Transcripts
Erik: Joining me next on the program Professor Steve Keen from Kingston University. Steve, it’s so good to have you back on the program. It’s been way too long.
I want to start with a topic that you and I have talked about a lot before, which is the massive overhang of sovereign debt around the world. And the view that I’ve been coming around more and more to is I’m convinced that we’re headed towards some kind of a financial crisis as a result of all of this excessive debt in the system.
The thing is, everybody seems to assume automatically, okay, financial crisis, stock market going to crash. And what I’m starting to realize is, boy, I think the driver is going to be bond markets, sovereign bond markets that are in some cases negative-yielding. I mean this is crazy. Eventually it all has to come falling down.
And I’m starting to wonder, is it necessarily the case that that means there is a stock market crash? Or could it be that if the bond market is distressed and Treasuries are no longer a safety trade? And that the stock market is actually supported by that?
Or maybe it’s not supported – it doesn’t get taken down as much. So the next financial crisis, which is the topic of a book that you wrote recently, and it has been extremely popular, we know there is a financial crisis coming.
Is it mostly about the bond market? Or is it mostly about the stock market? What is the driver and how is it going to play out?
Erik: Joining me next on the program is Louis Vincent Gave, cofounder of GaveKal Research.
Louis, thanks so much. It’s great to have you back on the program. Your dad wrote an interesting piece called “The Recession of 2019.” We’ve got a link in our Research Roundup email to that piece. Some of the things that he touched on I want to discuss with you briefly.
Generally speaking, emerging markets – it seems like we’ve had some really tough times. Is that driven by the rally in the US dollar? And how do you relate it to the situation in Treasuries? Because we’ve got everybody thinking that the Treasury yield is about to explode here.
What’s going on?
Louis: There’s a lot of the pieces in the puzzle that don’t quite fit together. The one you just highlighted – I’ve been doing emerging markets for 20 years – and for the first time in my career, we have a situation where over the course of the summer you have a complete meltdown in emerging markets.
Argentina down 50%, Turkey down 50%, South Africa, India, Indonesia etc., you name it. It was a very ugly summer for emerging markets. And, against that, you also had US Treasury yields that, instead of falling, actually rose. And we’re above 3% now on the 10-year.
And here I’ll be dead honest. If you told me at the beginning of this year China will be down 20%, Argentina down 50%, etc., I would have said, hey, you can’t own enough US Treasuries. But here we are where, actually, year-to-date you’re losing money on US Treasuries. You’re losing money on US corporate bonds. So it’s not your typical setup.
When you look at this disappointing performance from emerging markets, I think the consensus view has generally been, oh, well, I think it’s because of the strong dollar. That’s the natural reaction: Strong dollar equals weak emerging markets.
And, frankly, I don’t buy it. I don’t buy it because the dollar, first, hasn’t been that strong. Basically, you look at the DXY, it’s roughly where it was a year ago. And, yes, you’ve had it move higher in the past six months. But it hasn’t been a massive move higher, number one.
Erik: Joining me next on the program is IceCap Chief Investment Officer Keith Dicker. Keith thanks so much for joining us on the program. You’ve prepared a fantastic slide deck for us. Listeners, you’ll find the download link to the slide deck in your Research Roundup email. If you’re not registered yet, just go to our home page at macrovoices.com, look for the information next to Keith’s picture for how to get the download.
Keith, you know, the narrative that a lot of people would like us to believe is, hey, Ben Bernanke has pretty much saved the economy. Quantitative easing rescued the financial markets and, hey, everything is all better now. What could go wrong?
I tend to be in the camp that at some point the piper has to be paid. There is no free lunch. But a lot of people have challenged: What form will that come in? Where does the piper still need to be paid? And I think you’ve addressed a lot of those questions in your chart book.
So why don’t we go ahead and get started here on Slide 1. Tell us what’s going on with what’s coming on this first chart.
Erik: Joining me next is petroleum geologist Art Berman. As always, Art has prepared one of his fantastic slide decks for us. Listeners, you can find the download link in your Research Roundup email. If you’re not registered yet, just go to Art’s picture on our home page and next to that you’ll find a link where you can obtain the downloads.
Art, it’s been way too long since we’ve had you on the program. And, because of that, since we have a lot of new listeners, let’s do a quick review of the subject that we’ve explained in your past interviews, which is this idea of comparative inventory.
A lot of people in the oil market look at the weekly inventory reports from EIA, and they just look at that number without adjusting it. Explain why you use comparative inventory, what it’s all about. And maybe you can relate that to the graphs you have on Slide 2 in your deck.
Erik: Joining me next on the program is Charlie McElligott who heads up cross-asset macro strategy at Nomura. Charlie has put together a fantastic slide deck to accompany this conversation, so please download it. Listeners, you’ll find the download link in your Research Roundup email.
Charlie, for people who have been following your writing since you joined Nomura in January – I remember the first piece I saw that really got my attention was where you described this perfect storm after the VIX complex blew up. You said, look, if we get to certain levels on the S&P it’s going to trigger the commodity trading advisors, they’re going to start systematic selling, it’s going to unleash a whole bunch of things.
Fortunately, we never got to that level. But I was very impressed with your analysis. As I followed your work since then, I noticed that, though you tend to be writing about the here and now – because that’s the way institutional research is structured – I am able to assimilate a framework, if you will, that seems to guide your thinking, which I’ve pulled together from reading several of your pieces.
Can we try to present to our listeners a summary of that framework? How you think about markets and how this all fits together? And from there I want to go into much more detail on your slide deck and a number of other questions.
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