Transcripts
Erik: Luke Joining me now is Forest For The Trees founder, Luke Gromen. Luke, we've got a new year, you're the first voice on MacroVoices for 2025. We chose you intentionally because you have such an excellent, high level macro perspective on so many different markets. So, holy cow, we've got a new year, rapidly changing geopolitics, an incoming presidential administration that couldn't be much different from the outgoing one. Where should we start? How should investors think about the big picture of what 2025 looks like? How's it going to be different from 2024?
Luke: Thanks for me on, Erik. It's great to be here. Happy New Year to you. I think this year, we're exiting ‘24 and entering ‘25 with the US dollar, as measured by DXY, both that and the 10-Y Treasury Yield, basically on knife's edge of a, won't say a crisis, but I'll say a bumpy period. The dollar has borderline too strong, it's causing Treasury Yields to go up with the dollar. And so, it leads to me to an outlook, as I listen to what the incoming administration and its representatives are saying, they're talking about a lot of things that all else equal would further strengthen the dollar, tariffs, DOGE, the Fed may be trying to be a bit more hawkish, geopolitical tensions, all these things, all else equal are good for the dollar. And anything it's good for the dollar is going to be bad for 10-Y Treasuries, long term Treasury market, and anything that, you know, I think we're at about 4.7% on 10-Y Treasury Yield today, as we record this, I think 4.8%, 5% then there or beyond. I think things are going to start to get really sloppy in risk markets and in the economy, etc., and then we'll see where we go from there. And so it leads to this, I think, sort of two discrete periods of time, as I look out to 2025. For me, it's the next two to three months where I have very little visibility and very little conviction in what's about to happen, because I have very little visibility or conviction in, you know, the 16 cooks that are in the kitchen of the Trump administration, seemingly, but it seems like a lot of them are wanting policies that all else equal would send the dollar up, which is going to send everything else down from here for a period of time. And so, I think we're in for a period of bumpiness the next 2, 3 months. And then I think ultimately, 12 months from now, 6 months from now, later this year, whatever. I think we're going to get policies that weaken the dollar in order to kind of smooth things over and to boost nominal GDP growth. Because in the end, the only way out of this debts issue that we have is with higher nominal GDP growth. So those are kind of the two discrete periods of time, next 2 to 3 months, I have no idea, but I think it's going to be bumpy. And then after that, I think bullish for stocks. It's bullish especially industrials. I think it's bullish for gold. I think it's bullish for Bitcoin, as I think the dollar is going to get weak in one way or another.
Erik: Joining me now is Copenhagen Atomics founder and CEO, Thomas Jam Pedersen. We've 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, it means you haven't yet registered at macrovoices.com, just go to our home page macrovoices.com and click the red button above Thomas Jam's picture that says, looking for the downloads. Alternatively, the YouTube version of this podcast will have the slide deck on the screen as we're speaking. You can find that on our Macro Voices YouTube channel. Thomas Jam, welcome back. I think our first interview last week was well received by the audience. I'm really excited to dive into this one. Let's go ahead and start right into the slide deck at page 3, talking about thinking at scale. You know, something I've noticed is your presentations almost always start with the same slide. I like to start with, which is the Our World in Data Series that talks about global energy consumption by source and breaks down how much energy we're using on a global basis. It seems like you and I both like to think, in terms of the big picture, of how much energy the world needs, how much we need to supply, how we're going to do it. I've noticed that almost nobody else in the nuclear space thinks that way. Why do you think that is?
Thomas Jam: Thanks, Erik, for having me back. Yes, you're correct that this slide is the one that got me started many, many years ago, because that was when I personally started to understand how the global energy system works. So, I went back to that slide many, many times. This is 15 years ago now, and it gives you a good picture of how the whole world works, because the whole world is built on a fundament of energy. And therefore, by understanding the history of how we got the energy as humans, and how this is supposedly changing over the years, you can sort of make the strategy for, in my case, Copenhagen Atomics, into the future. Because from that strategy, we can kind of understand how the energy systems globally are going to change.
Erik: Joining me now is Copenhagen Atomics founder and CEO, Thomas Jam Pedersen. We have prepared a slide deck to accompany this 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 yet registered at macrovoices.com. Just go to our homepage, macrovoices.com and click the red button above Thomas Jam's picture that says, looking for the downloads. Alternatively, the YouTube version of this podcast will have the slide deck on the screen as we're speaking. You can find that on our //www.youtube.com/@macrovoices7508">MacroVoices YouTube channel.
Thomas Jam, it's great to have you back on the show. We're really excited about this special. We're going to spend this week talking about advanced nuclear reactor designs, and then next week, we're going to get really deep on the fuel cycle, particularly the thorium fuel cycle, which is very much central to your reactors design. So, it's great to have you back on the show.
Thomas Jam: Thank you.
Erik: Slide 2, we are going to discuss in this episode, most analysts are talking about, whether or not tripling nuclear energy, which is the talk of the town these days, is too ambitious, or if it's realistic, if it can really be done. That, of course, started at the COP28 conference in Dubai in late 2023. My argument is that three times nuclear isn't enough. If you wanted to fully replace all of the energy that we now derive from fossil fuels, that would take 24 times as much energy from nuclear, not just three times. Thomas Jam and I disagree on that point. We'll come back to that in just a few minutes. So, the purpose of this episode is going to be to explore, is it even possible, and frankly, is it even desirable to try to solve all of the base load energy needs of energy transition, replacing all the energy that we get from fossil fuels with advanced nuclear energy. Is that even a good idea? Is it possible? And if so, which advanced nuclear energy technologies would enable that? Then next week, we're going to go really deep on the fuel cycle, page 3, talking about what the different kinds of fuels are for nuclear reactors. It's not just uranium, and it's not just one kind of uranium. There are several different fuels that are made from uranium, and also, thorium is a very important fuel to understand. So ,all of the fuel conversation, and particularly the thorium energy conversation, we're going to save for next week's podcast, and we definitely encourage you to tune in for that one as well.
I want to start here on page 4, on a chart. Thomas Jam, I know this is one of your favorite charts, as well as one of my favorites. Let's just talk about energy consumption. What blows my mind is, some people will say, yeah, but this is all going to turn around. We're going to start conserving energy, and this is going to peak, and we won't be consuming as much energy in future years as we do today. I think that's crazy. What do you think?
Thomas Jam: Well, this is for the last 120 years, and we can see that it's just been going up and up and up, and the number of people on this planet has also been going up. And as more and more people get more prosperity, they get refrigerators and cars, and running water or toilets, and we will use more and more energy. The question is, what is the composition of that energy? Is it mostly fossil fuels, as it is now, or has been in the last 120 years? Or will there be other forms of energy in the future? And I think that's a very interesting discussion.
Erik: Joining me now is Robert Kahn, who's the Managing Director of Geo-Economics for Eurasia Group. Robert, it's great to have you on the show as a first-time guest. Needless to say, there's no shortage of geopolitical topics for us to discuss. Let's start with President Trump 2.0, I think a lot of markets are discounting the idea that, boy, when President Trump comes in and does all the things he says he's going to do, it's going to be great for markets. I think there's another view, which is there's a few folks in Washington that are pretty threatened by President Trump and are probably going to do everything they can to sabotage him. So, what does this really mean for the outlook for markets?
Robert: Well, Erik, thank you for having me on. And you're right to start with Trump 2.0, I think you're right to raise the question the way you did. I think we are on the cusp of what might be an extraordinarily transformational period for the US economy. I think the markets are likely too sanguine, underestimating how disruptive the Trump policies that are going to likely be put in place over the next few years are going to be. There's both upsides and downsides to these policies. The first thing I always emphasize is the high degree of uncertainty that we're dealing with right now, part of that is Trump's own decision making style. He can be volatile. He can change his mind. He can override his advisors in ways that even his advisors don't know or don't well predict. So, we certainly have a degree of Trumpian uncertainty, if you will, that we're dealing with. But that said, market pricing, particularly over the period since the election, has leaned towards being quite sanguine about what's to come. And I think there's a number of factors for that. Certainly, part of that seems to be that there's a lot of confidence that the economic advisors that President elect Trump has picked will act as guardrails to bad policy decisions and buffer him from maybe some of his worst impulses, or other advisors. I think that can be overestimated in a chaotic decision making environment with a lot of different voices in the room. I do think that there is also a view out there that the threats, particularly on tariffs, that President elect Trump makes, are more for leverage than for actual implementation that the President recognizes that the US has a lot of leverage in these negotiations, a lot of influence and power. And look, it's the best way to get people to the table, and to make concessions is to threaten the use of tariffs, and he likes to do that. Certainly, I think in the recent threats to Mexico and Canada, that was an element. And indeed, I think he will get some concessions from trading partners that do not want a trade war with the US. So, in some sense, that's part of the upside. So, it's not without merit, and the markets are anticipating that, but mistakes can be made. In many cases, I think the President will want to put tariffs in place. I mean, if you can go back and look at his statements going back to the mid-1980s, he has a strong protectionist streak. I think he feels like the US has cheated on trade and that he needs to finish the job he started in his first term. So, my expectation is that tariffs are going to go up quite a bit over the course of the next four years. In the first year alone, I wouldn't be surprised to see tariffs against China double to around 25%, in that range, 23%-25%, I wouldn't be surprised to see tariffs coming on Mexico and Canada at some point on other major trading partners, particularly those with bilateral trade surpluses against the US countries in Southeast Asia, for example. And when you put that all together, this is a tariff increase that we really haven't seen in almost 100 years. It will be disruptive. It's a major change in the trading environment. Will have knock on effects to other countries as well.
Erik: Joining me now is Rosenberg Research founder, David Rosenberg, David, the last time I had you on the show, you and I were both very skeptical of this seemingly endless stock market rally. You just penned a piece called Lament of a Bear. Give us a summary of what that piece is about and what your current perspective is on this market.
David: Well, thanks for having me on the call. Lament of a Bear was just doing, I think, what any analyst or strategist or economist should do at the end of a year where, for the second year in a row, the stock market just pulled a major upside surprise. I'm really not alone, when you think about it, that the consensus on the S&P500 this time last year, for the end of this year, was 4800, and here we are, well north of 6000. And the point that I was making in my piece, and it was really an exercise of putting myself in the shoes of a bull and understanding and trying to appreciate what the other side of the debate is, and what the stock market is really telling us, because the stock market, we could say, well, it's crazy, it's stupid. The valuations are insane. But I'm not going to say the stock market always gets the story right, but it is a broad and liquid market and collective positioning by 1000s, if not hundreds of 1000s of participants, and they're not stupid. So, it was an exercise in really trying to more deeply understand what the message is, and maybe tipping the hat to the bulls instead of arguing and calling it a bubble every single day in my missives, and it may still be a bubble, but I think at the margin, what changed for me was, well, maybe it's not a bubble. And by that, I mean we're spending so much time looking at valuation metrics in the classical sense of 12-month trailing P multiples, 12-month forward multiples. And of course, when you look at the multiples on a one-year forward basis of ‘22 to ’23, you're in the top 5% valuations of all time. But we have to consider that the stock market is a long duration animal, and there are times when perhaps the one-year trailing or forward multiples are not the most appropriate way to assess or value the market, and we have to come to the conclusion that the market is telling us that the generative AI craze is something that's very close to what the internet did back in the 1990s. And of course, you date the start of the internet mania in 1995 when Netscape went public, and it went from a bull market to a raging bull market to a mania, and then to a bubble that inevitably burst, as all bubbles do. It did take five years for that to happen, and if you were there in 1997 and ‘98 and even in a ‘99 yelling bubble, bubble, bubble doesn't matter, the market still ripped in your face, inevitably, there was a day of reckoning that came down the road. I think that what's happening this time around, is very similar in the sense that the market is taking a longer time horizon. If you build an assumption that AI is a major inflection point in the technology curve, that we've had a real model shift in this sense. And I think that you can say that, yeah, it's going to have a major impact. We don't know how it's going to be regulated in the future. Nobody knows really what the total available market is going to be, and so a lot of assumptions are being made, but I think we can say that AI is a game changer. Call it “internet-light,” and that was a game changer, as we all know, and has future positive implications for productivity in particular, and that's important for any investor. Because a fundamental or a secular shift in productivity is going to have a major impact on unit costs in the business sector, and then what that means for corporate profitability in the future.
So, I think that the reason why the stock market, through thick and thin and through good news and bad news in the past couple of years, has continued to march higher is that the stock market has taken on a much longer time horizon than has normally been the case. I know that's going to sound a lot like, well, it's different this time or new era thinking. And I'm saying, well, no, not really. We’ve seen a handful of these technological innovations that really causes a big shift in the technology curve, that then leads to a whole bunch of assumptions on what the future is going to look like in terms of what I just mentioned, productivity growth that leads into profitability. And what is the stock market? After all, the stock market is always operating, not on the here and now, and it's not operating on lagging statistics. The stock market, by definition, is filled with assumptions and expectations about the future, and only in the future do we find out the extent to which the market overpriced, what was going to happen, and that's ultimately how bubbles burst. So, I tip my hat to the view that the market is giving us a very important message about what it believes. And what it believes is that the long term, not 1 year, not 2 years, not 3 years, but 5 years, or 10 years, that AI is going to be a fundamental game changer as far as what it means for the economy. And it's all very positive. Of course, there'll be winners and losers as far as our personal lives are concerned, but in general, the belief that it's going to lead to a lower corporate cost curve is bullish for profits, and not just for the here and now, but for the future. So, I think that what's happened here is that the stock market investor at the margin has lengthened his or her investment time horizon more than it's been the case in the past. And what I missed in this rally, this huge rally, is not appreciating the extent to which AI was going to compel investors to lengthen their investment time horizons as much as it has now. On top of that, we have the Trump victory and major thin majority in the House, majority in the Senate, clean sweep. I don't really believe that Trump is going to get his corporate tax cuts through, because the House is just filled with fiscal conservatives who want to bring the deficit down, but I do think that, and really, this is coming from the Lament of a Bear, we have to make the assertion that Donald Trump, as a standalone event, is bullish for the stock market, because his administration is clearly going to be very business friendly. So, you're taking a look at what my biggest concern was in the lead up to the election the shortly thereafter was, would he boost tariffs, 20% on everybody but China, and 60% on China and engage everybody into a global trade and tariff war. What would the Fed's reaction function to that be? And that had me very concerned for maybe a couple of weeks. And then he put together his economics team, which I would have to say he gets full grades on, and I think especially Scott Bessent, his Treasury Secretary, I'm pretty confident, is going to restrain some of Trump's most damaging impulses, especially when it comes to trade policy. So, I don't think we're going to be getting into a big tariff war. I think that even, as we saw already with the threat for Canada and Mexico, that he was using tariffs as a weapon for border security concerns, it's really being used more as a tactic. So, I'm relieved about that, less concerned about there being a tariff war, and of course, whatever inflationary effects there would be. And we have a president who is going to, even if he doesn't get his tax cuts through, he is going to be deregulating substantially, obviously, very big, important implications for the financial sector and for small business and deregulation, ipso facto, like AI, leads to a lower corporate cost curve. So that's bullish for the stock market, and there's no doubt about that. And on top of that, drill, baby drill, we're going to get a lot more energy production that will lead to lower oil prices, and that will be beneficial for, pretty well every aspect of the economy, especially industries that are heavy users of energy, because it means that their profit margins are going to improve.
I still have not acted on what I'm talking about, because I still think there's a lot of question marks, and I'm concerned about putting the valuations aside, which I had mentioned, we could argue that maybe this is not a bubble, after all, if you're taking a look at the stock market valued on a long term basis, so long as those assumptions that are being embedded, as far as AI is concerned, prove to be appropriate. But we're not going to know that for some time yet, and this stock market clearly is going to be forgiving, but certainly from a public policy standpoint, the Trump victory is clearly positive for the stock market. My concerns, really is, that sentiment is wildly positive, and market positioning is showing that this is a very crowded trade right now to be all in on the S&P 500. So, I have other issues, when I take a look and I see that portfolio managers in the industry, on the equity side, have barely more than 1% cash ratios, I get a little unnerved. You know that? What if something happens that upsets the apple cart? Portfolio managers, institutional portfolio managers, do not have the liquidity, so there could be forced selling. So from a fund flow standpoint, market positioning standpoint and sentiment standpoint, sentiment, every sentiment measure is just off the charts, and I tend to be a contrarian. So even though I was willing to acquiesce and talk about how perhaps the structure of the market's thinking has changed because of AI and the reasons why you could be more bullish because of the Trump victory, there's other things, nagging concerns I have right now, which is why I've written about these things. And I've also said, by the way, you do what you want to do, I haven't really adjusted my portfolio just yet.
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.
