Transcripts
Erik: Joining me now is Ronnie Stoeferle, principal author of the In Gold We Trust report and fund manager at Incrementum. Ronnie, it happens each spring and it's that time of year, the In Gold We Trust report is out. Listeners, you'll find the download link for the full report as well as a slide deck that Ronnie prepared to accompany today's interview. Both of those links are in your research roundup email. Ronnie, let's start with just the big picture for people who might not be familiar with the report, which is kind of the event of the season in the precious metals world. How did this thing come into existence? Who's behind it? What's the motive for it? What's the purpose of it? What will people find in the report? And what's new and interesting, and what's maybe the most exciting thing this year?
Ronnie: Hi, Erik. Thanks for having me. And yeah, you said my name almost perfectly. It's a tough name for English speakers, but you're getting better every year, so congrats. Well I started publishing this report already 17 years ago, and it's an annual report and over the years, it became bigger and bigger. And now it's probably one of the most widely followed publications on gold. And the problem is that it's not about gold, it's trying to understand everything, you know, opportunity costs, equity markets, inflation, that then of course, where interest rates are heading, geopolitical stuff, this whole de-dollarization discussion. Then we talk about mining stocks, technical analysis. We've got a chapter on the crack-up boom, we've got a chapter about narratives and how narratives are created. We've got a chapter about the civil war in the sound money community gold versus Bitcoin. Then of course, we've got two exclusive interviews, one with my dear friend Russell Napier and another one with Zoltan Poszar, and the leitmotif of this year's report is Showdown, because we're seeing three different showdowns at the moment.
First of all, the showdown when it comes to central banks versus, let's say, the real economy. So central bankers after raising interest rates that aggressively over the last year, they are facing not a dilemma but rather trilemma between, fighting inflation, then on the other hand, avoiding a recession or a hard landing. And then on the other hand, financial markets stability, especially in the banking space. So this is the first showdown. And we clearly are in the recession camp. The second showdown is when it comes to geopolitics. I mean, this de-dollarization topic that folks like Luke Gromen are talking about for ages already, this is now really becoming mainstream. And therefore, we dedicated two big chapters to that topic. Also, to the topic, how important emerging markets nowadays are for the gold space. And I think, Erik, we in the in the Western world, we think we are London, New York, that's the center of the gold world. Actually, it's not. The price of gold is more and more being made in Shanghai, in India, in emerging markets in general.
So therefore, we took a deep dive and analyzed what's actually going on in emerging markets when it comes to gold demand, but also when it comes to the infrastructure in the gold space. And then the third showdown is actually for the gold price itself. Gold has made new all-time highs in basically every currency. But in US dollar terms, we've been flirting with new all- time highs, and now we're like 100 bucks below. I have to tell you, the feeling that I have is, in the gold community, it seems that general investors couldn't care less and many gold bugs have thrown in the towel. So, this quite negative sentiment, in combination with a price that is only slightly below its all-time highs, I think that's a pretty good setup. So that's basically what the report is all about. We've got a chapter about CapEx, we've got a chapter about our own recession indicator that we've built. We take a deep dive to the topics of inflation, debt developments, we do technical analysis. So it's, it's a long read, 420 pages, but I think it's it's worth taking the time.
Erik: Joining me now is Tressis chief economist and fund manager, Daniel Lacalle. Daniel, it is great to get you back on the show. It's been way too long and of course, what's on everybody's mind and particularly when your name is mentioned is the macro outlook for Europe. We had pretty good perspective on the European story from some of our guests through last fall. Everybody knows about the energy crisis in Europe and boy, it seems like we made it through the winter, are we out of the woods? Are we headed for more trouble? What do you see in on the horizon and what's the situation look like in Europe?
Daniel: Thank you so much, Erik. Thanks for inviting me and I think you've summed it very well. On the one hand, we have survived the winter thanks to a very mild temperatures, very mild temperatures. And also, because rate hikes have had a very significant impact on commodity prices. So the combination of lower consumption of natural gas and at the same time, lower prices has certainly helped the European Union economy. The eurozone economy though remains very weak. We have had as latest PMI figures show that the manufacturing sector is in its 35th month of contraction. And overall GDP is slightly better because of lower imports certainly, because of higher government consumption, which is certainly not a positive in my book, because it comes fundamentally from higher debt. And because of the services sector remains relatively strong thanks to the tourist season and the amount of spending from savings that were accumulated during the COVID crisis. But those savings are almost consumed. Citizens all over the European Union are feeling the pinch of elevated and persistent core inflation and overall inflation. And the impact of rate hikes is certainly going to have a significant dent on the economy for a very simple reason. In the United States, the real economy is mostly financed through the private sector, and not through the banking system. About 15% of the US real economy is financed through the banking channel according to the IMF. In the European Union, it's 80% of the economy that is financed through the banking channel through direct banking, lending. And we are seeing, for example, in the latest figures from the ECB that lending is more challenging, that credit conditions are tightening very, very fast. So the combination of our situation that has been aided by weaker commodity prices and lower consumption may come back to bite in winter of this year because the European Union hasn't done anything significant to reduce its energy or to improve the energy crisis.
Erik: Joining me now is Tian Yang, CEO of Variant Perception. Tian prepared a terrific slide deck to accompany this week's interview. Variant Perception is very well known for excellent graphs and charts so you're definitely going to want to download this one, folks. You'll find the download link in your research roundup email. If you're not yet registered and don't have a research roundup email, just go to our website macrovoices.com and click the red button above Tian's picture that says looking for the downloads. Tian, it's great to get you back. It's been way too long. Why don't we dive into the slide deck and start with this US recession that so many people have been anticipating for so long that hasn't happened quite when everybody expected it? Is it finally time?
Tian: Yeah well firstly, great to be back. And yeah, I think this is a very good time to review a lot of the leading indicators for the US economy. I think when we talk about recessions, you know, definitions are important. And a lot of times, there's a lot of focus on what we will consider coincident or lagging data. So people look at the employment and nonfarm payrolls, retail sales, GDP. Generally speaking, these are coincident indicators that by the time you see it, is usually kind of too late. And a lot of the underlying recessionary dynamics have already kicked in. So I think the way we think about recessions is to really focus on the leading data. And broadly speaking if you consider, you know kind of classic lead indicators of the business cycle, you know, building permits, ISM manufacturing, and so forth. A lot of them have obviously been signaling stressful while and the kind of final missing piece has been the initial claims, and the continuing claims data. Normally it takes kind of a 20% rally off the lows for these indicators to align with recession. And, you know, given the Big Data revisions that occurred last month, it it's now pretty unequivocal that the labor market data in terms of the leading parts are all signaling kind of stress picking up. And that usually is where you expect to see as the kind of final piece that confirms the recession. So it does from the data kind of modeling side, it does look a lot more recessionary now.
Erik: Joining me now is Mike Green, Chief strategist and portfolio manager for Simplify Asset Management. Mike, it's been way too long, it's great to get you back on the show. I want to talk about everything that's going on. But let's start with this banking crisis. You know, this is one of those things where it seems like everything's okay. But wait a minute, this whole system is designed with an incentive for them to tell us everything is okay, when it's not okay. Because this is a confidence game. So how do we make sense of this? How do you even know when the banking crisis is over?
Mike: Well, the quick answer is that the banking crisis will be over when we actually start to treat the underlying condition. And the underlying condition, unfortunately, is that banks themselves are or depositors or more accurately long a call option on their deposits at banks. They can withdraw them at any time. The value of that call option is a function of the spread between interest rates that are available elsewhere, for example, in money market funds, versus the interest rate that they can earn on their deposits. And the value of any call option is positively associated with the increase in volatility. So by hiking interest rates incredibly rapidly, and driving an extraordinary spread between what banks could afford to spend, and to pay on their deposits and what it can be earned on returns from US Treasuries. They created a huge hole in bank balance sheets, the only way to reverse this was one to have moved much more slowly to this process of this level of rates. And two, no unfortunately, they're going to have to reverse it.
Erik: Joining me now is Ole Hanson, head of commodities research for Saxo Bank. Ole has prepared a slide deck to accompany this interview that you're not going to want to miss. So I highly recommend that you download it and refer to it as we will be discussing the charts and graphs that contains throughout the interview. Ole, it's been way too long since we've had you on MacroVoices, welcome back and why don't we dive right into the slide deck and talk about US interest rates because so much else hinges on that. What's the outlook?
Ole: Oh gosh. I wish I knew Erik. Thank you very much for inviting me back. It's most certainly still a market that's throwing up a lot of surprises and talking points. But yes, the direction of interest rates, short term interest rates in the US has clearly been a major focus in the market over the past six weeks going from expecting a year of no change in terms of rate cuts and further hikes to suddenly a dramatic round of cuts in response to the banking crisis. And since then the market, that's once again, you have just basically looking for heights in the short term, and then cuts later in the year, and then that's really I think, creating a lot of confusion in the market and also uncertainty and it's still it's amazing how resilient some of these markets have been. I would say especially stock is not, it's not my area of competence. But I think we've seen quite a stable market despite all the uncertainty that's out there.
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