Transcripts
Erik: Joining me now is Rosenberg Research founder, David Rosenberg, David, the last time I had you on the show, you and I were both very skeptical of this seemingly endless stock market rally. You just penned a piece called Lament of a Bear. Give us a summary of what that piece is about and what your current perspective is on this market.
David: Well, thanks for having me on the call. Lament of a Bear was just doing, I think, what any analyst or strategist or economist should do at the end of a year where, for the second year in a row, the stock market just pulled a major upside surprise. I'm really not alone, when you think about it, that the consensus on the S&P500 this time last year, for the end of this year, was 4800, and here we are, well north of 6000. And the point that I was making in my piece, and it was really an exercise of putting myself in the shoes of a bull and understanding and trying to appreciate what the other side of the debate is, and what the stock market is really telling us, because the stock market, we could say, well, it's crazy, it's stupid. The valuations are insane. But I'm not going to say the stock market always gets the story right, but it is a broad and liquid market and collective positioning by 1000s, if not hundreds of 1000s of participants, and they're not stupid. So, it was an exercise in really trying to more deeply understand what the message is, and maybe tipping the hat to the bulls instead of arguing and calling it a bubble every single day in my missives, and it may still be a bubble, but I think at the margin, what changed for me was, well, maybe it's not a bubble. And by that, I mean we're spending so much time looking at valuation metrics in the classical sense of 12-month trailing P multiples, 12-month forward multiples. And of course, when you look at the multiples on a one-year forward basis of ‘22 to ’23, you're in the top 5% valuations of all time. But we have to consider that the stock market is a long duration animal, and there are times when perhaps the one-year trailing or forward multiples are not the most appropriate way to assess or value the market, and we have to come to the conclusion that the market is telling us that the generative AI craze is something that's very close to what the internet did back in the 1990s. And of course, you date the start of the internet mania in 1995 when Netscape went public, and it went from a bull market to a raging bull market to a mania, and then to a bubble that inevitably burst, as all bubbles do. It did take five years for that to happen, and if you were there in 1997 and ‘98 and even in a ‘99 yelling bubble, bubble, bubble doesn't matter, the market still ripped in your face, inevitably, there was a day of reckoning that came down the road. I think that what's happening this time around, is very similar in the sense that the market is taking a longer time horizon. If you build an assumption that AI is a major inflection point in the technology curve, that we've had a real model shift in this sense. And I think that you can say that, yeah, it's going to have a major impact. We don't know how it's going to be regulated in the future. Nobody knows really what the total available market is going to be, and so a lot of assumptions are being made, but I think we can say that AI is a game changer. Call it “internet-light,” and that was a game changer, as we all know, and has future positive implications for productivity in particular, and that's important for any investor. Because a fundamental or a secular shift in productivity is going to have a major impact on unit costs in the business sector, and then what that means for corporate profitability in the future.
So, I think that the reason why the stock market, through thick and thin and through good news and bad news in the past couple of years, has continued to march higher is that the stock market has taken on a much longer time horizon than has normally been the case. I know that's going to sound a lot like, well, it's different this time or new era thinking. And I'm saying, well, no, not really. We’ve seen a handful of these technological innovations that really causes a big shift in the technology curve, that then leads to a whole bunch of assumptions on what the future is going to look like in terms of what I just mentioned, productivity growth that leads into profitability. And what is the stock market? After all, the stock market is always operating, not on the here and now, and it's not operating on lagging statistics. The stock market, by definition, is filled with assumptions and expectations about the future, and only in the future do we find out the extent to which the market overpriced, what was going to happen, and that's ultimately how bubbles burst. So, I tip my hat to the view that the market is giving us a very important message about what it believes. And what it believes is that the long term, not 1 year, not 2 years, not 3 years, but 5 years, or 10 years, that AI is going to be a fundamental game changer as far as what it means for the economy. And it's all very positive. Of course, there'll be winners and losers as far as our personal lives are concerned, but in general, the belief that it's going to lead to a lower corporate cost curve is bullish for profits, and not just for the here and now, but for the future. So, I think that what's happened here is that the stock market investor at the margin has lengthened his or her investment time horizon more than it's been the case in the past. And what I missed in this rally, this huge rally, is not appreciating the extent to which AI was going to compel investors to lengthen their investment time horizons as much as it has now. On top of that, we have the Trump victory and major thin majority in the House, majority in the Senate, clean sweep. I don't really believe that Trump is going to get his corporate tax cuts through, because the House is just filled with fiscal conservatives who want to bring the deficit down, but I do think that, and really, this is coming from the Lament of a Bear, we have to make the assertion that Donald Trump, as a standalone event, is bullish for the stock market, because his administration is clearly going to be very business friendly. So, you're taking a look at what my biggest concern was in the lead up to the election the shortly thereafter was, would he boost tariffs, 20% on everybody but China, and 60% on China and engage everybody into a global trade and tariff war. What would the Fed's reaction function to that be? And that had me very concerned for maybe a couple of weeks. And then he put together his economics team, which I would have to say he gets full grades on, and I think especially Scott Bessent, his Treasury Secretary, I'm pretty confident, is going to restrain some of Trump's most damaging impulses, especially when it comes to trade policy. So, I don't think we're going to be getting into a big tariff war. I think that even, as we saw already with the threat for Canada and Mexico, that he was using tariffs as a weapon for border security concerns, it's really being used more as a tactic. So, I'm relieved about that, less concerned about there being a tariff war, and of course, whatever inflationary effects there would be. And we have a president who is going to, even if he doesn't get his tax cuts through, he is going to be deregulating substantially, obviously, very big, important implications for the financial sector and for small business and deregulation, ipso facto, like AI, leads to a lower corporate cost curve. So that's bullish for the stock market, and there's no doubt about that. And on top of that, drill, baby drill, we're going to get a lot more energy production that will lead to lower oil prices, and that will be beneficial for, pretty well every aspect of the economy, especially industries that are heavy users of energy, because it means that their profit margins are going to improve.
I still have not acted on what I'm talking about, because I still think there's a lot of question marks, and I'm concerned about putting the valuations aside, which I had mentioned, we could argue that maybe this is not a bubble, after all, if you're taking a look at the stock market valued on a long term basis, so long as those assumptions that are being embedded, as far as AI is concerned, prove to be appropriate. But we're not going to know that for some time yet, and this stock market clearly is going to be forgiving, but certainly from a public policy standpoint, the Trump victory is clearly positive for the stock market. My concerns, really is, that sentiment is wildly positive, and market positioning is showing that this is a very crowded trade right now to be all in on the S&P 500. So, I have other issues, when I take a look and I see that portfolio managers in the industry, on the equity side, have barely more than 1% cash ratios, I get a little unnerved. You know that? What if something happens that upsets the apple cart? Portfolio managers, institutional portfolio managers, do not have the liquidity, so there could be forced selling. So from a fund flow standpoint, market positioning standpoint and sentiment standpoint, sentiment, every sentiment measure is just off the charts, and I tend to be a contrarian. So even though I was willing to acquiesce and talk about how perhaps the structure of the market's thinking has changed because of AI and the reasons why you could be more bullish because of the Trump victory, there's other things, nagging concerns I have right now, which is why I've written about these things. And I've also said, by the way, you do what you want to do, I haven't really adjusted my portfolio just yet.
Erik: Joining me now is Uranium Insider newsletter editor, Justin Huhn. Justin has prepared a slide deck to accompany today's interview. Registered users will find the download link in your Research Roundup email. If you don't have a Research Roundup email, just go to our home page macrovoices.com, look for the red button above Justin's picture that says looking for the downloads. Justin, I want to start by giving you credit for calling the bottom of this massive uranium correction that we've seen. You were at the WNA conference in London. You literally rushed back at the end of the conference to your hotel room, knowing that the US markets were still open to first panic buy as much uranium shares as you could get, because you knew it was a bottom. And then you made a video late at night from your hotel room in London, saying, guys, this is it, right here, right now, I really think this is a bottom. And you nailed it, was like 40% in a lot of your focus list issues up from there. So congratulations on that call.
Justin: I appreciate that. Thank you. Yeah, it was a very stark contrast experiencing that conference, with the backdrop of the shares continuing to slide and just absolutely horrendous sentiment being expressed on social media. So it was relatively easy, but it was easy because I was at the conference and it was very clear that the market was getting it wrong. I know those are as a dangerous statement to make in the investing world, is that the market is wrong, but you have those moments, every once in a while, where you can clearly see that it is, and I saw that it was, and thought I had to express that. So I appreciate that acknowledgement. Thank you.
Erik: Joining me now is Jeff Currie, Chief Strategist for Energy Pathways at Carlyle. Jeff, it's great to get you back on the show, it's been too long. Let's start with what's going on post the Trump election decision. It seems to me like there's a lot of anomalous pricing in markets, a lot of things are going in directions not everyone expected, including treasuries, particularly. What's driving this is this passive investment versus active investment, as this credit spreads, why does it feel like markets aren't quite doing what everybody expected?
Jeff: Yeah, I think your point, taking it from a really broad perspective here, is it's not just isolated to markets like the credit spreads, or it's not just isolated to equities, where you see 39% of concentration in the top 10 names, or in oil that fails to get a war premium bid. It's in across the entire macro space. So, it's exciting times, lots of opportunities. Let's just go through each one. Let's start, I think, as you pointed out, let's start with treasuries. Those are the markets, I think, where you see much more anomalous pricing. And I think it begins with the credit spreads. You know, you got a situation in which, when you look at US Treasuries sitting there at somewhere around 4.4% right now on the 10-year, versus investment grade running just shy of 5%, we've never seen such tight credit spreads ever, is that an indication that the US is a worse credit than potentially investment grade? I've met people who have made the argument to me, you could see Apple trade through treasuries, or is it, as you point out, being driven by passives out there. You see it in high yield too, that's running somewhere around 7%.
So we're in a very anomalous situation right now. But I think, talking about in the context of the Trump trade, the one thing that fore stepped treasuries was a significant concern around the size of the US deficit, driven around tax cuts and tariffs creating inflationary pressures. That put upward pressure on yields, but that's just part of the story. You got to look at what was going on in the corporates and the tight credit spreads there. The explanation I hear from credit traders is, you had many corporates holding back supply as they waited for rate cuts. Whether or not that's true or not, we'll find out, but I just think, let's put that observation in the context of what's going on in the equity markets. And I think your point about passive investors is also a really critical one. That I'd argue in the post-COVID era has been the biggest shift in markets. We went into COVID with passive investors owning less than 50% of US equity markets, were coming out with passive investors at 60%. The thing that drove that is during the lockdowns, we saw all those checks sent out, and people only had two things, shop online and invest in equities, because fixed income products had a 0% interest rate. And they used these passive ETF vehicles to enter the market, and that's how those percentages got so high. But once they got so high, they crowded out the active investor, and are now the dominant player in at least US equity markets. And that reinforces this idea that big gets bigger, and also most of it's concentrated in the American. And so if it's big and it's American, it's getting bigger, which is why, when you look at concentration, you've got 39% in the top 10 names in the US, which is anomalous. But it doesn't stop there. We can go and we can talk about oil and other markets. I think the key point here is, we're going through a major transition in global markets right now where the marginal buyer is changing, the marginal market is changing. And whether, if it is looking at currency markets, is it gold, or is it in oil? Is it gas and these other markets? So I'd say that the way I'm interpreting all these events is the marginal buyers changing and the marginal market is changing.
Erik: Joining me now is Tressis Chief Economist and fund manager, and of course, best-selling author, Daniel Lacalle. Daniel, it feels to me like maybe the various trades, whether it be dollar north or gold south, the things that happened in reaction to the election of President Elect Donald Trump, feels to me, like maybe those trades are running out of steam. What do you think?
Daniel: I think it's probably run too fast, and we need to at least take a little bit of time to analyze whether the strength of the US dollar is going to continue, and particularly the very complacent view of equities, considering that the earnings season is coming and that there may be some challenges, particularly in the Russell 2000 which has had a phenomenal bounce thanks to the election trade, I understand that there's a strong element of fund flows. I witnessed in different competitors and friends that there was a conscious decision to get into bonds with higher duration, reduce exposure to the United States, increase exposure to Asia and maybe to the Euro area, and that obviously has worked horribly. So, there is certainly a double whammy, right now, happening. On the one side, people are re-balancing their portfolios to an overweight in the United States and reducing those exposures that I just mentioned, and at the same time, the sort of buy in case anyone misses out, the fear of missing out of a very aggressive change in the economy, I don't think we can expect a very aggressive change in the economy, let alone in the earnings profile short term, and therefore we need to be a little bit cautious about that. Maybe the dollar, which has been a huge underweight among investors, is the one that probably has some room to go from where we are today, and we may see some, at least, calming down in the equity and more sort of cyclical stocks.
Erik: Joining me now is Vincent Deluard, who heads up Macro Strategy for Stone X. Vincent, I can't believe it's been four years since we had you on the show, it's great to have you back. listeners. Vincent has shared with us some really excellent research. It's the stuff you normally have to pay for. It's linked in your Research Roundup email. We're going to talk about three separate Stone X Intelligence Reports. Vincent, let's just start with the big picture of, you made the call, as did several of our other favorite guests, our mutual friend Louis Gave called the secular inflation several years ago, as you did. Everybody else was saying it's transitory, it's just going to be short term pandemic effects. You were the guy to say, no, the pandemic is the catalyst that's going to bring about a secular inflation. Seems like you and Louis and number of other smart people are being proven right. Let's just get the big picture update. What's happening with inflation, or do you still have that view that this is the beginning of a secular inflation? Because, look, we're just having what seems like the end of a wave. A lot of people are saying it's ending.
Vincent: Yes, thank you. It's a pleasure to be back here, and thank you for the introduction. The secular call would not be a secular call if we were to change it, just because one measure of inflation, and I'll stress that the CPI is a measure of inflation with certain biases, certain choices, but it's not inflation itself, has come down to levels that are still far above what we had before. So yes, inflation is a process, not an event, and it typically occurs in waves. So seeing some cyclicality in inflation, like that little signing pattern that we are seeing is actually what you would expect. And that's what you see in the past. If you think about the 70s, you had these three ascending waves, right? 1971, 1973, 1979. If you think about the 50s, you had one on the US mobilized. Another one during the war, and then another one after the Korean War. I've actually went all the way back, using Bank of England data, back to the Middle Ages, to test this hypothesis that inflation indeed is a wave like pattern. So the notion that would have a kind of one and done is very, I wouldn't say unprecedented, because I haven't data on all countries. I could say it would be certainly the minority to see a single wave, and then we just go back to the old world. One thing I wanted to rebound upon is also, when you mentioned COVID was a trigger, I think that was, that's factually correct, but I think it's the response from COVID that was the trigger. COVID itself was neither inflationary nor deflationary. I mean, events are somewhat neutral. You could have made a case that COVID was going to be deflationary, if we had not responded to it, if we just had basically, dramatically cut out consumption of commodities. Oil prices were negative. It could have been deflationary. And actually, it was in China when we had completely different response. COVID was deflationary shock. What was inflationary after COVID was the response, the fact that we blew up the deficit. I mean, the deficit increased more than it did during World War II, after COVID. And contrary to World War II, we did not normalize after that. This is a balanced inflationary, this is the policy function, the reaction from the Fed, from the fiscal authorities. This is what creates inflation, and this is what makes me think that is going to come back, not because of some external shock. I obviously cannot predict shock. You know, in 1979 it was the Iranian revolution that triggered it. 1973 was the OPEC gold embargo. There is going to be another shock, and the response to that shock will be inflationary.
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