Transcripts
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.
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 the.com 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.
Erik: Joining me now is Tressis chief economist and author Daniel Lacalle. Daniel, it's great to get you back on the show. I want to start with the big picture here of boy, we've had so many guests on this program telling us, okay, the bottom is not in for the bear market, the hard landing is coming, the recession is just around the corner. But boy, look at this S&P chart, it sure seems like the market didn't get the memo. And the recession that everybody's been anticipating for a couple of years now, a lot of people say it's already happened. But boy, it's not showing up in the market data what's going on?
Daniel: Well, I think that there's a combination of looser monetary policy than what many anticipated. And an additional element of a more benign view about inflation. I think that basically, if we look at what should have been 2023, many expected a much larger contraction and money supply in the balance sheet of central banks. If you look at the balance sheet of the Federal Reserve, it's still 50% of GDP, same in the case of the sorry, 30% of GDP in the case of the Federal Reserve, 50% in the case of the ECB. And if you look at, for example, the window of liquidity that the Fed provides, it's gone from $20 trillion to $220 trillion. So we are in a much larger expansionary phase, precisely because monetary policy is significantly looser than what people may have expected. On top of that, inflation is coming down slowly, but to a level in which market participants seem to be happy to perceive that there will be a sort of soft landing. I think that the market is happy to believe in the soft landing narrative, despite the weakening of macroeconomic indicators, and is happy to take more risk. Assuming that if things get worse on the macro level, central banks will massively inject liquidity and therefore lead to multiple expansion. And this, I think, it's very evident. For example, if we see what the S&P500 equal weighted is doing, the S&P500, as you know, is rising. However, it's being led by seven stocks. If we look at an equal weighted S&P500, it is actually showing a pretty dire environment that is more consistent with a weak economy, with weak prospects for the economy, and persistent inflation. So, I think that the market is not so, let's say, optimistic. I think that what the market is more focused on is on the idea that if central bank liquidity injections remain, and the policy is accommodative, which it is, and we saw it with the Silicon Valley Bank, and regional banker crisis, then it's better to take risks in the long duration, equity assets like technology, etc.
Erik: Joining me now is ECRI co-founder Lakshman Achuthan. Lak 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 registered yet at macrovoices.com. Just go to our homepage macrovoices.com, click the red button above Lak's picture that says looking for the downloads. Lak, it's great to get you back on the show. I'm really looking forward to this because boy, last time we spoke, the long awaited recession was still on deck. We were still expecting it, you thought a hard landing was much more likely, as did I. We saw at that point the stock market was really turning down. Well guess what? It's turned back up again, which a lot of people didn't expect back up above the 200 day moving average. It's kind of causing some people to question whether or not that hard landing is still on deck, is it?
Lakshman: You know I think it is. Thanks for having me back. But I think it still is on deck. We spoke in August. You're absolutely right. We thought a hard landing is more likely. We've been continuing to work through all this post-COVID and kind of structural crosscurrents that were in the mix that we were talking about back then. And we continue to rely on our cyclical framework to kind of see the path forward, including: is there a real acceleration? Is there a soft landing taking shape? And when we look at the cyclical indicators, it doesn't seem to be in sight, yet. So the market is hopeful, as you said, it's been working up different narratives of kind of threading the needle with inflation coming down, yet growth not coming down that much. And that's a hard needle to thread. I brought a whole bunch of stuff for us to talk about today, to kind of help listeners and all of us see what we're looking at in terms of these cyclical indicators. And at the end of the day, I hope there's some more clarity on the direction of where growth and inflation are going, both in the US and abroad.
Erik: Joining me now is Goehring and Rozencwajg co-founder Leigh Goehring. Leigh, it's great to have you back on the show, we've got an exciting topic that's a little off the beaten path for today's show, which is the connection between commodity prices and changes in monetary policy regime. Now I'm sure a lot of listeners are going, what? Why don't you start by explaining what does commodity prices have to do with monetary policy?
Leigh: That's a really good question, Erik. And the answer is, I really don't know. However, as I'll explain, as I go through my talk today, is that we're now entered into a situation where commodity prices are radically depressed relative to financial assets. And, in fact, they've never been more depressed than where they are right now. And if you go back over the last 120 years, which really represents the modern financial world that we live in, there's only been three times previous to this instance, where commodity prices have been this depressed.
Erik: And what do you mean by this depressed, depressed relative to what?
Leigh: Relative to financial assets and primarily, say, just use a broad index like the Dow Jones Industrial Average. And what you do is you look at the returns of what commodities have produced relative to the level of the stock market. And going all the way back to 1900, that it turns out, like I said, there's only been three periods previous to this were commodities that have been as cheap relative to financial assets, in this case, represented by the Dow Jones Industrial Average. And what were those three periods, the three periods were the late 1920s, the second period was the late 1960s, and the third period was the late 1990s. And then you have today, which is basically represented starting in like 2019 to 2021.
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