purpose of what government is, is to speculate. That's the private sectors job, is to speculate on the price of assets, not the government's job to speculate on those assets. So, I don't think that that's a good idea. So ultimately, I think that the sovereign wealth fund will have some Bitcoin. It already exists, they'll just be handed the thumb drive, and it will be and it'll go into there.
The third part of this program is the most controversial in the least discussed. And Miran just laid it out in his paper in November about global trade. And that is the 80 years since post WWII, security arrangement that the US has with the rest of the world. The US Navy has patrolled the high seas, has allowed for free trade around the world for, like I said, nearly a century, hasn't charged anybody for it. There's no bill that goes to any country. But what they've asked is that you align yourself with us, the West, the democracy, free thinking people, and not with the Soviets and the communists from prior to 1990 and maybe today, the Russia, China, Iran, North Korea axis, and we'll give you this security arrangement. Well, Trump has been railing against the security arrangement. On January 23, he gave a video speech to the price crowd in Davos, and what he said in that speech was, he said, we're basically done being the patsy, that he is going to demand that the NATO countries now spend 5% of their GDP on defense, and presumably some of that will flow back to defense contractors in the United States. But I don't think he's done there, because what Miran said in his paper is, you owe us so much for the last 80 years that what we want to do is a debt swap. Those NATO countries have trillions of dollars of debt. You're going to swap it for 100 year or perpetual zero coupon non-marketable Treasury security. So, you're going to swap $10 billion worth of treasuries for a $10 billion coupon century bond, won't mature for 100 years. Won't get any interest on it. Why would any country do that? Because if you don't, we'll have to revalue the security arrangement. Maybe the US Navy won't protect your ships. Maybe Article 5 of NATO is triggered. You could send your troops and your money to the front line, United States won't be there to back it up. You got to start paying for it. And Trump has been very clear about paying for it. Well, these countries have ten billion of treasuries now, they got ten billion this non-marketable thing. Doesn't that put them at a worse financial position? The Federal Reserve comes in. They can offer a lending facility, you give me a billion dollars par amount of those bonds, I will give you a loan, a repo loan for a billion dollars. If you need liquidity, it will be at par. There will be no unrealized or realized loss. It will be available anytime. Will the Federal Reserve go for it? That's why Trump has been bashing, one of the reasons why he's been bashing Jay Powell and the name Kevin Warsh keeps popping up, that could be the next Fed chairman. And he's very open to this kind of idea. So, it's kind of a cram down on them. And look, in every restructuring deal, there's a cram down somebody when you were structured to debt, somebody's got to lose. Trump's argument is, for the last 80 years, that loser has been the guy in Peoria. We've gone into the global trade organizations. We've hollowed out his industries because we sent them overseas. We've worsened his standard of living. Now, people are saying, no, the fix is we have to raise the retirement age to 75 or 80 so that we could get rid of the unfunded liability of Social Security. And Trump's argument is, no, that guy, Peoria, always loses those people that have had the free security ride for 80 years, it's time that they pay for it. And if they don't, if the French say something like, you know what, we'll just pay protection money to Putin to leave us alone, rather than pay you. Then Trump's got tariffs, and he'll come back and he'll punish them with tariffs.
Let me conclude this explanation of where Trump is. Most people, I listen to your podcast a lot, and people that are on your podcast, and there's a widespread agreement that the debt situation is unsustainable. I agree with that. Jay Powell has even said, in December, he gave a speech and he said, it's unsustainable. We got to do something about it. Let me restate that it's a crisis. We have to do something about the debt situation in a crisis, and in a crisis, we expect bold and brash thinking. This is bold and brash thinking. Oh, but this is not what we want. And if I could dare say, oh, I know what we want. We want go to that faceless guy that you never interact with and you don't know in Peoria and screw him. Just don't screw me or my friends. But that's not the thinking that Trump has witnessed. What he even talked about last week with his new tax deal, that he wants to permanently make the temporary Trump 1.0 tax cuts permanent. He also talked about getting rid of carried interest and resume and getting rid of the exemption for sports teams. So, Trump is a very populist kind of guy. He's not necessarily, “I want to make sure that all the billionaires are taken care of.” He's also, you know, he's been a builder, and he understands these guys, and he wants to take care of them too. So I think what's been not appreciated is this broader, bolder thinking. People like Miran and Zoltan Pozsar and Scott Bessent, and you're starting to see the beginnings of this program in some of the language and some of the policies that Trump has been promoting, like the sovereign wealth fund.
Erik: Joining me now is Tribeca Investment Partners fund manager, Guy Keller. Guy, it's great to get you back in the show. I can't believe it's been, wow, almost five years. I want to start with a chart that I know you're familiar with. Listeners, you'll find it in this week's uranium section of the postgame chart deck. That is Ocean Wall’s chart comparing the price appreciation of yellow cake uranium versus UF6 versus enriched uranium products. Guy, what this shows us is that the bull market in uranium that you and I, and a lot of other people predicted is on. It's on in spades. It's a raging bull market in enriched uranium nuclear reactor fuel, which is up 506% in the last three years. The price of it more than doubled in calendar year 2024 alone. The thing is, we can't invest in enriched uranium. We can only invest in the uranium feed stock that it's made from that's down on the year in 2024, despite the fact that I think there's an argument to be made that 2024 might just be the biggest bowl year ever in terms of news flow for the nuclear industry. Guy, what's going on? How is this possible?
Guy: Yeah, thanks, Erik, and great to be back on your show again. Been very excited about this. It is a head scratcher, and I think it comes down to just simple capacity. The end user for uranium and nuclear utilities, most of them are not just nuclear. They live in companies that are also producing electricity from a number of other sources. The nuclear fuel buyer is also the same team, or sometimes individual, that is responsible for refueling and maintenance and a whole bunch of other things. And so, I just think it's just, they just lack the capacity to look across the whole fuel cycle. You've seen some very, obviously, changes from the US government, with the Russian import ban of enriched product, and then the Russian retaliation in restricting exports of enriched product to the US. There's lots of back and forth as to further sanctions from Europe and other parts of the world on enriched product from Russia. And as you know, and your listeners know, a large part of the enriched uranium that's required to make nuclear fuel rods comes from Russia. It's one part of the nuclear fuel cycle. And so, I think, because you've had all of that uncertainty, and you've had, especially US utilities having to scramble to ensure that they can replace that Russian material. They've kind of just been forced to ignore the uranium upstream side of the equation, because the EUP, the enrich uranium product, is much more near term for them. We used to take sort of two years from mine mouth to reactor core for the yellow cake to move through the fuel cycle with the Russian sanctions, that can now be closer to three years. So, the uranium required for tomorrow's enriched uranium product is three years away. So, as I said, I think it's just that they've been forced to focus further downstream to solve a near term problem, and assuming that they'll eventually have to come back to the uranium, and I think they will. I mean, last year was surprising in how little uranium was contracted, given that the term price of uranium appreciated throughout the year and held at that $82, $83 level, despite the volatility and in the much less traded spot price.
Erik: Joining me now is Commodity Context founder, Rory Johnston. Rory, it's great to get you back on the show. Let's start with the big picture for oil markets, inventory fundamentals, where do we stand?
Rory: Thanks for having me, Erik. I'm so happy to be back. Entering into 2025, we're in a really interesting point in this market, because 2024 itself was kind of a funny year after really everything between 2020, even 2019 through to 2022, 2023, we had just absolutely outrageous levels of volatility. We had every possible kind of tail risk you could imagine hitting the oil market, kind of back and forth, back and forth from literally, COVID, turning the industry upside down. Russia invading Ukraine, Houthis blockading the Red Sea. You had Israel and Iran, all of this stuff happening, but at the same time, then 2024 really just slowed down. You had the prices traded in their tightest range since before COVID, we had the overall supply and demand growth even slowed each of those years. You were accelerating coming out of that COVID slump. And then in 2024, it really just kind of ground to a halt. We saw really slow, both supply and demand growth. Now, I think that entering this year with this really low inventory position, particularly on crude oil, we're beginning to see demand re-accelerate a bit faster than we're seeing supply accelerate. So, I see this as a bullish factor heading into the year, and it's supported by the fact that the futures curve remains relatively backwardated, even after this latest pullback. So, I think the market remains kind of fundamentally undersupplied. I saw last year having a modest under supply annual average. I see this coming year, likely, assuming we don't get, and we're going to talk a lot about various policy risks coming down the line, but assuming those don't completely derail us, I see less likely having another modest supply deficit this year. So, if we have a low inventory position and another modest supply deficit, that means we're going to enter an even lower, or we're going to trend towards an even lower inventory position, and I think that means gradually higher prices from here, probably in the kind of, like low 80s Brent basis. And it's not that much higher than we are right now. I think, we're recording this on January 28 and where I'm looking at my screen right now, crudes that are out, $77.60 for Brent. So, I would say probably about 3, 4, 5, bucks higher is probably where I see fair value right now, that's kind of where I see us trending.
Erik: Mike Joining me now is Michael Every, global strategist for economy and markets at Rabobank. Michael, it's great to get you on the show as a first time guest. I'd say, normally, if I was talking to somebody after the first year or so of a presidential administration, let's review all of those big moves that happened in the first year. We're recording this early Tuesday morning, Trump's only been in office one day, I think we've got a year's worth of stuff to talk about already. So, let's start with the big picture of, where are we? Obviously, this is the return of President Trump for his second term. How should investors be thinking about this? What is the big picture, what's the significance? What should we be looking for?
Michael: Okay, let's start with the really easy thing that I think everyone listening can understand straight away, volatility. Welcome to a world of volatility, and we've had that already underlined just within the first 24 hours, where, prior to actually assuming office, we started to have the flood of insider news releases saying, well, don't worry, Trump's not going to bring in tariffs on day one. And you've got this flood of relief from the market, which, as we will discuss later I hope, is very wrongly placed. And yet, within hours already, then we had Trump just off the cuff while signing some executive orders saying he's thinking of putting 25% tariffs on Canada and Mexico starting February 1. And also, off hand, suggesting 100% tariffs on BRICS countries if they do certain things involving a BRICS currency, et cetera, et cetera. So, it's been a wild swing, just on that front already. And we've really just started to get warmed up.
Erik: Joining me now is Izabella Kaminska, who is the editor and publisher of The Blind Spot. Most of you know her back from her FT Alphaville days when Izzy used to do, boy, just some of the best writing. Izzy, I think, in the industry, at least in terms of journalists, a lot of what you wrote, I thought, was much more on par with what I would expect in the quarterly letter from, let's say, a world class hedge fund manager, because you were really deep into the trades at a level that most financial journalists don't really ever go to. Then something happened. I'm not sure what, you defected to the dark side of the force and became a political journalist. You're running The Blind Spot. Now you're also the senior financial editor for Politico. Tell us a little bit about how you got there, but particularly, I really think it's timely, this is part of why I wanted to get you on the show this week. I think you've made this journey for whatever reasons of your own, into political reporting, but I think that finance is being carried much more into politics. If you want to understand macro investing, you better understand politics pretty darn well, at least that's my thought in this environment. Is that what led you to this? Or what's going on? And what do investors need to know about the increasing politicization of finance?
Izabella: It's a great question, because the truth is that most of my life, I've tried to dodge politics. I've always found it incredibly insufferable. Hence, I ended up doing finance, because markets don't lie and I love that you get that sort of immediate feedback, and there isn't any, you know, it's honest. So, I kind of avoided politics. It wasn't something I was very interested in, but increasingly I was being pulled in that direction, because obviously, everything, money and power, all goes together. I left the FT mainly because I felt there was a big transition coming in terms of how mainstream media operates, and I wanted to be part of the sort of independent media, I was always a contrarian at the FT, and I just found towards the end of my time that it was getting harder to be a contrarian, whereas before, that market attitude of like, we must explore all sides of any story, that was being constrained a little bit at the FT, I felt that certainly there wasn't as much tolerance for contrarianism as there used to be. So, I left to start, effectively, a contrarian independent newsletter called The Blind Spot. And whilst I was doing that, I was very happy doing that, I got a call from Politico, from another former FT editor over there, asking me to join Politico because he felt that finance was being politicized now, and he wanted me to come and help Politico tell that story to the finance community, because politics is notoriously, sort of, bubbly. Everything happens on a very bubble level. Then we had the Liz Truss fiasco, and politics merged with finance and in ways that hadn't since the 1980s, really, or 2008, and I agreed. When he pointed it out, I really agreed with that assessment. I was like, wow, that's so true. The era of financialization is now giving way to politicization, and I wanted to be part of that story, so I was persuaded. And luckily, Politico were very nice and allowed me to maintain my little Blind Spot operation. So, I still do that. The day job is Politico, with the newsletter on the side. So that is where I am now. And I think the more I've got to understand how politics works, especially in Europe and in Brussels, I've become utterly persuaded that the financial community is missing a trick, in terms of not knowing or understanding how politics and what's going on at the policy level, and now is the time that you can't afford to miss out on policy developments, because the age of diregisme is back in Europe, at least, and if you're not paying attention, you won't make money. I certainly also echo the sort of thoughts of Russell Napier, another very well-known investment advisor, that this is going to be coupled with an age of financial repression in the West. So that's the overview I would say.
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