Transcripts

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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Erik:   Joining me now is Alex Gurevich, founder and CIO at HonTe Investments. Alex has 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, click the red button above Alex's picture that says “looking for the downloads.” Alex, last time we had you on the show, you expressed a more disinflationary to deflationary view somewhat out of consensus with a few of our other guests. Any change in that view? And what is your outlook in terms of inflation versus deflation looking forward?

Alex:   Well, Erik, first, thank you for having me back. It's always good to have an ongoing discussion and kind of compare the views. Last time, several months ago, we've had a little discussion about what seemed transitory and got wrong. And I was trying to analyze me being on team transitory, in which ways some things were correct, but which were fundamental errors, and don't want to repeat that. But I'm just saying it's kind of good to have those every several months check-ins and see what happened, what are we wrong about? Not just, I-told-you-so’s, but also what were on the ballot and how do we take in new information. I will say, compare it to a few months ago, there were probably more challenges than confirmations to my view that I’ve had, however, not a huge change. And I will explain why the change is not huge. But I will, as a brief summary, I will say that the time is getting closer to the point that my view will be seriously challenged. So, the timelines have to be moved a little further. And if that certain timelines will not be met, in I would say, half a year to a year, I will be under pressure to keep saying, yes, it's all going according to my big problem. That's how I would summarize it. So the core of my view, behind deflationary view was policy lag. And the fact that everything that happens with rates works with a huge lag. And the core of my position in the end of 2023, was that it is too early to say until second half of 2024. And that's when that was the timeline I pointed out back then, it's not the timeline I'm creating now, that in second half of 2024, it will be too hard to say what effect real rates could even have had yet. So what I see in the narrative so far, I see the disinflationary narrative to me is clear. I think the high inflation period is over. I see no new inflation spiral or anything like this. I know that some people disagree with me, but I see no signs of that. I don't want to get worked up over inflation ticking down 0.1% as people were in 2023, or being like 0.05%, higher than projected for a couple of months. That does not mean there is no inflationary crisis going. But there is no deflationary bust going on.

Also, as I wrote in my quarterly report to investors, it's currently hard to say that the economy is weak. You could squint to look for signs of economic weakness. But overall, the numbers are pretty solid this quarter. What I feel is there is a strong discrepancy. I'm just doing right now an overview to show how complex the landscape is. I feel majority of top-down numbers are fairly robust. You're seeing whatever like GDP type numbers, or anything looking from the employment numbers, though, like any aggregate numbers, look good. There are some bottom-up numbers that certain analysts point out certain areas of weakness, like restaurant occupancy, or amount of delinquencies, amount of bankruptcies, or even late in people showing the new rounds of layoffs. It's not so fine filtering into top-down numbers. And since I'm not a bottom-up person, I really cannot speak to that. All I'm saying is that I'm seeing some serious disagreements between analysts. I am not the person who crunches original economic numbers. I'm a consumer of that research. And what I'm seeing is opposing pieces of research on what is the level of economic health.

Now, inflation and rates and stock market and economic health, all of those things are not the same thing. They're related, but they're not the same thing. For example, we can see deflation and really low interest rates and a robust stock market. We can see a recession and stock market making new highs, on contrary, we can see really weak stock market and really strong and hard running economy. All of those situations, which I think people had difficulty imagining educated goal are possible in the new regimes and regimes of fiscal dominance and the regime of really aggressively reacting Fed. That's what I think blindsided a lot of people in 2020. The fact that while the economy was still weak, stock markets started to run up. Because the influx of cash was just so huge that the buying power was there. It was less challenging for me back then, because I was already thinking about those things a lot by, before the year 2020. Things like why does stock market not go down during a recession? Or does inflation have to go hard during growth period, which people are trained to use, interlinked? I actually just tended to be concurrent, but a lot of concurrency is broken now. So we're navigating this complicated landscape.

Now, my fundamental thesis is that, the most important input for future inflation is current inflation, that inflation leads to more inflation, less inflation leads to less inflation, because there is a certain zone in which not much spiraling is happening. And right now, I think we're at a moment in that zone of inflation. But fundamentally, if you said, inflation was so high during COVID bump, that it created this post COVID wave, then we'll have the bull-whip of coming off post COVID when inflation came down, and that led to patch of low inflation. Now it has bull-whipped, the more like normal post COVID environment. And now the question is, will interest rates do the work to bring inflation down? Now, in my thesis, is that higher real rates are deflationary. Because higher real rates force increasing productivity, higher real rates, cause people to be careful with their balance sheet, cause to draw down inventories, cause to be really careful with their money, and that's the opposite of inflation. And furthermore, currently the yield on, say, something like 2030 year inflation index bonds, which by the way, I think among the best assets out there, right now, it's close to 2.5%. Now with that yield, how can it be even wrong for people to put bonds in their retirement account? And inflation plus 2.5%, you're guaranteed for 30 or 40 years to make positive real yield? That's to reach a proposition, historically. I don't think those things are trading anywhere at the right level, I think they're catastrophically cheap. They're like, default level cheap, the long date, this type of assets. I think real rates on Treasury bonds should shoot and will converge to zero in the long run, there will be periods of negative real rates and positive real rates on Treasury bonds, but risk-free bonds make sense for me that they ran roughly at inflation. So which means that the real yield on TIPS should be close to zero. And right now, they're way undervalued, especially in the long end. So that's kind of the big sin. Now, if you're okay with this, I'm going to move to some charts to see how I’m thinking about that.

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Erik:   Joining me now is commoditycontext.com founder Rory Johnston. Rory, it's great to get you back on the show. It's been too long since we talked about crude oil, which is your specialty. Let's start with the big picture. Before we dive into the alphabet soup of of Middle East and various other geopolitical risk factors, let's just talk about supply and demand OPEC’s participation of Chinese economic recovery and what that means for demand and so forth.

Rory:   Thanks for having me back, Erik. Obviously, this year has been, it took a little while to get started. But it's become a very bullish first half of the year, with prices rising from the kind of mid 70s up towards $90 a barrel, Brent. So I think that is, by all intents and purposes, kind of a very strong crude number in this current environment. And that's been driven by kind of developments over the first half of the year, mainly around declines in inventories. So we've had this kind of realized tightening of the fundamental side of the market. At the same time, as those realized fundamentals or kind of inventory drawers have occurred, you've also seen a gradual tightening of the outlook for the rest of the year, mostly on this idea that demand is starting to look a little bit better than it did a couple months ago. And the fact that I think now the expectation is that OPEC will keep these cuts in place for longer and kind of defend higher prices. So I think that combination of factors has allowed the market, you know, it reflects the market has already tightened and expects a further tightening of the market.

So on top of that, as these prices have kind of rallied higher, you've also begun to bring in a lot of speculative and kind of momentum driven trading, that further push those prices up. So right now, just to kind of give a complete lay of the land, we have reasonably decent inventory positions or reasonably bullish inventory positions, globally are visible inventories, we have a reasonably tight outlook for the market, assuming that demand doesn't falter on some broader macro pullback, and OPEC remains disciplined in its cuts. At the same time, right now at around $90, we do have a lot of speculative or hot monies further supporting these prices. So I think on a fundamentals basis, I've been saying that we've been fundamentally supported, but speculatively driven in this rally. And I stand by that, I think that the immediate near term risk is a kind of a sudden pullback in these prices as that momentum wanes, and as those speculative dollars have inevitably begin to take profits. So I see that we could pull back there. But then after that, we're left probably still in the mid 80s, on a Brent basis with this kind of fundamental backdrop. So I think that's probably where we're standing. And on top of all of this, as we'll talk about at length I’m sure, is all of these varied and very, very difficult to quantify and kind of wrap your head around geopolitical challenges from Iran to Russia and everything in between.

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Erik:   Joining me now is Uranium Insider newsletter founder and publisher Justin Huhn, Justin 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 Justin's picture that says, “looking for the downloads.” Justin, when I booked you on to do this week's interview a couple of weeks ago, I was thinking, okay, I think the bottom might be in already on the uranium market, let's get Justin on. Well, we're still at a bottom to talk about it. And then last week, I thought oh, no, we missed it. It's going to be new all-time highs by the time next week comes around. But now it seems like we're consolidating back down. So is the bottom in on this correction, or what do you think?

Justin:   I think the bottom is in on the correction for the commodity, yes, I probably would go there. Of course, anything is possible. I don't have a crystal ball. But I think most of the industry actually was pretty surprised to see the price pullback as much as it did. And so we topped out at just over $106/lbs on the spot price. That was early February, pulled all the way back to $84/lbs, we're back up to just under $89/lbs currently. So we bounced up off the bottom, but it seems to be taking another breather here. Still, very low volume is being traded in the spot market. But meanwhile, the long-term ticker continues to move up, kind of month over month, it's up 15%. According to UXC, it's up a bit more year to date. According to Trade Tech, the two primary price reporters, as far as the equities prices, I think the bottom is probably also there. Of course, if we have a major washout, the broad market liquidity type event, that's always kind of the disclaimer for anything you own. So that's not unique to Uranium. But the stocks right now seem to have kind of an underlying strength here. I'm noticing intraday, the weakness is being bought up not on heavy volumes, not super enthusiastically, but it feels like accumulation to me. I wouldn't be surprised if the most recent bottom in that pullback is also in for the equities. We've got pretty nice technical setup on the charts. Looking out long-term at URA for example, there's just kind of a big, very multi-long, multi-year, just gorgeous cup and handle that I'm expecting to break out this year in potential for near term catalysts as well. So knocking on wood, probably saw the most recent bottom.

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Erik:   Joining me now is Larry McDonald, publisher of The Bear Traps Report and author of a brand new book, which is titled: How to Listen When Markets Speak. Folks, as you can tell, I’m suffering some laryngitis, as we're recording this interview, please bear with me. Larry, in the last two minutes before we went on the air, gold took out the 2300 round number, we're at 2301 as we speak, what's really surprising to me is, there's been a very strong inverse correlation between gold and the dollar. And, of course, gold is always competing with interest rates. So usually, as interest rates go up, gold goes down. We're seeing a change in correlations. What's going on here?

Larry:   Well, I think the beast is in the market Erik. And first of all, you losing your voice is like, you know, Ted Williams losing the bat in the batting, but you've done such a marvelous job over the years, leading this incredible program of MacroVoices, thank you for everything, and all your leadership and the whole team. But I would say that with gold, the beast in the market inside knows the gig is up. Politically, the Fed, can't really hike. If they hike, if they were to hike, because of inflation expectations, then it's going to blow up the regional banks. And essentially, the beast of the market knows that the Fed really can't do much. And so normally, the last couple of years, if interest rates went up, gold was lower. And now over the last couple of weeks, especially today and yesterday, gold is moving higher with rates. And it's almost like we were going back to the 1970s dynamic, where there's a stagflation probability that's rising, and Washington is really in trouble with that 80 billion a month of interest now, and that it's going to go up to maybe from 80 billion a month to potentially annually 1.4 trillion of annual interest costs over the next year, if the Fed hikes or keeps rates here. So the beast in the market knows that the Fed politically is dealing with a troubled Washington, really a spoiled brat. And I think that’s what gold is telling us.

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