Lyn Alden

Erik:   Joining me now is Lyn Alden, best selling author and founder of Lyn Alden Investment Strategy. We have a slide deck to accompany this interview, you'll find the download link in your Research Roundup email, if you don't have a Research Roundup email, just go to our homepage,, look for the red button above Lyn’s picture that says “looking for the downloads.” Lyn, it's great to get you back, and especially to have a long form opportunity to really dive into our topic this week, which is broken energy. Both of us feel a strong passion that our energy systems are broken, and that that poses a very significant risk to society. But I think we each have different perspectives on precisely what's broken, and why fixing it is so important to our future. So let's start there and listen to your thinking, what's broken about energy? And why is that important?

Lyn:   So first of all, thank you for having me on. And like you said, energy is a topic I'm passionate about. And for context, my background is a blend of engineering and finance. And so, I'm an electrical engineer by training, I originally wanted to pursue energy systems, actually was one of the careers that I considered, and just kind of where the jobs were at the time. And also due to my kind of shifting interests, I am mentally shifted more towards aviation, than more towards engineering management of an aviation facility that eventually went full time into using that kind of quantitative background to go into finance and related areas. But this is like an area where there's, I think of an entry number of intersections, and perhaps not enough people looking at it from both the engineering side and the financial side. And if anything, it's too much from the political side. And so I guess to answer your question, why I think energy is broken. I think in large part, it's because we've been in an era for at least a couple of decades now, where politicians have a bigger influence on what kind of energy systems get built than engineers, whereas it should be the reverse and we should be running energy based on what is most efficient, what is cleanest, what is most long lasting, what is most resilient, what is safest all these different metrics of success and instead, we kind of latch on to these narratives and pursue those significantly. And then, you know, research comes out that always kind of emphasizes the strengths of those approach, what kind of overlooking or sweeping aside the downsides. And a lot of things are done for optics rather than outcomes. Things like putting solar panels in places that are just not even suitable for them, like cold or cloudy types of climates, just because then we can say, “look how much more solar we added,” rather than saying, “was this even the right thing to do at this particular region?” And the reason this matters is, because people asked me like, what could go wrong over the next 10,15 years? Like, what keeps you up at night, or what are the biggest risks? And it's not really things like recessions, or kind of routine economic challenges, all of those can be overcome. Obviously, they impact people very negatively at times, they can be devastating. But as a society, we can move past these things. Whereas the absolute biggest things that can more persistently and severely disrupt us in terms of standard of living, and just overall kind of global safety and abundance is basically a few key things.

One would be obviously like, outright war. So that's obviously a variable. And the other main one would be insufficient energy security. So, acute energy shortages, we saw a taste of that in Europe fairly recently, we see it in developing countries on a more regular basis, at least some of them. And ironically, Europe's energy shortages, actually, in some ways came up more acutely in other countries. So for example, when they had to bid almost any price to get LNG, they're rich enough to be able to pay a very high price in aggregate. And that kind of sucks energy away from places like Pakistan that get outbid, and then they end up having outright power outages, for example, because there's a finite amount of LNG capacity that now more entities are fighting over. And so, the least wealthy entities are the ones that end up not getting a seat at that table. And so, war and energy security, I think, are like the two single biggest things to not fumble. And of course, energy security feeds into food security as well.

And, probably the third topic would be just overall quality of our money, which is why I wrote Broken Money. But at the end of the day, it's what we want to do with our money, is you really want to buy energy, and we want to organize that energy in useful ways. So most of our economic development really comes from two key things. One is how much energy do we have to harness, to shape our environment in ways that suit us? And then, how efficiently are we using that energy? So for example, a processor today does a lot more computations per unit of energy that a processor 20 years ago, or even 10 years ago. And so those are kind of the two main variables that we're always trying to optimize for. And everybody is fully aware of the energy efficiency variable. But I think as a global society, at least, at least in the developed countries, we've become very detached from understanding where energy comes from, how bad it is, when we don't have sufficient energy. And that feeds into our politics, it feeds into our priorities. It feeds into how comfortable we are with certain scenarios. And so, I think that overall, that's what I consider to be broken about energy. And what I consider to be one of the larger risks going forward, is basically when narratives overtake math as how we manage our overall energy security going forward. So, I know your take is similar to that, but you probably come at it from somewhat different perspective. So, what would you emphasize or add to that or disagree with that kind of overall view?

Jim Bianco

Erik:   Joining me now is Bianco Research founder, Jim Bianco. Jim, it's great to get you back on the show, it's been way too long. I have been just thinking about you ever since Wednesday evening when you tweeted what I thought was one of the most insightful tweets I've seen in a long time about word salad. But just for anyone who hasn't seen that, let me set the stage for our listeners. About three weeks ago now, there was first some dovish indications from the Fed that, in that crazy Sunday night session sent gold to upwards of $2150, just in the thin liquidity of Sunday night trading. But then it all reversed the next day when Jay Powell basically told the market: look, it would be premature to start speculating at this point, about any kind of rate cuts, it's not time for that yet guys don't do that. Then after that, just about every macro data point that came out, was tilting, at least slightly on the hawkish side. We ought to expect the Fed to get more hawkish at last week's FOMC that caused gold to sell off, it caused a lot of trepidation and equity markets. Everybody was kind of on the edge of their seat. And then the Fed surprises everyone by not only tilting back to the dovish side, but the dot plots and the messaging out of the FOMC statement all indicate that they're basically announcing that they're getting ready to go to rate cuts, exactly the opposite of what Jay Powell had said just a couple of weeks earlier. Then Nick Timoraos asks Jay Powell a question in the press saying, how come you kind of said one thing and then said the opposite thing? And as you put it in your tweet, the man who has earned international accolades, Jay Powell for his ability to speak clearly in plain language that everybody can understand to explain monetary policy decisions, suddenly can't form a coherent sentence to save his life. You called it word salad. What's going on here? How come suddenly Jay Powell, Mr. Clear-concise-and- easy-to-understand, can't explain himself?

Jim:   Well, I think the simple answer is, is that he's been asked a question that he doesn't have an answer to. And that's why he's kind of just, you know, word salad eating all over the place trying to come up with one. And specifically, the question that Nick Timoraos asked him was, you’re right, December 1, it was premature to talk about cutting rates. Back in early November, they heralded the sell-off in the stock market, and higher interest rates is doing the work for the Fed. And so therefore, we don't have to raise rates anymore. Because the stock market's tightening financial conditions, higher interest rates are tightening financial conditions. And then almost immediately after they said it, we had a monster rally in stocks and in bonds. Bonds, in November had their best month in 40 years. And that continued into December. So what Timoraos was asking was, what happened to tight financial conditions J? Now they're very, very easy. The market is not doing the work for you anymore. And he didn't have an answer to that. And it's almost like, you know, the cynic in me likes to say that the Fed has kind of made up their mind already in what they want to do. And then they say, hey, look at these indicators over here, and they justify what we want to do. And then you say, wait a minute, all those indicators just reversed. Okay, nevermind those indicators, go look at these over there. And those are the ones that tell us what we want to do. And it seems like he's made up his mind that he wants to cut interest rates, or at least end interest rate hikes. It seems like he's bought into the narrative, that inflation was indeed transitory. It was a one-time thing. You know, it took three years as opposed to three or six months, but that’s transitory. And now they don't have to worry about it. And when I say he bought into it, you remember as well as I do all through ‘22 and ’23, he was channelling his inner Volcker and saying, yes, when inflation comes down, we don't want to ease too fast. And we don't want to stimulate the economy and then have another echo of inflation, go back up. All that's out the door right now. The Fed is in a very dovish policy. And I might add, that if you’re kind of updated through the day, we're talking, it seems like what's been happening is the market has taken his dovish words. And it's gone way beyond where he thought it would go. You know that they're pricing in six rate cuts. The market is for 2024, where the Fed dot chart last week said that they do maybe three. So you've got a bunch of Fed officials, starting with the New York Fed President John Williams, and today even Chicago Fed President Austan Goolsbee, coming out and saying, hold on here, guys, we said that we might be done and we might be cutting rates. But nobody said anything about six rate cuts. Yet, you know that you're getting a little bit ahead of yourself. So they're trying to push back on that right now. But yeah, the word salad is largely because, Jay, the market is easing rapidly, is that stimulative for the economy? And if that is stimulative for the economy, and is going to create a wealth effect, and you know, to use the crypto term, everybody's going to go out and buy Lambos? Does that mean we're going to wind up with inflation in ‘24? He doesn't want to say yes to that question. He doesn't want to say no to that question. So he kind of word salads his way through the answer.

Matt Barrie

Erik:   Joining me now is founder Matt Barrie, Matt has written an excellent article to accompany this week's interview. It's called “AI-pocalypse Now” you'll find the link in your research roundup email. If you don't have a research roundup email, just go to our homepage at Click the red button that says “looking for the downloads” above Matt's picture. Matt, last time that we had you on was in August, we agreed on a couple of things. One was that you would probably wait a year or so and come back and give us an update. Well, guess what? More than a year's worth of stuff has happened in the last three and a half months since you were on. One example of that is when we did that interview three and a half months ago, we talked about what was coming and the possibility of people's voices being cloned and so forth. Has everyone heard in the opening to this week's show? For the first time in MacroVoices history, I didn't record that myself. It was in fact AI, programmed by you, impersonating my voice. And even our editor whose job is to edit my voice all day long every week had to email back and say, is this a joke? Is this real? You did this yourself? So boy, a lot is happening, what else is happening?

Matt:   Well, AI seems to be powering through the modalities at an incredible speed. And you're very correct in saying that, in a space of a few months, we're seeing years’ worth of progress in the image space, which is essentially solved or if not solved, it will probably be solved within the next couple of quarters. AI has managed to do two things: One is its ability to create any image to the level of a human ability, perhaps even greater. And the second is the ability to analyze an image to a level of human perception, perhaps greater. And I think a lot of people have cottoned on to what the first is, you can type in a text prompt into a package like Stable Diffusion or Midjourney and get an incredible image out, just about anything you can think of can be generated. I believe that there are going to be some applications that I think they're going to be quite scary for, for people more generally.

Imagine tying in this functionality into CCTV and the ability for the AI to know exactly what's happening in the scene, exactly as who was in the scene. And then couple that potentially with its knowledge of psychology, in order to be able to interpret the nuances and the going-on, and do that at scale. And effectively, you're going to see… If you think you have no privacy now, I think the end of privacy is rapidly coming because the sensors are all going to be connected, and the AI is going to be able to look across all of them as well across other modalities. And I think the ability to understand what the general populace is doing is going to reach a level way beyond what we've been seeing in China. That's just in the image modality. And from there, what we're doing is, we're seeing the AI make incredible advances in the video modality, every couple of days, there's a new commercial application or open source application coming out with the ability to do things like take an image and turn it into a short video sequence. You're seeing that with runway labs, you're seeing that with bigger labs and so forth. You're seeing advances in Bard and Microsoft Copilot, where you can chat to videos on YouTube, you can ask videos questions, you get a video to locate a particular sequence where it might explain an answer to a query that you're providing to it.

I think that from here, the advances are going to be pretty mind blowing. I mean, you're seeing the ability to create full 3D scenes from just 2D images. And you're seeing that with a range of different software packages based on things like neural radiance fields. And in the last couple of weeks, there's been a pretty incredible breakthrough,  picker labs where they've got a version 1.0 of a text to video piece of tooling. So you can type in Erik Townsend walking down the street, enjoying a nice Vancouver summer's day. And next minute you get a video sequence of exactly just that. And I think we talked about in our last interview, that we're not that far away from being able to type in something like: generate from the Top Gun 17 Vladimir Putin fighting Tom Cruise over Paris and getting out a feature length movie. And I really do think that in the next 12 months, we're going to see the ability to do that. And that's going to really create a lot of opportunities as well as disrupt a lot of industries. I think Hollywood itself is going to be completely turned on its head. I think that there will be a proliferation of static video content that would be generated.

One might argue that the AI at this point isn't creative enough to be able to generate an enthralling storyline when it generates these videos, but I will counter that potentially with maybe you know when you're playing around the chatGPT you can't get it to crack a joke. Maybe not putting the right prompt in because some of the latest testing of GPT has found that in the torrents test of creative thinking, that it performs in the top 1% versus all humans for originality and fluency. And certainly, I think as the model scales, and more training data is put in, and we get new versions of GPT and other similar models, I think that creativity will certainly emerge with that middle scale. And so I think you're going to have a whole bunch of crazy things happen. I think Hollywood is going to be completely up ended. I mean, there's a writer strike just recently and an actor strike, and I really think they underestimate the speed at which this technology is going to come into the particular field. But I think we're rapidly approaching the day where your 100 million dollar per movie per film star cost is going to be rapidly unachievable, and people have complained that you know, when you watch Game of Thrones season eight, that they really hacked it up when George RR Martin kind of ran out of content, and they had to kind of make it up on the fly. But season eight will be fixed, the fans will come out and generate their own versions of season 8, season 9, season 10, season 100, perhaps Game of Thrones in space Game of Thrones in macroeconomics. Perhaps the lead character will be Erik Townsend, maybe the leading lady might be Adriana Lima, or Angelina Jolie or whoever it may be. And I think you're going to see this whole proliferation of content out there. And it's going to be pretty crazy times.

Marko Papic

Erik:   Joining me now is Marko Papic, partner and chief strategist for Clocktower Group. Marko is a geopolitical expert, and that's what we're going to focus on. Marko, obviously, we used to say, well, everything that's on everybody's mind is Russia/Ukraine almost seems like it's been forgotten in the wake of Israel/Gaza. But let's start with Russia/Ukraine, is the intention of the US and the EU to kind of push this under the rug and tells Zelenskyy it's time to negotiate, or is that an incorrect message?

 Marko:   You know, that's such a great question. And first of all, I just want to thank you for having me on the show. It's a great question because it gets right to the heart of what I do for a living. And the framework that I employ, to sort of generate geopolitical alpha for investors. No, it's not in their intention. It is not preference, I think the preference of the European Union, various member states in the United States of America is to continue to push against Russian attempts to expand the sphere of influence. But preferences of policymakers are not diagnostic. They're not relevant for investors. They're not relevant for us as analysts, what matters are material constraints that constrain policymakers from getting their way, from getting their preferences. And this is why, I think that the entire industry of geopolitical research or geopolitical analysis that tries to convince its clients, many of them in the asset management industry, that getting closer to policymakers is the way to generate alpha. In other words, I will tell you what I heard at a cocktail party in Washington, DC, and then you'll make some money off of it. That entire business model, I think, doesn't really make sense. Because both politicians and policymakers, they don't get what they want, they don't get to pursue their preferences. And the reality on the ground, is that there are severe material constraints for continuing this conflict on both sides. By the way, we can talk about what the constraints are on Russia’s side, being pretty incompetent in war might be an obvious one. But from the western perspective, I mean, what you're seeing is a real turn in terms of political appetite, by the median voter, in both Europe and the US to continue the endless conflict in Ukraine. And I think that that's a real big risk to the policymakers in Europe, in the US in perpetually continuing to support Ukraine, in its attempts to recover the lost territories to Russia. And so yeah, I would say that we're at the end of the line. And I think that over the next 12 to 18 months, the pressure on Kyiv to negotiate some sort of a ceasefire is going to increase, not a peace deal. I just want to mention that before you follow up, because I can probably guess that you are going to ask me that I don't think that anyone will ever be able to convince Ukrainians that, you know, to sue for peace and to give up these territories. But there are ways to avoid having to do that, we can agree to disagree for a very long time, in terms of territorial arrangements. And that has been the case in many conflicts around the world that did end.

David Rosenberg

Erik:   Joining me now is Rosenberg Research founder David Rosenberg. Rosie, it's great to get you back on the show. Last time I had you on, the message was: hey, the bear market is probably not over, the final low is probably not in. And the people who are celebrating that it's all unicorns and roses from here probably have the message wrong. I still want to believe that's true. But gosh, look at this S&P chart. What do you make of this?

David:   Well, I think that it has to be said that we have not made a new high for the S&P500. Despite all the efforts and achievements by The Magnificent Seven, it's been almost two years now that we last had a peak in the broad market. So I find it fanciful, when people say to me that we have entered into a new bull market, I think that we have just been range trading for the better part of the year. We know that when you look at the S&P500 equal weight index, which really is a proxy for the average stock, or the median stock, it's done diddly squat all year long. I mean, all the heavy lifting has been in the mid cap tech stocks. And this remains one of the most concentrated markets we’ve had in our hands since the late 1990s, with and broad technology craze. So I would say that there's no evidence, notwithstanding the fact that we've had a nice seasonal, short covering rally that the bear market is over, I think that we've really just been sitting on a shelf. And the market seems to believe that we're going to be in a prolonged soft landing, because we've been in one all year long. So I think that the big surprise, especially for a market that's pressing up against the 19 Ford multiple, that the recession that was delayed was not derailed. And I think that you're going to be finding in the next four quarters, these earnings estimates that you could say have helped underpin the market are going to be ripe for a sequence of declining expectations on the earning side. So the bottom line here is that, what is still not priced in, really that any asset class, maybe it's starting to filter into the oil market. What more important price is there than the oil price? Which is telling you a story, I think of the demand side, So I think that the bear market is still here. We've had intermittent rallies in the context of what is still a bear market, and the answer is no, especially if we get a recession, which I believe is the base case, I think that the ultimate low still lie ahead.

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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.

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