Transcripts
Erik: Joining me now is Alex Gurevich, fund manager and founder of HonTe Investments in San Francisco. Alex prepared a chart deck to accompany this interview, you'll find the download link in your research roundup email. If you don't have a research roundup email, please just go to our homepage at macrovoices.com and click the red button above Alex's picture that says, looking for the downloads.
Alex, I've been really looking forward to this interview with you. Because, as you know, and most of our listeners know, one of the most important rules of investing is when you have a strong view to seek out smart people who disagree with you, because maybe you're the one who's got it wrong. I have some views about inflation, which I think is not transitory. I think we're at the beginning of a secular inflation. And I'm also getting frankly, pretty darn concerned about some of the macro shock events that we're seeing the the Sterling crash, it seems to me like it's not a big surprise after the policy mistakes, in my opinion that the UK and most of the European Union have made makes me wonder if we're headed toward a real calamity in Europe currency crash, that kind of thing. I know that you're someone who's incredibly smart and gifted and don't share those views. So please help me understand your perspective on all of this. Inflation, is it going to get worse? Is it is it a big deal? And what about these systemic risk events, the Sterling crisis, the seemingly runaway appreciation of the dollar to a blow off top? And a lot of non-usual things going on right now? What do we make of all this? How do you interpret it?
Alex: Erik well first of all, thank you for having me back. It's good to be back. It's been a while and it's always a pleasure. Those are definitely the subjects you're bringing the salient subjects for the day, like what we're thinking about what we're pondering. Definitely, we were all watching in aw the price action in Sterling over the last few months, and especially over the last few weeks. Yes, I'm actually not sharing the view that European and British economies are collapsing. In fact, I actually relatively positive and positive on euro and positive on Sterling, and I'm positive on stock markets and economic growth there. And I want to try to unfold why. However, having said that, I am positive. I agree with the concerns about the systemic risk there. And I will be the first one to admit, I do not know the scope of systemic risk. I also do not know how post Brexit for example, Britain will recover its current account, because definitely Brexit hurt the current account balance which led to currency depreciation, can they return the balance of payments? What are they going to export right? What does Britain have to make to sell to the world? Those are legitimate concerns. But I'm also going to talk to you about why I'm reasonably positive on this region.
Erik: Joining me now is Jeff Snider, the principal author first of the MacroVoices Eurodollar University and now of the Eurodollar University podcast. Jeff prepared a terrific slide deck to accompany this interview and I strongly encourage our listeners to download it because we're going to be making extensive references to the graphs and charts that it contains.
You'll find the link for the download in your research roundup email. Now, if you don't have a research roundup email, just go to our homepage at macrovoices.com. Look for the red button that says looking for the downloads. Jeff, it's great to have you back on the show. We decided instead of talking about today's markets and so forth, to do kind of a timeless episode, talking about the US dollar. Why it is still at the center of the global financial system despite the fact that ever since 1971, the US has kind of been frustrating some of the other countries around the world by maybe overstepping the authority that it gets from having the dollar at the center of the global financial system, yet it still remains king. And particularly, I think a lot of people would really like to better understand what causes the dollar to go up or down against other currencies. Now, if you pick up a macroeconomics textbook, pretty much what we're taught is that interest rate differentials are what control currency values.
So for example, if the Japanese Yen pays a much lower interest rate than the New Zealand dollar, then you can expect international investors to borrow yen at very low interest rates, sell them in order to buy New Zealand dollars, and get a much higher rate of return on New Zealand Treasury bills than they had to pay in order to borrow the Ten. That's of course known as a carry trade. I got a feeling Jeff, you're gonna tell us that there's a little bit more to it than just that when it comes to the US dollar.
Erik: Joining me now are Mike Alkin, Principal and Chief Investment Officer for Sachem Cove Partners, and Adam Rodman, who is Founder and Chief Investment Officer for Segra Capital Management. Why don't we start with Mike, give us a quick perspective on you guys both run funds in the nuclear space. What specifically do you do Mike? And we can contrast that with Adam in just a moment so our listeners understand how you guys both come at this.
Mike: Sure. Thanks Erik. So we are in the hedge fund business for over 25 years and back in 2015 started to look at an opportunity that I thought there might be a disconnect between the narrative and the facts in nuclear power and uranium. And so after a couple of years of doing deep dive due diligence on the industry, started the fund to express the view to invest in the nuclear fuel cycle. And that could be investing in physical uranium, proxy for physical uranium, it could be investing in the uranium mining equities, or private investments within the uranium space which we also do. So that's what we do. It's 24/7, the nuclear fuel cycle.
Erik: Okay, so Mike's business is entirely about the nuclear fuel cycle. Adam Rodman, how do you look at this opportunity space of investing in nuclear?
Adam: Yeah, sure. I'm not as tenured as Mike but about 15 years in the hedge fund business. Founded Segra Capital as a generalist fund always focused on, you know, kind of parts of the global markets that we thought were underappreciated or undervalued, and not dissimilar from Mike, around, you know, four or five years ago thought we were getting to a critical point in nuclear powers role and I guess take the energy transition and pivoted our fund to focus more or less exclusively on nuclear and nuclear-related opportunities. We've since kind of grown the offering under the Segra Capital umbrella. So we run a long-biased, but long-short hedge fund that looks at all things nuclear, including the nuclear fuel cycle, as Mike pointed out, and we also have a series of private funds dedicated to the space in addition to being in the midst of launching a commingled venture and growth equity fund looking at advanced nuclear and all related opportunities.
Erik: Joining me now is Bianco Research founder, Jim Bianco. Jim, it's great to get you back on the show, I want to start with something that's really been bugging me because as I tried to figure out the equity market and just the general macro landscape, I can't reconcile this thought that I've had for more than a decade now, which is I always said, what's eventually going to break things and bring about the end game is when inflation finally starts to run away, because that's what will tie central bankers hands and suddenly, we won't be able to paper over all of our problems with printed money anymore. I'm shocked. First, I was ridiculed for even thinking inflation could ever come back. And now that we've got it, it doesn't seem like anybody sees it the way I do, which is, this is a fundamental game changer. It means that the bailout mechanism isn't going to work anymore. I don't perceive most market participants really seeing the situation that way. So it makes me wonder if I've got it wrong. What do you think?
Jim: No, I don't think you've got it wrong. I think a lot of people are in that camp. That, you know, as I like to call them, the last year's transitory inflation is this year, inflation has peaked crowd. If you look at surveys of central bankers, you know, their outlooks or Wall Street's outlook, there's a common theme no matter what developed country you look at. Everybody's got inflation peaking about now and they've all got inflation returning to 2% in the next 18 to 36 months, depending on who you're looking at. But what they all have is inflation is they believe, a one time surge because of the pandemic re-opening and then it will go away forever. And they're still using the playbook of the 25 years through 2020. Whenever there was a problem including 2020, and it looked like the world was going to end in March or April of 2020. Here come the central bankers, and if the Fed has to buy $100 billion worth of bonds a day, which is what they were doing at one point. They will levitate markets and they will make every problem go away. So that's where that complacency is. This inflation is a one time thing. It's going to go away. The printing presses could come. The fiscal authority could come or maybe they'll change the rules or whatever. And whatever perceived concerns or problems we have will disappear. So don't worry about it.
Erik: Joining me now is Dr. Anas Alhajji, former chief economist for NGP Energy Capital Management, which for anyone who's not familiar is the premier private equity fund in the oil and gas space and former professor from the Colorado School of Mines, the University of Oklahoma, and Ohio Northern University. Anas, it is great to have you back on the show it has been too long and boy, we are overdue for a crude oil special. It's great to have you back.
Anas: Absolutely, absolutely.
Erik: I want to start by sinking up. We talked a lot about this last time and I'm not going to spend a lot of time on this subject. Anybody who's interested who didn't catch your last interview should go back and listen to that one, because it's as relevant as it was the day it was recorded. But I want to just kind of follow up on our last interview, after that interview and watching what's happened in the market, I have become convinced that the world is in a global energy crisis and I'm going to make a bolder statement than we made in that last interview. I'm going to say that, although the recession may hide this, and it might be years before people really figure this out. I do not believe that it is possible for the world to return to pre-pandemic normal in the sense of energy demand going back to where it should be naturally, you know if normal growth path had continued, and there hadn't been any pandemic. I make the argument that it is not possible to get there because the energy supply needed to do that simply does not exist. And furthermore, in order to solve that problem would take several years because you'd have to start making much more investment in new oil and gas production. And I think we have a really, really serious problem. Everybody's talking about this European energy crisis. I don't think there is a European energy crisis. I think that Europe just happens to be feeling it the hardest, and what's in Europe now is going to get worse. And I think it's coming to the rest of the world. Am I missing something because that's a pretty strong statement that there's no way out.
Anas: Yes you are missing something but the other way. The crisis is 10 times worse!
Erik: Oh, it's worse than I think?
Anas: It is 10 times worse than what you think.
MACRO VOICES is presented for informational and entertainment purposes only. The information presented in MACRO VOICES should NOT be construed as investment advice. Always consult a licensed investment professional before making important investment decisions. The opinions expressed on MACRO VOICES are those of the participants. MACRO VOICES, its producers, and hosts Erik Townsend and Patrick Ceresna shall NOT be liable for losses resulting from investment decisions based on information or viewpoints presented on MACRO VOICES.
