Transcripts
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.
Erik: Joining me now is 42 Macro founder Darius Dale. As always, Darius has prepared a fantastic slide deck to accompany today's interview. Registered users will find the download link in your Research Roundup email. If you don't have a Research Roundup email, it means you're not registered yet at macrovoices.com. Just go to the homepage macrovoices.com, look for the red button above Darius’ picture that says, looking for the downloads. Darius, it's great to get you back on the show. It's been way too long. I want to start with the market outlook and just what's going on so many people are really saying this has gone too far. I don't know if you caught Lyn Alden last week saying, run your portfolio hot. I think you're more in Lyn's camp. Give us the outlook on what's going on with the market. Where do we stand?
Darius: I appreciate you having me back on. I'm really grateful when anytime I can be in the same camp as someone as brilliant as Lyn Alden, that's always a good sign. I have tremendous amount of respect for her, and I agree, we've been pounding the table on our paradigm C view since late April, early May, specifically early May in terms of how resoundingly bullish we've been on risk assets, and we continue to see a tremendous amount of structural upside over the long term as a function of our paradigm C theme. Just kind of really quickly, highlighting a chart that can sort of explain why both Lyn and I think the economy is being ran hot, if you go to slide 44 in our slide deck. And by the way, we have our usual customary slide deck for you guys as well, so listeners will be able to access that if they sign up for your Research Roundup email.
Anyway, getting back into slide 44 where we show in this chart, are a collection of major economies through the lens of their sovereign fiscal balance to GDP ratio, their current account balance to GDP ratio. And then we sum those figures to come up with a twin balance. So, if you look at the US, which are the blue, the dark blue lines in each panel, the US is running a record non-war, non-recession, budget deficit, and has been for an extended period of time. You know, really throughout the Biden administration, in terms of this lurching forward into fiscal dominance, that really began back in 2020 with COVID. We essentially stayed there since part of that that's been a driver of our current account deficit, a really swelling minus 4.6% of GDP. And so now, the US is sort of running these persistent twin deficits, somewhere in the 11% to 12% range. And in the 11% to 12% range, we are on par with an economy like Brazil or Argentina or Türkiye. These are types of economies that you tend to see dramatic currency declines, dramatic asset price appreciation, and ultimately, a tremendous amount of political unrest, if you will, as a function of the income and wealth inequality that tends to perpetuate.
Erik: Joining me now is Lyn Alden Investment Strategy founder, Lyn Alden. It's probably no surprise there, given the name of the company. Lyn, it's great to get you back on the show. I know you've been saying lately on X that something you've said before on this program, which is fiscal is more important than monetary policy right now. So, let's start there. Why is fiscal more important? And from there, we'll dive into ‘big, beautiful bill’ and all the rest.
Lyn: Yeah, so thanks for having me back on, and I would caveat that fiscal is more important than monetary policy, currently. There are other eras in macro history. We're in monetary dominance, and monetary policy is kind of the forefront. But in this environment, for years now, I've been arguing that fiscal policy is more important, and there's a couple of main reasons for that. One is that with the existing stock of debt outstanding, as well as the structurally large fiscal deficits, which are partially tied to the existing stock outstanding due to interest expense, that is just a generally more impactful thing for the economy than 50 basis points, or even 100 basis points changes in Fed monetary policy. In addition, it shapes the nature of how monetary policy even impacts me and impacts financial markets. Because if you look over the past four plus decades, really, before we entered fiscal dominance, the main tool that central banks rely on, interest rates, is based on the premise, more or less, that their industry policy will affect the rate of money creation. So, in an era where most money creation is happening from bank lending toggling, higher or lower interest rates can encourage more borrowing or less borrowing. But when the federal government is doing more borrowing than the whole private sector combined—which is currently the case and is an aspect of fiscal dominance—the problem is that they're fairly interest rate insensitive. Basically, the Fed's policies are not really going to adjust what happens to the deficit too much, other than ironically, higher rates can increase the deficit and actually spill more money out into the private sector. And so, that's just a challenge that they find themselves in, where there's really kind of no good answers if you're trying to run a central bank when an economy has over 100% debt to GDP and structurally large deficits. And there, I think there's going to be, continue to be, basically things happening that are different than how most market participants have been kind of trained to expect over the past several decades. And I think we're going to be in this environment for quite a while.
Erik: Joining me now is Larry McDonald, famously known as the author of The Bear Traps Report. Larry prepared a slide deck to accompany this week's interview. Registered users will find the download link in your Research Roundup email. If you don't have a Research Roundup email, it means you haven't yet registered at macrovoices.com. Just go to our homepage, macrovoices.com, click the red button above Larry's picture that says, looking for the downloads. Larry, it's great to get you back on the show. Let's dive right into your slide deck. Page 2, you've got Albemarle, I believe that's a Western Australian lithium producer. Why even is lithium on your mind?
Larry: You know, Erik, we love to look, at The Bear Traps Report, we focus on election cycles and some of the best trades, price in really impressive profits before the election or around elections. And in the case of Chile, you have to look at the world. Lithium is in a very good spot now, because you're talking about devastation, what I call “bombed out villages” where there was a left-wing candidate that was perceived to be the winner in Chile, if most of our planet's lithium comes out of Chile, and so SQM and ALB are two of the primary lithium producers. And as you well know, over the last year, what we call hybrids have taken massive, massive expectation market share from electric vehicles relative to where electric vehicles were supposed to be at this point in time. So, at the end of the day, you have a double barrel capitulation, perfect storm for lithium, which what we believe is, is gone through a massive, what we call capitulation cleansing process, where we're coming out of capitulation. And if you look at that chart, when you get a monthly MACD, Erik, a monthly MACD is a wonderful technical signal. It's a sign of what we call, like as I say one more time, the “bombed out village,” where massive seller exhaustion, and we can get into the political dynamics.
Erik: Joining me now is Rosenberg Research founder, David Rosenberg. Rosie, great to have you back on the show. It's been quite a while. Let's dive right into the obvious. You know, everybody's talking about this market. You and I have had our reservations for the last couple of years, but it keeps charging higher and higher. It seems like nothing wants to stop it. What do you think?
David: I think that what we always have to do, is try and assess what the market is telling us in terms of its view of the economy and earnings and interest rates, so on and so forth, and what your own view is, and that's how you can map out whether or not you want to be long or short or anything in between. So, what is the market telling us? The market is telling us that once we get to this July 9 deadline on the reciprocal tariffs, we're going to be met with yet another reprieve from President Trump and, or that we will see a flurry of deals coming to the fore, which haven't happened yet, but the market's telling you that it expects that the tariff file is going to be in the rear view mirror if it's not already in the rear view mirror. When it comes to the geopolitics, the market is clearly telling you that the fear that there would be either a blockade of the Strait of Hormuz, or that the IDF was somehow going to take out some of Iran's oil export terminals, that didn't happen even when the US went after the nuclear facilities energy, which, of course, is their economic lifeblood, was left untouched. So, you removed that worry. And everybody believes that this war between Israel and Iran, just like the tariff file, is in the rearview mirror. And of course, how this relates, most importantly, on this point of the geopolitics, is ultimately what it means for oil prices. So, oil prices coming back down is viewed as basically a tax cut for the US economy and for the global economy. So that part we can easily explain. There's this prevailing view that with Donald Trump's popularity on the rise, now that he can claim a win from that dramatic strike in Iran last Saturday, that now that he has the political tailwinds, that he's going to have a much easier time getting his “big, beautiful budget bill” through Congress. So, all these uncertainties in the market's mind have been put to bed, that no tariff, war between Israel and Iran is now contained, and the road towards, call it fiscal stimulus, if you want, is intact. Fiscal deficits themselves be damned, but that the budget bill is viewed very positively by the marketplace. So that's what we have on our hands. And all the while, the market believes that we're not going to have a recession, and the market believes that even without the recession, inflation is going to fall sufficiently to pave the way for the Fed to cut interest rates. So, this is not a cup-half-full narrative from the stock market. This is a case of the cup-being-entirely-full, and that's where we are today. I have a different view than the markets, and we'll see how it plays out, but that is the signal from the market pricing as we sit here today.
MACRO VOICES is presented for informational and entertainment purposes only. The information presented in MACRO VOICES should NOT be construed as investment advice. Always consult a licensed investment professional before making important investment decisions. The opinions expressed on MACRO VOICES are those of the participants. MACRO VOICES, its producers, and hosts Erik Townsend and Patrick Ceresna shall NOT be liable for losses resulting from investment decisions based on information or viewpoints presented on MACRO VOICES.
