Transcripts
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.
Erik: Joining me now is Goehring & Rozencwajg co-founder Adam Rozencwajg. Adam, it's great to have you back on the show. I want to start with energy, which I know is the commodity that you focus on. Let's talk about just big picture energy markets, how they've evolved. What are you looking at between the oil market, coal, natural gas and uranium for that matter?
Adam: Well, thank you, Erik. It's great to be back on your show. Nice to talk with you again. I think there are so many interesting things taking place in the energy market, that it's almost difficult to choose where to begin. But I'll tell you, I think the area of the markets today that I think are the most certainly asymmetric and potentially most exciting for the rest of this year, are the US natural gas market. And, I suspect that a number of your listeners will probably lose their lunch when I say that. And that's usually a good sign if you want to be a good contrarian value investor like we try to be. But I do think that both the fundamentals, certainly the price level, which is as depressed as we've almost ever seen it in recent weeks, it's now performing a little bit better in the last couple of months, or in the last couple of weeks, rather, and then the outlook to the end of this year. This is a market where we think that the upside potential could be easily three to four fold, with fairly limited risk of downside, at least on any kind of a long term basis going forward. So I think that's the most exciting market today from just as asymmetry perspective. And I think that that's where, if it's alright with you, I would like to start.
Erik: Joining me now is Copenhagen Atomics founder Thomas Jam Pedersen. Thomas Jam prepared a slide deck to accompany this week's interview, you'll 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 and click the red button above Thomas Jam’s picture that says “looking for the downloads.” Thomas Jam it's great to get you on. This is a little bit unusual because our listeners are not used to entrepreneur interviews, we usually talk to finance guys. But since Patrick's off this week, I wanted to dive into your company, which is very interesting to me, I think you're going to play an important part in energy transition. The cover page of your slide deck says your goal is mass producing or mass manufacturing thorium reactors. So why don't we start there with the obvious questions. What's a thorium reactor? How is it different or better than a uranium nuclear reactor that burns uranium, like almost all the other ones do? And why is it important, specifically that they be mass produced?
Thomas Jam: Hi, Erik, Thank you for having me. Yes, that's a good place to start. We have a lot of energy production in this world. And energy is a very essential part of everything, all products and everything we do, the economy. And, of course, we want to sort of eventually get away from our reliance on fossil fuels. Today, 80% of all energy production in the whole world is coming from fossil fuels. And I think everybody expects that to disappear at some point, or at least a smaller amount or a smaller percentage. And one of the ways to get away from fossil fuels is of course, nuclear energy. But the problem with nuclear energy, or the traditional type of nuclear energy is that it's very expensive, and it's slow to build. And so, we've come up with a new way of making nuclear energy, or what's called fission energy, a completely new way of making that and in order to make that sort of scale, we want to mass manufacture these reactors. And the picture on that first slide sort of shows that the reactors we have invented are roughly the same size as a 40-foot ISO shipping container. And it can be transported on a truck. And they can be mass manufactured in a factory or assembly line, similar to how we manufacture cars or airplanes or other things like that. And this means that we can easily make one nuclear reactor every day. And that's what’s in our roadmap to do that. But of course, we currently are sort of developing the technology and make sure that it works before we can even start to run the first commercial reactor. And only after we have sort of proven that the first commercial reactors work, can we start to mass manufacture and so it's still some years away, maybe 10 years away before we can start mass manufacturing these reactors. But the reason for this goal is because this world needs a lot of energy, and just making 100 reactors would not make any difference at all, in the global energy system. We need 10s of 1000s, or maybe even a million of these reactors before it really makes a difference.
Erik: Joining me now is Santiago Capital founder Brent Johnson, who is also the author of the Dollar Milkshake Theory, Brent 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, just go to our homepage macrovoices.com, look for the red button above Brent's picture that says “looking for the downloads.” I strongly encourage you also to go to macrovoices.com if you are a new listener and are not already familiar with Brent's Dollar Milkshake Theory, we've done a couple of episodes where we went into much deeper detail on the Dollar Milkshake Theory specifically, I think that content is more relevant today than it was on the day it was recorded several years ago. So for full context on Dollar Milkshake, go there. Brent, why don't we start with just for our newer listeners a quick summary of what the Dollar Milkshake Theory is, people who want more detail can go back to the prior episodes.
Brent: First of all, let me just say thanks for having me back on here, Erik. It's always fun to talk to you, especially about this topic and just macro in general, because you and I have been talking about this a couple of times a year, every year since I first started talking about the US dollar. And the reason I talk about the US dollar and the reason I focus on the US dollar is in my opinion, it's the single most important factor in getting the overall macro picture right, I think it's very difficult for your portfolio to do well. It's not impossible, nothing's ever impossible. But I think it's very difficult for your portfolio to do well if you don't understand what's going on with the dollar and especially if you get it wrong.
And so essentially, what the dollar milkshake theory is, is really just a framework and a way for me to look at kind of an event driven thesis that's based on the fact that I believe that we have too much debt in the world. And I believe that debt has consequences. And I think what we're going to see in the years ahead is the consequences of all that debt that we've taken out, both in the United States and outside the United States, play out in the markets. And I don't think I'm unique in this, I think everybody sees the problem of having too much debt. But in my opinion, many people seem to get the knock-on effects of having all this debt wrong. And so, I kind of came up with this theory, and I call it a theory because I think it's right, I think it'll be right. So far, it's been right. Well, I guess we kind of have to wait and see ultimately, whether it's right. But I had to come up with a way to explain to my clients who are very smart, very successful, very wealthy, but aren't necessarily versed in traditional financial lingo, and they don't study monetary history or monetary policy.
So, I had to come up with a way to explain to them what I thought was going to happen. And essentially, what I was saying, what I thought was going to happen was that there would be kind of six main things that I wanted to get across to them. One is that we'd had this 40-year bond bull market. And I was of the opinion that I didn't know exactly when but I thought as a consequent of taking on all this debt, interest rates would eventually have to rise and they would break out of this long term 40-year descent towards zero. And I thought that when bond, you know, when interest rates go higher, then bonds break, bonds go lower. And when bonds go lower, then interest rates rise, when interest rates rise in the United States, that typically pulls the dollar higher, the dollar going higher versus other fiat currencies creates all kinds of problems for the global markets. And I think a lot of people thought that that might happen, but that that would cause this huge bear market, another Great Depression, however you want to describe that. And while I thought that was possible, I didn't think it was necessarily going to happen right away. And I didn't think those would be the first steps. And what I actually thought would happen was that we would have a rise in equities alongside the dollar. And I thought we would have a rise in gold alongside the dollar. And just really, in general, I thought the United States would far outperform the rest of the world. And so that's really the thesis. And you know, over the last six years, five, six years, that's for the most part, played out. Now. It's not perfect, and it hasn't always worked that way. And, of course, there's been times where things have gone against it. And you know, markets don't move in straight lines. But as I look back, and for people who think that I'm just making this up, I did an interview in the summer of 2018 and this interview is online and the transcript is online, and it's all right there. And then I did a very short presentation of it in October of 2018, where I talked about it a little bit more, but the very first time I talked about it to a kind of a captive audience and really went into detail was at your MacroVoices conference in January of 2019. And so it's been kind of fun for me to kind of track and see how this has gone. And I have to say, it hasn't been perfect, but for the most part, I think it's been right. And it's allowed me to manage my client portfolios without suffering in significant drawdowns and participated in the upside along the way.
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