Transcripts

Erik: Joining me now is Santiago Capital founder Brent Johnson. Brent prepared a slide deck to accompany this interview. I encourage everyone to download it. You'll 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 Brent's picture that says, "Looking for the downloads."

Brent, I wanna start with three really important questions because I think there's so much confusion in the system and news flow right now. Number one, is the kinetic war with Iran, the bombs dropping and so forth, either ending or winding down or coming to some kind of closure? Yes or no? Number two, okay, what deal actually has been reached between the US and Iran?

Where does it stand? If it's already been signed, why does it still have to be signed on Friday? Why is President Trump saying I think in direct quote was, "Oh you never know with deals. We might have to go back to bombing them if they don't sign." So it sounds like it's not completely done yet, but the question is: where is it?

And then, of course, the third question is: okay, what does it really mean for the outlook to return a full flow through the Strait of Hormuz? So let's take those in order, starting with, is the kinetic war finally ending, winding down? Has President Trump decided to end this thing?

Brent: First of all, thanks for having me back.

This is going to be fun, and I'm not sure if we're gonna be able to cover everything. I think it would probably take five hours for us to do that. But long story short, I think the kinetic conflict is over for now and we're winding down for now, but I do not expect it to last. Maybe it will last for a couple weeks or a couple months.

I, I do not think it is over. I'm more than happy to be proven wrong on that, but that's just my current take. And part of the reason is I don't believe either side. I don't believe what either side says. I think a lot of people are very quick to believe everything Trump says. I think there's a lot of people who are very quick to believe everything the IRGC says, and my advice would be to not believe either one of them, and let's just wait and see what happens.

But have we gotten everything as far as preventing Iran from getting a nuclear weapon? I think, again, for now, right? Th- there, there's two ways to handle this. Just continual prevention over time, every six months, every year, every couple years, go back in, hit them hard, slow them down, or one final ultimate resolution, and it looks like Trump does not want to do the one final resolution right now.

I think part of the reason is because of the timing of it, whether it's a combination of midterms coming up or the fact that, the strait has already been closed for three months now, and even if they reopen it back up tomorrow, there are still going to be consequences of the three-month closure.

And then the other thing is I think there's so many different versions of this MOU going around, and the ones that I've seen are written in a way That each side is going to interpret them the way that they want to interpret them. I don't think either side will fully live up to what the other side believes they are responsible to do in it.

And as a result, I think we'll probably end up back where we are now at some point down the road. But I also don't... I think it would be impossible to come on here and say this has been an unmitigated victory for the US. I also don't think it's this great, disaster that so many people have come on different programs, including this one, and breathlessly voiced that this is the Suez moment or this is finally the nail in the US's coffin.

To me, it's just another thing that the hegemon always does, and that sounds a little bit callous and casual, but I think that's reality. And then finally, you say, what's the outlook for return of traffic flow through Hormuz? I think it is going to open up some. I don't think it's gonna get back to normal.

I would be surprised if it got back to normal, and again, I would be happy to be wrong on this. And I think, as I said a little bit ago, the consequences are still to be determined. Now there's a lot of people who already thought we would see go- oil at a hundred and fifty bucks or two hundred bucks or whatever it is, or that we would see gold at six thousand or eight thousand or ten thousand or whatever it is.

Instead, they have both fallen precipitously over the last couple months. But I don't think that we have seen the full effects yet, and so I think that is probably... I think the big impact won't be realized for three to six months from now, maybe even nine months from now. So let's call it Q4 and Q1.

And this is a very long way of saying I think everybody's excited to get an answer, but I don't think we're gonna get one. And, where we go from there is yet to be determined. I would encourage everybody to be a little more open-minded than most people seem to be. Like I said, most people that I talk to seem to either support one side or the other, and it was either a great victory or a great loss, and I think it lands somewhere in between as of right now.

Erik: I couldn't agree more with you that the news flow has been very confusing and it is not deterministic. Something I'm very concerned with is it seems to me that we may be headed toward a real falling out in the next few days because what's happened here is first the deal was supposedly signed electronically, but they didn't release the text of what the deal actually was.

Later, Iran's Mehr News Service, and of course, we've got to assume Iran is spinning things, for public consumption in Iran.

They released a 14-point, here's what the MOU actually says. And immediately after that, President Trump was very vocal and outspoken about the rumors going around as a result of that saying, "Hey, look, it's a bunch of BS, this nonsense about how supposedly US is gonna pay 300 million with an M dollars to, to Iran is utter nonsense.

It's fake news invented by the Democrats." When the US version of the MOU was actually read, it's not 300 million, it's 300 billion with a B, and the US version does acknowledge that's part of it. They're saying that the US wouldn't be the one to pay it, that it would be some kind of deal that's structured.

Okay, wait a minute. So now parties that are not party to the agreement are going to come up with $300 billion and that is part of the agreement, but the US isn't gonna fund it? How does that work? And then the whole question of the weapons grade uranium Israel has said very adamantly the war is not over until it's physically removed from Iran.

Both the the Mehr Iranian side and the US side of the MOU that's now been read out publicly say downblending on site, which Israel has... And it also says that they've got to have a complete ceasefire, including Lebanon, including Israel standing down from attacks on Lebanon, and Israel has said very clearly, "We don't agree to that.

No way. That's not binding on us, and as far as we're concerned, this isn't over if the material doesn't get removed." And the material being removed is now apparently off the table, not just on the Iranian side, but on the US reading of the MOU as well. And then on Wednesday, when asked about this whether the signing was going to happen on Friday, which everybody thought was a fait accompli, President Trump said you never know with deals and we might have to go back to bombing them if they don't sign it."

Doesn't sound like this is a done deal to me. What do you think?

Brent: No. So I, listen, I totally agree with you, and this is part of the reason why I think it's done for now, but it's not done, right? And I think there's a couple reasons why it's perhaps done for now. And listen this may last two more hours, maybe it lasts two more months.

But I think that latter number is a bit optimistic. But a part of the reason I think they pushed to get a deal now is going back to some of the things that you said about, a- and that I have i- inferenced, that listen, there are still going to be consequences of this. And we're getting close to a point where, reserves around the world are being drawn down, and while they have been able to keep the plate spinning so far, we're getting close to a point where maybe that is no longer the case.

And I think it's important to remember that neither side wants the whole world to collapse as a result of this, right? Iran doesn't want that, and the United States doesn't want that. And so perhaps the US was hopeful that they could get this wrapped up by early June, mid-June, and now that we're here and it's not wrapped up, they're g- they're saying, "Let's take a pause," because if we don't take a pause, then many things are going to get out of our control.

And I will say this, for all of the criticism that the U.S. has received in this ordeal, and listen, rightfully I'm not saying they don't deserve criticism, but they have kept the plate spinning. And it kinda goes, we've talked about this many times with central bankers.

You can hate them all they want, and you can say they're misguided da. But listen, they have kept everything afloat. And part of the r- I think the process of keeping things afloat is they let things get to the edge, and then they pull it back, right? And I think we were probably pretty close to the edge here, and now they're pulling it back.

And so I think there is some massaging or managing going on. Now, the other thing I wanna say before I forget to say this is for whatever reason that they have decided to pause now, I'm happy that they've decided to pause now. I don't want one of the world's oldest civilizations to be removed from the face of the earth, right?

And, there was threats that could happen. I don't want any more people needlessly killed. So regardless of the reason, I'm glad that this has happened, and I'm hopeful that the strait will open back up. Now, having said that, that is not my expectation. I do not think this is over. I think it is very unlikely that either the United States, Iran, or Israel lives up to their side of it.

And whenever it kicks off again, each side will blame the other side. This is just reality. This is what all three sides have to do. They can't say, "Yes, we broke it, and it's our fault." But so they will obviously blame the other side. The question that I'm dealing with now internally is how long will this truce, so to speak, last?

And what are the effects even if it lasts? Because I think in the best case scenario it lasts, and even in that best case scenario, I still think that there are some significant challenges coming down the road. And then i- if we don't get that best case scenarios, then what happens from there?

And th- this is where I'm at with it. And, g- going back to the nuclear issue, I think they realized that they weren't gonna get to the final answer they wanted right now, and so as a result of perhaps just agreeing to continue talking for the next 60 days, is a way for them to try to avoid these catastrophic outcomes from the strait remaining closed, while also trying to deal with that issue.

I will say this. If at the end of all of this, the United States has retreated back to the Western Hemisphere, and that all the nuclear material remains within Iran, and Iran is in ch- fully in charge of the strait and charging fees to transit, I would be surprised if that happens. And if that happened, I would consider that a huge victory for Iran and a pretty big defeat for the United States.

Now, that is not my expectation. I think there will I do not think it will end like that. But if it does, I'll come back on the show, I'll raise my hand and say, "I got it wrong."

Erik: What's striking to me, Brent, is, and I, it's surprising and frankly very disheartening, but the strait ... president Trump said, "Ships of the world, start your engines.

The, the strait's open starting tomorrow." And actually, that turned out not to be true. The strait is still closed as of today. Both the Iranian and the US version of the MOU say it will be toll-free for 60 days only, and that Iran will c- maintain control and charge user fees. They're not calling them tolls anymore, but it's the same thing.

A dollar a barrel, so two million dollars per VLCC to go through the strait in a service fee payable to Iran. Both versions of the MOU say that's what it goes back to after 60 days. So it seems to me that both sides are now agreeing that Iran has basically been authorized to construct a permanent lifetime tollbooth over the Strait of Hormuz and collect a dollar a barrel for every barrel that passes through it, and both sides say that in their MOUs.

I never thought that I would see that.

Brent: So I, I don't read it exactly that way. Perhaps you've read a different version than I have read. And I ... Listen, I'm not saying you're wrong, I'm just saying that I have not read it that same way. If that is ultimately what happens, I will be surprised, and I will admit that I was wrong on that and so I f- I do not expect that.

But I, I think there's another part of this that, that we haven't really touched on yet, because what we've focused on so far is the United States and Iran, or the, this power competition between the United States and Iran. And it's actually, in my opinion Part of a much bigger plan or a much bigger story.

And I know many people are laughing right now saying, "There is no plan. There, there is no 3D chess. This was a foolish errand that has ended badly, and you have no idea what you're talking about." And listen, if those people want to believe that, they are welcome to believe that. That is not be- my belief, and my belief is based on some extremely good sources that tell me otherwise.

And I think there have been some things that have been accomplished that are not even talked about. And what I mean by that is a lot of things, we have found out a lot of things over the last three or four months as a result of this. One thing we found out is that Iran has capabilities that perhaps we weren't sure that they had, but now we are sure they have them.

There is value in knowing that. We also found out that they have a missile that can reach Europe. That was suspected, wasn't sure. Now we know for sure that they do. There's value in knowing that. We also found out that Russia and China will not come into the rescue of one of their biggest allies, despite the fact that they need Iran, and so there's great value in knowing that.

We also know that, the rest of the Gulf countries did not take out their frustrations on the United States and have in fact grown closer to the United States as a result of this adventure or whatever you wanna call it. There's value in knowing that. OPEC in many ways is on its way out.

There is value in that. And the other thing that has not been discussed at all, but I think is important to understand, is that the pressure that has been exerted on Iran by cl- You know for all the stra- all the saying that it was a brilliant move for Iran to close the strait the US closed the strait too.

And the point is that if the US doesn't want oil to go through that strait, it's not going through that strait, right? Now, does Iran have that capability? Yeah, they have that capability. But it can't be a great move for Iran, and then when the US does it, it's a horrible move. Like it's either a good move or it's a bad move, but both of them have shown that they can do it.

The other thing is that as a result of doing that, it has put the rest of the world under extreme pressure. The reason that's important is the US is not only negotiating with Iran, they are negotiating with the rest of the world. And when the rest of the world is under pressure, the US can exact better terms on whatever deals that they're negotiating.

There have been a number of extremely large long-term energy contracts that have been signed over the last four months since February 26th, I think, was the first one, and there was another one with Japan just signed, I think, four or five days ago. And there, the, and there, there's many other things like that.

And, again, while not everybody has come rushing to aid the United States in this effort, nobody has run and sided with China and Russia as a result of this. There is value in that. And so I think it's important to keep the big picture in mind as we're looking at the as we're focusing on, the Iran and the United States conflict.

Erik: Brent, you make excellent points, and I definitely agree with you that the role of other players in this is really important, and something that I've really been struck by is China's role in this. Certainly, Xi Jinping is not outspoken and prominently, talking with strong words on the public stage, but China's actions to reduce their oil imports, I think played a huge role in averting runaway oil prices.

And it, it really struck me in terms of how much power China has because of their much larger commodity stockpiles, including compared to the United States. Any comment there?

Brent: Yeah, so there's a couple comments. A- and the first thing I wanna say right off the bat regarding China is I think many times my opinion of China has been mis- misinterpreted in that I think there's some people that believe that I think China is a paper tiger and cannot stand up to the United States and is not a big player in this, and that is not the case at all.

I think China is a very formidable adversary. I think China versus the United States is largely what this is about. And so to your point, China has done a good job of not only preparing for a moment like this and building up their stockpiles, but then managing it while it was going on Now, having said that, I don't fully believe their numbers.

I think it's very healthy to be skeptical of all government numbers, whether they are published by the United States or China or Iran or Russia or whoever it is. So I'm not fully, believing the numbers coming out of China. But I do agree that they have helped in, in managing this long process.

Now, interestingly, I don't know if people have thought about this. Perhaps they have, and perhaps this isn't as big a deal as it, I think it might be, but it is something to consider. Now, why would the United States want the strait to be back open, and why would... if some of these things that are written in the agreement turn out to be true, why would the United States want Iran to be able to export oil back through the Suez Canal and have waivers given by the Treasury Department in order to sell the oil and use, the SWIFT system and, the banking license, or the, the, to have the re- the removals that the Treasury put on so that they can, facilitate these transactions?

Why would the United States want that to happen? Part of the reason is it opens up energy back to the United States. After putting pressure on the rest of the world, now it's gonna give a little breathing room. But further than that, Iran is now gonna be able to sell that oil, at least for the time being, for full price and in dollars.

Now, why is that important? Because for a long time, a lot of their export was going on the black market to China. China was paying anywhere from a 20% to 30% discount and using, guess what? Not dollars, but yuan. So If you don't want China to be able to be- continue importing oil in large quantities at a large discount in their own currency, but instead have to compete to buy it on the open market, this would be one way that you would accomplish that.

So again, I don't know exactly how this is all going to end out, but I think there's a lot more to this than what is initially read into these the MOU bullet points. And I think it's way too early to say, who has gotten the better end of the stick here. It's a very fluid situation.

I don't think it's over, but the- these are the types of things I'm thinking about as I'm looking at this type of stuff.

Erik: Let's dive into your slide deck. Page three, you've got conviction versus confliction. What's the story?

Brent: This is something I talk about quite a bit, and this is one of the... I think it's something that a lot of people struggle with.

I certainly struggle with it, and it's essentially talking about we all have a way that we want the world to be and that we wish things were, and that we would perhaps even work towards having But then there's the way that the world actually is. And when I am allocating capital, for not only myself, but for clients for whom I have a fiduciary duty, and who didn't hire me to be a social justice warrior or a political commentator, but instead in- hired me to be an analyst of what's actually going on in the world and place capital, I have to consider the way the world actually is.

And that can be difficult at times, and I think one of the hardest things you have to understand is that trying to change the world for the better and growing your portfolio might not be the exact same thing. They might be, but they might not be. And in fact, sometimes they may be the exact opposite of each other.

And so I have a pretty high conviction o- of how I think things are going to go in the future. Now, I don't have certainty. There's a lot of people that have certainty. I don't have certainty, but I do have conviction. But it doesn't mean that I like it, and I'm really conflicted by the way I think the world is going to end up versus the way I would like it to be.

And I th- I... The first probably 10 or 15 slides of this presentation are really not specific to any one thing other than th- it's more of a philosoph- philosophical thing that I think people need to think about, and it's things that I think about when allocating a portfolio.

Erik: Brent, let's skip ahead to slide eight, which kind of gives a summary of the various dimensions that, of things that you're talking about.

Brent: Yeah. I th- I think we've talked about this before, and I know you you've discussed this with many other guests on your program. I think a lot of us are now familiar with the fourth turning concept, right?

And that we have this kind of upheaval. We're going through these big changes. And, I see this in so many different things whether it's political, whether it's economic, cultural, geopolitical. And even within the markets, we're seeing dramatic changes. One of the points that I have made with the commodity markets is that they themselves have changed a lot since I first started in this business 26 years ago now, 27 years ago.

The law of one price ruled most of my career, and what the law of one price basically said is a commodity traded in the world, regardless of whether it's traded in the United States, South America, or Europe, for the most part trades at the same price. Now, there might be some small changes, due to taxes or import costs or whatever, but for the most part, they traded at the same price.

And as a result, people like me, our job was basically just to find who can supply the widget at the cheapest price in the, most efficiently and in the shortest amount of time. But now that's no longer the case. Commodity prices over the last year have started to diverge based on where they're traded or where they're used.

You can now have a different price for a commodity in the United States than you do in China, than you do in Africa. And I think that's a huge change because that no-- you can no longer just go with the low-lowest cost. You have to consider supply chains, you have to national security issues, you have to consider tariffs.

And you have to consider national security needs. And so this is a dramatic change from the world that I started in. And I th-I think that, that's probably the best example I can give of how the world is changing and why you have to think about things differently.

And then somewhat related to this, a-and this kinda goes back to the conviction versus confliction, is that I find all of this stuff absolutely fascinating. It's like being in the Super Bowl for people who like macro and who like markets. And I actually consider it a privilege to, to be managing capital through this time But the flip side of that is that it's also tragic.

Like real people are gonna pay the price for this, right? I think more wars, more conflict, more non-cooperation, to put it politely, is probably in our future. And when you talk about these things like a game, it obscures the human cost involved in all of this.

But that's the world we live in now, and so that's that, that's what we're dealing with.

Erik: Brent, as I page through the slide deck, I can't skip over 14 through 16. You got some pretty strong comments here. What's on your mind?

Brent: This kind of goes back to the fourth turning again now, and I think there's a lot of people out there who are debating a- and have a belief one way or the other of whether the United States is a rising power or whether they're a falling power. I, it seems to me most people are just assuming that the United States is a falling power and its best days are behind us.

And so the opinions on this I think are very split. I think it's probably gonna end up a lot different than most people do. First of all, the United States has completely changed the way that they deal with the rest of the world and I think it's really important to understand this.

And it's also important to understand that I don't know for sure that this is going to continue. I think it will. But it's important to understand the two different models. Now, under both models, the United States wants to remain the global superpower, in charge of things and, set the rules, so to speak.

But these are two very distinct ways o- of accomplishing that same goal. And subsequent to World War II, the United States and its allies set up the rules-based order and, that's a funny term, but it's an actual real thing. There was a very specific way that the world dealt with each other and solved its issues post World War II, and that was done in order to prevent further large scale wars.

And it was... But it was also done as a way for the West to control things, right? And that worked for a long time. There were some very good things that came out of that, but there was a lot of bad things that came out of that as far as, inequality, what did the elite get out of it versus what did Main Street get out of it?

And so the United States has, a- and as a result of that inequality, that kind of led to the rise of Trump, right? Or the America First. And America First is a dramatically different way of dealing with the world than the rules-based order. The rules-based order was, for the most part, a greater good strategy.

We are going to do this, and we are going to do multilateral negotiations. We're gonna do this for the whole world. We're gonna have the United Stations. We're gonna have United Nations. We're gonna have the World Bank. We're gonna have the World Trade Organization, and we're gonna negotiate these things on an overall basis, and we will do this for the greater good.

That kind of ran parallel with the rise of Keynesian economics. Keynesian economics, you could argue, is a greater good strategy. And But the rise of Trump and the rise of America First is dramatically different. They are now saying, "We are no longer going to do things for the greater good. If it is not for the good of the United States, we are not going to do it.

We are gonna negotiate bilaterally. We are not gonna negotiate multilaterally. This is what we are going to do. You're either with us again or against us, and, we're the biggest guy on the block, and if you don't like it, tough." Now, again, this goes back to conviction versus confliction. Do I like this?

Not particularly, but this is the way it is now, and I don't think that's going to change, and I don't think it's gonna change dramatically even if Trump was no longer president because I think in many ways the world is fracturing. We are moving from a world that was globalizing to a world that is now de-globalizing, and I think as that happens Despite the numerous problems that the United States has, and I could spend hours and hours going over all the problems the United States has and the mistakes the United States has made, despite all of that, I think the United States is still relatively in a better position than virtually anybody else on the globe.

And as a result, as we go through this fourth turning, I think a lot of people are assuming we're gonna have this great calamity in the winter, and then when the spring comes around, some new power is going to be in charge. And I think it's possible a new power is going to be in charge, but I don't think it's gonna be some other country.

I think it's probably still gonna be the United States, but I think we will potentially will have transitioned from a republic to an empire. Now again, conviction versus confliction. I don't necessarily like this arc that we're on. I don't know that this is going to be a good thing. I hope that it is. I hope it works out well.

But I think that is the more likely path than the alternative because if the rest of the world had kept their house in order during the last several decades while the US made mistake after mistake, I think it would perhaps be a different story. But from my analysis, they haven't, and they have many of the same problems.

Many of the problems they have are bigger than the problems the United States has, and the United States just has so many advantages that most people quite honestly just don't even understand, that I think more likely than not, the United States will use every single asset they have, and every asset that they have, to remain atop the global order.

So I think it's more likely we see the fall of the republic and the rise of the empire than the fall of the empire and some new power takeover. And the last point I would make on this is I know there's a lot of people who think that the United States already is an empire, and it has been for a long time, and that its best days are behind it and the empire is dying I think, and listen, I can be wrong on this, but it, my interpretation of this is that people believe this because it's been a long time since we've had an empire running the world, and most of the people who are analyzing it aren't familiar with how an empire actually asks, acts, and rules things.

And I think that as we move forward in time, we will become reacquainted with how that happens, and this gets back to the, real world versus the world we would like. For most of h- history, there were dictatorships, there were monarchies, there were empires. The last 100 years, in my opinion, is the exception to the rule, not the norm.

And as we move from globalization to de-globalization, I think we probably start to move back towards the norm rather than staying in the exception.

Erik: As we think about how all of this is going to affect markets and the economy, it seems to me one of the primary core assertions of The Fourth Turning, the book that you referenced written in 1998, was that toward the end of a fourth turning, people lose faith in institutions.

It results in them electing extreme leaders and often f- going back and forth from one extreme to the other, because what's really the underlying force behind it is people get so fed up that they just want to vote for the opposite of whatever we've got now. I wanna see it change to the opposite of what we have 'cause I'm so fed up with what we have.

And that's what leads to something like Obama, Trump, Biden, back to Trump. It just swings one direction or the other. It seems to me, Brent, that obviously this Iran conflict could go either direction. It could turn into some grand success. But if it blows up in President Trump's face, it seems to me that probably Gavin Newsom would be the heir apparent if we were to swing the opposite direction in terms of the electorate wanting the opposite of Trump.

What would that mean to your analysis in terms of what's coming if we were to see the next president have a completely opposite political leaning than President Trump has?

Brent: So I think what it would mean is that there's a short-term swing back in the opposite direction, as you say. And at first of all, I totally agree with you.

I think it's very possible we get into these things where things are swinging back and forth because people just want the alternative But I think by and large, the arc of history is now moving towards a de-globalized world. And I have a hard time seeing, even if the Democrats come back to power, I have a hard time seeing us going back to the rules-based order, and I have a hard time seeing the, going back to a system of globalization rather than de-globalization.

And the... We may have talked about this in previous times, Eric, so I apologize if I'm repeating myself 'cause I've talked about this many times. But there's a great book called The Storm Before the Storm, and it takes place from 130 to 60 BC, so it's like a 60, 70, 80-year period of time in Rome.

And it basically documents the fall of the Roman Republic. And during that, there was many of these exact things that you're talking about, political factions that swing back and forth from one political party to the other. A lot of the same things that we are experiencing now, they experienced over the 70 to 80-year period.

But what ultimately came out of it was not the failure of Rome as a power, it was the failure of the Republic. But what came after the failure of the Republic was the rise of the empire, and that is when things had gotten so bad and they have swung so many times back and forth, that a strongman eventually showed up and enforced his will on everybody else and said, "We're not gonna do this anymore and this is the way it is Now, I don't know that it's gonna happen exactly like that in the United States, and I certainly hope that we don't go into this an evil empire stage.

I don't think, we get back to that conviction versus confliction. But I have a hard time seeing the United States surrendering hegemony to some other power, regardless of whether Gavin Newsom's in the White House or Donald Trump Jr.'s in the White House. And I think the problems in the world are gonna necessitate more nationalism as opposed to less nationalism.

And that typically, once that process starts, it typically lasts a long time, and it can swing back and forth, for a couple years this way or that way. But on the overarching, pendulum swing I think that has many years to go.

Erik: Let's jump ahead to page 21 in the slide deck and talk about some of the market opportunities that you see opening up as a result of all these things that are going on.

Brent: Yeah as I mentioned when we were talking about Iran specifically I think a lot of these things are going to play out regardless of whether the strait fully opens tomorrow or not. They might not play out for another six months. I think largely this is a Q4 and a Q1 story. But the four kind of different opportunities that I see are in the food space based on the fact that many ships did not get out during the planting season.

That wasn't just a factor for energy, although that contributed to it, but also fertilizers, chemicals, other additives that would typically help a planting season yield a higher crop. I think the fact that didn't happen to the same extent that it typically does sets us up for a potential food cascade later this year or next year.

Now again, th- these are not certainties I- but I think there's a higher probability than there would've been otherwise, and I think there's a number of other factors that contribute this. So I see opportunities, i- in the food industry. The other one that I think, that I haven't heard anybody else talk about is the MRO market, which basically stands for maintenance, repair, and overhaul, and this i- th- this impacts the aviation industry.

And the fact is that the Gulf region has become a v- very important part of this MRO global industry. And the problem here is that, if, i- if you end up getting a problem in that industry, it ends up potentially impacting all these other industries because it is another supply chain disruption.

So in other words, one supply chain disruption ends up impacting another supply chain a- and creating another supply chain disruption. National defense is, I think, probably going to be the biggest investment opportunity any of us have ever seen, or one of the biggest opportunities any of us have ever seen, both in the United States and abroad.

I think every country is going to have to re-arm themself, and I think money will be spent regardless of whether they can afford it or not on national defense. So I think that's, that, that's an area. And then as I mentioned the last time I was on your show, I think stable coins are going to be a revolution that many just don't yet understand.

And I think not only is it going to help to solidify the United States dollar as the global currency, but I think there are some pretty interesting investment opportunities associated with those as well.

Erik: I couldn't agree more that stable coins are really important, probably more important than most people understand.

One place I kinda see it differently is I think you're right that US dollar stable coins are likely to be the saving grace, if you will, for the US dollar as global reserve currency. But the way I interpret that is that puts a target on their back. That means that China and Russia primarily probably are doing everything that they can possibly think of to engineer a different competing stable coin, a, a global south stable coin, a BRICS coin or something.

I haven't heard anything about that actually happening, but then again, if I were them and I were doing it, I'd keep it secret. So do you think that the US really has a monopoly on this stable coin idea, or do you think it's going to come under challenge?

Brent: I don't think they have a monopoly on it.

I think countries, companies, different organizations around the world are free to launch their own stable coins. But the market, the actual users of the stable coins have definitively spoken, and 99% of all outstanding stable coins in the world today are US dollar stable coins. Now, that 99% was not forced upon the masses.

That was the issuers responding to demand in the market And the market has spoken extremely clearly that the dollar stablecoin is their preferred stablecoin. Now, that doesn't mean that there won't be other s- successful stablecoins. Doesn't mean China can't launch one, and it w- doesn't mean it won't work.

Russia could do the same. I think many other countries will launch coins. But at the end of the day, the United States dollars has the most utility on the global stage, bar none. And as a result, I think that will continue to glean the lion's share of the flows. And as that happens, as citizens from around the world choose to hold a US dollar stablecoin rather than holding their local currency, the transfer of sovereignty, monetary sovereignty, starts to leave that local jurisdiction and that local government and get transferred to Washington, DC.

And that is an extremely powerful tool that if we had a treasury secretary who happened to understand how markets work and had a history of manipulating markets or investing in markets or even causing currencies to fail, he could use that to his advantage. And it just so happens that we have a t- a treasury secretary who has done those exact things.

So I think the rise of stablecoins is vastly misunderstood. I think it's massively mis- underappreciated or underapp- whatever the right way of saying that is, is underappreciated, and I think is just another and a newer arrow in the United States quiver.

Erik: Brent, let's jump ahead to page 26, The Band.

Dude, you're putting the band back together. Most people probably don't even know that quote. It's a 46-year-old movie that one comes from, but it's also a 46-year-old story that you're writing the next chapter in. Tell us what The Band is about.

Brent: The Band it's about the United States dollar, and the reason we wrote this is I have talked a lot about the dollar over the last seven or eight years.

You know this better than anybody because I think the very first time I spoke about it publicly, I think, was at your conference. So you've been around for kind of the whole ride here. But I've never written a lot about it, and what I wanted to do is write a paper that kind of explains the mechanics of the US dollar system in a way that kind of the average person could understand and that would explain why all these evergreen predictions of the dollar's death or its rejection or de-dollarization or this new dollar killer app that's gonna be launched or this new Libra coin or the new E-won or what- whatever it is, why they always fail to gain traction and why they always fail to take on the dollar in any meaningful way.

And I got the idea for writing this when I was watching this TV show called Landman, and I'm not sure if you're familiar with the show Landman, but it's basically Billy Bob Thornton, and he's a fixer in the oil patch in We- West Texas And there's a scene where he talks about why oil has to remain within a band, and I don't remember exactly what band he said.

I think he said it needed to stay between 65 and 90. If you get above 90 the cost of energy starts to crush the profit margins of industries around the world, and it actually becomes even though the input is inflationary, it starts to create deflationary pressure on the global economy, and the global economy, goes into a recession.

The flip side is that if the price is too low, and if you get outside the band to the low side and oil trades at 40 bucks or 30 bucks, now the producers can no longer s- afford to stay in business, so they shut down their wells, they go bankrupt. And then when the demand comes back, the production is not there, and then you get the price spike that sends things the other way.

But if you can stay within that band, the producers can make enough to stay profitable and it's... But it's cheap enough that industries and citizens and workers can fill up their car, can power their industries, and the global economy can es- c- can expand And the exact same thing applies to the dollar index.

If you get too low, it causes problems. If it gets too high, it causes problems. And so in this, in this paper we, we did a k- we paraphrased Billy Bob Thornton's, comments about the price of oil to the price of the dollar. And the, th- this was our effort to make that clear to people and to explain why if the dollar is ever going to die, it's going to die of strength, and it's not gonna die because it got inflated away and went to zero.

Erik: Brent, you've got a whole series of slides here starting on page 27. Walk me through the whole story of putting the band back together.

Brent: Yeah, so one of the things that we did in this paper, the other reason the band works, is we equated it to the Rolling Stones because the Rolling Stones came to prominence about the same time the euro dollar market started to develop.

And despite the many predictions of the Rolling Stones breaking up or Keith Richards dying of a drug overdose or the egos getting too big and writing checks that they could no longer cash, the same thing had been said for the dollar. And so a lot of the chapters in this report, and so I should say, th- this report, a lot of the chapters are titled after Rolling Stones songs.

But essentially on, on slide 27, if people are looking at the deck, what we've shown is that despite all the talk, despite all the academic papers, despite all the blog posts and the Twitter rants, de-dollarization is largely a myth. Now, reserves have fallen over the last 30 years, but that's largely a function of oil or gold prices going up and dollar falling versus gold.

But all-- but if you look at things like FX turnover, if you look at cross-border lending, if you look at trade invoicing, they're all as high now as they have ever been, and they're higher than they were 30 years ago And, the fact is while the dollar as a reserve has fallen, it hasn't fallen versus other foreign or other fiat currencies.

It's fallen mainly versus gold, which is not a big surprise to us. Over probably since I first started talking about this in two thousand and eighteen, many people said that the era of the milkshake was over, that it had already happened. And my point was that the dollar was not going anywhere.

It was gonna remain strong versus foreign currencies, and that capital would get sucked up into the United States. And if you look at the financial assets that foreigners hold of the United States assets, it's almost doubled in the eight years since people told me that it would no longer happen, and it continues to go higher.

Now, will that ever change someday? It probably will at some point, but it hasn't yet, and part of the reason is what we try to explain in this paper. The other point that we would make is when we refer to the band, and I said you get problems if you go outside of that band, either to the upside or the downside.

This is not just theoretical. We went back and looked over forty years at sixteen different emerging markets, and on page thirty-one, I kinda make this clear that seventy-five percent of the time, whenever we've gotten outside of that band, within a very short period of time, sovereigns around the world went into distress, and they had a dollar funding crisis.

Now, when it stayed inside that band, didn't have the problem. So this is not just theoretical. This is real-world examples. And part of the reason is what I try to explain on slide thirty-two. There is a dual carry trade that the rest of the world has to deal with. And what I mean by that is a carry trade is when you borrow money in one currency, and then you go try to place it in another currency and invest in some project in a higher-yielding currency, and you make the spread.

And that works as long as the one currency is cheap and the other currency is higher yielding The problem is that the rest of the world, because they have both a local carry trade in their local currency, and they have a global carry trade in the dollar, they always have one of these carry trades is going against them.

It never goes their way on both of them, and the reason it never goes their way on both of them is because currencies trade relative to each other. Now, as long as we stay inside the band, even if one of those carry trades is going against the other one, it's manageable. But if you get outside that band, one of those carry trades really starts to bite, and that is something that the United States doesn't have to deal with because they only have to deal with the carry trade in the US dollar, and that is a structural difference that the US ha- has that the rest of the world has been trying to overcome for 50 or 60 years.

But it is also why, for 50 or 60 years, despite all their predictions, the dollar hasn't disappeared The other part of the reason the dollar hasn't disappeared is that the United States knows that this dual carry trade exists, and as such, they know they can use this dual carry trade to put pressure on the rest of the world.

And this is the chapter we titled Paint It Black. And I'm referring to slide thirty-five here. The United States knows that if they want to, they can put the rest of the world under pressure by using the dollar as a weapon. They can take off this global white hat and being the bright, shining city on a hill, they can put on the black hat, and they can put another country into crisis.

This has been done many times. It's been extremely effective. The most recent example, Bessent, Secretary Bessent just talked about this a few months ago, where he said very specifically, they used their tools to create a dollar shortage in Iran, which caused their currency to fall very dramatically, which caused inflation to pick up dramatically and caused their local citizens to go out in the streets and protest.

And it put the Iranian regime's revenue under extreme pressure. So this is just one example that if they choose to do it, the United States can weaponize the dollar. Now, the other point I've made is when you s- when you paint it black and you put on the black hat and now you're the bad guy, the rest of the world doesn't like it.

So of course, they're going to try to get out from underneath it. And that's a big reason why central bank gold purchases have gone up dramatically. On slide thirty-seven, we show the net buyers era and then how it jumped dramatically after Russian reserves were immobilized in twenty twenty-two.

I don't think that's an accident that central bank gold purchases jumped dramatically after that. But there's a consequence to that as well, because to operate on the global stage, you still need dollars. And there's no better evidence than that than page thirty-eight If gold is now going to be a reserve asset, gold is going to be used when those countries need to tap their reserves to get dollars to operate on the global stage.

And I think this is perfectly represented in the fact that from the moment the war broke out in Iran to the moment that it looked like we were getting this deal signed last week, gold fell twenty percent. The reason it fell twenty percent is those countries who had gold or who had purchased gold started selling it.

Russia sold it, Turkey sold it, the Gulf States sold it, and the reason they sold it is because they needed more dollars to buy oil on the global stage. And not only that, their gold reserves had gone up a lot in value over the last couple years, whereas their treasury bonds had gone down in a lot of value over the last couple years.

Now, some people say that's a negative. See? Nobody wants those treasury bonds because they're falling in value." Fair enough. As I've said for a long time, I didn't think that treasuries would hold their value. Part of the milkshake initially was saying interest rates would rise and treasury bonds would fall.

But there's two ways to look at that. That's another way the United States can weaponize the system against the rest of the world If raising interest rates causes bond prices to fall, and then the rest of the world has to sell those bonds to get the dollars they need, that's essentially the same thing as an early withdrawal penalty being put on their U.S.

dollar reserves. And you can see that on page 39. This is we kinda did an estimate of losses that the rest of the world took on their treasury bonds when the United States raised interest rates in 2022. Now, the genius thing about this is that the U.S. can say, "We didn't do this on purpose.

We weren't doing this to you. We were doing this to fight domestic inflation. This had nothing to do with us trying to put an early withdrawal penalty on your reserves. We're sorry that happened." But the s- the effect is the same. And so I think the point I want people to make is it's not that the United States can't make mistakes, it's not that they can do this stuff without having any consequences, and it's not that some of this stuff doesn't blow back and hurt them.

It absolutely does. But the reason we wrote this paper is because we want to show people that it doesn't work the way many people think it does, and just because the world doesn't like something doesn't mean they have the ability to get out from underneath it. And the United States, for all its problems, has many advantages, and we tried to explain what those advantages are, specifically through the dollar lens, in this paper.

Erik: Brent, we've been recording this interview late Wednesday afternoon during that period between 5:00 PM and 6:00 PM Eastern when the futures markets are closed. During that period, some news broke that I'd like to invite you to comment on. What was announced, and this is Axios reporting, which is not always the most accurate, although I just see a couple of other newswires confirming the same story.

Previously, the story had been U.S. and Iran had already digitally signed this MOU, but they were gonna get together on Friday and sign the final version. It's now being reported that the final signing has occurred remotely. It's... I thought they had already done that previously, so I'm not sure what's different.

But it sounds like the previously scheduled signing ceremony in Geneva for Friday is not going to go ahead, not because the deal is off, but because they're saying the deal has already been signed. To my surprise, no great reaction just in the... As I've been speaking the futures markets opened. I don't see any big reaction on crude oil in response to this.

What do you think about this? All of a sudden they don't need to get together in person to sign this after all? Does that make sense?

Brent: It does if you take the opinion that this is all much ado about nothing. So what I mean by that is I'm not surprised by this. I didn't think we were gonna have the c- the current Ayatollah and Trump get in the same room and shake hands and sign this deal.

I think this is a very tenuous deal at best, and as I said at the very beginning, I don't expect it to last, and I don't think it has changed a whole lot other than perhaps it's bought some time to hopefully re-liquefy the world from an energy perspective long enough that we don't have a major disaster later this year.

But as I, also mentioned, I'm-- I think that is more likely that we have some problems down the road as opposed to not.

Erik: Brent, I can't thank you enough for a terrific interview. Before I let you go, tell our listeners a little bit more about what you do at Santiago Capital and how they can follow your work.

Brent: Sure. I appreciate you having me on again. It's always fun to talk with you, Eric. I can be found at Santiagocapital.com. You can find our research service at research.santiagocapital.com. That's where you can find a link to the report that I just talked about. And my overall business is managing money for high net worth individuals and families.

We do it on a customized basis. We do everything specific to each individual family. And one of the things that we've been working on recently is in addition to the separately managed accounts that we manage, is we have a private fund that is taking advantage of the opportunities with the Office of Strategic Capital and investing in national defense.

And so it's been a pretty interesting time period to be doing that. So if anybody wants to follow along, go to one of those two websites. You can also find me at Twitter. Those of you who know that I like to mix it up on Twitter quite frequently, and my handle there is SantiagoAUFund.

Erik: I can't thank you enough, Brent. And sure enough, your prediction that things will remain in a state of conflict is already coming true. Just in the last minute, Iran's parliament speaker has announced that the Strait of Hormuz will never return to the pre-war situation, adding that Iran has the right to charge fees for transit and will assert its right to do that didn't take very long and is very much consistent with your prediction. Congratulations on the call, although I'm not sure if it's really good for the world, and we'll look

Brent: forward to seeing you- Can I say so... can I say one last thing?

Erik: Sure

Brent: you can. I would I would encourage people to go listen to an interview that you, that Eric moderated last night between Jeff Curry and Anas Alhajji.

I thought it was one of the better episodes on this particular topic that I had listened to. I thought both sides were very respectful of the other. I thought each side had extremely good points. I tend to agree with Anas as far as the overall effectiveness of what's happened, but I certainly cannot discount the points that Jeff made, and I thought you did a very good job of moderating both and keeping it as a very good and very informative discussion.

That was on Zero Hedge, so I don't know if, I don't know if, I don't know if that's appropriate for me to bring that up, Eric, but I thought it was very good, and I meant to tell you that at the very beginning of the episode.

Erik: I'm glad you reminded me. We'll make sure that we have the link in the Research Roundup email to that replay of the Zero Hedge video.

Patrick Ceresna and I will be back as Macro Voices continues right here at macrovoices.com.

Erik: Joining me now is New York Times bestselling author and Bear Traps founder Larry McDonald. Larry has prepared a slide deck as he usually does for us. Registered users will find the 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 Larry's picture that says Looking for the Downloads. Larry, it's great to get you back on the show. It's been way too long. I wanna start with what is it exactly that started last Friday? 'Cause it certainly seems to be the beginning of something significant in the markets.

Is this the market finally waking up to the Iran conflict, or is it a reaction to the jobs reports and maybe expectations of rate cuts being harder to come by, or is it something else? And by all means, refer to the slide deck as we dive in.

Larry: Sure, yeah. It's definitely a fourth quarter 2021 redux where Everybody's kinda been in a transitory trance.

Inflation is transitory again, which we were in, in the fourth quarter of two thousand twenty-one. And if you recall, the moment it appeared that inflation was not transitory, equities lost about thirty-five, forty percent pretty quickly between two thousand twenty-one and twenty-two. The Nasdaq lost about seven trillions-- seven, eight trillion dollars evaluation.

And so you have a decent economy, but the Strait of Hormuz closed for 100 days, all this AI CapEx, and it's really just crushing the little guy as inflation is just so sticky. And it-- you could see here on, on slide two. One of the things, Eric, I wanna make very clear, there's no I in team. So as part of the Bear Trap report, we host a conversation every day with the biggest hedge funds, mutual funds, and pension funds in the world.

And what I'm gonna do today is kinda share the insights, the valuable insights that I'm getting from the top institutions around the world and triangulating that information. And that's why I love this platform, because I wanna democratize the information. I want, your phenomenal audience to, to really have a front-row seat as to what the in-- top institutions are talking about.

The biggest thing in recent weeks is the consumer oil inflation. And you could see here on slide two, junk bonds. The high-yield market as a whole is okay, but the tertiary parts, and these are the, typically the leading indicators. The tertiary part of the high-yield bond market, which is CCCs, as you could see there, really kinda blowing out.

The last time stocks were all at all-time highs, CCCs were much lower in yields, and I think that's, really telling you a lot about the consumer.

Erik: You mentioned the big IPOs. It seems to me like that's a key part of this story as well. So I'm trying to sorta sort out, okay, we got on Friday, the jobs report kinda led to a lot of people thinking that rate cuts are less likely than they were on Thursday for whatever reason.

We've also got these big looming IPOs, and I'm not sure if the market's finally woken up to how big of a deal the Hormuz crisis is. What are the experts in your fund community telling you in terms of how they're perceiving what the most important drivers are? It feels like Hormuz is probably not it.

Larry: And it's indigestion, really. So if you go to slide sixteen, if you think about it, it was-- you're talking about an IPO that's six percent of US GDP. If you think of Facebook 2012, that was an enormous IPO at the time, $100 billion, and it was less than 1% of GDP. The SpaceX IPO would be 6% of GDP.

And always remember that The biggest IPO ever was Saudi Aramco at 25 billion. So if you do the math, if you take the secondary offering from Google last week of shares, 80 billion plus the SpaceX, you get $150 billion. 150 billion. And so net-net, a lot of people have to sell stocks in the market to make room for these, two absolute beasts that have come out.

Erik: If you take SpaceX, as you said, it's a $2 trillion valuation. The actual raise, which is the money that, that we need to come up with someplace to, to pay for the shares being offered, is 80 billion. Okay. Add that 80 billion, Google's And add to that Anthropic is coming up. We're gonna have OpenAI coming up.

There's about 200, 250 billion of immediate raise, but here's the thing that I'm actually focusing more on, Larry, is six to 12 months after that, all the insiders and the VCs and the early investors in those companies, it's not 200 billion, it's like 3 trillion of capital that gets unlocked as those restricted shares become unrestricted somewhere between six and 12 months after the IPO.

It seems to me that's the point where, how do we absorb all of that equity into the market?

Larry: If you look at the SpaceX program in terms of the lockup and unlock, it's much more aggressive than previous IPOs. And so for investors listening to us right now, it's extremely important.

If you remember the Facebook IPO in 2012 once again, once the lockup started coming out and the shares, like you just nailed it, in that first year, you had a 40, 50% drawdown in s- in Facebook. And I think what's happening is the VCs were... think about capitalism in America. These companies are coming public

think of Tesla, came public at a 2 billion valuation, right? Facebook at 100 billion valuation, and now here SpaceX two-- almost 2 trillion valuation. So it's it's e- essentially 11, 12 times the size of Facebook. So these companies are coming public much far later in the maturity cycle, which means that the IPOs are very unattractive and you're much better off waiting.

If you have to, buy a little bit of the IPO, but you're gonna probably be able to buy, SpaceX IPO 50% off sometime in the first year

Erik: Yeah, obviously a lot of people think SpaceX is, going to be a huge thing and it's the future. It feels to me like these IPOs are very reminiscent of 2000 or so when, y- frankly the smartest tech leaders w- had the wits to say, "Let me sell my equity to retail bag holders and let them ride out what happens in 2000."

So it feels like 1999 to me.

Larry: And to look at chart number 15, this shows you a lot because it's the S&P versus the equal weight. And if you think about it, the biggest, most liquid stocks are the easiest to sell, right? So lo and behold Huge underperformance in the last 10 days of the S&P versus the equal weight.

You can see that on the chart number 15. And what that's telling you is that people are selling the Mag Seven, which is essentially unched to a little bit negative since October now. They're selling the big Mag Seven equities, which are very liquid, and they're raising capital for all these IPOs. That's inter- like you said the Time Warner deal in 1999, 2000, it's just too much coming into the market at the same time.

Plus, we have a lot of private equity deals coming out in recent months. There's just too many sellers. And the last thing, remember, in the '90s, I founded convertbond.com. And for investors listening to us right now, always remember, the smartest sellers in the world are chief financial officers. And guess what, Eric?

The amount of convertible bonds that have been coming to the market in the last couple of weeks, from, say, three, four weeks, is up a lot over last year. It's up on, to... And the same thing happened in 2021 in the third, fourth quarter. And so what's happening is, as the stock market rips, CFOs see, "Oh, my stock's up a lot," and they're coming to the market with convertible bonds.

Inside those convertible bonds, there's lots of equity. And so right now, chief financial officers are selling their equity in the convertible bond market at a very fast rate of change speed, which is similar to 2021 in that third, fourth quarter. And never forget what happened in '22, 30, 40% drawdown. So I think the CFOs smell something and they're coming to market, and they're also dumping.

So you have Elon's dumping stock with the SpaceX crowd. You got Google dumping stock, and you got CFOs across all these different companies, Irin I could... There's seven or eight companies. They're also dumping a lot of stock at the same time.

Erik: So if I look at what's happened in the last few days, it feels oh, we're down a lot.

But really, if I just go back to the late March low when the market initially started to freak out about the Iran conflict, we got down to, what was it? Around 60, just about 6,400, a little bit below 6,400 on the S&P. If I look at the, since Friday, the down move as of Wednesday afternoon, we're really only looking at, I don't know it's nowhere close to a 38%.

It's about 25% has been retraced at most. How far are we going? Is this just the beginning of something really big, or are we just looking at a blip here? W- what do you think is coming?

Larry: Great question, and the perfect chart is number 13 for this. So 41 trillion in the Nasdaq 100 last week before the drawdown started.

41 trillion. And to your point in March, which was just forty-seven or maybe fifty, fifty trading days ago, in late March, there was thirty trillion in the Nasdaq one hundred. So the Nasdaq one hundred went from thirty trillion of value to forty-one trillion in less than fifty trading days. Nothing like that's ever happened in the history of markets

But let's go back to two thousand and twenty-one, twenty-two, the last time we had the inflation shock. Look at what ha-- And the last time the convertible bond market was on fire too. A lot of CFOs selling stock. So two thousand and twenty-one, twenty-two, we were up near nineteen trillion of value in late 'twenty-one, and we went down to twelve trillion in literally four quarters.

That's an example of what's about to happen, I think. So that kinda drawdown. And think about it, so we went from nineteen trillion in the fourth quarter of two thousand and twenty-one to twelve trillion in the fourth quarter of 'twenty-two, and then that all the way up to forty-one trillion. And that's why I think as money rotates out of financial assets, which are bonds and tech stocks, when you see this kind of value, the rotations can be amazing.

If you look back to two thousand and twenty-two, what were the big winners? Energy stocks were up a lot, I think well over a hundred percent. Also materials. I think the same thing's gonna play out this time around again, and it's a repeat two point zero.

Erik: And so does that give you any targets or expectations in terms of valuation levels that we're headed towards?

Larry: That's what's amazing about the market now. The free cash flow yields in the energy space are so cheap, natural gas equities, energy equities materials. So you've got one part of the market that's really cheap, but the Nasdaq one hundred valuations are really all-time high CAPE ratios, PE ratios.

So there's two different markets. One part of the market, technology is really at the highest valuations almost ever. And then, but in the energy space in, in the material space, you've got beautiful free cash flow yields, which are probably the cheapest part of the market.

Erik: Larry, I apologize for jumping out of order a little bit there.

You've got so many different fascinating topics I wanna come back to. I got you a little jumping around the slide deck. Why don't we go back to the beginning around page three? Tell us about this S&P versus restaurants chart.

Larry: Sure. So th-that's kinda the main point, is that the bottom the bottom sixty-five percent of consumers are really only ten, fifteen percent of consumption now because the wealthy have so much money in money market funds, and money market fund yields are up a lot But the bottom 60% of consumers are in a lot of pain, and that's why you're seeing these wacky divergences, restaurants, getting really hammered this year.

Same thing on the next chart with Home Depot. Home Depot almost 30% off. Think of these brands, Lowe's, Home Depot McDonald's. All these stocks are essentially close to 20... fif- n- 19 to 20% off. Home Depot almost 30% off. And so it's, once again it's two different consumers. One, one part of the market's in a lot of pain, and the other part of the market, technology and semiconductors, are partying like it's 1999.

Erik: Larry, I see you've got Agnico on the next page. L- let's talk about the big picture of gold and gold miners even before we get into the specific stock. We're taught to think of gold as something you want in your portfolio as a hedge against big geopolitical events. If something like the Iran conflict happens, gold's gonna go up, except for it went straight down.

What gives, first of all, with that? Is that about inflation expectations? Is it gonna continue? And why don't we transition from there into the slides and what in terms of the gold miners?

Larry: Sure. Eric, so we just talked about the consumer and how weak the consumer is. You could see this in a lot of the conference calls.

You could see it in the restaurants, you could see it in Home Depot. You can see it in so many different parts of the market. So it's very tough for the Fed to hike rates. But the market gold miners are really having this kind of what I call recency bias. So in 2021, '22, we had that big inflation spike, and the gold miners now have really sold off for a bunch of different reasons.

One, one important one, is we've gone from three rate cuts to potentially one rate hike in terms of the SOFR futures or the expectations market of the Fed funds. So when you go from like rate cuts, three rate cuts to one hike, that knocks a lot of steam out of the gold miners. But the best trades in the world, Eric, the best trades of our careers are what I call the hot money flush.

And so I love a sector that just had what we call a hot money flush. Think of a poker table A lot of weak hands at the poker table, and that's the gold miners. So in the third, fourth quarter and the first quarter of last year, so many tourists, Eric, so many tourists came into the gold miners. Think of the heavyset guy, the Hawaiian shirt, and the glasses and the camera, right?

That's the type of investor, weak hands, tourists getting off the bus, buying the gold miners with both hands in the third, fourth quarter. Next thing they get hit over the head with central banks, with this shock, with the Middle East. Think of Turkey, all these emerging markets, central banks, co- There's a lot of countries in the emerging market space that don't have a lot of access to energy.

And so when you have an energy shock, they have to sell something to raise cash flow. Emerging market central banks have been dumping gold the last couple of months. And so you had the kind of the problem with the rate hikes and inflation and then the b- oh, never forget the one year Treasury 12 m- is up about forty basis points.

So think of like on a million bucks, you're getting close to forty grand a year. Forty grand a year of interest on a one-year Treasury versus say maybe thirty grand a year, six month, six, nine months ago. I'm exaggerating a little bit to b- trying to make it simple. So the bottom line is, the gold miners have been hammered.

Look at Agnico here. It's trading at forty percent off, right? Five point nine enterprise to EBITDA. And we can go back twenty, 30 years. That's one of the cheapest valuations. They've got six to seven billion of free cash flow, Eric. Six to seven billion of free cash flow. They're buying back two billion dollars worth of stock.

When I sat down with David Einhorn of Greenlight Capital, the famous hedge fund manager in my new book, he said, "Larry, I love to buy Companies that are producing beautiful free cash flow and buying back the stock when the stock's down thirty, forty percent. Because it's not a floor under the stock, but when you're already down forty percent, it's pricing in a lot of pain.

But your valuation is the cheapest of all time, and the company is buying back two billion dollars worth of stock. So to me, your risk reward of buying Agnico here is probably ten, fifteen percent down and two hundred percent up. Because this time next year, with that wounded conser- consumer, the Fed really can't hike that much.

You go into a slow growth economy with high inflation, gold should be sixty-five hundred an ounce this time next year, which would put Agnico Eagle up much higher, potentially a hundred percent higher a year from now.

Erik: Larry, I could not possibly agree more with your basic thesis here, which is that flush of the hot money, it's clearly come out of gold since the Iran conflict started.

Was around March 2nd that gold the-- there was just an inversion of the usual correlation between geopolitical events and gold. I think it's because of those rate cut expectations, exactly as you said. But here's the thing. I agree with you completely that for a long-term trade in gold, it's gonna be just an incredible buy, and it's gonna pay off in spades.

But is there a chance that it's still too early? And the reason I say that is it seems like it's pretty darn clear that it's the Iran conflict and the Hormuz closure and probably some of those central banks in the Middle East selling their gold is playing into this. I don't think this Hormuz thing is over yet.

I don't think it's close to over. I think it's got a long way to go. If you have that view, is it time to buy gold now, or is it time to sit in the sidelines a little longer?

Larry: Yeah, I'm with you. I think it does have a ways to go. I think that the strait's been closed a hundred days. Trump's really annoyed with Iran.

Iran's pushing back hard, and you saw it this week, right? So it's a standoff. So that's why in our trade alerts, we've got over two thousand financial advisors and family offices and high net worth individuals that do our trade alerts. We're buying only like one-thirds and one-quarters in the gold miners.

We did a nice exit in the first quarter in the gold, in the GDX. But as you can see here in chart number six, you have to be very careful on entry. But net-net, I do Buying gold miners like Agnico down 40%. Okay, are they gonna drop 50%? Possibly. But if you look back to 2021, '22, when we had that big inflation shock, front-end Treasuries went up a lot in yield.

And I know it's, for people listening to us right now, over time, gold's a great inflation hedge. But let's make something very clear. When front-end yields on T-bills go up a lot, it sucks money out of gold, because if you can get 40 grand a year in a one-year T-bill instead of 30 or 20, people just naturally will buy that.

But, so that's what creates the buying opportunity. So yes, probably a little early here. Buying, we're buying in thirds and quarters, and we're looking to add on further weakness.

Erik: Okay. So you do see the further weakness coming, but it's time to start scaling in is basically where you're at now.

Larry: Yeah. The, the old theory, o- only monkeys pick bottoms, right?

So what I try to do is we have a capitulation model that measures the tourist flush, and you wanna start just e- buying in one-thirds or quarters into s- into something like that.

Erik: You've got on page seven the twos, 30s spread the yield spread. What's going on this chart, and why does this come up?

Larry: So this is a, this is an example of another flush where, everyone thought with the Trump economy, growth, capital investment in artificial intelligence, big deficits, the steepener was a really popular trade for much of the last year. You can see that. All the money came into it '24 when Trump was elected, '25.

And now we've had a real flush as people are concerned about longer term growth with the consumer, like I said, the McDonald's, the Home Depots, the Harley-Davidsons are all off 20%. In some case, it's more. And and that, if you look at the Home Depot suppliers I went through on Bloomberg, there's probably 50% of Home Depot suppliers are down 20, 30, 40%.

And so that means the growth expectations are coming down. But at the same time, you've got this shock in the Middle East where the Fed might have to hike and a muscle memory of, okay, inflation, the Fed has to hike. This is, to me, a facade. The Fed really can't hike. Never forget, Interest on the debt today is at tw- two, 1.1 trillion over the next 12 months.

1.1 trillion. When the last time they started the hiking cycle in '21, '22, it was 300 billion, right? So the muscle memory in the market thinks the Fed's gonna hike. That's causing this flattening of the curve in two 30s. But to me, it's a facade. It's a, o- it's a mirage. They really can't hike that much, and that means the curves are gonna steepen a lot over the next year.

Erik: So you like the twos, 30 steepener, long the two-year and short the 30-year?

Larry: Yes. And one way to play that is the IVOL ETF, which has been battered. I, the famous IVOL ETF founded by Nancy Davis, I-V-O-L.

Erik: Okay. Let's move on now to page eight, which is year-over-year inflation in the Bloomberg Commodities Index, BCOM.

What's this comparison telling us?

Larry: This is a blood-curdling chart. For the love of God. You've got all this data center spending two, 2 trillion bucks and another 5.4 trillion over the next four or five years. That's what the street's expecting. 5.4 trillion up from three and a half trillion 18 months ago.

And so you got big deficits in Washington, $1.9 trillion deficits. You have the Strait of Hormuz closed for 100 days, and all the supply chain risk that comes with that. There's a lot of inflation coming at us. So this chart basically tells us that inflation's going back to five, six percent.

And today, Eric, super core CPIs, the super core, which you can't fake super core. It's of all the big macro people look at it If you annualize the last three months of the super core inflation that came out, you're coming out to five point two percent by year-end of super core inflation. That's, that means core inflation or inflation headline's gonna be five, six, something more like six, seven, eight percent a year from now.

And listeners, you'll see the super core chart is on page ten of the slide deck. Go ahead, Larry. It's very hard to fake super core. And I think the some of the best macro traders in the bond market look at super core inflation. The thing that's the real eye-opener for me, and this gets back to the core thesis of our book, How to Listen When Markets Speak, is when you go into an elevated inflation regime in a multipolar world.

Think about multipolar global conflicts, higher interest rates, higher inflation, stubborn oil prices in a war. What that does is it creates a rotation. And if you look at super core, we're at three point seven percent. Look at that lost world, that previous decade, your high was three percent. So you're in a whole new regime, which is creating a colossal migration from what we call financial assets, which are bonds and stocks and a lot of tech stocks.

You can see the software's names are really being sold. There's other parts of the market that are being sold, and people are moving into hard assets and companies that control hard assets and not paper certificates. So we're, that's where it's really what we call in the book, the great migration is coming at us.

Erik: Larry, your book has gotta be the best title for a finance book ever How to Listen When Markets Speak, because it's about the market. It's not about what you think the market should be thinking. It's figuring out what the market's thinking. Let's apply that now and talk about some rotations that are going on in the market, moving onto page eleven in the deck.

Larry: Okay. So think about this, Eric. You go from a ten-year disinflation regime When in a unipolar world with less glob-global conflicts and you rotate into a multipolar world with more global conflicts, higher interest rates, higher inflation, that means your portfolio construction needs to have a totally different view.

Companies that control hard assets and also value. So look at here. Growth versus value has failed here a lot since two thousand and nineteen. Big move over the last week. Big move. And I think this is the beginning of a colossal move over toward value. 'Cause if you think of value companies, like if you look at Buffett.

Buffett, Berkshire, big outperformance the last week or so from Berkshire. But they own a lot of companies that control hard assets, the Occidentals, Petroleums of the world, right? So value companies, many of them today, control oil and gas, natural gas, materials, and so that's a really colossal under-owned part of the market.

And so if you have forty-one trillion on the Nasdaq one hundred, which is a lot of that's growth stocks, and you got this big IPOs and like a massive overdose in the market on technology, when this rotation comes, you're gonna see a big move out of growth into value. It's... You can see it's really started this week, and I see a lot more ahead And then on slide 12, if you look at right there, big move out of the S&P 500, which is a lot of tech stocks, over toward the Russell 2000.

And you gotta-- you're breaking that down wedge there, which I think is pretty powerful move. So if you go into a period where there's too many IPOs that are coming in, there's too much money being sucked out of the market with new offerings and bond deals you'll see a great migration out of the S&P back over toward the Russell 2000.

And so that's an important part of this trade. The next one is oil services on slide number fourteen. Big outperformance this year. A lot of value names in there, the Weatherfords of the world, the Schlumbergers. They control a lot of valuable assets. The artificial intelligence potential of Schlumberger or SLB is literally the one of the most exciting trades or investments I can think of in the market today.

Everyone's in the chips. People have to start thinking of other parts of the market that are gonna benefit from artificial intelligence. The oil services is a big one, and you can see their big outperformance versus the S&P.

Erik: Larry, let's stay on that AI theme. What other parts of the market are beneficiaries of artificial intelligence?

Larry: Eric, number 18 slide. This is the mind blower, right? So over the last thirty years, we've been lectured and lectured, especially the last ten years, that the baby boomers are turning eighty years old. The average boomer is probably seventy, seventy years old. They control seventy-nine trillion of wealth.

Wall Street's been lecturing us, "You have to be long healthcare. You have..." Every analyst has been preaching this for the last fifteen, twenty years. And lo and behold, healthcare, as a percentage of the S&P 500, has gone from sixteen percent to eight percent with all of these baby boomers. One of the reasons why it's accelerating is people are selling healthcare stocks to make room for tech stocks, right?

To make room for the Space Xs of the world. So the cheapness of healthcare relative to tech is extremely attractive, and it goes back to the year 2000, like you said, with that AOL Time Warner deal. You kinda had a big break, and healthcare and staples really destroyed technology from 2000 to 2002. But at the end of the day, healthcare today is such a cheap part of the market, and you've had...

In the last two months, you've had a, not only people selling healthcare to make room for tech stocks, but you've had a lot of quantitative momentum players in the market. And guess what they're doing They've been going long momentum, which is what we call high momentum stocks like semiconductors, and they've been short low momentum, staples and healthcare.

So it's like a perfect storm. You've got a lot of quants playing this game that are... they're really creating incredible cheapness in the healthcare space. But at the same time, you have a lot of asset managers that are selling down healthcare to make room for all these big tech IPOs.

To me, this creates a colossal opportunity, an incredible opportunity looking forward for the next five years. You wanna be selling down your exposure to technology and increasing your to healthcare. Look at slide number twenty, Eric. Look at this factor momentum factor. It's way out of whack relative to the previous regimes.

And so once again, momentum, you see there, everyone's long aggressive momentum, which is the semiconductors. Everyone's short healthcare. And as you can see here, we're at very rare territory. And I think with quarter and month end coming up at the end of the month into the second half of the year, the probability that we have a huge turn here, I think is a very high probability of a move out of high momentum into low momentum.

So out of the semiconductors and aggressive growth over toward healthcare, I think it's gonna be a big winner the second half of the year.

Erik: Larry, everything you're saying is really resonating for me, but it's from a different angle I wanna run past you, which is, so many tourists are looking at this saying, but AI, the computers are so smart now."

And my reaction is, wait a minute. The humans who invented artificial intelligence are pretty darn smart too. And what they all seem to be doing, the very smartest of them, ones who truly invented this stuff, is they're selling their equity to bag holders as fast as they can. There's a race on right now between Anthropic and OpenAI and SpaceX.

All of these big technology private unicorn companies are either going public or in the case of Google, doing secondaries. Seems like everybody's trying to sell stock to retail at the same time. Am I interpreting that correctly as reinforcing what you just said about this transfer from momentum to value?

Larry: Yes. Jack Bogle, r- God rest his soul, is rolling over in his grave. The S&P 500 was constructed and invented with the best of intentions, and passive investors have crushed it. The S&P 500, the Nasdaq, these are passive indexes. In the old days, active managers that run money had more capital than these indexes.

Today, I have a theory that we laid out in our book, Eric, is that once you get near 60%, 65% passive versus active, and all that means is so much capital is in indexes that are not thinking, they're just owning things. And When that happens, the indexes become, can become more and more gameable. And you're seeing this on S&P 500 inclusion.

Stocks like Lululemon come into the S&P 500. Everybody, the, the in the know crowd knows this and they buy it up ahead of time. It's so the same thing with these IPOs. The billionaire investors on the West Coast, the venture capital people, they have-- think of SpaceX, right?

$30 billion valuation in 2019, 30 billion to now 1.8 trillion when it comes public. And so when they come public and they are accelerating these I- IPOs into the indexes like you saw with the Nasdaq, the S&P, it's gonna be over the next year. So passive investors are the bag holders up against really, billionaire investors that have been in these IPOs for d- a decade now and maturing.

In the old days, Microsoft came public at less than a billion dollars, right? Facebook came public at 100 billion, right? And now companies are coming public at 1.8 trillion. It's a colossal failure of common sense. They're gonna destroy indexing, okay? Because there should be rules against this, but the rules are being bent in favor of letting the billionaires dump stock in the hands of retail.

Erik: That sure feels like what's going on. Let's move on to page 21. What's Intuitive Surgical?

Larry: So last week, Eric, we hosted a private call with a billionaire family office, and what I try to do is I do these cage matches where I get a good bull and a good bear in the room, in a Zoom room, and I call them the cage matches.

And guess what? They fight to the death. It's absolutely hilarious, but you learn so much. And think about healthcare, everything we talked about five minutes ago with everyone's long momentum been selling down healthcare. Look at Intuitive Surgical. And then when you talk to people in the family office space that are in artificial intelligence medical sector, right?

So billionaire family office, they've got the-- They're on the front row seat. The intelligence that they have relative to most investors in that sector is off the charts. And they made the point to me that they love the Surgicals of the world, the Baxters, because guess what? Just think of Intuitive.

They have the best data. The best data. It's-- Think of Tesla ten, twenty years ago or t-ten years ago, what they've done with the data on the road. It's every road system in the world now, all that data is in the hands of Tesla, right? Same thing with Intuitive Surgical. Doctors today with robotics can operate on patients in other countries.

And the data in the future of artificial intelligence, the big beneficiaries are companies like Intuitive that have that incredibly valuable data. I think, and I'm hearing this from the, like I said, the top family offices in the AI medical field, these stocks are unloved, underowned, everyone's in the chips.

And if you buy Intuitive Surgical now on the two hundred week moving average, to us that's a really screaming buy because over the next ten years, five years, the data and the artificial intelligence that's gonna take that data, it's gonna turn Intuitive Surgical into a absolute profit beast.

Erik: What's tourmaline oil on page twenty-two?

Larry: Okay, that's our last idea. So another family office that we spoke to last week... we have a Bloomberg chat with hedge funds, mutual funds, and pension funds, and we do these ideas dinners in New York. Next week we're gonna be in Toronto and Montreal. And so the last ten days we got some of these big oil hedge funds, mutual funds, and pension funds in a room and we had a about trapped gas.

This is the next artificial intelligence play. So think about this. There's supposed to be 800 to 1,000 data centers built over the next five years in and around the world. Five trillion of spending, right? Some of those data centers are in the wrong places, what we call NIMBY, not my backyard, right?

And so you're seeing some political pushback around the country for data centers that are in the wrong places. Guess what? There are companies like Tourmaline in Canada that have gas. It's trapped. It's difficult to get to. Over the next five, ten years, all of this trapped gas in Canada, and especially in Texas, is gonna be harnessed and extremely valuable because you're gonna be able to take those data centers and move them in and create a, like a private turbine near that natural gas and really harness that cheap, relatively worthless natural gas because it's trapped.

And so you're taking trapped gas, and you're making it available to data centers. And Tourmaline's in discussion with hyperscalers right now. I think this is one of the best trades over the next five, ten years. Plus the political backdrop. Carney in Canada relative to is far less hostile to this investment philosophy.

And The last thing is with the war, the-- one of the points that the big hedge funds have been making to us in the chat, this war in Iraq and the Strait of Hormuz and LNG, what it's doing is it's making US natural gas and Canadian natural gas much more valuable. Because if you're a global buyer of L-LNG and your g- and your gas has been trapped in the Middle East, you're burnt, you're not happy.

And it's almost like America, attacked Iran, but what they've actually done is they've increased the value of US and Canadian gas assets. I don't know if that was intentional, but think about the buyers of natural gas globally, of LNG, the-- it's gonna benefit Tourmaline and US natural gas exporters dramatically over the next five, 10 years.

I think you're... I think Tourmaline, your downside's 15, 20%, your upside's 200%.

Erik: I wanna move on now to your final slide in the deck, slide 23, which is the Sprott Physical Uranium Trust. I'm gonna ask you to expand this topic a little bit more to also include the uranium miners, if we could talk about that as well, 'cause I've gotta tell you, I need some help listening when markets speak, and I-I'll tell you exactly why.

I couldn't possibly be more long-term bullish on uranium and uranium miners because I think the nuclear news flow couldn't possibly be better. Even before you consider all these SMRs and advanced reactors and all that stuff, we already had a uranium deficit on the horizon that just to run the reactors that are already in place that haven't been built yet.

So I just can't think of any reason not to be bullish long term, except for one thing, which is this is a famously high retail participation, high volatility sector. Not so much the Sprott Uranium Trust, but the miners are a really high volatility, high retail participation sector. And if what we just talked about a few minutes ago about the momentum stocks maybe being right on the precipice of a big sell-off, if we get a broad market risk event, if this Iran war gets worse and it, leads to a bunch of negative events in the market I can't imagine the uranium miners not getting slammed by that.

What do you do in a situation like that? I could be s-super bullish on one hand, but I'm really concerned about what could happen in the market next.

Larry: So what I've been thinking about, at The Bear Trap Report, we go back and forth between the uranium commodity And the companies, the Camecos of the world, the NexGens the Denison Mines.

And what I try to do is when the market-- when I don't like the market short term in terms of Strait of Hormuz, in terms of all kinds of things coming at us with inflation, like you said, Eric, high beta sectors get hammered much more than the commodity or in general. So it's-- Uranium, gold miners, they're a very high beta sector.

But what's interesting with uranium now, the SRUUF, it's down 5% year to date, almost 6, but Cameco's up 4% still. So the underperformance of the commodity gets me excited right now, and I think I wanna buy the URNM or the NUKZ, which is the ETFs that own these companies. I wanna buy them on a little bit more pain like we had last April, May of 2025 with the trade war.

You look at the drawdowns, like you s- just like you nailed it, Eric. These companies really are susceptible to market volatility. And so you wanna be in the commodity if you expect volatility ahead, and then you wanna rotate into the miners during that big kind of huge drawdown in the market. So we hosted a call two weeks ago with a famous family office in the uranium space, and he made a couple great points.

First of all, he completely agrees with you around the 2027, '28 deficits. And but I think the sexiest part of his story is supply and demand. And it's p- the point that he made to me, and I'm hearing this from some of the most sophisticated investors in the world, and that is on the supply side, the NexGens, the Camecos, the Denisons, they tend to overpromise on production.

And so For example, that NexGen mine that's supposed to come on in later this decade. A lot of the people, a lot of the family offices that are close to the uranium space think that they're probably exaggerating by a year or two. And so you have a supply problem because of, bec-because of the kind of over-exaggeration of production in the years to come.

So that-that's where the supply s- problem is. On the demand side, it's so obvious with what we're doing in the United States, we need the, we need to build... the United States, this is a real s- this is a real national security problem, and so we're gonna really ramp up nuclear power the next two, three years in terms of nuclear power plants.

It's gonna take a while, right? And around the world, countries are more friendly now. The Germanys of the world, the Japans of the world. So you have this increase of demand that's coming at us. You got a shortness of supply, the amount, the about of time that it's gonna take NexGen to get that facility up and running, and then you have the big brain drain.

So if you think of brain drain, think of Saskatchewan, and think of like uranium assets around the world. They're hard to get to. There's environmental regulations, and a lot of the talent has moved into Bitcoin mining, for example. Like a lot of times what happens in bear markets is that the bear markets over five or 10 years that are really grueling, nasty bear markets, they actually, you see the best engineers, the best intelligence, the best brainpower, kinda leaves the sector for other hot parts of the markets around the world, whether it be artificial intelligence or whether it be Bitcoin mining.

And so to me, that's a really sexy part of the story. And so that's once again, that's a supply issue. So we're looking at two thousand and twenty-seven, twenty-eight, twenty-nine with a massive supply-demand problem. So SRUUF, we sold some in our trade alerts in the first quarter on that kind of move up.

We're buying, we've been buying down here and, I really see a beautiful outlook over the next two, three years. And guess what? The most important part of this story It's the contract buyers. The contract buyers, the major utilities, they've been sitting on their hands the last decade because once again, the bear market conditioned them to really not panic buy on uranium.

But when you talk to people on the front lines, the big family offices that are close and really on the front lines, boots on the ground type people, they see the contract buyers really starting to get nervous behind the scenes. You're gonna see the ramp up in purchases. In other words, uranium's not a spot market like in the commodity market.

There's no futures. So these contract buyers are really gonna have to step up the next 12 to 18 months because they see the supply and demand problem. So the risk reward in uranium now is absolutely one of the most attractive entry points for the commodity that I've ever seen.

Erik: But your take on it is invest in the commodity now, rotate into the miners only after the pain that hasn't quite happened yet.

Larry: And that's what we saw last year with the trade war. It was just absolutely ridiculous. The sector was viciously for sale. Same thing in the summer of 2024 with the Japanese yen crisis, the carry trade blowup.

In both instances the commodity, I'm sorry I should say the producers on the uranium side were down like 30, 40%, 45% in a short, very short order. 'Cause once again, like you said, retail tourists, some weak hands at the table, and all that means is m- imagine you're playing a poker game.

Somebody does a big raise, and that's like the same thing as a big shock in the market. A shock in the market knocks a lot of the tourists back on the bus, and they leave and go home. They take their ball and go home.

Erik: Larry, I can't thank you enough for another terrific interview. Before I let you go, let's just touch on what you do at The Bear Traps Report for our institutional audience.

You're also a bestselling author of a- what I think is the best title for a finance book ever conceived, which is How to Listen When Markets Speak.

Larry: I'm really proud of Eric. I can't believe that we have a two books with now about a million copies sold, over a million copies with The Colossal Failure of Common Sense and How to Listen When Markets Speak.

I'm so grateful to you and all of our supporters around the world. It's This email address is being protected from spambots. You need JavaScript enabled to view it.. What we do for Macro Voices audience is we give people discounts because once again, it's an institutional platform where we share information, democratize information, but we wanna make it affordable for the smaller investor as well.

Erik: And that's at beartrapsreport.com. Patrick Ceresna and I will be back as Macro Voices continues right here at macrovoices.com.

Erik: Joining me now is New York Times bestselling author and Bear Traps founder Larry McDonald. Larry has prepared a slide deck as he usually does for us. Registered users will find the 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 Larry's picture that says Looking for the Downloads. Larry, it's great to get you back on the show. It's been way too long. I wanna start with what is it exactly that started last Friday? 'Cause it certainly seems to be the beginning of something significant in the markets.

Is this the market finally waking up to the Iran conflict, or is it a reaction to the jobs reports and maybe expectations of rate cuts being harder to come by, or is it something else? And by all means, refer to the slide deck as we dive in.

Larry: Sure, yeah. It's definitely a fourth quarter 2021 redux where Everybody's kinda been in a transitory trance.

Inflation is transitory again, which we were in, in the fourth quarter of two thousand twenty-one. And if you recall, the moment it appeared that inflation was not transitory, equities lost about thirty-five, forty percent pretty quickly between two thousand twenty-one and twenty-two. The Nasdaq lost about seven trillions-- seven, eight trillion dollars evaluation.

And so you have a decent economy, but the Strait of Hormuz closed for 100 days, all this AI CapEx, and it's really just crushing the little guy as inflation is just so sticky. And it-- you could see here on, on slide two. One of the things, Eric, I wanna make very clear, there's no I in team. So as part of the Bear Trap report, we host a conversation every day with the biggest hedge funds, mutual funds, and pension funds in the world.

And what I'm gonna do today is kinda share the insights, the valuable insights that I'm getting from the top institutions around the world and triangulating that information. And that's why I love this platform, because I wanna democratize the information. I want, your phenomenal audience to, to really have a front-row seat as to what the in-- top institutions are talking about.

The biggest thing in recent weeks is the consumer oil inflation. And you could see here on slide two, junk bonds. The high-yield market as a whole is okay, but the tertiary parts, and these are the, typically the leading indicators. The tertiary part of the high-yield bond market, which is CCCs, as you could see there, really kinda blowing out.

The last time stocks were all at all-time highs, CCCs were much lower in yields, and I think that's, really telling you a lot about the consumer.

Erik: You mentioned the big IPOs. It seems to me like that's a key part of this story as well. So I'm trying to sorta sort out, okay, we got on Friday, the jobs report kinda led to a lot of people thinking that rate cuts are less likely than they were on Thursday for whatever reason.

We've also got these big looming IPOs, and I'm not sure if the market's finally woken up to how big of a deal the Hormuz crisis is. What are the experts in your fund community telling you in terms of how they're perceiving what the most important drivers are? It feels like Hormuz is probably not it.

Larry: And it's indigestion, really. So if you go to slide sixteen, if you think about it, it was-- you're talking about an IPO that's six percent of US GDP. If you think of Facebook 2012, that was an enormous IPO at the time, $100 billion, and it was less than 1% of GDP. The SpaceX IPO would be 6% of GDP.

And always remember that The biggest IPO ever was Saudi Aramco at 25 billion. So if you do the math, if you take the secondary offering from Google last week of shares, 80 billion plus the SpaceX, you get $150 billion. 150 billion. And so net-net, a lot of people have to sell stocks in the market to make room for these, two absolute beasts that have come out.

Erik: If you take SpaceX, as you said, it's a $2 trillion valuation. The actual raise, which is the money that, that we need to come up with someplace to, to pay for the shares being offered, is 80 billion. Okay. Add that 80 billion, Google's And add to that Anthropic is coming up. We're gonna have OpenAI coming up.

There's about 200, 250 billion of immediate raise, but here's the thing that I'm actually focusing more on, Larry, is six to 12 months after that, all the insiders and the VCs and the early investors in those companies, it's not 200 billion, it's like 3 trillion of capital that gets unlocked as those restricted shares become unrestricted somewhere between six and 12 months after the IPO.

It seems to me that's the point where, how do we absorb all of that equity into the market?

Larry: If you look at the SpaceX program in terms of the lockup and unlock, it's much more aggressive than previous IPOs. And so for investors listening to us right now, it's extremely important.

If you remember the Facebook IPO in 2012 once again, once the lockup started coming out and the shares, like you just nailed it, in that first year, you had a 40, 50% drawdown in s- in Facebook. And I think what's happening is the VCs were... think about capitalism in America. These companies are coming public

think of Tesla, came public at a 2 billion valuation, right? Facebook at 100 billion valuation, and now here SpaceX two-- almost 2 trillion valuation. So it's it's e- essentially 11, 12 times the size of Facebook. So these companies are coming public much far later in the maturity cycle, which means that the IPOs are very unattractive and you're much better off waiting.

If you have to, buy a little bit of the IPO, but you're gonna probably be able to buy, SpaceX IPO 50% off sometime in the first year

Erik: Yeah, obviously a lot of people think SpaceX is, going to be a huge thing and it's the future. It feels to me like these IPOs are very reminiscent of 2000 or so when, y- frankly the smartest tech leaders w- had the wits to say, "Let me sell my equity to retail bag holders and let them ride out what happens in 2000."

So it feels like 1999 to me.

Larry: And to look at chart number 15, this shows you a lot because it's the S&P versus the equal weight. And if you think about it, the biggest, most liquid stocks are the easiest to sell, right? So lo and behold Huge underperformance in the last 10 days of the S&P versus the equal weight.

You can see that on the chart number 15. And what that's telling you is that people are selling the Mag Seven, which is essentially unched to a little bit negative since October now. They're selling the big Mag Seven equities, which are very liquid, and they're raising capital for all these IPOs. That's inter- like you said the Time Warner deal in 1999, 2000, it's just too much coming into the market at the same time.

Plus, we have a lot of private equity deals coming out in recent months. There's just too many sellers. And the last thing, remember, in the '90s, I founded convertbond.com. And for investors listening to us right now, always remember, the smartest sellers in the world are chief financial officers. And guess what, Eric?

The amount of convertible bonds that have been coming to the market in the last couple of weeks, from, say, three, four weeks, is up a lot over last year. It's up on, to... And the same thing happened in 2021 in the third, fourth quarter. And so what's happening is, as the stock market rips, CFOs see, "Oh, my stock's up a lot," and they're coming to the market with convertible bonds.

Inside those convertible bonds, there's lots of equity. And so right now, chief financial officers are selling their equity in the convertible bond market at a very fast rate of change speed, which is similar to 2021 in that third, fourth quarter. And never forget what happened in '22, 30, 40% drawdown. So I think the CFOs smell something and they're coming to market, and they're also dumping.

So you have Elon's dumping stock with the SpaceX crowd. You got Google dumping stock, and you got CFOs across all these different companies, Irin I could... There's seven or eight companies. They're also dumping a lot of stock at the same time.

Erik: So if I look at what's happened in the last few days, it feels oh, we're down a lot.

But really, if I just go back to the late March low when the market initially started to freak out about the Iran conflict, we got down to, what was it? Around 60, just about 6,400, a little bit below 6,400 on the S&P. If I look at the, since Friday, the down move as of Wednesday afternoon, we're really only looking at, I don't know it's nowhere close to a 38%.

It's about 25% has been retraced at most. How far are we going? Is this just the beginning of something really big, or are we just looking at a blip here? W- what do you think is coming?

Larry: Great question, and the perfect chart is number 13 for this. So 41 trillion in the Nasdaq 100 last week before the drawdown started.

41 trillion. And to your point in March, which was just forty-seven or maybe fifty, fifty trading days ago, in late March, there was thirty trillion in the Nasdaq one hundred. So the Nasdaq one hundred went from thirty trillion of value to forty-one trillion in less than fifty trading days. Nothing like that's ever happened in the history of markets

But let's go back to two thousand and twenty-one, twenty-two, the last time we had the inflation shock. Look at what ha-- And the last time the convertible bond market was on fire too. A lot of CFOs selling stock. So two thousand and twenty-one, twenty-two, we were up near nineteen trillion of value in late 'twenty-one, and we went down to twelve trillion in literally four quarters.

That's an example of what's about to happen, I think. So that kinda drawdown. And think about it, so we went from nineteen trillion in the fourth quarter of two thousand and twenty-one to twelve trillion in the fourth quarter of 'twenty-two, and then that all the way up to forty-one trillion. And that's why I think as money rotates out of financial assets, which are bonds and tech stocks, when you see this kind of value, the rotations can be amazing.

If you look back to two thousand and twenty-two, what were the big winners? Energy stocks were up a lot, I think well over a hundred percent. Also materials. I think the same thing's gonna play out this time around again, and it's a repeat two point zero.

Erik: And so does that give you any targets or expectations in terms of valuation levels that we're headed towards?

Larry: That's what's amazing about the market now. The free cash flow yields in the energy space are so cheap, natural gas equities, energy equities materials. So you've got one part of the market that's really cheap, but the Nasdaq one hundred valuations are really all-time high CAPE ratios, PE ratios.

So there's two different markets. One part of the market, technology is really at the highest valuations almost ever. And then, but in the energy space in, in the material space, you've got beautiful free cash flow yields, which are probably the cheapest part of the market.

Erik: Larry, I apologize for jumping out of order a little bit there.

You've got so many different fascinating topics I wanna come back to. I got you a little jumping around the slide deck. Why don't we go back to the beginning around page three? Tell us about this S&P versus restaurants chart.

Larry: Sure. So th-that's kinda the main point, is that the bottom the bottom sixty-five percent of consumers are really only ten, fifteen percent of consumption now because the wealthy have so much money in money market funds, and money market fund yields are up a lot But the bottom 60% of consumers are in a lot of pain, and that's why you're seeing these wacky divergences, restaurants, getting really hammered this year.

Same thing on the next chart with Home Depot. Home Depot almost 30% off. Think of these brands, Lowe's, Home Depot McDonald's. All these stocks are essentially close to 20... fif- n- 19 to 20% off. Home Depot almost 30% off. And so it's, once again it's two different consumers. One, one part of the market's in a lot of pain, and the other part of the market, technology and semiconductors, are partying like it's 1999.

Erik: Larry, I see you've got Agnico on the next page. L- let's talk about the big picture of gold and gold miners even before we get into the specific stock. We're taught to think of gold as something you want in your portfolio as a hedge against big geopolitical events. If something like the Iran conflict happens, gold's gonna go up, except for it went straight down.

What gives, first of all, with that? Is that about inflation expectations? Is it gonna continue? And why don't we transition from there into the slides and what in terms of the gold miners?

Larry: Sure. Eric, so we just talked about the consumer and how weak the consumer is. You could see this in a lot of the conference calls.

You could see it in the restaurants, you could see it in Home Depot. You can see it in so many different parts of the market. So it's very tough for the Fed to hike rates. But the market gold miners are really having this kind of what I call recency bias. So in 2021, '22, we had that big inflation spike, and the gold miners now have really sold off for a bunch of different reasons.

One, one important one, is we've gone from three rate cuts to potentially one rate hike in terms of the SOFR futures or the expectations market of the Fed funds. So when you go from like rate cuts, three rate cuts to one hike, that knocks a lot of steam out of the gold miners. But the best trades in the world, Eric, the best trades of our careers are what I call the hot money flush.

And so I love a sector that just had what we call a hot money flush. Think of a poker table A lot of weak hands at the poker table, and that's the gold miners. So in the third, fourth quarter and the first quarter of last year, so many tourists, Eric, so many tourists came into the gold miners. Think of the heavyset guy, the Hawaiian shirt, and the glasses and the camera, right?

That's the type of investor, weak hands, tourists getting off the bus, buying the gold miners with both hands in the third, fourth quarter. Next thing they get hit over the head with central banks, with this shock, with the Middle East. Think of Turkey, all these emerging markets, central banks, co- There's a lot of countries in the emerging market space that don't have a lot of access to energy.

And so when you have an energy shock, they have to sell something to raise cash flow. Emerging market central banks have been dumping gold the last couple of months. And so you had the kind of the problem with the rate hikes and inflation and then the b- oh, never forget the one year Treasury 12 m- is up about forty basis points.

So think of like on a million bucks, you're getting close to forty grand a year. Forty grand a year of interest on a one-year Treasury versus say maybe thirty grand a year, six month, six, nine months ago. I'm exaggerating a little bit to b- trying to make it simple. So the bottom line is, the gold miners have been hammered.

Look at Agnico here. It's trading at forty percent off, right? Five point nine enterprise to EBITDA. And we can go back twenty, 30 years. That's one of the cheapest valuations. They've got six to seven billion of free cash flow, Eric. Six to seven billion of free cash flow. They're buying back two billion dollars worth of stock.

When I sat down with David Einhorn of Greenlight Capital, the famous hedge fund manager in my new book, he said, "Larry, I love to buy Companies that are producing beautiful free cash flow and buying back the stock when the stock's down thirty, forty percent. Because it's not a floor under the stock, but when you're already down forty percent, it's pricing in a lot of pain.

But your valuation is the cheapest of all time, and the company is buying back two billion dollars worth of stock. So to me, your risk reward of buying Agnico here is probably ten, fifteen percent down and two hundred percent up. Because this time next year, with that wounded conser- consumer, the Fed really can't hike that much.

You go into a slow growth economy with high inflation, gold should be sixty-five hundred an ounce this time next year, which would put Agnico Eagle up much higher, potentially a hundred percent higher a year from now.

Erik: Larry, I could not possibly agree more with your basic thesis here, which is that flush of the hot money, it's clearly come out of gold since the Iran conflict started.

Was around March 2nd that gold the-- there was just an inversion of the usual correlation between geopolitical events and gold. I think it's because of those rate cut expectations, exactly as you said. But here's the thing. I agree with you completely that for a long-term trade in gold, it's gonna be just an incredible buy, and it's gonna pay off in spades.

But is there a chance that it's still too early? And the reason I say that is it seems like it's pretty darn clear that it's the Iran conflict and the Hormuz closure and probably some of those central banks in the Middle East selling their gold is playing into this. I don't think this Hormuz thing is over yet.

I don't think it's close to over. I think it's got a long way to go. If you have that view, is it time to buy gold now, or is it time to sit in the sidelines a little longer?

Larry: Yeah, I'm with you. I think it does have a ways to go. I think that the strait's been closed a hundred days. Trump's really annoyed with Iran.

Iran's pushing back hard, and you saw it this week, right? So it's a standoff. So that's why in our trade alerts, we've got over two thousand financial advisors and family offices and high net worth individuals that do our trade alerts. We're buying only like one-thirds and one-quarters in the gold miners.

We did a nice exit in the first quarter in the gold, in the GDX. But as you can see here in chart number six, you have to be very careful on entry. But net-net, I do Buying gold miners like Agnico down 40%. Okay, are they gonna drop 50%? Possibly. But if you look back to 2021, '22, when we had that big inflation shock, front-end Treasuries went up a lot in yield.

And I know it's, for people listening to us right now, over time, gold's a great inflation hedge. But let's make something very clear. When front-end yields on T-bills go up a lot, it sucks money out of gold, because if you can get 40 grand a year in a one-year T-bill instead of 30 or 20, people just naturally will buy that.

But, so that's what creates the buying opportunity. So yes, probably a little early here. Buying, we're buying in thirds and quarters, and we're looking to add on further weakness.

Erik: Okay. So you do see the further weakness coming, but it's time to start scaling in is basically where you're at now.

Larry: Yeah. The, the old theory, o- only monkeys pick bottoms, right?

So what I try to do is we have a capitulation model that measures the tourist flush, and you wanna start just e- buying in one-thirds or quarters into s- into something like that.

Erik: You've got on page seven the twos, 30s spread the yield spread. What's going on this chart, and why does this come up?

Larry: So this is a, this is an example of another flush where, everyone thought with the Trump economy, growth, capital investment in artificial intelligence, big deficits, the steepener was a really popular trade for much of the last year. You can see that. All the money came into it '24 when Trump was elected, '25.

And now we've had a real flush as people are concerned about longer term growth with the consumer, like I said, the McDonald's, the Home Depots, the Harley-Davidsons are all off 20%. In some case, it's more. And and that, if you look at the Home Depot suppliers I went through on Bloomberg, there's probably 50% of Home Depot suppliers are down 20, 30, 40%.

And so that means the growth expectations are coming down. But at the same time, you've got this shock in the Middle East where the Fed might have to hike and a muscle memory of, okay, inflation, the Fed has to hike. This is, to me, a facade. The Fed really can't hike. Never forget, Interest on the debt today is at tw- two, 1.1 trillion over the next 12 months.

1.1 trillion. When the last time they started the hiking cycle in '21, '22, it was 300 billion, right? So the muscle memory in the market thinks the Fed's gonna hike. That's causing this flattening of the curve in two 30s. But to me, it's a facade. It's a, o- it's a mirage. They really can't hike that much, and that means the curves are gonna steepen a lot over the next year.

Erik: So you like the twos, 30 steepener, long the two-year and short the 30-year?

Larry: Yes. And one way to play that is the IVOL ETF, which has been battered. I, the famous IVOL ETF founded by Nancy Davis, I-V-O-L.

Erik: Okay. Let's move on now to page eight, which is year-over-year inflation in the Bloomberg Commodities Index, BCOM.

What's this comparison telling us?

Larry: This is a blood-curdling chart. For the love of God. You've got all this data center spending two, 2 trillion bucks and another 5.4 trillion over the next four or five years. That's what the street's expecting. 5.4 trillion up from three and a half trillion 18 months ago.

And so you got big deficits in Washington, $1.9 trillion deficits. You have the Strait of Hormuz closed for 100 days, and all the supply chain risk that comes with that. There's a lot of inflation coming at us. So this chart basically tells us that inflation's going back to five, six percent.

And today, Eric, super core CPIs, the super core, which you can't fake super core. It's of all the big macro people look at it If you annualize the last three months of the super core inflation that came out, you're coming out to five point two percent by year-end of super core inflation. That's, that means core inflation or inflation headline's gonna be five, six, something more like six, seven, eight percent a year from now.

And listeners, you'll see the super core chart is on page ten of the slide deck. Go ahead, Larry. It's very hard to fake super core. And I think the some of the best macro traders in the bond market look at super core inflation. The thing that's the real eye-opener for me, and this gets back to the core thesis of our book, How to Listen When Markets Speak, is when you go into an elevated inflation regime in a multipolar world.

Think about multipolar global conflicts, higher interest rates, higher inflation, stubborn oil prices in a war. What that does is it creates a rotation. And if you look at super core, we're at three point seven percent. Look at that lost world, that previous decade, your high was three percent. So you're in a whole new regime, which is creating a colossal migration from what we call financial assets, which are bonds and stocks and a lot of tech stocks.

You can see the software's names are really being sold. There's other parts of the market that are being sold, and people are moving into hard assets and companies that control hard assets and not paper certificates. So we're, that's where it's really what we call in the book, the great migration is coming at us.

Erik: Larry, your book has gotta be the best title for a finance book ever How to Listen When Markets Speak, because it's about the market. It's not about what you think the market should be thinking. It's figuring out what the market's thinking. Let's apply that now and talk about some rotations that are going on in the market, moving onto page eleven in the deck.

Larry: Okay. So think about this, Eric. You go from a ten-year disinflation regime When in a unipolar world with less glob-global conflicts and you rotate into a multipolar world with more global conflicts, higher interest rates, higher inflation, that means your portfolio construction needs to have a totally different view.

Companies that control hard assets and also value. So look at here. Growth versus value has failed here a lot since two thousand and nineteen. Big move over the last week. Big move. And I think this is the beginning of a colossal move over toward value. 'Cause if you think of value companies, like if you look at Buffett.

Buffett, Berkshire, big outperformance the last week or so from Berkshire. But they own a lot of companies that control hard assets, the Occidentals, Petroleums of the world, right? So value companies, many of them today, control oil and gas, natural gas, materials, and so that's a really colossal under-owned part of the market.

And so if you have forty-one trillion on the Nasdaq one hundred, which is a lot of that's growth stocks, and you got this big IPOs and like a massive overdose in the market on technology, when this rotation comes, you're gonna see a big move out of growth into value. It's... You can see it's really started this week, and I see a lot more ahead And then on slide 12, if you look at right there, big move out of the S&P 500, which is a lot of tech stocks, over toward the Russell 2000.

And you gotta-- you're breaking that down wedge there, which I think is pretty powerful move. So if you go into a period where there's too many IPOs that are coming in, there's too much money being sucked out of the market with new offerings and bond deals you'll see a great migration out of the S&P back over toward the Russell 2000.

And so that's an important part of this trade. The next one is oil services on slide number fourteen. Big outperformance this year. A lot of value names in there, the Weatherfords of the world, the Schlumbergers. They control a lot of valuable assets. The artificial intelligence potential of Schlumberger or SLB is literally the one of the most exciting trades or investments I can think of in the market today.

Everyone's in the chips. People have to start thinking of other parts of the market that are gonna benefit from artificial intelligence. The oil services is a big one, and you can see their big outperformance versus the S&P.

Erik: Larry, let's stay on that AI theme. What other parts of the market are beneficiaries of artificial intelligence?

Larry: Eric, number 18 slide. This is the mind blower, right? So over the last thirty years, we've been lectured and lectured, especially the last ten years, that the baby boomers are turning eighty years old. The average boomer is probably seventy, seventy years old. They control seventy-nine trillion of wealth.

Wall Street's been lecturing us, "You have to be long healthcare. You have..." Every analyst has been preaching this for the last fifteen, twenty years. And lo and behold, healthcare, as a percentage of the S&P 500, has gone from sixteen percent to eight percent with all of these baby boomers. One of the reasons why it's accelerating is people are selling healthcare stocks to make room for tech stocks, right?

To make room for the Space Xs of the world. So the cheapness of healthcare relative to tech is extremely attractive, and it goes back to the year 2000, like you said, with that AOL Time Warner deal. You kinda had a big break, and healthcare and staples really destroyed technology from 2000 to 2002. But at the end of the day, healthcare today is such a cheap part of the market, and you've had...

In the last two months, you've had a, not only people selling healthcare to make room for tech stocks, but you've had a lot of quantitative momentum players in the market. And guess what they're doing They've been going long momentum, which is what we call high momentum stocks like semiconductors, and they've been short low momentum, staples and healthcare.

So it's like a perfect storm. You've got a lot of quants playing this game that are... they're really creating incredible cheapness in the healthcare space. But at the same time, you have a lot of asset managers that are selling down healthcare to make room for all these big tech IPOs.

To me, this creates a colossal opportunity, an incredible opportunity looking forward for the next five years. You wanna be selling down your exposure to technology and increasing your to healthcare. Look at slide number twenty, Eric. Look at this factor momentum factor. It's way out of whack relative to the previous regimes.

And so once again, momentum, you see there, everyone's long aggressive momentum, which is the semiconductors. Everyone's short healthcare. And as you can see here, we're at very rare territory. And I think with quarter and month end coming up at the end of the month into the second half of the year, the probability that we have a huge turn here, I think is a very high probability of a move out of high momentum into low momentum.

So out of the semiconductors and aggressive growth over toward healthcare, I think it's gonna be a big winner the second half of the year.

Erik: Larry, everything you're saying is really resonating for me, but it's from a different angle I wanna run past you, which is, so many tourists are looking at this saying, but AI, the computers are so smart now."

And my reaction is, wait a minute. The humans who invented artificial intelligence are pretty darn smart too. And what they all seem to be doing, the very smartest of them, ones who truly invented this stuff, is they're selling their equity to bag holders as fast as they can. There's a race on right now between Anthropic and OpenAI and SpaceX.

All of these big technology private unicorn companies are either going public or in the case of Google, doing secondaries. Seems like everybody's trying to sell stock to retail at the same time. Am I interpreting that correctly as reinforcing what you just said about this transfer from momentum to value?

Larry: Yes. Jack Bogle, r- God rest his soul, is rolling over in his grave. The S&P 500 was constructed and invented with the best of intentions, and passive investors have crushed it. The S&P 500, the Nasdaq, these are passive indexes. In the old days, active managers that run money had more capital than these indexes.

Today, I have a theory that we laid out in our book, Eric, is that once you get near 60%, 65% passive versus active, and all that means is so much capital is in indexes that are not thinking, they're just owning things. And When that happens, the indexes become, can become more and more gameable. And you're seeing this on S&P 500 inclusion.

Stocks like Lululemon come into the S&P 500. Everybody, the, the in the know crowd knows this and they buy it up ahead of time. It's so the same thing with these IPOs. The billionaire investors on the West Coast, the venture capital people, they have-- think of SpaceX, right?

$30 billion valuation in 2019, 30 billion to now 1.8 trillion when it comes public. And so when they come public and they are accelerating these I- IPOs into the indexes like you saw with the Nasdaq, the S&P, it's gonna be over the next year. So passive investors are the bag holders up against really, billionaire investors that have been in these IPOs for d- a decade now and maturing.

In the old days, Microsoft came public at less than a billion dollars, right? Facebook came public at 100 billion, right? And now companies are coming public at 1.8 trillion. It's a colossal failure of common sense. They're gonna destroy indexing, okay? Because there should be rules against this, but the rules are being bent in favor of letting the billionaires dump stock in the hands of retail.

Erik: That sure feels like what's going on. Let's move on to page 21. What's Intuitive Surgical?

Larry: So last week, Eric, we hosted a private call with a billionaire family office, and what I try to do is I do these cage matches where I get a good bull and a good bear in the room, in a Zoom room, and I call them the cage matches.

And guess what? They fight to the death. It's absolutely hilarious, but you learn so much. And think about healthcare, everything we talked about five minutes ago with everyone's long momentum been selling down healthcare. Look at Intuitive Surgical. And then when you talk to people in the family office space that are in artificial intelligence medical sector, right?

So billionaire family office, they've got the-- They're on the front row seat. The intelligence that they have relative to most investors in that sector is off the charts. And they made the point to me that they love the Surgicals of the world, the Baxters, because guess what? Just think of Intuitive.

They have the best data. The best data. It's-- Think of Tesla ten, twenty years ago or t-ten years ago, what they've done with the data on the road. It's every road system in the world now, all that data is in the hands of Tesla, right? Same thing with Intuitive Surgical. Doctors today with robotics can operate on patients in other countries.

And the data in the future of artificial intelligence, the big beneficiaries are companies like Intuitive that have that incredibly valuable data. I think, and I'm hearing this from the, like I said, the top family offices in the AI medical field, these stocks are unloved, underowned, everyone's in the chips.

And if you buy Intuitive Surgical now on the two hundred week moving average, to us that's a really screaming buy because over the next ten years, five years, the data and the artificial intelligence that's gonna take that data, it's gonna turn Intuitive Surgical into a absolute profit beast.

Erik: What's tourmaline oil on page twenty-two?

Larry: Okay, that's our last idea. So another family office that we spoke to last week... we have a Bloomberg chat with hedge funds, mutual funds, and pension funds, and we do these ideas dinners in New York. Next week we're gonna be in Toronto and Montreal. And so the last ten days we got some of these big oil hedge funds, mutual funds, and pension funds in a room and we had a about trapped gas.

This is the next artificial intelligence play. So think about this. There's supposed to be 800 to 1,000 data centers built over the next five years in and around the world. Five trillion of spending, right? Some of those data centers are in the wrong places, what we call NIMBY, not my backyard, right?

And so you're seeing some political pushback around the country for data centers that are in the wrong places. Guess what? There are companies like Tourmaline in Canada that have gas. It's trapped. It's difficult to get to. Over the next five, ten years, all of this trapped gas in Canada, and especially in Texas, is gonna be harnessed and extremely valuable because you're gonna be able to take those data centers and move them in and create a, like a private turbine near that natural gas and really harness that cheap, relatively worthless natural gas because it's trapped.

And so you're taking trapped gas, and you're making it available to data centers. And Tourmaline's in discussion with hyperscalers right now. I think this is one of the best trades over the next five, ten years. Plus the political backdrop. Carney in Canada relative to is far less hostile to this investment philosophy.

And The last thing is with the war, the-- one of the points that the big hedge funds have been making to us in the chat, this war in Iraq and the Strait of Hormuz and LNG, what it's doing is it's making US natural gas and Canadian natural gas much more valuable. Because if you're a global buyer of L-LNG and your g- and your gas has been trapped in the Middle East, you're burnt, you're not happy.

And it's almost like America, attacked Iran, but what they've actually done is they've increased the value of US and Canadian gas assets. I don't know if that was intentional, but think about the buyers of natural gas globally, of LNG, the-- it's gonna benefit Tourmaline and US natural gas exporters dramatically over the next five, 10 years.

I think you're... I think Tourmaline, your downside's 15, 20%, your upside's 200%.

Erik: I wanna move on now to your final slide in the deck, slide 23, which is the Sprott Physical Uranium Trust. I'm gonna ask you to expand this topic a little bit more to also include the uranium miners, if we could talk about that as well, 'cause I've gotta tell you, I need some help listening when markets speak, and I-I'll tell you exactly why.

I couldn't possibly be more long-term bullish on uranium and uranium miners because I think the nuclear news flow couldn't possibly be better. Even before you consider all these SMRs and advanced reactors and all that stuff, we already had a uranium deficit on the horizon that just to run the reactors that are already in place that haven't been built yet.

So I just can't think of any reason not to be bullish long term, except for one thing, which is this is a famously high retail participation, high volatility sector. Not so much the Sprott Uranium Trust, but the miners are a really high volatility, high retail participation sector. And if what we just talked about a few minutes ago about the momentum stocks maybe being right on the precipice of a big sell-off, if we get a broad market risk event, if this Iran war gets worse and it, leads to a bunch of negative events in the market I can't imagine the uranium miners not getting slammed by that.

What do you do in a situation like that? I could be s-super bullish on one hand, but I'm really concerned about what could happen in the market next.

Larry: So what I've been thinking about, at The Bear Trap Report, we go back and forth between the uranium commodity And the companies, the Camecos of the world, the NexGens the Denison Mines.

And what I try to do is when the market-- when I don't like the market short term in terms of Strait of Hormuz, in terms of all kinds of things coming at us with inflation, like you said, Eric, high beta sectors get hammered much more than the commodity or in general. So it's-- Uranium, gold miners, they're a very high beta sector.

But what's interesting with uranium now, the SRUUF, it's down 5% year to date, almost 6, but Cameco's up 4% still. So the underperformance of the commodity gets me excited right now, and I think I wanna buy the URNM or the NUKZ, which is the ETFs that own these companies. I wanna buy them on a little bit more pain like we had last April, May of 2025 with the trade war.

You look at the drawdowns, like you s- just like you nailed it, Eric. These companies really are susceptible to market volatility. And so you wanna be in the commodity if you expect volatility ahead, and then you wanna rotate into the miners during that big kind of huge drawdown in the market. So we hosted a call two weeks ago with a famous family office in the uranium space, and he made a couple great points.

First of all, he completely agrees with you around the 2027, '28 deficits. And but I think the sexiest part of his story is supply and demand. And it's p- the point that he made to me, and I'm hearing this from some of the most sophisticated investors in the world, and that is on the supply side, the NexGens, the Camecos, the Denisons, they tend to overpromise on production.

And so For example, that NexGen mine that's supposed to come on in later this decade. A lot of the people, a lot of the family offices that are close to the uranium space think that they're probably exaggerating by a year or two. And so you have a supply problem because of, bec-because of the kind of over-exaggeration of production in the years to come.

So that-that's where the supply s- problem is. On the demand side, it's so obvious with what we're doing in the United States, we need the, we need to build... the United States, this is a real s- this is a real national security problem, and so we're gonna really ramp up nuclear power the next two, three years in terms of nuclear power plants.

It's gonna take a while, right? And around the world, countries are more friendly now. The Germanys of the world, the Japans of the world. So you have this increase of demand that's coming at us. You got a shortness of supply, the amount, the about of time that it's gonna take NexGen to get that facility up and running, and then you have the big brain drain.

So if you think of brain drain, think of Saskatchewan, and think of like uranium assets around the world. They're hard to get to. There's environmental regulations, and a lot of the talent has moved into Bitcoin mining, for example. Like a lot of times what happens in bear markets is that the bear markets over five or 10 years that are really grueling, nasty bear markets, they actually, you see the best engineers, the best intelligence, the best brainpower, kinda leaves the sector for other hot parts of the markets around the world, whether it be artificial intelligence or whether it be Bitcoin mining.

And so to me, that's a really sexy part of the story. And so that's once again, that's a supply issue. So we're looking at two thousand and twenty-seven, twenty-eight, twenty-nine with a massive supply-demand problem. So SRUUF, we sold some in our trade alerts in the first quarter on that kind of move up.

We're buying, we've been buying down here and, I really see a beautiful outlook over the next two, three years. And guess what? The most important part of this story It's the contract buyers. The contract buyers, the major utilities, they've been sitting on their hands the last decade because once again, the bear market conditioned them to really not panic buy on uranium.

But when you talk to people on the front lines, the big family offices that are close and really on the front lines, boots on the ground type people, they see the contract buyers really starting to get nervous behind the scenes. You're gonna see the ramp up in purchases. In other words, uranium's not a spot market like in the commodity market.

There's no futures. So these contract buyers are really gonna have to step up the next 12 to 18 months because they see the supply and demand problem. So the risk reward in uranium now is absolutely one of the most attractive entry points for the commodity that I've ever seen.

Erik: But your take on it is invest in the commodity now, rotate into the miners only after the pain that hasn't quite happened yet.

Larry: And that's what we saw last year with the trade war. It was just absolutely ridiculous. The sector was viciously for sale. Same thing in the summer of 2024 with the Japanese yen crisis, the carry trade blowup.

In both instances the commodity, I'm sorry I should say the producers on the uranium side were down like 30, 40%, 45% in a short, very short order. 'Cause once again, like you said, retail tourists, some weak hands at the table, and all that means is m- imagine you're playing a poker game.

Somebody does a big raise, and that's like the same thing as a big shock in the market. A shock in the market knocks a lot of the tourists back on the bus, and they leave and go home. They take their ball and go home.

Erik: Larry, I can't thank you enough for another terrific interview. Before I let you go, let's just touch on what you do at The Bear Traps Report for our institutional audience.

You're also a bestselling author of a- what I think is the best title for a finance book ever conceived, which is How to Listen When Markets Speak.

Larry: I'm really proud of Eric. I can't believe that we have a two books with now about a million copies sold, over a million copies with The Colossal Failure of Common Sense and How to Listen When Markets Speak.

I'm so grateful to you and all of our supporters around the world. It's This email address is being protected from spambots. You need JavaScript enabled to view it.. What we do for Macro Voices audience is we give people discounts because once again, it's an institutional platform where we share information, democratize information, but we wanna make it affordable for the smaller investor as well.

Erik: And that's at beartrapsreport.com. Patrick Ceresna and I will be back as Macro Voices continues right here at macrovoices.com.

Erik: Joining me now is Rabobank's global strategist for economics and markets, Michael Every. Michael, it's great to get you back on the show. I'm sure you've heard the great news today, and we are recording, just so our listeners will know, on Monday afternoon, so three days before this episode will air. A lot can happen in the news flow lately.

But as of Monday afternoon, the news is President Trump says, "Don't worry, everything's all set. Oil prices are about to drop like a rock, and time is on our side." Do you concur, sir? 

Michael: No, I don't think that time is on anyone's side, first of all. I think that's true for every human being throughout history that time doesn't work in our favor.

Entropy is a universal truth. But specifically, that news flow, of course, that we had on the Monday as we're speaking, was superseded within I think about an hour and a half, two hours maximum, where we went from a tweet saying, "Okay, Iran doesn't want to talk. That's fine. We don't have to talk. Maybe we've done too much talking.

I'll just maintain the blockade," to then suddenly backpedaling and saying no, the reason for Iran not talking is because Israel was still moving against Hezbollah in Lebanon, and now I'm telling Israel they can't move against Hezbollah in Lebanon. And Hezbollah have promised they're going to stop attacking Israel pinky swear and therefore everything can continue, and we're gonna continue talking to Iran."

So maybe that doesn't necessarily contradict the fact that Trump thinks that time is on his side, and I think you, you can put that to one side as a separate argument, but it certainly shows just how dynamic the news flow is and how incredibly confusing and befuddling this tweet-driven crisis continues to be for all of us.

Erik: Michael, let's go a little deeper on the time on our side perspective with respect to the global oil market. A lot of people have been warning for a long time, myself included, that we're going to run out of the buffers in the system. We're gonna get to the point where we don't have the crude oil needed to supply the global economy, and the only resort left is gonna be a wild price reaction in order to destroy at least 10 million barrels per day of demand.

A lot of macro guys are saying, "Look, stop listening to these doomer commodity idiots. They don't know anything. Obviously, they've been proven wrong. Oil prices didn't go to 200. Everybody relax. We, time is on our side. We've got plenty of time. We produce plenty of oil. We can wait this out, and we can w- you know, the president is right to feel that he can wait this out."

What do you think? It's true that the oil prices have not gone to the moon yet. Does that mean that we're safe? 

Michael: First of all, full disclosure, I'm not an energy expert, and I know you speak to many, and indeed you're very well-versed in that field yourself. So I don't want to try and over-represent my specialism here.

But I can't really recall such a dichotomy and passionate dichotomy of views as we have over this particular crisis, where, as you said, you've got absolute experts saying this is going to end in absolute catastrophe within, weeks. And these are people who, are neck deep in this industry.

And then to be fair, you have a few who understand the industry who are saying maybe it can be okay." But you get a lot, as you said, of macro fellow travelers who are great with an Excel spreadsheet and very good at being similar to that sarcastic meme of the elderly guy with the white beard drinking a cup of coffee saying, I've finished being an expert on X now, and now I'm an expert on Y," saying it hasn't gone wrong yet, therefore everything will be okay."

And when you've got that kind of talent stack really disagreeing, but the people who are really well-versed in the industry panicking the most, that makes me extremely nervous because I've worked through many different potential crises similar to this, and most of the time I've been the one pointing at the gray rhino or the black swan and saying, "This is bad," be it, all the way back to the global financial crisis 20-odd years ago, and everyone else around me who's, making money by not seeing it saying, "No, it's all okay."

And most of the time it's worth listening to those downside risks when they're that big. So I think at the very least, everyone should be paying attention rather than confidently rubbing their hands and saying the people who understand this industry like the back of their hand are all wrong.

Erik: Let's talk about what the follow-on and knock-on effects of this could be. One of the things that's really perplexing me is at first I thought, this has to be inflationary. We already, I thought, were probably into a secular inflation. It seemed to me this was gonna really force the argument, and I was really surprised when I talked to Mike Green, who said he thinks that it's going to be deflationary and the Fed is gonna be forced to cut aggressively because of this oil crisis.

And I said, "Mike, can't you see that $150 oil is inflationary?" And he said, "Yes, I can see that. Can't you see that $500 oil is deflationary?" And I said, "Oh, that's a point." How do you see this playing out and how in the world do you analyze this if you don't really know, and it seems like experts can't agree on how far this can go?

Michael: Let's break that down for a moment. First of all, you would get, a lot of heated disagreement about whether we'd ever get to 150, and if we start talking 500, which is then, it's the first time I've heard that number mentioned, I think, that's a heart attack on the screen, isn't it?

In its simplest form, we have to recognize that central banking, as currently constituted, isn't able to deal with these kind of crises. We've had repeated, examples of that over the past few years where institutions which are effectively neo-Keynesian and all to do with demand management struggle to adapt to something the supply side and then have to try and work out, do they deal with second order effects?

And more importantly, is it temporary on the supply side, which of course, or that famous word transitory or is it something that's protect- potentially structural? And if so, what do they do? And effectively it's it's almost like that old comment, I think from the 1960s, the feminist comment, the, a woman needs a man like a fish needs a bicycle.

Like central banks understand supply side or structural supply side shocks like a fish understands a bicycle. They're just entirely different things. So you can listen to any number of different central banking experts who will say they should do this, they should do that, they should cut rates, they should raise rates, they should do nothing at all."

They're all wrong and they're all right at the same time because it's a very complex problem, and I don't think any of them really are the full solution to it. 

Erik: We've got Kevin Warsh taking over as the Federal Reserve chair. How does that factor into this equation? 

Michael: He was already prior to this happening, muttering about the fact that he wanted to change the Fed.

And I don't think that's going away. And looking at the fact that AI in his mind from, in public statements, is likely to be very deflationary and as a result, there's room for the rate cuts there because of that future deflation. Now it's a bit of a curve ball to say that you've got that deflation plus the, potential for the absolute economic cacophony and chaos that could be caused by the kind of outcomes that you are referring to hypothetically It's very hard to call.

But I think the interesting thing will be listening to these central bankers who, while they may talk less under a Warsh Fed, tend to be so apparently transparent about what they're thinking and try to make clear to everyone how they're thinking about these things. It will be interesting to watch them squirm to an extent and make clear they just don't know what to do.

Because I repeat my larger point that I think the mechanisms we have set up now simply cannot function the way that we want them to. Clearly what you would need instead, at the very minimum, are vast strategic petroleum reserves or the equivalent across various different products which are no longer flowing because of the Hormuz crisis, which central banks could look to tap to try and smooth these processes out, which are, hundreds if not thousands of year old policies used in various different countries around the world and which China still uses today.

And you have to say to yourself, is that not a better mechanism than just making borrowing costs on aggregate for the entire economy, either more expensive or less with all the second and third and fourth order effects and with a lag. So I'm not trying to dodge the question in any way. I'm actually trying to hammer the point home that I don't know what Warsh will say.

I don't know what any central bank will say. I'm not sure whether they'll all be united, and I'd imagine they're probably gonna be on the phone to each other trying to make sure that they all at least hang together collectively rather than bravely trying to go in different directions with the odd exception.

But I don't think any of them are set up for it intellectually, and I don't think any of their advisors are, because all the economists who do the number crunching for them also don't have any models which work in this particular environment that we're talking about. They're presuming that this w- were structural and is as bad as you were just alluding to, which is not what I'm forecasting.

But if that is the case, yeah, w- what does one do? The en- the entire infrastructure that you've set up isn't fit for purpose anymore. 

Erik: You described Kevin Warsh as muttering about changing the Fed. What do you think is on his mind long term? What do you think he and President Trump and Scott Bessent maybe are architecting in terms of a new central bank regime for the United States?

Michael: I think it is important to return to Iran, and I'm sure we'll do that in a few minutes. But if we kind of segue to that particular discussion, from my perspective, if you'll recall, in many of the chats that we've had over the years, I've been underlining that I thought when Trump was reelected that he would shift from economic policy to economic statecraft.

That was the, the line I was traveling with. And the US is openly now saying publicly that economic statecraft is what it's pursuing, and that's absolutely part and parcel of the argument I was just making then about this energy crisis Because you cannot have an independent central bank which is trying to target 2% CPI and all the other paraphernalia that it claims to be targeting And not have joined up thinking across every element of state and government towards the national security goals or the foreign policy goal that you're aiming for with economic statecraft, and not have the central bank as part of that.

The central bank is so important in all that we do. It's just logically ridiculous to conceive of a Fed saying we're not going to change. We're going to keep doing everything Greenspan did or Bernanke did or Yellen did." And he- who cares about the struggle for AI? Who cares about the struggle for the supply side?

Who cares about national security? Who cares that we're in, at a war at the moment, or that we need to re-arm rapidly to make sure that we can fight the next one, wherever that were to pop up? None of that matters to us. We're just gonna look at 2% CPI. Now, I can assure you there's a long queue of economists who will say that's the right way to go.

Of course, they're apparatchiks within a certain Soviet style machine, and that's how they think, and, that's the answer they'll always give. But from a political economy perspective, looking down from a helicopter view, it's just really irrational to conceive that Warsh would not be aware of the fact that Bessent, who's been pushing for him along with Trump to get this particular role, is himself plotting that particular course.

So un- unless he's worn a mask the whole time, now gets his sh- his feet under the table at the Fed and says I'm just gonna be the same as everybody else," which, you can't rule out, but it's pretty unlikely, the Fed will, from my particular perspective of global strategy, gradually be moving more towards the economic statecraft field.

And I think one giveaway on that, before we maybe, pivot back to Iran again, is that Warsh, when he was asked, "What do you think about dollar swap lines?" Which I think are really crucial at the moment in many different ways. He gave an interesting answer where he alluded to the fact that he thought Fed independence didn't apply to them because they were a geopolitical transaction, effectively, and they are, which I think is hon- honesty on his part.

But if he's serious about that, what that means is that potentially, instead of everyone just thinking the Fed is a technocratic institution, which is there to provide euro dollar liquidity to anyone around the world, particularly, the old boys club of largely Western and OECD central banks who need it to prop up their financial markets from time to time of course, in the US interest.

Now, potentially, this can be very much under the remit of the presidency or the treasury with a much more explicitly quid pro quo agenda, which we have actually seen, of course, running through the oil market via the DOE recently And I think that speaks to exactly the point I'm trying to make here about economic statecraft emerging, and again, this all factoring into this Iran crisis.

Erik: Let's pivot back to Iran. As you said you told me off the air that you had several wild outcomes that you could conceive as possible, not predictions, but possibilities. Let's go wild. What are they? 

Michael: Okay, so this isn't a forecast, but again, it's from an economic statecraft lens, taking a big picture view, joining dots and projecting them forward as a what if, which I find is a useful discussion point.

So before we get into the nitty-gritty or maybe even avoiding the nitty-gritty of how long this crisis is going to grind on and what the ultimate outcome is, let's presume that the US is cognizant of the fact that were we to get a TACO, which actually would be, as far as I'm concerned, the whole enchilada of a retreat from the Middle East and abandonment of US allies there, and effectively handing over Hormuz and all the energy in the Middle East to, an Iranian nexus along with its allies, that would be a geostrategic disaster for what the US is trying to achieve in terms of economic statecraft and for the entire West.

So if we presume it can't do that, and we presume therefore it's going to just keep maintaining this blockade going forward if it can't move ahead with more aggressive military action, which is seemingly the message that we're getting at the moment You know, how long is a piece of string? How long can this blockade run?

Potentially long enough to start taking us towards some of the worst case oil scenarios that you're describing if you're in that particular camp, and I think a lot of people are. What is to stop the US taking even more radical economic statecraft action itself vis-a-vis energy? Because we've seen the US, for example, regularly dip into the SPR.

Now that's economic statecraft. Biden did it. Trump's doing it again now, and that's one of the reasons why we're not seeing energy prices going up, and actually, if anything, they're coming down overall trending lower. But that's obviously, a pot of a physical capital that's only got so much in the banks so to speak.

But what if they were to say number one, we are going to stop exports of refined products"? Now, they've denied it, but of course, you should never consider anything until it's been officially denied. And I think, lots of people can talk through the nuts and bolts of that, and it wouldn't necessarily achieve what they want to achieve, but you couldn't rule it out.

But that's the US in isolation. The more radical idea I had is that we could actually see the US in the face of a looming energy crisis where it really is just catastrophic, potentially, in, in the near term horizon, looking at a certain subset of countries, for example Mexico, Canada, Venezuela, Guyana others in Latin America, and key players in the Middle East who are still prepared to work with it, and key countries in Asia who are US allies who have key refining capacity, and saying, "Look, let's do the math here.

If we look at oil production and oil consumption," and I know that oil is not generic, I know there are different kinds obviously, "but we have the right mix and match between us of production, consumption, and refineries. If we form a closed loop, we can potentially get through this, and it's everyone else who's in serious trouble."

So that would really fragment the global energy markets in a way that we've already started to see in terms of different pricing for different kinds of product for different geography, but it would take that to an extreme. And the kind of the pun that I'm playing on for this idea is instead of having NAFTA, which of course no longer exists, and the USMCA itself is now being renegotiated as we speak.

Instead of having NAFTA, you have NAPTHA, which is the North American Petroleum and Hydrocarbons Trading Hub Association Where effectively you have, again, this closed loop for energy, which means that the US could say to others look, we can ride this out. It's you who can't. Are you going to help us solve it or not?"

Erik: And what would the next card be in that deck if it's we're gonna force you to play ball with us, you're gonna have to do what we ask you to do in order to solve this, and they say, "Okay, Uncle, we have to do what you say." What does the US tell those countries to do? 

Michael: Again, this is purely a hypothetical.

It's not a forecast but I enjoy these kind of, scenario projections. Rather than using military statecraft, which is obviously what worked in Venezuela in a very focused manner, and is what is not working at the moment vis-a-vis Iran versus where it was a few months ago, we've hit this stalemate, this comes purely back to economic statecraft and coercion, which is work with us and together with Fed swap lines, which of course have now been offered to the UAE, which if is itself very cash rich, has a currency pegged to the dollar, and has an awful lot of energy, and is no longer in OPEC and OPEC Plus as we know.

Let's start offering swap lines to people so they have that ultimate financial backstop, which most commodity producers traditionally don't. It's only the old boy network of, Europe, BOJ, Etc., Etc., who have it when needed for financial assets. No. Okay, now it's for new allies rather than old allies, and it's for physical commodities.

So let's offer that. Let's offer the defense umbrella while it still has some meaning, which is one of the reasons why the US, I think, can't cut and run and do a taco, which as I joked, is the whole enchilada. But if we do that and then say, "And together with these other countries banging heads together, we can make sure that we can survive the energy crisis and others can't," I think just that carrot itself would see a lot of people rethinking.

In the same way an adjunct to this that while Canada has been obviously daggers drawn with the US because of the way it's been treated in public and one can understand why it's gone there, the change in rhetoric in some recent headlines from them has been remarkable. That in January you had the Prime Minister, Carney saying that we're in favor of a new world order working with China, which is quite remarkable rhetoric, for a NATO ally bordering the US to last week saying, "We want to form a new partnership with the US to make America great again," and that's a direct quote.

So imagine what's gonna happen or what could happen were we to see that kind of looming energy crisis, and I think that coercion itself, that carrot together with that stick that we're creating this crisis by not just walking away could do a lot of the moving parts or be a lot of the moving parts in and of itself without any guns being needed to be placed on any tables.

Erik: You're describing a scenario where the US has a stronger hand of cards than other players at the table because we could weather the crisis longer than others could. It seems to me that in some ways China, China has more reserves, more oil reserves than anybody, including the United States. They haven't drawn them all down.

The US has already started to ra- well, it, during the Biden administration has already drawn down its strategic pro- petroleum reserve considerably. It's now being drawn down to much lower lows. China's held onto all of theirs. Now, China doesn't have the production capability that the US has, so i- it's not an apples to, to apples comparison.

But i- is China in a particularly strong position here, and what are the scenarios where China might assert their strong hand? 

Michael: First of all, let's think about what their strong hand is, and obviously they are a commodity champion, either as the net importer and therefore everyone has to pay attention to them, and if they have the stocks in theory, they can be the net supplier to people in the way that the US actually is at the moment and Japan is by drawing down its particular reserves and sharing them with others in Asia.

So if China's stocks are as high as they say, and let's just say that there are different views on that, I'm not getting into it and I'm not trying to nudge, wink, wink, but there are public views out there that they're not as high as people think or they're even higher. We really don't know, but let's presume they're very high.

Then potentially China can turn around and say, "Look, the US has the ability for now to dip into the SPR for a while. It's got that defense stack. It's got the ability to step in and help on other fronts too. So we can step in physically with product and say, "If you actually need oil, we have buckets of it.

We can offer you the renminbi via renminbi swap lines," which can be set up in various different ways. And effectively, we can be there, through a medium-term crisis in the same way that the US can. And maybe we don't have the same military cards to play yet, but maybe in another few years we will, and, Russia can help out at the margin.

So you could potentially see that as being some kind of alternative emerging over time. But that really does depend on whether China wants to share. And you'll notice that initially during this crisis, the first thing they did was to stop exporting refined products and fertilizer, Etc., which didn't exactly stand behind that view.

And interestingly enough, it's only, I think around an hour after the UAE left OPEC and OPEC Plus that suddenly China started exporting again, because I think they realized that these geopolitical tectonic plates are shifting, and they needed to start staying ahead of the game and realizing that would be potentially an offering they would have to make to people.

But that's only true if they have the reserves. Let's take the other completely hypothetical case that they don't. Let's say that they're not there the way that they profess, and how would we know? Then they're not in particularly strong position. They can, maybe keep going for another couple of months, and then just as many other countries w- would realize by the time that we get to late summer, things are looking really pretty messy.

At which point, that brings us back to, the hypothesis that I've been expounding for quite some time, which is that ultimately part of this resolution could be, ironically, China having to work with the US against its own ally, Iran, because it realizes that the potential damage to it from this crisis i- is even larger than losing Iran as an ally.

Now, we're not there yet, clearly, otherwise there'd be more movement or at least you'd pick up rumors of it, even if it isn't being, reported in the mainstream press. It's still logical that could appear at some moment, but it purely depends, as I said, in terms of what China can assemble, and that's a product of what they do or don't have as cards in hand, and there's no transparency on that front.

Erik: Michael, let's come back to the US implications of this. Experts are telling us that even if the crisis ended tomorrow, it would take, eh, four or five months before oil prices and particularly finished product gasoline prices would start to stabilize again. Okay. The midterm elections are only five months away now.

So if gasoline prices stay at these extreme elevated levels all the way through the midterm elections, does that make it extremely difficult for the Republicans to hold on to the Congress? And if they lose the Congress, what are the implications? 

Michael: Let's unpack that in a couple of different ways.

First of all, as we have seen, and as you were referring to at the beginning of this conversation, all it takes is a few handy tweets and prices can go down 5, 6% in a day. Tweeting doesn't cost that much, and it's amazing how much of an impact it can have for a while. Ultimately, if we are going to hit that pinch point up ahead, it's not going to work forever unless that particularly optimistic view that this is a crisis that can be worked through because, for example, China is importing much less at the moment, and is there some kind of background cooperation going on with the US?

We simply don't know. Then that might be one solution. If not, and we do find that tweets don't work anymore and prices start moving higher, that's exactly the pressure that would lead to hypothetically the US making one of two different choices. Number one is saying, "Okay, we have to go the whole enchilada," and say, "This is a mega taco," which, really does us enormous geostrategic damage and the entire West.

Or we have to look at the naphtha scenario I was just talking about, which is we will have lower prices in conjunction with others, but it means that they're going to be much, much higher in a larger subset of countries and, we're not gonna get our reputation back on the other side of that, but we can live with it But that's just the energy side of it.

You then have to look at the US itself, and I'm actually speaking from the US today, which is one of the reasons why I apologize if I'm stumbling over my words somewhat. The jet lag traveling here from Asia is quite remarkable sometimes. But we've seen this, constitutional upheaval, and I do think we have to be cognizant of the fact that obviously high gasoline prices are very unpopular.

But at the same time, it's always a binary, one party or the other. And it's also about enthusiasm. So provided enthusiasm can be kept up by Trump way or one way or another, and I'm not saying that can happen, but it's not impossible. If you can make it a sharp binary between whatever Trump is putting forward as a platform at the time versus what the Democrats are doing, with the redistricting that we're currently seeing it's still not a gimme that he loses the midterms.

And we have seen very experienced election callers really humiliated several times, not just in America, but around the world in recent years. And I wouldn't rule out that the confidence that people have of what it will look like in November could prove, misplaced once again. 

Erik: Michael, let's move on to gold now.

A lot of us thought that the reason gold has been so weak and why we saw a breakdown in the usual correlation where normally, bombs start falling, gold goes up. In this crisis, it's been bombs falling, gold goes down. Most people, myself included, have assumed that the reason for that has been that we're seeing an oil price-driven inflation signal that's spooking the precious metals market.

We just had a 10-day long, pretty significant risk-off cycle in oil prices and, gold didn't recover to new all-time highs or anywhere close to it. So maybe we're I'm feeling like maybe I've misdiagnosed why we've had all of this weakness in gold. And so I wonder what do you think has caused gold to be so weak, and what's it gonna take for it to bottom and eventually turn around, or does it turn around?

Michael: Again, without giving any kind of investment advice, I'm looking at this as part of a bigger picture thesis rather than focusing on one asset and then trying to explain everything back from there because, that's my methodology the former, not the latter. I think an interesting anecdote, and that's the best I will do here because people who look at gold full-time will obviously get, passionate about this and send me very angry emails.

But I think the best anecdote to explain this is very early on in the war, you saw the fact that people were finding that they were having to sell gold for dollars to try and then move them abroad and then buy other assets again. So when it actually came, push came to shove in the Middle East, you actually had missiles flying in a region which historically likes gold a lot, you suddenly have people realizing it's not the easiest thing to flee with.

You're actually a high net worth individual with a safe full of dollars, sorry, sa- a safe full of gold. And it is ironically for all the problem with fiat currency, which I, I'm not gonna unpack here, we're all aware of the downsides, it's pretty easy to get out of the country, via one press of a button at times.

And then on the other side of that, do you really wanna put it back into, very heavy to carry metals on the other side? Now, that's only one factor amongst many, but I do think it feeds into a broader thread running through Iran, running through economic statecraft, running through what the Fed and Warsh are doing.

And that is what is our emerging geopolitical, geoeconomic, geofinancial architecture looking like on the other side of this war? Because, at the moment you could say the war is in an interregnum. We don't know if it's gonna start again or just fade away. The shooting we've seen over the past couple of days has been, quote unquote, "mostly peaceful bombing," if you can, get away with that phrase.

But people aren't genuinely focusing yet on what things will look like when it is over, whether the US wins or loses or this draw drags on longer. And we've talked about the energy side of it to a degree, but many other things factor into it, and the dollar, gold, stable coins, commodities, all of them factor in too, and in a very big way.

Erik: Michael, let's come back to your specialty of economic statecraft. That includes stable coins. It includes the swap lines that I think have been offered to the UAE. There's probably other dimensions of this. Take us out to the bigger picture of what's going on here in terms of what you think Trump and Bessent really have in mind longer term.

What are their intentions for the US to assert economic statecraft, and how are the ways that's gonna play out? 

Michael: Sure. I think the easiest summary of that is that clearly there's absolutely no appetite from Bessent or from Trump to give up the global power of the dollar, but there's a full understanding that the euro dollar system, which does give the US a great deal of power, is also responsible for de-industrializing it because everyone demands the euro dollar, which comes from holding US financial assets rather than productive assets.

So you can make the link that effectively, you know the rules-based order was propped up ultimately by the US military. The US military was propped up by US industry, and US industry was killed effectively by the US dollar system, and therefore the US dollar system killed the system the rules-based order, which actually props up.

So it's a closed loop, and I, I've been arguing that in various different ways for a long time. But that doesn't mean you wanna give the dollar up completely. So I think what they are going to try and do, and we've discussed this in part before, but again, it runs through this war, it runs through energy, it runs through commodities, trying to push back at what China is doing, like through letters through a stick of rock It is the use of stable coins to effectively create lower interest rates in the US and effectively sucking euro dollars out of parts of the global economy and replacing them with these digital tokens, which to an extent for the US are buy one, get one free.

Why would you not want to do that? And they also have a sorting effect in that the countries that will trade with you, that will put tariffs on China and share a common external tariff with you against them, and split their technology supply chains and work with you on defense, they will be the ones that will expect the accept these digital tokens, which are not money, but they can become money if people will accept them as money.

They will be the ones who will accept them, and the ones who won't ultimately weren't going to be your allies anyway. So there's a sorting effect, there's a reorganizational effect, there's a buy one get one free, and there's fiscal breathing room through all of that. So that's what I think the US is trying to achieve there, and I think they were already, they were moving towards that.

The Iran crisis/war is likely to accelerate that, particularly, depending on how it ends. But that's just the US view. There are other countries and other players involved here, obviously. It's not only the US playing the game. And the interaction of how all the different players come together will drive ultimately what that architecture looks like.

Erik: You mentioned earlier the scenario of you, you said something to the effect of, if the US wins this war with Iran or loses this war. It really got me thinking, obviously the US is not gonna lose the war in the sense of Iran won and destroyed the United States and the country doesn't exist anymore.

So what does losing the war for the United States look like? Is it just the scenario where Trump is forced to taco and walk away and say okay, that didn't work out the way we thought," and just walk away from this, leaving Iran kind of controlling the strait? Is that the lose scenario or is there a worse one I haven't thought of?

Michael: It's a cascading effect that flows on from that, because what it would do at a meta level is show that even when you have a very ostensibly gung-ho president like Trump, in reality, of course, he hasn't been getting involved in wars on a large scale up until recently, and of course, that's what he's campaigned on so successfully in the past, which is, counter to the image that some people have of him domestically and internationally.

But even when you have someone who's prepared to, talk very tough about these things, that effectively the US would be in a state that the geostrategist Ed Ludback refers to as post-heroic Whereby, and this isn't any kind of criticism, it's just an observation, that the US is so casualty-phobic that while it has this magnificent technological military machine, which is of course very highly reliant on inputs from China and others, and that's part of what Trump is trying to address by, onshoring and shifting supply chains, Etc., Etc., It's limited in what it can achieve.

It can do a lot, but it can't achieve everything it needs to in the same way that Israel wasn't able to fully defeat Hamas because it would've required, many more men on the ground going everywhere. The US would've needed to have boots on the ground versus Iran in some scenarios, you could argue that.

And if that political will for that isn't there, then you can say therefore there are certain geostrategic problems or quandaries that the US simply isn't going to be able to resolve, and the cost of being involved is going to get higher and higher without any realistic prospect of victory. Ergo, the more logical thing to do is to, as you said, cut and run and say however we dress it up, Iran controls Hormuz," Etc., Etc..

But that would shatter the US image globally, which is why in the past I've referred to it as a 1956 crisis for the US in the way that the UK and France experienced one, and it dropped them from being great powers to just being powers. And the US would of course remain a hyper power, were this to happen, but people would recognize there are lots of things it just can't or won't do anymore, and that does absolutely change the parameters within which its opponents would expect it to then operate.

So it really is very significant. And within the Middle East in particular, just to underline that, it would change the dynamic totally. It wouldn't necessarily be for the better for anyone else either because if Iran says effectively we're top dog," even the, though the UAE has openly come out and, and attacked Iran several times, which has now been revealed, much of the Gulf might end up having to try and make terms with Iran even though they don't like it.

But not everyone would. It's potentially the case that the UAE and Israel would continue sniping away at it, and you could still therefore have stru-structurally high energy prices even if the US says we're out of here." Countries that are permanently based there may not accept the fact that happens and say we're not gonna give up."

So there are lots and lots of cascading effects, both for the region, for the US, and for the entire West that flow on from it. And how you price that is interesting, but I think you would have to really take a step back and think, is one still as positive on the US dollar and on US assets in their totality if you're accepting that there's a very firm limit to what the US is prepared to do?

Erik: Final question, Michael. Let's go back to the Kevin Warsh Fed. I think you're right that the theme here is going to be economic statecraft, stables coin statecraft, and so forth. What policies do you think, if you had to predict the wild surprise scenarios that nobody sees coming, not predictions, but scenarios or possibilities, wild outcomes, what are the Fed policies that Kevin Warsh might advance that would surprise everyone?

Michael: I've been talking about this for a while, so this isn't completely new, but I'm not sure if we've discussed it here or again, my jet lag is so severe that I can't remember if we have. Apologies. And that's this, that Warsh is openly talking about trying to reduce the Fed balance sheet, which itself would really set the cat among the pigeons, as I'm sure you're aware.

But at the same time, Trump is talking about expanding the Pentagon budget next year by $500 billion. How do you square that circle? And ultimately, alongside a corollary to this, which I think is the Fed may have to start looking at the supply side rather than the demand side and which sectors of the economy need lower or higher rates than others rather than one size fits all, which I've never understood the logic for in a geopolitical environment.

The Fed might be having to think, do we really need to be offering QE style balance sheet support to the financial part of the economy, which effectively doesn't do anything in terms of actual physical bang for the buck?" Fair enough. But do we need to be looking at some kind of acronym, tacit balance sheet support using one mechanism or another?

And there are lots of ways, of course, this could be dressed up in a technocratic way that wouldn't make it look quite as egregious as it is when I describe it in a simple form like this, to saying we can offer the same QE support that we have done up until now, but for the physical economy." So for example, again, swap lines or stable coin support for countries that are going to physically build out mines, port, infrastructure, shipbuilding, military supply chains, Etc., Etc., Etc., to re-industrialize and re-militarize parts of the US.

And I think I've made this joke on this podcast before, and if I haven't now's the time, and if I have, I humbly apologize, which is I've said for years that we're now living in a world of Warcraft, and I think we can all recognize that, whether this particular war is on hiatus or not. But effectively, the joke here is that would be using what I also call financial Farcraft, which is just financialization, to try and prepare for a world of Warcraft.

And I don't think people have, in markets broadly, got their heads around what it would mean to have extra liquidity that goes to some sectors, but it doesn't flow to all the favored ones, which is what an entire generation, if not two, of financial market participants have grown up expecting as normal.

But I think we are now in a new normal, and therefore that paradigm will have to shift. 

Erik: Michael, I can't thank you enough for another terrific interview. I really enjoy our talks every time we get the opportunity. Before I let you go, please tell our listeners a little bit more about what you do at Rabobank and how they can follow your work.

Michael: Sure. As you've probably heard I'm the global strategist at Rabobank for the economics and markets team, which means I look cross-asset, cross-geography, and cross-disciplinary to try and join the dots and project those dots forward to look for the kind of rather esoteric emerging trends that I'm talking about that once upon a time only happened every few years or every decade or so, and were just colorful entertainment up until that point, but now seem to be happening once every couple of weeks.

And so we really do need to be spending much more time talking about them. And if you'd like to join me in those conversations, if you're a Rabobank client, please go to the Rabobank Knowledge website. And if you're not, look for me on LinkedIn and also look for me on X, and the handle is @themichaelevery.

Erik: Patrick Ceresna and I will be back as Macro Voices continues, and be sure to stay tuned because we've got a cameo appearance from Commodity Context founder Rory Johnston with an update on some of the logistic issues in the crude oil market

Erik: Joining me now is Geopolitica Institute founder and CEO Dr. Pippa Malmgren. By popular listener request, we've had quite a few emails from people basically saying, "You've got to get Dr. Pippa back to talk about the Iran conflict." Just wait, she's got a whole lot more to tell us than just Iran. But Pippa, it's great to have you back.

Let's start with the Iran conflict. I have to tell you, there is so much talk on the table about, oh the deal is just... we're hours away from closing the deal. The way I'm interpreting this is we're nowhere close to any kind of deal because President Trump has said very firmly and Iran has said very firmly at the same time Trump says they must turn over their 60% enriched near weapons grade uranium.

Iran says, "No way, not negotiable. We're never gonna give it up." It seems to me like until one of those sides caves on that specific point, there is no deal and there is no resolution. Am I reading that right? 

Pippa: First of all, hi, Eric. It's so great to be back on with you. I do love the sessions with you 'cause you let me go deep into the whole breadth of what one needs to understand.

And on that, we need to start understanding, first of all, the superpowers are negotiating between themselves, right? The US, China particularly, Russia as well, and they are attempting to resolve all of the outstanding geopolitical issues all at once. This is a kind of Rubik's Cube approach, where you say you can't fix any one of them independently of the others.

And therefore, it really matters that we understand this, that the US is basically saying to China, for example, "We can negotiate a deal on Taiwan. There are conditions around that, but we accept that Taiwan is in your world and that Cuba and Venezuela are in ours. So you get out of our part of the world, we'll get out a little bit out of your part of the world."

Again, the conditions are important 'cause it's not just a clear swap. Part of the conditions are that China needs to become more like Taiwan, because the Chinese economy is not functioning very well, and if China's economy glitches, the whole world economy glitches. And so Trump has been reaching out effectively to the Communist Party saying, "You guys have two big choices in front of you," which I personally describe as either Star Wars or Star Trek.

Star Wars is where we go to war with people, which between these two superpowers would literally be the end of Earth. Nobody can survive that superpower conflict given the level of nuclear weapons that we have today. Or we decide to go to war with problems. That's the Star Trek scenario And China is absolutely signaling that it prefers Star Trek, no question.

But to do Star Trek, China can't run its economy the way it has been, and therefore, not only does it need to be more like Taiwan, but the US needs to offer China access to the US market on more preferable terms than have been available in the past. And specifically, China needs to move from a world where everything's stamped "Made in China" to a world where they're stamped "Owned by China."

In other words, they need to copy the exact same model the Europeans did after World War II, the Japanese did a little bit later, which is you start by exporting cheap goods based on cheap labor, and you end up making goods in the US to the point that you can build global brands. Americans, a lot of Americans, they actually think that BMW and Mercedes are American brands these days, right?

And so this is the only way you can raise national income. So the US is basically saying let's figure out a deal that we can get us all there." They've just said they're gonna create a board to review which businesses in China can come into the United States on that basis. So Iran. So then Iran is part of this deal.

Now, first, who are the Iranians is a very important question because now that the leadership has either left for Moscow or been eliminated by the United States, what's left is not really leadership. It's like the remnants of a structure that no longer exists. It's we could almost say a lot of stragglers that are now competing with each other because they all know that there is a deal coming from the United States, and they want to emerge as the guy who gets to shake hands with the United States, in the same way that the new leader of Syria used to be considered a very bad terrorist guy and now is a head of state that  the United States says good things about.

Because the strategy is not regime change. The strategy is conversion. It is to create the conditions that are so favorable that it's not worth remaining where you were. It is worth basically giving up the terrorism in exchange for a place in the world economy and some cash in the bank. So you're right, the uranium's the sticking point, but not for the reasons we think.

It's not about the Iranian nuclear program, in a sense. They know that everyone in the region is opposed to them becoming a nuclear power They know that China was their ally, but the, what was left of the, IRGC, when they made the decision to start lobbing closing the Strait of Hormuz, who did that hurt most?

That hurt China, their own sponsor. So at that point, China becomes extremely pragmatic and says "Hey guys we were on your side, but no, this is not gonna work." The president comes in and says, "Yeah, we agree." So the US and China start collaborating on the conditions under which the Strait of Hormuz can be reopened, and notice that the first ships that came through are all Chinese oil-carrying vessels.

Also, the US has been very clear with China, of course, China can buy all the oil it needs from Venezuela, from Alaska, right? We cut a deal to sell Alaskan oil to China during the Trump G summit. But there's a kind of silent parentheses which is, unless you wanna go to war with the United States, in which case the US can now turn the taps off on these things.

So that option of Star Wars is literally just not even available. So let's not talk about that. Let's go to Star Trek, which is where we all win. So the Iranians understand the real reason the president wants the uranium is because he wants to prove definitively the origin of that uranium, and his belief is that it is American, and that it was sent to Iran as part of the various deals cut under the period when Senator Clinton was the Secretary of State, when President Obama was in office, and when President Biden was in office, that part of the deal was not just sending vast amounts of cash to Iran, but also quietly, surreptitiously facilitating their nuclear program.

Now obviously that sounds completely nuts to many people, but this is what he is after, is the receipts. He wants to be able to prove that this nefarious position was even worse than we think. So that's why he also talks about gold dust, right? That the uranium is gold dust. In other words, he only needs a few grams to be able to prove the origin.

Also, now that the Iranian leadership, what's left of it, I don't even wanna call it leadership, it's just what remains, they started lobbing missiles at all their neighbors And destroying extremely valuable infrastructure, not to mention hitting a nuclear plant. So now everyone in the Middle East is aligned.

There is no daylight between them. They all are like, "This cannot continue. These guys cannot be allowed to disrupt the entire region." So they have no more friends in that respect, and now that Cuba and Venezuela are shaking hands with the United States and China's not supporting them anymore, what's left?

Russia. Russia, like China, is open to a swap. So if they have a choice between Iran and Ukraine, they're gonna focus on Ukraine, and the president understands that. China understands that, and that's why the last piece of this Rubik's Cube that's being negotiated is not Iran. That's considered pretty much a done deal.

The question is, how long do these folks keep lobbing missiles around in their internal competition to emerge as the winner that gets to shake hands with the world? But the real problem is how do we get to a resolution over Ukraine? And I think the-- that's a separate conversation we can have, but I think now we have a better context and understanding.

And by the way, for those who haven't been paying attention, 'cause I find a lot of people are like, "Oh, what are you talking about? Cuba is never gonna flip." And I'm like, did you notice that the head of the CIA flew into Havana on the very day that Trump and Xi met? And the reason you don't see Secretary of State Rubio there is because the US is not doing diplomacy in Cuba.

The US is dictating terms, and it's basically said, "You can have 100 million in cash," which you need because they have no gasoline, they have no diesel, they have no lights on. So they are in a, raise your hand and say, "Uncle" moment, where they are up the creek and the conditions are being laid out by the US.

So these things are historic. Any one of them is historic, but you have to understand the whole thing together. It's a Rubik's Cube. It's not about individual locations anymore. 

Erik: Wow, so much to unpack here. We'll definitely get back to Ukraine and all the rest of it, but I wanna stay on Russia for start. So I- I'm not following exactly what you're saying about the origin of Iran's uranium, and I think this is something that's been so badly not reported by the mainstream media that I wanna start with a little bit of context for our listeners.

Iran has 441 kilograms of 60% enriched uranium. It's in UF6, which is the stuff that's a gas when it's in the centrifuge, but it's a solid form at room temperature. It's in about 17 or 18 casks that are each about the size of a scuba tank. So that's the... And that's not speculation.

IAEA inspectors have gone and looked at it, put a seal on it and said, "We've seen this." So nobody disputes that they have that. The other thing to understand is 60% enriched uranium is never ever something, at least not in that quantity, that has any explanation in civilian use. This has everything to do with Iran being what's known as a threshold state.

They don't have nuclear weapons. They don't have weapons-grade uranium. But they've done 99% of the work necessary to get their uranium to weapons grade. It's only 1% more effort to go from 60% to 90% enrichment if you've got operable centrifuges to do that enrichment in. It's not clear whether or not their centrifuges are still working or completely destroyed or what the status is there.

But they've got this uranium. It sounds like you're saying, Pippa, you think that they got it from the US? And i- if so, how would you prove that? Even if you had these 17 canisters or tanks of uranium, each the size of a scuba tank, y- are you saying you do some kind of DNA test on it and figure out who sold it to you?

Pippa: Yeah, that's exactly. And I'm not saying that this is my belief. I am saying I believe it is the president's belief And the actions he's taking reflect this belief. But what's even more important is we have to be really careful about this idea of what constitutes a nuclear weapon. When I was in the White House I was very privileged to get the chance to work on nuclear threats to the domestic economy.

So everybody on the National Security Council was out chasing terrorists down globally, but the group that I was part of, we were looking at what would happen if a terrorist hit a shopping mall in America with not an ICBM, right? Not what you're talking about, a nuclear weapon, but something that has nuclear material attached to a traditional old-fashioned explosive.

That's what we call a dirty bomb. And this is where a lot of the confusion has come in about, what-- how close was Iran to having a nuclear weapon? The answer is they already had it. It's just w- are we talking about an ICBM that you can deliver for 5,000 miles, or are we talking about something you put in a backpack and you can destroy an area for 10,000 years, right?

Both of them are serious threats, and both of them are things that the, people that we're discussing seem to be perfectly morally content to do. So when we talk about getting the uranium, it's not just how highly enriched it is. You don't even-- You can take uranium from a dentist office refuse, and then you can put that in something, right?

We have to understand that we're talking about a range of nuclear threats, not just one kind. So that's the first thing. And now there's universal agreement, as I said, in the Middle East, everybody's "These guys can't have any of it. None." So that's a- an overarching understanding we have to have.

The second thing is, can you tell where it came from? My understanding is you can, and I think that what the president is aiming at... As he's undergoing a extraordinary effort to go back in time and find out exactly what happened when and why it happened, because it's ever more clear that, there was, a massive effort to undermine his first presidency, to prevent him from executing the vision that he had.

and he believes that the other side was willing to go to almost any lengths to get their way, and that included start being literally paying the very terrorists that we were supposed to be chasing down. And we know that. That's in the public domain now, right? Even when Trump recently entered office, the, when the excavation of USAID and other such channels began, and everybody's "Wait, why are we sending $40 million a week to the Taliban?

Wait, what the heck? What's causing that?" And it's part of this history of a belief that sometimes it's better to work with an opponent. It's the old, the enemy of my enemy is my friend logic, or the belief that you need an opponent to justify Congress allocating funds, or you're so used to working with an opponent that you've converted some of them, and so you have to give them cover stories.

There's a million reasons that the people doing all this would say were perfectly legitimate But in Trump's view, they were not perfectly legitimate. And so I'm just saying that one of the reasons that he is insisting on a physical access to this material is because of that, and the people on the other side know this, so they're holding out for the highest possible price.

So it strikes me that we're not actually in a state negotiation anymore, we're in a price negotiation. The folks left know that they are not going to be running this country, partly because, depends your-- how you count it, but something between, let's say 60 and 90 million Iranians are pretty mad about all this and do not want these people in charge.

So they're gonna have to face their own public, which is not gonna be pretty. So will they actually survive that? There's a chance they probably won't. That's why a number of them, when they were offered the opportunity to take the-- what Russia put on the table, which is take an apartment in Moscow, it's free, have a pension, and live a life where you can have a coffee without worrying, Americans are chasing you down.

But they didn't offer that to everyone. They only offered that to the really senior people. So the people left didn't get the offer. So where are they gonna go? What options do they have? The only real option left is to either join forces with the US and become part of the new world. That was partly the reason that Trump said, "Okay, everybody joins the Abraham Accords now."

'Cause then everybody becomes an enforcer against this kind of thinking. And so basically, where are you gonna run and hide? The whole rest of the Middle East is gonna shut you down as well. There's no place to go. That's why I think we are gonna end up with a deal. I do think Iran is going to emerge back into the family of nations with new leadership.

Is it gonna be messy? Yeah. But the US is not doing what it did in Iraq, which is just to destroy the government and then walk away and hope for the best. They're instead saying, "Okay, let's all together work on removing the one group of people who have adverse interests to the whole rest of the world, and then try to figure out how do we create the conditions for Iran to choose their own leadership?"

Erik: Pippa, the distinction that you drew at the beginning of that between what's possible and what the president believes to be possible not being the same thing seems central in my mind. And frankly I'm just gonna point out that in the president's most recent Truth Social post, he was absolutely adamant- 

Pippa: Yeah

Erik: that the US absolutely, positively, there's only two options that he said. One is Iran turns over its enriched uranium and gives it to the United States. The other is that the US Atomic Energy Commission be present in Iran and supervise and oversee any downblending or destruction operation that might occur in Iran.

Pippa: Yes. 

Erik: I can't help but point out, Pippa, that the US Atomic Energy Commission was dissolved in 1974, 52 years ago. So the president's command of of all of these topics maybe leaves a little bit to be desired. 

Pippa: Yeah, and I hear you, but no, what he means is American atomic energy experts, that basically a US team of, our most cutting edge experts to oversee the process.

Erik: Okay, but you think that the motive is not just to make sure that Iran does not possess this nuclear threshold state condition of having the, this near weapons grade material. You think it is to to do an, a forensic operation- Yes ... to prove that it's really got Barack Obama and Nancy Pelosi's DNA mixed in with that U238 and 235.

There's also a little bit of Barack's fingerprints on it somewhere. 

Pippa: Yes. I think that is the belief of this 

Erik: White House. Of the president. And do you- Yes ... think that any of these nuclear experts, whether they're from whatever IAEA would be the normal agency to do that, do they believe that it's possible to do?

I've never heard of a forensic analysis of enriched uranium to determine its source. So far as I know it- 

Pippa: And also remember, it won't only be about the material, it'll also be about the history and when you're negotiating and you're offering a lot of money on the table, what you're asking is for people to start singing.

You're saying, " We'll offer you this money, but we want to know what is the history? Where did things come from? Where did you get the insight? What, how, why did you m- how did you make this leap with your nuclear process? Was this given to you?" There's a whole forensic excavation that I think is occurring and going to continue occurring.

And so I'm just adding in that this piece of it Exists. Now, we can argue about whether it's sensible, and I'm not, a nuclear forensic expert by a million miles. But do we think that nuclear forensic experts could do this kind of work? I think the answer is yes. And when you listen to them, their answer is yes.

So I just think when we're trying to understand what's going on in the world, we cannot look at this thing the way the media is presenting it, which is the leadership of Iran is negotiating with the leadership of the United States, 'cause that is not what is happening. It is what is left of what was a command control structure negotiating really now with the various superpowers, 'cause China is very involved in this as well.

And even China agrees and has said, "We do not... we also don't support any nuclear weapons. Is their fundamental position, whether that's for Russia or Iran. So the US and China are aligned on this piece. And so I just think that's a better frame for understanding the back and forth than the traditional way of looking at it.

Erik: Okay. With that framework in place, let's come back to the current global energy disruption situation. What we have going on is both sides are saying they're not gonna back down on t- somebody's gotta cave on this giving over of the enriched nuclear material in order to end this conflict and fully reopen the strait.

Every single crude oil expert that we've spoken with has said the same thing, which is the buffers and safety margins have pretty much been used up. If the strait remains closed for another month, we're gonna be looking at out of control oil prices, $150, $200 oil prices. This has to get wrapped up in the next month, or the world is in a really big pickle with respect to energy.

Do you a-agree with that appraisal of the situation? And if so, do you see it, a, an agreement being made on this nuclear material in the next few weeks? Or how does this resolve? And if it doesn't, what happens to the global energy market? 

Pippa: Sure. So first thing is we have to understand that the United States is perfectly fine with the strait remaining closed, because this forces the whole world to buy these molecules of oil and gas that are currently blocked in the strait, they have to buy them from America.

So the US is saying, "We're open for business. We got all-- everything the world needs, we can sell plus the petroleum byproducts. They're all here too." I'll give you an example. I remember a few weeks ago, I was in South Korea and went up to the North Korean border and, all the headlines were saying, "Oh my God, semiconductor production globally is gonna collapse," because since the IRGC hit the various production plants in Qatar, there was not enough helium for semiconductor production.

And I'm like, "But the largest helium reserve on Earth is in Texas. They're just gonna buy from Texas." And then three weeks later, headlines: Hynix, Samsung semiconductors close the deal with Texas. So we-- when-- It's like people don't understand, you can just shift the supply chain. Now, you can't shift it forever because the US doesn't have unlimited supplies forever, but it does have these supplies probably for about two years.

So that's one layer. Second layer is part of what the US is trying to do is shift the whole world away from molecules to atoms, because we're trying to enter a world where it's not oil and gas that power our future, it is small modular reactors, it is basically nuclear energy in new, safe forms.

And I keep referring it to my written work on Substack as we have to understand we now can put a star in a box, literally So for example, there's a company, there's several, but there's one in California called Valor Atomics. Valor is making a box that's literally half the size of a car, and what's miraculous is that it's not just a small modular reactor, which of course we've had, for decades.

That's what powered the US Navy since the '50s. So we know this works and it's safe. But they're putting them in these small boxes that then you can literally move anywhere you want. So not only can the US now create a nuclear power plant quickly, but we can create a distributed nuclear plant that we can put anywhere you need it.

So another one in Austin, where I'm now living, 'cause it's our new tech center, which is quite amazing here. Another one called Aalo which is making small modular reactors. These things are... Just to be really clear, 'cause I think people don't understand. The new technology evolves around what they call TRISO fuel, which are little tiny pellets the size of a poppy seed, which have super hard shells that are almost impossible to break, and inside is the fissile material, the nuclear material, I should say.

And so it can't melt down. This is not like Three Mile Island or Chernobyl. That risk does not exist. And it takes literally half a handful of TRISO pellets to fuel, as I'm told, 5,000 homes I had originally thought for a year, and I keep being corrected and being told no, indefinitely." Okay. So since the US and China are leading in this new nuclear technology The US is delighted to be making a ton of money on the oil that it can sell to the world for the next couple of years in order to finance the transition from the old drill, baby, drill approach to let's just use new forms of clean energy.

Of which, by the way, nuclear is just one. There's also a whole bunch of others which are developing super quickly. And by the way, this takes me to, and it's important we all know about the Genesis mission, and most people, even investors in the market, they're like, "What is that?" That's the announcement by the White House that all our national labs, so that's Los Alamos and Lawrence Livermore and the Argonne and all these amazing labs that have had our best scientists since the end of the Second World War, they've all been totally classified.

N- none of the data has ever been let out the door, let alone, even internally, they've never been allowed to talk to each other, right? It's like Apple, right? People who work on the glass can't work on any other part of it, so that nobody knows, how to make a whole iPhone. The president said this is gonna stop.

We're gonna lift the lid off all of them. We're gonna run AI over all the data, and we're gonna connect the dots within the labs and across the labs, and we're betting there's a whole bunch of world-shaking technologies that are gonna come out of that and massively accelerate The solutions like new forms of energy.

Now, related to that is definitely gonna be nuclear fusion and how close are we? So again, I have investors who say, "Oh, nuclear, that means $30 billion and 30 years." No. In Austin, we have one company here that is a, it's a startup doing this technology I've described. They have built a small modular reactor with less than 300 people in less than 365 days, right?

The governor said go. I give approval. I can see that there's no, health risk here, no meltdown risk." Boom. We're in a different world. So that's why the US is like, "Okay, I understand everybody's in pain as long as the Strait of Hormuz is closed, but that's not our fault. It's these guys.

And if these guys would go home, then we could open everything up." But as long as they're gonna be a pain and keep it closed, the fact is we're a net beneficiary of this process. The US is also gonna be able to invest a whole lot more in its own oil and gas while this is going on, right? There's nothing like high energy prices to stimulate investment and CapEx and especially in alternative energies, which is definitely happening as well.

So you can start to see oh, that sort of explains why the White House is not like panicking like everybody else. But of course, if you're European, the idea that you have to buy your oil and gas from President Trump Is pretty galling, so they're like, "We don't wanna do it." But what other options do they have?

You can buy from the Russians. Who do you prefer? But these guys in the Strait are basically saying you can't buy it from anybody in the Middle East. So that's n- the US didn't do that, right? That was their decision. 

Erik: So many things to unpack here, Pippa. Someday we're gonna have to sit down and have a debate on triso versus not triso fuel.

But- Sure ... I agree with you that that Allo particularly, which does not use triso fuel, is a really exciting startup right next to you- yeah ... in Austin there. They're doing some absolutely amazing things. If we had the best thing we could do w- would be to make 25 more companies like Allo, because they're really on the right track.

Pippa: Exactly. 

Erik: And I think we're headed in that direction. The thing I'm still missing, and I'm just gonna come very quickly back to it, is- Sure. ... we've got about 13 million barrels per day of production shut-ins in the Persian Gulf region as a result of the closing of the Strait of Hormuz. The US doesn't have spare capacity to service all of that.

There's a little bit that's going through the pipelines and so forth. The East-West Pipeline in Saudi Arabia is delivering some through the Red Sea. 

Pippa: Yeah. 

Erik: But still, we've got to somehow destroy about 10 million barrels of demand unless that strait gets fully reopened really quickly.

Where do you see that coming from? 

Pippa: So why do you think Trump and Xi just had this meeting? That is exactly, they are in total alignment because who will suffer most? China, not the US. So you can be sure that China is also putting enormous pressure and incentives for this to stop, and so is everybody else in the Middle East.

So again, what are you actually dealing with? Are you really dealing with the leadership of a nation, or are you dealing with a bunch of people who understand that the whole world would like them to stop doing this and are willing to pay them to stop doing this, and your incentive is to just sit tight 'cause you'll get a bigger offer tomorrow than today?

So that's why the threat of another military action becomes necessary. It's not a costless decision to say no. 

Erik: We've gotta get to the point where we reopen the strait. I think we, we can all agree that the strait needs to get reopened and reopened soon, or the world is going to face a real energy crisis.

And as you said, the most powerful nations around the world are all aligned on that. But the guys that have the drones and the missiles right next door to the strait are the Iranian IRGC, which has been, by its design, separated and decentralized into 32 different command and control regions that all independently are engaged in a religious war.

Pippa: Exactly. 

Erik: So what's gonna bring that to an end? 

Pippa: Exactly. So and to my point, you have a whole bunch of independent groups that don't have a command control structure, and that's why, like you'll just see The Wall Street Journal is reporting right now, six hours ago US Navy is guiding ships through Strait of Hormuz, right?

They're just quietly coordinating, and everybody understands if you hit one of them, all hell is gonna break loose. So this is a way of beginning the process of moving the control away from these kind of warring factions. So I don't know. How long do these warring factions last? When do they finally either just get exhausted, they say yes to the money they get taken out by a military action?

I don't know, but it just strikes me with all of this alignment between the US, all the regional nations, and China That it's not gonna last that long is, I- would be my view 

Erik: President Trump has said on several occasions, "Look, we've got time on our side," and I don't think that statement is true. I don't think we have time on our side.

Is he- 

Pippa: Oh, yeah ... 

Erik: Does he know better and he's just bluffing, and it's part of his negotiating style? Or does the president really believe that we've got plenty of time and we don't need to worry about- 

Pippa: I think I just outlined the exact case of why the United States does in fact have time on its side, right?

It is exactly why. It's not the world has time on its side. It's the US has- 

Erik: Okay ... 

Pippa: time on its 

side. 

Erik: So this comes back to I'm thinking to something Louis Gave said on this program- ... a few weeks ago when I said, "Louis, how can it be that we're not, that the stock market is not freaking out about this energy crisis?"

And Louis said, "Unfortunately, the bottom line is that i- when we get to a real crisis situation, which we probably will, the resources go to the highest bidder, and if millions of people are gonna starve to death as a result of this crisis, they won't be in countries that affect NVIDIA's earnings, and that's the reason the stock market is not crashing on this."

Is that basically what's going on here, is if there's going to be massive human suffering as a result of this, it won't be in the US, it won't be in China, and it won't be any place that affects the earnings of NVIDIA? 

Pippa: That's a... I do, I know and love Louis. It's a very brutal analysis that you've outlined there.

I think it's more that everybody understands that all the players are moving toward a resolution. They have agreed on quite a few issues. Yes, there's some sticking points, but it's not that we're starting from scratch. We've come a long way from day one. So I guess the market is just betting that, first of all, when you have that many nations all involved and moving in one direction, these guys can't hang on that long.

That's one. And remember, they have no support internally in Iran, right? Like I said they're... The reason they don't get thrown out is only because they're the only ones with guns. And are they really religious? Are they really a theocracy? That's also an open question. Some yes, but many no.

This is a pragmatic situation. That's why Scott Bessent has been very clear about, making the conditions such that they would have no paycheck for several months before the military action began, so they'd already be destabilized and vulnerable to negotiations which I think many of them were.

So I also think the world can see that we are quickly moving into a world where we need to be off oil and gas anyway, and we're coming up with new methodologies all the time, even in fertilizers, right? Everybody was like, "Oh my gosh, now no one will be able to plant. There won't be enough fertilizer." And then suddenly you see we're developing all these new forms of things like green ammonia that don't even use any petroleum byproduct.

So it's accelerating the technological shifts away from oil and gas. Now, of course there's a lag, so I'm not saying this happens tomorrow, but it's the same thing. Like a parallel issue is the semiconductor production in Taiwan, and there's this debate right now where, Chemath came out a few days ago and said, "Yeah, the...

It's we've only gotta rely on Taiwan for another 18 months, maybe two years, and after that the production's moved to the US and T- Texas and Arizona, and they'll just take over." And then there was an outcry. People said, "No, we don't have the expertise. We don't have the capability. It's gonna take 10 years."

Okay, but all you've got is a bid offer spread then. The reality is that the core focus at the cutting edge of technology is going to happen in the US. It's not going to be happening in Taiwan the way it did. The US has already moved most of those engineers to the US anyway. These are the things we have to understand.

In an AI-led world, the speed at which you can shift from one kind of technology to another is absolutely blinding. And I think actually this is a wake-up call to everybody in the oil and gas industry who've been like, "Ah, yeah, nuclear, that's years and decades away. Nuclear fusion will never happen."

And you're like with artificial intelligence where you can do literally millions of test scenarios in seconds, it is happening, and it is gonna happen a lot faster than they realize, and you are gonna see the building of nuclear power plants at a speed and scale that doesn't match our mental model of 30 billion in 30 years.

So I think that's why the markets are like, " Yeah, we're in a transition, but not the end of the world." 

Erik: Let's go a little deeper on a topic that I know you're passionate about, which is a lot of people right now are up in arms, and there's literally people protesting in the streets, particularly in universities, saying, "AI is gonna take all of our jobs.

It's gonna destroy the economy. We're going to have mass unemployment because AI is just the worst thing that's ever happened." I personally think that they're wrong, but give me your take. Why-- How should we think about both AI and robotics? Are these the greatest productivity enhancers ever, or are these the greatest threats to employment ever?

Pippa: First, all technologies cut both ways, right? The car can safely transport you and your family from A to B, and it can kill everybody in your family as well, mow you down. So all technologies, it depends how you use them, and we need to be careful about that. But you have to understand the key thing about AI and robotics is we live in a world where the debt burden for all the major players, for the United States, for Europe, for Britain, for China, is so massive that a regular human being who needs to sleep at night can't outrun this thing.

So again, the superpowers are looking at this going, "The only way that we can get ahead of this terrible hole that's been created is to go to a whole new level of production." And this is not the same as productivity, because we're not talking about productivity. We're talking about how do we get to a world where energy doesn't cost anything, where literally the star in a box with TRISO fuel is permanently powering 5,000 homes and nobody is having to really pay more than pennies for that.

That world is now within reach because of AI and robotics. People have a hard time with that. They're like, "Wait, what?" And I keep pointing out, look, every single person, that's probably listening to this podcast, they all have a washer and a dryer. Those are robots. But they're not sitting around saying, "Oh gosh, I really miss the old days when I had to hand wash all the clothes."

No. You... They're doing it for you, and nobody misses this task So in a sense, we're confusing jobs and tasks with income and standard of living. And the disconnect is happening, and it's hard for the, especially the older generation, to imagine a world where you don't have to work very hard to get a high standard of living because the cost of supplying it is collapsing.

I'll give you a practical example. Here in Austin as well, there's this amazing company called Icon, which is doing 3D-printed homes, and in fact, 3D-printed neighborhoods. And I've driven through the neighborhood where you can buy a three-bedroom, absolutely stunningly beautiful house that's got perfect wiring and has a Tesla Powerwall, so you're already not really paying for your electricity and have the capacity to start selling your electricity back to the grid, which means your 3D-printed home is paying the mortgage on your behalf.

Now, not 100% today, but that will come. And I would add in, we're making big advances in some other new forms of energy like wireless transmission of energy space-based solar power. Japan has just made a big breakthrough there. This is gonna happen. So now you're not even dependent on the power grid anymore because we can move energy without it.

So imagine a life where that 3D-printed home is only gonna cost 100 grand, because that's where we're heading, right? It costs the same or actually a little bit less now than a three-bedroom house that already exists in Austin. But once they get the hang of doing this, then the price is gonna collapse.

So suddenly then you can have a really nice house, not have to pay very much for the energy, if anything. Actually, maybe earn enough that it pays your mortgage or part of it. How hard do you have to work? The answer is not so hard. In other words, AI and robotics are about freeing us up from these basic tasks like laundry washing, do it on our behalf at a scale that's not achievable by a human And suddenly we can devote our time and attention to much more serious and interesting problems.

But this creates some social, dislocation, to say the least, because we're so accustomed to having our identity tied to our job. The idea that now you won't even be working for one company with one income stream, but you'll have a portfolio of activities, and you don't even need to earn that much to have a high standard of living, this means you have to start defining who you are without reference to a job title.

And I think that is not well articulated or even understood, but that is the bigger problem than even the, "I won't have a job," right? It's, "I won't have a job," means I won't have an income. But people are already figuring out how to get AI to generate income without us even having to do very much. So of course, not everybody's gonna figure it out, so I'm not saying everyone progresses at the same speed.

But when you watch especially young people starting to get the hang of it, they're creating crazy businesses. I'll just give you one that just personally tickles my funny bone. I just think it's so interesting. Some kid somewhere figured out that he could record the sound of the rain and then upload it as a track onto Sono, set up AI agents to go market this thing as a, like a, what do they call it?

AMSR, or ASMR, and suddenly he's making 10 grand a month. And you're like, We have to open our imaginations to what this stuff can do, which is very hard to do if you're all locked into, "I am terrified that I am going to lose my job." And by the way, why is your job all tasks? And if it is all tasks, let the robotics and automation and AI do it, and figure out what's the more important problem that needs to be solved, 'cause that's where a human excels.

A human is the most brilliant problem solver ever to walk on the face of Earth. So it's about restoring our confidence and our capacity to be, epic problem solvers as opposed to cogs in a machine that are just conducting narrow tasks for a paycheck. 

Erik: Pippa, last topic I wanna touch on, I, at risk of being what might sound a little bit conspiratorial, something's going on, and I'm not sure what.

But, you've talked quite a bit in past interviews about there being lots of different ways that warfare has evolved, and things don't really happen in terms of, soldiers in trenches shooting at each other anymore. The hybrid warfare is much more sophisticated. There's a couple of stories that don't get a lot of attention.

One is oil infrastructure all over the world, refineries and so forth. Some of them have been attacked as part of military conflicts, but there's a lot of other ones that just have had these mysterious accidents, like too many to explain by chance probability. And then there's all these scientists that keep disappearing.

It feels like, we're back to 1960s spy movies where somebody's taken out- ... the oil infrastructure, and the smartest people who know how to fix things are suddenly disappearing. I know that sounds conspiratorial, but is there something real to this? 

Pippa: I have written a bit on these in my Substack column lately.

So I think, look, there are a few things. On the infrastructure when you have old infrastructure that's very hard to just walk away from because the capital investment has been so enormous, and the cost of decommissioning is so high. It's a very human tendency that things just burn down. Oh my goodness, and then you have insurance, and then you start again, right?

This has been happening throughout the course of human history, so that's not new. But maybe it's accelerating in a world where people can see that all these new technologies are arriving so rapidly that old infrastructure is redundant much faster than it used to be. So I'd put a little bit down to, oh my goodness, the darn thing burned down.

Gosh. There's that. I think we do-- you, you know that I've been arguing since, gosh 2021, I started to say I think we are now in World War III, and at that time it really sounded completely out there. People are like, "What are you talking about?" But now I think we can see in retrospect that it was beginning, right?

We started to see when, the Russians started to cut the sub cables in the Arctic which I've talked about a lot, in order to try to disrupt the global flow of information. That was a kind of precursor to the tanks rolling into Ukraine. That event now in retrospect, is clearly part of what was a global conflict, but it wasn't recognized as that at the time.

So today it's funny, we live in a world, people are like, "Oh my God, we're in World War III." And I'm like, "Actually, we've been in it, and I think now it's beginning to be resolved, like we're coming to the end of this episode." But others have only just recognized it. Anyway, if either way, it's not crazy to assume that your opposition isn't just going to try to deal with you on neutral ground or expected places.

Are there Russian or Chinese or Iranian operatives in the US that might have an interest in disrupting US critical infrastructure? I think Homeland Security under every single president would say yes. So are they successful sometimes? Probably yes. Does anyone want to explain it as that's what it was?

No, because then everyone would be totally scared, because the idea that there's a conflict here in the US is too terrifying. So instead you just have these accidents But I'm sure that people in that world of strategic security think a certain percentage of them might be from, opponents of the United States.

So the good news is that it seems pretty contained, right? We so far haven't had something that is on a scale that the public has really registered. So I think that's something. So I think there are many reasons why we might be seeing this happen. But again, what's so extraordinary is all these events occurring and the markets are still pretty solid.

So obviously the markets aren't too worried about the loss of the physical infrastructure, even in a war zone like what we see around the strait, let alone adding onto it critical infrastructure of oil and gas in the US. It's actually encouraging that you could remove that much capacity and everybody goes, "Okay, we'll just move on from here," right?

So that's one thing. The scientists are a related matter in my view. And th- this is a more-- to me, more interesting, more important subject because we have maybe now something between 12 and 15 of the most senior American Nuclear scientists or people who were working on materials related to nuclear, capability have literally just disappeared or suddenly been killed in very odd ways, in statistically unlikely ways.

And maybe the tell has been that for a long time there was no investigation. And you're like, "Wait, how can our most senior people, people who are running things like the Air Force Research Lab, just suddenly be gone and nobody asks any questions? So what's going on?" And I think the answer is nobody knows.

We have started to realize this is not only happening in the United States, it's also happening in China. A lot of their senior scientists have suddenly disappeared, or especially younger ones, died under strange circumstances. So again, I look at this and I'm like look, we're having extraordinary events happen right now.

Not only the Genesis mission, which is where, like I said, all those super classified technologies around nuclear are suddenly going to be revealed, made available to the public in what the president will no doubt view as a kind of Robin Hood move, right? Take it out of the control of the traditional military industrial complex and put it into the control of the public who paid for it.

But are there gonna be people who don't want that to happen? Sure. It's nice having a monopoly on certain technologies. So is there a pushback going on? Is this about removing the people who know how to do these things? Is that? I don't know. I'm a little bit hopeful that it might be the opposite, that maybe there's a gathering of the best scientists on the planet on this subject in anticipation of announcements from both the US and China that we've had massively important breakthroughs.

So is this then tied as well to, or is it pure coincidence that you have a president who suddenly announced and is in fact executing the declassification of all the documents and evidence related to the famous UAP, UFO, call it what you will, anomalous phenomena subject. And I think they are intertwined.

It's difficult to disentangle them. And the public is beginning to see, and, let's face it a billion people have now looked at the declassified website that the White House put together. And I thought personally it was a very important signal when the White House set up two websites alien.gov and aliens.gov, and everybody laughed and said, "Okay, the president's losing his marbles," and da.

And I'm like, oh, this is maybe very clever because I bet a bunch of these scientists who've been working on these super hyper-classified subjects probably have developed patents around their knowledge, maybe not on the exact thing they're working on, but on tangential aspects, 'cause this is what scientists do, right?

But under US law, if the origin of a technology is not human, then the patents are not valid. So is this an effort by the president to say, "You guys who've had access to all this technology and didn't share it with the public, I'm gonna not only take it off you, but I'm not gonna allow you to say that you still own it through some patent claim.

And instead, you're gonna find out that because there's a possibility that it has a non-human origin, that patents are nullified." Could that be part of the story? I'm not saying that's definitively the case. I think it's an interesting thing to think about. And so now as this stuff is being declassified, We have to ask, why would anybody be upset about all this?

And notice the speech that the president gave a couple of months ago to the defense community, where he basically said, "You guys have been optimizing for share buybacks and for profits, and this is gonna end. You're now gonna optimize for the creation of defense equipment that actually works at a reasonable price.

And so the old game is over." Which, by the way, is the same position he has with the pharma companies, where he said you guys were charging Americans three times as much for drugs as you charged anybody else in the world. This is over, and that's just the way it is." And they have said that's what we're gonna do."

So it's a kind of a general strategy to reduce costs on the American budget and the American taxpayer. So even if it's not true, let's say there are-- there is no non-human intelligence, this whole thing is a ruse, it's still an interesting strategy for reorienting the balance of power over technology.

It's still an interesting strategy for bringing technologies that have been You know, outside of public use into public use. Now, whether or not you believe, there's intelligence beyond humans is a different matter, but I think this is also an extremely important, interesting question to ask at a time when AI is accelerating, and we all can feel it as we're talking to the AI.

It sure feels like an intelligent, maybe more intelligent something is on the other side. And I'm-- as I'm talking to you, I'm looking out a window at a bunch of trees, and I'm thinking we're so arrogant as humans when we say, "Is there intelligence, non-human intelligence?" And you're like, trees move in the direction of the sunshine.

That is an intelligence, right? We know that trees migrate their roots together, and they share information through that root network. That's intelligence. So this idea that, we're alone and there's nothing else this intelligent, that is actually not right. And can I just-- I know it's taking a little time, but can I just tell you one quick story about whales?

'Cause this is just my favorite one. AI has recently cracked one of the whale languages. They discovered that these whales have specific and shared nicknames for the marine biologists who study them. So of course, the marine biologists are all like, "Oh my God, what's its nickname for me?"

And I'm like guys, did anybody ask the whales what do they think? What is their opinion? What knowledge do they ha-" "No, we just wanna know what is it calling me," 'cause we're so darn egotistical. So are we at a moment with this declassification process that was forcing humanity to recognize that we are not the only intelligence in this universe?

There's plenty of it right outside our window if we just look at it and reframe it in a different way And what possibilities does that open to our understanding of the world? So I'm-- I think it's a very exciting time in technology, and this is the reason I'm not down on the, "Oh my God, we're all gonna have a recession."

I think that we're coming into something that is bigger than the Industrial Revolution, for all of humanity. So I wanna I be clear. I may be the most optimistic economist on the planet at the moment but somebody has to walk through the upside because everybody else has covered the downside.

Erik: Pippa, I can't thank you enough for a terrific interview. We do have to call it there in the interest of time. But for our listeners who want even more we do have more coming up in the sense that Pippa and I and Jim Bianco will be doing a video discussion for Zero Hedge about Kevin Warsh on the Fed and what that's going to bring, monetary policy, a whole bunch of things.

That's... We don't have, unfortunately, as of our publication, or at least as of we're recording this interview, we don't actually have a date for that from Zero Hedge, but it should be next week sometime. So follow Zero Hedge Debates on X if you wanna find out about that one. We'll try to get it into this week's Research Roundup email, but I'm not sure that we'll get a date from Zero Hedge before we go to air on Thursday.

Meanwhile, we do have, by pure coincidence, Jim Bianco coming up for a cameo appearance coming up next to talk about an update on the Iran conflict. Pippa, before I let you go, I wanna come back to your Pippa's Pen and Podcast, which is your fantastic Substack. I'm addicted. For people who don't know about it we've got a link t- on the Research Roundup email where you can click to connect to it.

Tell people what they can expect to find there and how they can sign up. 

Pippa: Yeah. So this is where I like to write about all these things that are going on in the world economy and to help people widen the aperture of the view through which they see the world.

The lens gets made smaller every day by all the algorithms that only give you more of what you like, and they fence off what you don't like. So I'm trying to widen the view, and that's what I write about on... in the column. 

Erik: Patrick Ceresna and I will be back as Macro Voices continues right here at macrovoices.com.