Transcripts
Erik: Joining me now is Rosenberg Research founder David Rosenberg. Rosie, it's great to get you back on the show. Let's dive in starting with the economy. How do you see the picture? What's going on? What's the update since the last time we talked to you?
David: Well, I think the update is that the US economy is slowing down precipitously. As we all saw first quarter, real GDP weakened to 1.3% at an annual rate, of course, that was revised lower from 1.6%, and was a surprise to the downside. And that is what we would have ordinarily labelled as stall speed, back when I started the business in the mid 1980s. And looking into the second quarter, right now, the data at hand looks as though we're going to come in somewhat even weaker than that. Our own model is saying roughly 1%. I know the Atlanta Fed is at 3.1%. But I am sensing that data point is a little stale after the disappointing retail sales report that came out for May. The St. Louis Fed Nowcast is actually 0.9%, and we're close to there as well. So let's just say that the view promulgated by Jay Powell at the podium, at the press conference after the last FOMC meeting, when he talked about how the US economy is strong and solid, I really think he was saying that with the lens of looking at the economy last year, when fiscal stimulus and the last leg of the excess savings file propelling the consumer, and of course, double digit growth in credit cards that produced 100% of the growth last year, those three items, collectively, and they are in the rearview mirror. So, I think that we are now seeing the economy decelerate. And the question for the macro bulls would be, what is the catalyst that is going to precipitate a re-acceleration in pace of economic activity? I actually think that, right now, we're setting the table for the recession that got delayed, but did not get derailed. And I think that a lot of those folks that threw in the towel last year on the recession call will be spending the summer picking up those towels.
Erik: Joining me now is Jeff Currie. Many of you know him from his former role at Goldman Sachs. Jeff has recently moved to Carlyle where he's the Chief Strategist of Energy Pathways. Jeff, it's great to get you on the show. It's been way too long since we talked. I want to start with what the heck happened last Friday, through Thursday night, gold market was looking terrific. It had seemingly rejected the 50-day moving average, was rallying very nicely above that. Everything looked great. All of the sudden, as Europe opened on Friday morning, the selling began and just wouldn't quit with gold down 100 bucks in a single day. As far as I could see, there was some US economic data that didn't come out until 8:30, the selling started four hours before that. So I don't think it was economic data. Any idea what happened here? Was there some major change that happened at Friday's open in Europe?
Jeff: Well, it was economic data from the Chinese central bank showing that they had quit buying gold for the previous month. And it also showed some tapering of their gold purchases, as prices started to rise at the beginning of this year. Obviously, I take the view that one month doesn't establish a trend and commodities more broadly, whether it's copper or oil, that is the pattern of the Chinese, when prices come down, they buy a lot more and as prices go up, they taper their demand back. So I guess if you cover all commodities, oil and copper, the behavior you're seeing from the central bank with gold shouldn't be that as concerning, doesn't establish a trend. But for those of you do not understand the importance of demand coming from the Chinese central bank, maybe it's worth taking a step back and talking about why gold, and I’ll throw Bitcoin into that, are the two best performing assets across the financial world this year in 2024.
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, just go to our homepage macrovoices.com, look for the red button above Lak’s picture that says, looking for the downloads. Lak, it's great to have you back on the show. It's been, I think, more than six months now. For any new listeners, you are Mr. Cycles, business cycles, and so forth. Let's start with an update on the business cycle as it stood when we last had you on in November. I think it was shortly after that, that you added a new call, which is described on page 4 of the slide deck. So what was the outlook back in November? How did it change with this global growth outlook that you have modified? And what's the outlook from here?
Lakshman: Thank you, Erik, for that intro. And thanks for having me back. November, this seems like so long ago, November of last year, we were talking about a tug of war in the United States, between some cyclical impulses to the downside and the forward looking data. And some non-cyclical offsets, really a lot of excess spending and whatnot, pushing it to the upside of fiscal spending. And how that tug of war was ongoing. It was keeping us, the United States, out of recession. And it remains to be seen how it would be resolved. So later, at the end of 2023 in December, we made a different turning point call. But I think it impacts kind of everyone including the United States. And we made, what we call a global industrial growth upturn call. So specifically, our leading indicators, we're anticipating that industrial production growth, IP growth, around the world for all the major economies, including all the major emerging markets, that would bottom and turn up, it’s the growth rate would turn up in 2024. And so, with that backdrop, there's a little less wind in your face for different individual economies. And it really has kind of dual implications for people thinking about the macro world today. It certainly signifies a recovery in industrial activities. So, from the demand side, there's a rising demand and industrial activity related things that all fall over or flow into global trade itself. And that's a positive. The fly in the ointment in a way is that it also contributes to rising international inflation pressures due to that increased goods demand. And so that's kind of what we call the sting and the tail here.
Erik: Joining me now is Bianco Research founder Jim Bianco. Jim, it's great to get you back on the show. Last time I had you on you made, what at the time was a profoundly non-consensus call. You said you thought inflation had bottomed, almost nobody else thought that was possible at the time. And also, everyone was certain that rate cuts were coming and coming soon, you were again, non-consensus saying, wait a minute, if they're going to do it, they've got to do it by either May or June. If they don't do it by then, they're not going to do it until after the election. Nobody was talking about a rate hike. At that point, the only thing anybody was discussing were rate cuts. Boy, what a difference three months can make. So, give us the update. How has this evolved?
Jim: Thank you for having me back. And I would argue, well, let me start with inflation. When I talk inflation for this discussion, I'm talking about a year over year change in CPI, the headline number, it bottomed at 3.0% in June of 2023, it got earlier this year to 3.1%. And currently, it's now at 3.4%. And the base effect is looking like, the base effect, meaning what are the measures from a year ago, you're going to be dropping from the inflation rate, there's a bunch of zeros, there's a zero and a couple of point ones from a year ago. So, it looks like it's going to at least stay at these levels and probably go to the upper 3’s on the year over year change in CPI. So yeah, inflation looks like it bottomed about a year ago, about the time that Wall Street invented the term “the last mile” from 3% to 2%, when they invented that term last summer, was exactly when we were pretty much done with the decline in inflation. I still think that inflation is going to continue to be a 3-ish percent problem, maybe a 3% to 4% problem. Not much more than that. But that's enough to cause a big problem.
As far as the rate cuts g, there's the problem. The Fed is, there's a phrase that I've been using that the Fed is not partisan, but they are political. And what I mean by that is they don't sit around the FOMC room and to say, gee, who do we want to elect in what policy should we get to elect the guy we want? I don't believe they do that. But they do know it's an election year. They do know that they've been tasked with lowering inflation and their reputation is on the line. So, if inflation year over year, CPI bottomed a year ago, and is staying sticky in this 3% range, then they're going to have a very difficult time finding a place to cut rates. And I've argued, by the time you got to June, and the June meeting is two weeks away from the day we're recording, if they don't cut rates at that meeting, and the probabilities are about 1% is what the market is pricing in that they will cut rates to June meeting. Then the July 31 meeting, which is between the Republican and Democrat convention and the September 18 meeting, seven weeks before the election, are off the table. Maybe in the November, December meetings, they could revisit rate cuts only if the economic data weakens, and or the inflation data weakens, but it's not right now. So I think that we're several months away, if at all, at seeing some kind of rate cut.
Erik: Joining me now is Energy Outlook Advisors founder Dr. Anas Alhajji. Anas, it's great to get you back on the show. There's so much going on in energy markets, let's start by revisiting, your calls from the past have been incredibly precious. What you've told us in the past is basically, look, there's plenty of room for geopolitical friction in the system to cause price increases, but we're not headed back towards more than 100 bucks a barrel until we get more demand, which you thought would be coming at some point in the future. And or we get a reduction in the amount of spare capacity that exists within OPEC. So let's start with an update. And an outlook on where we stand for the second half of the year. Is that demand that you were looking for going to come back in the second half?
Anas: Absolutely, based on our view, our view has not changed for the year, we still predict growth in the oil demand in the amount of 1.48 million barrels a day. But here's the problem that we have. If you look at the latest report of the International Energy Agency, the IEA and OPEC, you see a very large differences. OPEC thinks that growth in 2024 and global oil demand will be 2.2 million barrels a day. But the IEA thinks it's only 1.1 million, so literally half. And when you look at those differences coming from the two largest organizations in the oil business, you start asking questions, what's going on? And as you know, we talked about this before, we have major deterioration in the data quality since 2017. It got really worse with COVID. And then with the invasion of Ukraine, the grey fleet or the ghost ships, Russian, whether Iranian or the Venezuelan. So, we have serious problems. But the biggest problem we have this year, in addition to all the data deterioration, what we've seen is media reports and stories from the oil market, are either fake news, or they are tilted toward kind of supporting the Biden administration in the United States or the Modi administration in India, in a way that we've never seen before. Both of them are running for election. And you will see a story, for example, without mentioning the names of the organizations, a story about India's imports from Russia, and all of a sudden really tried to show that the sanctions are working on Russia and the price cap is working. And the government of Modi is cooperating with Europe and the United States. All of this is literally fake news. I can go on and on mentioning actual stories on this. But the idea here is, with all the data problems, the data quality problems with all the misreporting by the media, we should not be surprised that if OPEC and the IEA basically are added to the mix, by giving us two completely different outlooks for demand in 2024.
Our outlook is still the same, a 1.4 8 million barrels a day increase in 2024. The second half is usually better than the first half, this is kind of attained growth, no matter what China did not deliver the expected growth. Most of the information about India, unfortunately, is absolutely not correct. The Indian growth is still weak. We still have some serious issues in the market when it comes to oil demand. Because, for example, you look at prices, we've seen the medium sour crude in Asia getting a premium over light, which is rarely for this to happen, but all of a sudden had been happening several times in 2024. And I think the media and many analysts missed the point about the medium sour. They missed the point because of the following. We have two new major refineries that been commissioned, one in Kuwait and one in Oman. And both of them are designed to use medium sour, which means that all of a sudden, we lost a very large amount of medium sour to those refineries, while the Asian refineries are starved because of this change. At the same time, Mexico reduces exports of medium sour by 400,000 barrels a day since the beginning of the year. So ,it's really a defining issue by having this change in the market and this is a permanent change by the way, permanent change in the market. While the Asia refineries are still waiting for the medium sour to arrive, and that increased prices, some people thought, oh, that's because of the increase in demand. And therefore, we have strong demand. It has nothing to do with demand. Literally. It is a change in the refining system, the global refining system. And that's why prices went up of medium sour crude.
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