Transcripts
Erik: Joining me now is Santiago Capital founder, Brent Johnson. 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 home page macrovoices.com, click the red button above Brent's picture that says, looking for the downloads. Brent, it's great to get you back on the show. Something you and I have been talking about for years is the long-term plight of the US dollar, and particularly, whether or not any realistic threat is posed to it by the alliance of nations known as the BRICS: Brazil, Russia, India, China. I Think it originally was South America there, but there's been quite a few kind of BRICS+ that have been added to that other countries joining that kind of anti-US dollar bloc. It was laughed off in the finance community when it first began. How's that headed? What's that story look like? Is it something that we need to worry about?
Brent: Well, it's something that I've always followed, and I've always found interesting. But I am probably, to be fair, one of the people that have somewhat laughed not at the BRICS themselves, but at the people who think that just because the BRICS countries get together once a year, throw a big party and talk about doing a lot of things, that that automatically means that the dollar is done, and the days of American hegemony are over. One of the things I like to point out is that, for everybody that thinks that the BRICS are going to launch this currency in some kind of a basket of their currencies, maybe add some gold or oil to it, you can do that right now. Go buy all five of their currencies, buy some gold, buy some oil, and you've got the BRICS basket. The problem with that, while gold has done phenomenally well, oil has kind of gone sideways for several years, and the BRICS currencies have all fallen 50% or more versus the US dollar, with the exception of the yuan, which has only fallen a little bit, and that's because it's a pegged currency. So, I think people get a little overzealous in the rise of the BRICS, mainly because I think many people want to see the fall of the American empire. It's definitely an area that needs to be taken seriously and looked at. But just because there's a headline that says they are thinking about doing something, doesn't automatically mean they're going to be able to successfully do it.
Erik: Joining me now is Dr Anas Alhajji, former chief economist for NGP energy management and founder of Energy Outlook Advisors. Anas, it's great to get you back on the show. I want to start by crediting you. When we first spoke just after October 7 last year, just after the Gaza attacks, I was convinced that we were about to see a huge blowout to the upside in oil prices. And you very correctly and presciently corrected me and said, look, it's not 1973, it's a different situation, in that situation, which is what everybody was drawing analogs to at the time. You had all of the other Arab states wanting to get behind Iran. This is a situation which is opposite. You nailed that call. I didn't listen to your advice. Lost money on the trade by not heeding the master. So, I won't repeat that mistake. It's a year later. Give us the update. How should we be thinking about the Middle East, where it could be headed from here and what it will mean for energy markets.
Anas: We had a situation in recent weeks, basically, where we had a rumor that Israel was going to retaliate for the Iranian attack by attacking its oil facilities, and prices started going up. And then at the end of last week, someone asked President Biden about the situation and whether Israel will attack the oil facilities of Iran, and President Biden basically made the statement, kind of a strange statement, he said, we are discussing it. The market, and many analysts understood it as it's a green light from the United States, and probably the United States will even participate in an attack on Iran. Our view from that, when I say our I'm talking about me and my colleagues at Energy Outlook Advisors, we thought that the market misunderstood what President Biden said. He meant we are discussing it. It means that we are trying to tell the Israelis not to do it. So, we've seen prices going up to $80, then we have the anniversary of the October 7 on Monday. And everyone was expecting something to happen, but prices went up, and then they went down by 5% on Tuesday. Went down a little yesterday, and now they are going up by about 3%. What happened is, why we have this rise on Monday and this rise again, etc., that someone asked Kamala Harris about Netanyahu, whether he is an ally or not, and Harris basically tried to avoid the question. That gives the impression to the market that Netanyahu is a leech and the United States has little influence over him, and therefore he can do whatever he wants, and therefore the Iranian oil facilities are still under threat, no matter what. The other issue we have, basically, the hurricane, just the news of the hurricane, basically kind of make traders on the edge. We have some companies that withdrew workers from certain platforms in the Gulf of Mexico. And then we have, of course, no gasoline in many counties in Florida right now. We have major chaos, etc. So, all of these combined led to the increase in oil prices today.
Erik: Joining me now is Harley Bassman, Convexity Maven, as he is known, and also with Simplify Asset Management, where he runs several ETFs. Harley 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 Harley's picture that says, looking for the downloads. Harley, it's great to get you back on the show. Let's start with the big picture on mortgage-backed securities, because there's something I've never understood about them. We all know about these things, everybody does. We're not talking about the esoteric securities that only professionals can trade, because they're not available on listed markets. We're talking about bonds here. Yet, for some reason, it seems to me like mortgage-backed securities are kind of a mystery world that are, all these bonds get sucked up into CDOs for some reason, and nobody trades the bonds directly. Am I missing something? What's going on here?
Harley: Well, there's a number of things. First off, thank you for having me back. It's a great compliment. You guys have the best financial show on the market, so it's great to be here. I think what's important to note is that when we say the word mortgages, people generally think, great financial crisis, subprime, default risk. That's fine. That is true. But that's not what I'm talking about here. When we say mortgage-backed securities, MBS, we're talking about basically the second largest asset class in the bond market, only behind US Treasuries, and certainly more than corporate bonds and junk bonds. And these securities, they would drive the whole mortgage process, because most homes are purchased with loans that get put into mortgage-backed securities that are wrapped guaranteed by Fannie, Freddie or Ginnie. Civilians, what I call retail non-professionals, have no contact whatsoever with these bonds. Almost no one buys these securities. They're not available because they're just dirty little animals. You will buy them on ETFs or mutual funds or others, lots of ways to do it. But most people do not trade mortgage-backed securities for a variety of reasons we could talk about.
Erik: Joining me now is Forest For The Trees Founder, Luke Gromen. Luke, it's great to have you back on the program, it's been a long, long time. I want to start with what the heck is going on with China, because I've been trying to get my head around this all year. I've been asking lots of our feature interview guests to explain the China situation. And the explanation has been, everybody thought China was going to recover and the stock market was going to recover, and it just didn't happen. Well, that was only two weeks ago. I swear, I’m not making it up. Now, it seems like China is outperforming everything. The Chinese equities are overbought, outperforming the S&P on the year. What just happened, what's driving it, what's the bigger picture, and how does this fit?
Luke: I don’t know if I'm the right person to talk to on that…
Erik: I think you’re the perfect person to ask for that question.
Luke: So for me, I've said this in a couple like the video appearances that I do and what have you is, I couldn't figure out what China's plan was. To me, we know China tends to not do anything without a plan behind it, and we knew overwhelming Western consensus was China's making a mistake by not stimulating, etc., and sort of, China is uninvestable, and China is collapsing. And I, knowing that China tends to have a plan, knowing that clearly the economy was weakening meaningfully, and they weren't stimulating, etc., I was sort of grasping for possible reasons, one of which I came to was maybe they're engaged in basically a pain contest, which was to say, you know what, we're not going to stimulate. And the problem with that is, if we don't grow, that's going to force you to cry uncle first, USA, you're going to have to cut rates. You want to weaponize the dollar against us? Great. We just won't stimulate. We'll take pain, we'll take pain, we'll take pain, and we'll see who ends up going first. And that was kind of my working theory, loosely held. So fast forward two weeks ago, we have Powell come out and surprise most of Wall Street by doing 50 basis points and promising 50 more by year end. Dollar weakens, US asset crisis rip. Then, we have China follow up four days later, doing what they did. And so, now it starts to look like one of two things, which is either Powell cried uncle first, which gave China the ability to sort of then finally, do the stimulus without having to do stimulus with the yuan at a key weak threshold, the yuan has obviously rallied meaningfully versus the dollar from July through today, and that gives China the breathing room. Or, the US and China are coordinating on some level. We've been writing since November of last year, when Treasury went over to Beijing and talked about, China needs to basically raise their costs, right? Well, they raised their costs by raising the currency, by weakening the dollar. So, we've been saying for 10 months, starting last November, that it looks like the that Yellen and the Chinese are working on some sort of deal to strengthen the yuan, weaken the dollar. And maybe this is part and parcel to that, that basically, sort of a point has been reached where, okay, they agreed to something, and we're moving in that direction. So, now the Americans can cut rates and weaken the dollar, and the Chinese can do what they're doing, which is stimulating. And I think, maybe the most important takeaway that I took so far from the stimulus is the yuan rose against the dollar on this, that is, if you would have asked 100 people, including me, hey, China comes out last weekend, before they did this, China is going to do a big stimulus this week. What does the yuan do? I would have said, and all other 100 probably would say, yuan falls sharply, and instead, the yuan rose pretty notably. And so that points to sort of a capital repatriation, tight dynamic that I don't think a lot of people are talking about yet. I don't even feel that strong about it yet, just been too short, but that's how I'm thinking about as a framework. I could go either way. I could be pushed either way on it. I don't have a strong feeling on it, but that's kind of the framework I'm looking at about it.
Erik: Joining me now is Eric Peters, CIO of One River Asset Management and also of Coinbase Asset Management. Eric, it's great to get you back on the show. Let's start by talking about the US dollar. What's going on here in terms of Fed policy, big picture? It seems like everybody thought the Fed should not wait until this close to the election to start easing, because that would create the appearance of them becoming political. Seems like they have hit across that Rubicon. They sure do appear political. What is happening? What should we expect? And where do you see things headed for the dollar from here?
Eric Peters: Well, for starters, great to be back. It's been a while, actually, as we were chatting pregame here, it's been a little while, really nice to be back. Boy, you know the Fed being political is, I think the Fed is naturally political, given that the chairman is appointed. Question is, how removed are their decisions from the political calendar and process? And I think they've got a very difficult job here. They were well behind the curve for a long time. They had thought inflation would be transitory. They actually changed that tune and raised rates at a pretty unprecedented pace relative to history, and now we're sitting here with quite high real rates. Prime rates are extraordinarily high on a real basis, when you look back historically, which is where many businesses borrow, and I think that they've really been praying that we get lower inflation here, and a bit of softness in inflation, just so they can try to bring that rate back down. And, hopefully create a “soft landing.” I don't think it's extremely political. I think there are all sorts of other political manipulations that lead up to the election. The budget deficit this year has gone up 25% roughly, relative to last year coming to the election. So, I think that's probably a more powerful force than what the Fed can do, just briefly before the election.
MACRO VOICES is presented for informational and entertainment purposes only. The information presented in MACRO VOICES should NOT be construed as investment advice. Always consult a licensed investment professional before making important investment decisions. The opinions expressed on MACRO VOICES are those of the participants. MACRO VOICES, its producers, and hosts Erik Townsend and Patrick Ceresna shall NOT be liable for losses resulting from investment decisions based on information or viewpoints presented on MACRO VOICES.
