Transcripts
Erik: Joining me now is Bill Blain, editor of Blain's Morning Porridge. Bill, it's great to get you back on the show. Let's start with the usual suspects, boy, S&P 500, so many smart people on this program have made so many great arguments for why it shouldn't be just melting straight up. But boy, that's what it keeps doing.
Bill: Well, there is no stock market anymore, is there. All there is Nvidia and all the other stuff and Nvidia goes up 3% a day after falling 17% in the days before, it's moments like this, when I'm always reminded that global markets are not clever, they are not intelligent. They are just voting machines, reflecting all the participants think, and if the participants don't have anything else to think about, and they make big mistakes, and they've got all the wrong things in their minds, then you get strange behaviors. Of course, the markets are never completely wrong. So you've got to wonder what's behind it. And I rather suspect that it's a triumph of hope over reality. But you know, I believe in bonds, I've spent my whole career being a bond trader watching bonds and bond markets, there is truth, I always consider that stock markets just kind of go off in the back of them. If interest rates are too low, then stock markets get too enthusiastic. And I think stock markets have missed the fact that global interest rates are now normalized at much higher levels, and are not going to go back to the kind of nonsense 0% and 2% rates that we saw during the QE era. And I'm not sure stock markets realize that.
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.
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