Month: January 2024

#GlobalMarkets #Geopolitics #Inflation

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Welcome to the latest episode of “The Week Ahead” with your host, Tony Nash! We’ve assembled a stellar lineup featuring Tavi Costa, Albert Marko, and Tracy Shuchart.

📈 Tavi on The Fed, Inflation, and Geopolitics: Tavi takes the lead, unraveling the intricacies of the US stock market’s divergence from emerging markets. Get ready for a deep dive into the impact of inflation on earnings and a critical look at the Federal Reserve’s monetary policy. Tavi also shares insights on commodity prices, injecting a touch of sarcasm on the potential actions of the Fed.

💥 Albert on Iran’s Aggressive Moves: Albert steps up to discuss Iran’s recent bold actions, including attacks in Pakistan, Syria, and Iraq. Explore the motivations behind Iran’s sudden assertiveness and the potential outcomes of these strategic moves.

🌊 Tracy on Red Sea Issues: Tracy guides us through the complexities of Red Sea issues, examining the stability of crude prices and potential triggers for a spike. Dive into the impact on the shipping industry, including insurers’ adjustments and airfreight companies considering alternative routes.

Experience the power of AI in forecasting Markets. Subscribe to CI Markets Free: https://completeintel.com/markets

Transcript

Tony Nash

We’re joined by Tavi Kosta, Albert Marko and Tracy Shuchart. We’ve got a few key themes. The first, Tavi is going to talk to us about the Fed equity outlook in geopolitics. Albert’s going to talk to us about Iran. They’ve had some cross border skirmishes, and we’re trying to figure out if Iran is acting out. And then Tracy’s going to talk to us about the Red Sea. Why aren’t crude prices moving? What’s happening with freight supply chains and all that stuff?

Tony Nash

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Tony Nash

So, Tavi, thank you so much for joining us today. I know you’re in Brazil and it’s really not easy to coordinate schedules with you. So thanks again. Really appreciate this. I want to look at one of the tweets that you put out earlier this week looking at the Fed fighting inflation. And in this you talk about three inflationary waves of the 1970s. And I’d really like to kind of understand the context, kind of what do you think that means for the situation that we’re in now and how do we handle this going forward?

Tavi Kosta

Well, first, thanks for having me again. Well, I think there’s a lot of importance of analyzing what’s happening with inflation because of the behavior in markets that we may see unfolding due to those changes. It is of my view that 2021 and 2020 marked a significant change in the investment cycle. And I believe we’re now seeing structural forces in the inflation front that will mark the different regime in terms of cost of capital, in terms of cost of debt, in terms of even how we value assets. And so those structural forces to me are relevant. Number one is what we call the pillars of inflation. Those are, deglobalization comes first. I mean, that’s probably the most important one. I think a lot of analysts and Wall street in general is seeing some of those. Let’s see the Red Sea events and some others as kind of isolated events, and they’re not. I believe they are all interconnected in a big way. We’ve seen some of those big changes today in terms of even geopolitical problems relative to countries that we haven’t seen in decades now starting to become more problematic. That’s one of them. And we’re seeing the reshoring of developed economies and others that are causing the demand for commodities.

Tavi Kosta

And not only that, but also the reliance of the Chinese economy and other authoritarian regimes is being reduced in a big way. The second, I think, pillar of inflation has to do with what government developed economists have been doing, which is the reckless amount of fiscal spending. I mean, even if we look back in the 1970s, we certainly didn’t see this level of government spending and support that we’re seeing. And even if you exclude things like interest payments and other entitlement payments and so forth, there’s still a really significant portion of the spending that is very inflationary. Number three would be what’s happening as well with the labor markets. Labor markets for the first time that I can recall since the 70s probably, we’re seeing finally the cost of living being so high that it’s causing folks to actually demand higher wages and salaries. And that’s just something that evolves over time. And as we’ve seen, one aspect of this that there is room to grow is the fact that a lot of corporations are still paying their employees some of their lowest portions in terms of employee compensation relative to profits we’ve seen in history.

Tavi Kosta

And so there’s certainly room for not only protests and other issues heating up here that will become more and more widespread. And then I would point out to one thing that has been to me a main focus, which is the chronic under investments in natural resource industries that we, I think Tracy also covers that very well. And it’s related to the fact that supply of commodities and natural resources, those industries have been neglected for so many years now, if not decades. And that is creating a problem with especially the corporations and management of those firms being extremely conservative at not creating new projects and new developments of mines and other projects and other resources. That is creating also the limited supply of those things moving forward. And so if you ask me, I think this is the beginning of a hard assets environment where you want to be invested in resource rich economies and resource rich even companies that produce those assets over time too.

Tony Nash

Okay, so there’s really a lot to pull apart there. But just looking at your last bit. So first of all, you really validated a lot of what Albert’s been saying for the past couple of years and a lot of what Tracy’s been saying for the past couple years. And what I’m hearing you say is the Fed may be saying that we’ve conquered inflation, but we actually haven’t. There’s more to come. So when you talk about investing in resource rich economies, you recently talked about us stock market valuations versus the rest of the world, especially emerging markets. So what are the factors behind the divergence in those markets? And what of those markets that are, say, underrepresented? What’s appealing about those markets?

Tavi Kosta

Well, first of all, I think there are some decades resource businesses are usually terrible companies, especially in the mining space where I, and most of those companies make no money. They’re very capital intensive and they’re highly dilutive. They burn a lot of capital. But there are some specific decades that are very interesting to own them, and they usually are linked to inflationary decades. So if you looked back in the 1910s, the all those three decades actually coincided with periods where inflation was running hotter than usual. And so, yes, you see the operational costs and other things rising at those periods, but the hard assets overall tend to really outperform even the cost structure, but also other assets like financial assets overall. And so that is one very important aspect. And the other thing has to do with why they have been neglected for so many years to not only. Well, they’re not really growth companies, and that has been one part of the market has probably attracted most of the capital we’ve seen in the last decade or so. Technology has been a big portion of. Well, and that has to do with, I think with the cost of debt being so cheap, allowing investors to not focus in bottom lines and profitability.

Tavi Kosta

I think somebody, maybe David Einhorn, made a point about we should measure how many, the frequency of analysts actually listening to earnings calls nowadays. I mean, you’ve probably seen, there’s a good chart of CFA level two people. The volume of those have been drastically declining. It’s just another way of seeing how fundamental analysis is just over. I mean, no one really does that. And I am of the view that we’re going to go back to that. We see decades that are like that and the same will go for mining. So why do I think those things look appealing? Because historically, when those companies start being extremely conservative, that’s the time you want to start getting exposure to it. And there are many ways you can measure that. My favorite one is looking to aggregate capex, and you can see that across not only the overall commodity space of producers, but also specifically in different parts of the commodity industries like agricultural commodities, energy, or you can look into the mining space and even break down into the metals as well. And what you’re going to find is that, yeah, overall, most of those companies have been extremely conservative, and it’s just hard to believe that that’s not going to drive the prices of things in general moving a lot higher.

Tavi Kosta

And I’ll point out to one more thing that I think is very relevant. I am of the view that gold is going to make new highs. And not only that, but we enter a new cycle and we can get into the reasons for that. But I’ve never seen a gold cycle that doesn’t coincide with a commodity cycle. And so to me that’s really what it comes down to. It’s just another way of betting on the idea that precious metals will enter a cycle. And if that happens, we’re probably going to see other commodities follow along.

Tony Nash

Okay, let’s talk about that, because I want to understand your gold thesis. Can you tell us why you think gold is going to run up?

Tavi Kosta

Well, I think there’s two pools of capital that really move the markets in general. There’s the 60 40 portfolios, the pension funds and all those kind of more idealistic investment strategies. And then you have the other side of it, which is central banks. And those are very relevant. And we have to understand where are those guys allocated and where they’re likely to move towards. So let’s separate the two. One of them is what is called the 60 40 portfolios. I mean, that has been the most successful way to be invested probably in the last 20 years or so and maybe 30 years. But now with this new investment cycle, I believe we’re entering where we’re seeing changes of correlations and so forth. I think we’re going to start favoring other assets. And to me this is the first time in 45 years that the downside volatility of gold versus treasuries is actually in a way where gold is less volatile than treasuries. And so I would think that those funds running those types of analysis will start favoring gold as at least a portion of that 40% of their portfolio in safe havens. And so it starts seeing that moving from zero to five to percent ten on the gold side.

Tavi Kosta

I think that would be a very significant and meaningful dynamic of flows into the space. The second one is central banks. Well, central banks, if you look at the history of them, the way you do it, at least the way I do it, is looking at their assets and the composition of their assets throughout history. And you can go back all the way to the 70s or even further, but what you find is that gold used to be a really big portion of their balance sheet assets in the past. And to be more specific, back in the late 70s, after the gold standard ended, we actually went to a period where central banks were accumulating gold, believe it or not, and their central bank assets actually peaked at the end of the beginning of the about 74% of their international reserves. So central banks have different priorities. They own things not because of a risk perspective. They own things because they want to create stability to their monetary systems. And so they need something credible. And so since then, treasuries and other sovereign institutions or sovereign instruments got really cheap, and so they accumulated those assets it makes sense.

Tavi Kosta

So on the back of that we had the success of six to 40 portfolios, the declining of interest rates, the improvement of growth stocks. And so everything is kind of linked to that significant change. And so now we’re starting to see the beginning of purchases of central banks. And you may say, wow, that’s pretty significant. Those are record amounts of purchases. But what is really significant is the fact that they are just 20% of their central bank assets today in gold allocation. So what if we go back to the median, which is about 40%, which is double from where we are today, and I think that’s very plausible. So coming from those two parts of the market, I would say that that can be a very important segment, or I should say attraction of capital to this industry. And not to go on a lot further, but there’s more to this. But I’ll keep it short.

Tony Nash

It’s a great overview. Just a quick question about gold and Albert and Tracy. I want to bring you guys in in a second, but I feel like there’s, on some level, at least from retail, there’s almost a substitutional factor between, say, gold and crypto. Crypto was kind of used as that counter dollar Deval asset. And now that we have crypto or say bitcoin spot funds coming out, that sort of thing, will that take away from the gold market as kind of a counter dollar deval, say asset for retail to hold? I know you were just talking about central banks, but I’m talking kind of that marginal, say retail or portfolio investor, will they see the crypto or bitcoin ETFs as a substitute to gold?

Tavi Kosta

Look, I think the reason for the gold being so unfavorable across the retail investors has been the fact that it just hasn’t performed very well. And a lot of people like to just ignore the metal because of that factor. When to me, as a contrarian, I love that factor. It’s exactly why I don’t go to a restaurant or a bar and I talk to a person and they’re telling me they’re buying claims of properties looking for gold and silver and copper. No, they talk about crypto assets and other things. And so to me, it’s a totally a contrarian opinion. I think there’s no marketing that is better than making money. And the fact that we haven’t made a lot of money in gold certainly is unfortunately a negative situation. And so do I think that will change? Yes, I do think that will change. I don’t think you’re going to get rich buying gold. I’m never going to say that. But I think there is a symmetry to buying assets that are linked to gold that are likely to be performing way better than the metal itself. That to me is what is very attractive about the space.

Tavi Kosta

And as we see people actually being successful and making every gold cycle, there’s a new period of new billionaires and successful investors that emerge. And I’m trying to be one of them. And that’s certainly my goal. And I think there’s a lot of other people creating credible vehicles that will do the same. And I think that that will attract the capital from the retail. You know, the fact that retail is not very interested to me is actually probably a positive factor instead. But

Tony Nash

Interesting.

Tavi Kosta

Yeah.

Tony Nash

Tracy, you follow precious metals and miners. What’s your thought on gold appreciation?

Tracy Shuchart

I think the bigger question here, just kind of jumping on to your question on the bitcoin gold thing. I think the bigger question here is do we think that these bitcoin ETFs are going to hurt or help the underlying asset? I think that’s a more interesting question than does the bitcoin trade hurt or help the gold trade, in my opinion.

Tony Nash

And I guess for me, a bigger question regarding related central banks is CBDC versus gold. Is that something that offsets the underlying value of gold? I mean, I don’t know how realistic that is for, say, the Fed, but obviously it’s a discussion point and I’m just not sure about it because I really don’t know. Albert, what are your thoughts on gold?

Albert Marko

What are my thoughts on gold? If we’re talking about trading it in a range between 1700 and 2300, I would absolutely agree.

Albert Marko

You should have it in your portfolio and diversify. Hoping that it goes to three, four, five, 6000 is just pure lunacy in my world, right. I’ve been told from treasury secretaries that they’re going to cap it at 3000. They’ll never let it because it affects the US dollar. When you’re sitting there trying to fight someone like the Fed or the treasury, especially in a commodity like gold, you’re never going to win.

Tony Nash

Right.

Albert Marko

But like I said, he’s right. Gold sitting there at 1718 1900. Why would you not have your portfolio allocated in an asset? Which is clear that for whatever reason the central banks are know buying gold for their portfolio, they’re clearly doing. It’s whether as Tavi was saying, or whether I believe, because it’s arbitrage for dollars in the long run. So doesn’t matter which argument you make, they’re certainly doing it right. So onto the other point about investing in commodity rich countries. Absolutely. We’re in a cycle where commodities are becoming much more hard to get. The supply chain disruptions are problematic. The only concern I have is when you start investing in those countries, you really have to look at the politics behind who’s leading those countries, because some of them are left leaning, some of them are right leaning. The left leaning countries tend to favor climate change and environmental policies that sometimes is contrary to mining and whatnot. So that’s the only tidbit I’d throw in there with that.

Tony Nash

Yeah, that was actually my next question to Tavi is if we look at that chart that he has on kind of the premiums across stock markets, the market value to GDP and more of those countries that you look on the right. My question is around geopolitical risk. How do you factor geopolitical risk into investing in these countries, not just those that have precious metal mining, but also the ones that are on the right that aren’t necessarily hit the valuations, that haven’t necessarily hit the valuations that are, say, a median valuation.

Tavi Kosta

Well, it’s an important question because the risk is not taking away of the trade at all. As we know, markets will prioritize different things at different times. And right now, certainly the risk of the political side has been, I think, the largest thing that has been causing this big difference in valuations of companies in the mining space specifically because I can speak a little better about that. Know, one thing that you can see today is the fact that if you buy, let’s just say a project and mining project in Peru versus in Canada, you’re going to pay a much higher premium in Canada. For obvious reasons. But the thing is, because of ESG issues and other things, for you to put that project into production in Canada will take you 15 years, while you can do that in Peru. Depending on the project, depending on the situation, you can maybe get that into production in three years. And so I’m not joking. I mean, we have a project in Bolivia now that is actually going to get into production hopefully in about three years. And government has been very supportive. Why? Because they know they need people to be employed, so they want the projects to go ahead.

Tavi Kosta

And so when do we start actually shifting the prioritization from markets, giving a premium to the political jurisdiction rather than maybe the speed of getting a project into production? I think that we’re going to see some of that shift. I personally think that that’s going to be an important one because I want to own more projects that will actually get into production in this cycle, not the next one. Because buying an exploration project, you only going to get into production in 15 years from now. So why even bother? So that to me is an important aspect.

Tony Nash

Interesting.

Albert Marko

That’s really difficult to do. I commend you on that one, especially trying to find something that’s going to be productive in the next two, three, four years. That’s tough.

Tavi Kosta

Yeah, it all depends on the idea, right. This project I’m talking about has infrastructure already ready to go. They spent over $2 billion in infrastructure and found a discovery. And the discovery now is the big discussion, can we get this discovery into production? And so you need permits, you need all sorts of things. You need to build some infrastructure there as well because it’s 40 km away. And if you’re trying to do that in Canada, boy, good luck. It’s going to take you a while to get those permits and approvals and you got to talk to the natives and all those things in Bolivia, you might be able to get there much quicker, especially if you don’t have to build a lot of infrastructure. So this is a very specific case that I’m talking about, but that certainly is one to consider. There are other projects like the ones we’re looking at that are in similar positions.

Tony Nash

Yeah, you have to be hyper aware of the politics on the ground in these cases. Right. So I don’t think we can underscore enough the importance of geopolitics, especially in the environment of higher interest rates. Right. When that cost of capital rises, the downside of geopolitical risk is much more painful. So let’s switch to us equities for a minute. Tavi, given where us stock valuations are. What’s your outlook on earnings? We saw massive earnings growth with inflation in 2021, especially in early 2022. As inflation grew, so did margins for companies because they could push stuff onto their customers. With inflation abating, where do you see earnings coming from? Are we at the point in the cycle where earnings growth comes from cost and staff cuts? Does that stuff become the focus?

Tavi Kosta

Boy, if that happens, I don’t know how the population will keep moving because the widespread labor strikes to me are a big portion of all this. And I’m going to start actually putting out some stats on this because I don’t think people are doing enough. The point of how much corporations are getting paid relative to how much the labor market is getting their share. And so that’s going to change. I think that’s going to create an even more inflationary problem. But to your question, look, I’m not of the view that we’re going to see a soft lending. I’ve been of the view. I’m not going to say. I think most of the managers that are writing 2022 that absolutely nailed 2022 had issues in 2023, and the same guys that nailed 2023 had a terrible 2022. And so who do you know that did well in 2022 and 2023? I mean, that’s very rare to see because most people fall into one of the two categories. They’re either inflationary or deflationary. And you can strapolate those moving forward. The deflationary likes technology and some other things, and the others like value stocks and commodities and other things like that, I’ve been of the view that this profusion of macro indicators suggesting that we’re going to see a recession will eventually happen.

Tavi Kosta

And when I say eventually, I think six months, twelve months is probably very plausible. I think it’s going to happen. And so if I’m of the view of that, and I don’t think there’s a lot of big themes in the short side that look attractive. I mean, the dominance of mega cap companies, is that something that will continue? I don’t think so. I highly doubt we’re going to see that this entire year. I think that that’s going to be fading. There are issues with companies maturing debt in 2024 and they have to reissue that debt, along with the government that has $8.2 trillion of debt, has to be reissued. What’s the resolution of all that? We all know the average interest rate right now is 3%, but interest rates itself is at what? I don’t know. Interest rates are below four. The majority of them are above four or 4%. So talking about that, it’s going to be a big change in interest payments and margins that will get squeezed. And then you extrapolate that in corporations it could be even worse. And so yield curve inversions, deeply inverted. Now steepening. Well, how many times have we seen that in the past?

Tavi Kosta

So I’m not the one who is going to bet against history. And maybe history is wrong and all these indicators are wrong and we don’t even see a lending, maybe we’re going to see actually a booming economy. And I’m completely off here, but I think there’s. Yeah.

Tony Nash

All of these things sound like headwinds for earnings. Do we see a return to earnings growth in 24 or do we see flat earnings for the next several quarters? Because I’m just not sure where that earnings growth comes from. Albert, what do you think on that?

Albert Marko

I don’t know why it matters. I mean, they’re using seven stocks to pump the market in bonds. What does it matter? I mean, I agree with them to a point. Things don’t look really that great historically. You’re looking at most likely a recession. I just don’t buy the recession talk for 2024 for only one reason, is there’s an election in the US for that reason alone, and they’re willing, and they’ve shown that they’re willing to pump money into the economy, into the markets. They’ve done it multiple times in the past. And from what Yellen’s actions are, I don’t see it stopping now. Twelve months from now, completely different story. That’s a completely different era. And the situation changes after that. But for the next six months.

Albert Marko

I think they’ll probably launch the market close to 5000 or 5300 or something stupid.

Tony Nash

Tavi, what do you think?

Tavi Kosta

Can I ask a question?

Tony Nash

Go ahead.

Tavi Kosta

I find an interesting point because I thought about that too. I mean, this is an election year and so forth, and the Fed to me was a total political shift. What happened recently, I can’t explain. Well, what exactly happened when inflation is where it is right now and anyways, and it’s decelerating and there’s no point there. But the year of 2000, the year 2008 was also, both of them were peak of the market in eight was a very terrible market. Both were election years. How do we put so much weight on the fact that it is an election year when history shows that actually there were some really brutal years during election?

Albert Marko

There’s a key difference, though. Back then, China and the Europeans were not complete zombies like they are today. They’re dead right now. So all that money, all the inflow coming into the US markets is helping, is helping the US stock exchange. There’s no question about that. Flies into bonds, it flies into the equities. It goes everywhere. There’s no one right now to hold us accountable of what misdeeds we’re doing. Back then, you could have said, okay, well, I’m going to take my 30% or 40% of my portfolio and put it into China, or I’m going to put it into the European economy. Can’t do that right now. That’s one of my main contentions is that part alone, it really stops any kind of argument. It’s like, okay, well, then where’s the money going to go at this point? Who’s going to stop the political actions of Janet Yellen from this point on?

Tony Nash

That’s fair. And if we look at Tavi’s chart from earlier, a lot of those European countries are relatively overvalued as well. Right? So if you want to stay relatively safe, do you want to put it in Europe? Well, it looks overvalued. Do you want to put it in Japan? Well, you have the currency risk and you have, according to Tavi’s chart, overvalued. Right.

Tony Nash

So I think it’s a good point.

Albert Marko

You also have a very politicized Fed and treasury at the moment. Obviously, like Michael Green was saying the other day, the treasury secretary is an appointee of the president and pushes aims. No question about that. But the other thing is, a lot of fed members were ousted last year for more liberal minded MMT in the frame of Lael Brainard’s MMT type economy. Right. So this is why I think that this is a new regime. They don’t care what happens in a year.

Albert Marko

They think they have full control, which I completely agree with Tabi, historically, you can see that that doesn’t really play out very well in the long run, but because of, there’s nowhere else for money to, right, And they have almost full control politically at the moment. I just can’t see them allowing a recession to happen only for political optics. Sure, the data can say this and that in a few sectors and whatnot, but they manipulate the BLS, they manipulate the CPI numbers. So for me, they can do whatever they want and they’ll make some kind of chart to make it look like we’re not in a recession, even though 90% of America is already in a recession as it is.

Tony Nash

Tavi, what do you think about that?

Tavi Kosta

Well, I think I’m happy to be wrong on the recession call if that means precious metals and other hard assets will do much better because the Fed and other institutions are stimulating the economy just because of elections. That would be good for copper, that would be good for zinc, that would be good for a lot of things.

Albert Marko

100% because they’ll lower the dollar to help the market up. If they lower the dollar, God knows what commodities are going to do.

Tony Nash

Yeah, and I think you guys are kind of saying the same thing. You’re saying you don’t expect a recession in 24 and you’re both saying maybe in twelve months this stuff happens. And I think at least we’re in.

Albert Marko

A different timing issue, whether it’s six months, twelve months, 18 months, that’s all it is because we’re on the same wavelength that commodities are the definite to play here.

Tavi Kosta

The beauty of starting the year, sorry to interrupt, but the beauty of starting the year is that you can see all these calls for 2024. And if you think about that chart, the very first chart that you’re referring to that shows the waves of inflation that I think it’s a critical chart to think about. One of the things that is overwhelmingly the consensus view right now is that inflation is over, that it will decelerate. Just look at the two year yields and what’s been happening with the rate cuts price in, in the markets right now. Most of those things, I think, reflect maybe some sort of recession play as well. But the recession thing, the thing is, the recession thing is from a sentiment standpoint, it’s not as attractive as the inflation reacceleration. The inflation reacceleration to me looks much more of a play because there’s room for that, for people to have that view. Right. It’s 100 people that have the opinion.

Albert Marko

Yeah, completely agree with that. That is much more better of a play than it is to play with recession, which is way more political right now. But the secondary inflation wave absolutely is a great play right now.

Tony Nash

Tracy, what do you see there in the secondary inflation?

Tracy Shuchart

Well, absolutely. I’ve been very vocal over the last month, actually starting in December, late December, that I thought this problem in the Red Sea was going to lead to a bigger disaster than everybody thought that it would. And it’s played out pretty much as I predicted. And I think that right now we’re not seeing these effects in the numbers yet as far as extra fuel consumption, extra insurance rates, extra.

Tracy Shuchart

Let’s not get into too much of Red Sea stuff now. I don’t want to spoil the third, but. So you’re saying Red Sea will be a driver of a secondary wave of inflation?

Tracy Shuchart

Absolutely. And I think that hasn’t shown up at the data yet, but it will a few months down the road. And this could be a very big problem, not only for the election, for the government, but also for central banks.

Tony Nash

Right.

Tavi Kosta

Tracy, can I ask two questions to you, if you don’t mind? Tony? Just I think critical here, and it’s not Red Sea related, but one of them is how much do you think is sustainable, this increase of energy, or should say oil production in the US specifically? And the second question is how much of a war premium is currently priced in, in oil prices today?

Tracy Shuchart

I think.

Tavi Kosta

Two different questions.

Tracy Shuchart

Well, I’ll do the easiest one first. There is no war of premium price in, well, prices right now. Nobody is expecting it. And that’s partly in the fact that we’re not seeing hooties lob missiles at Aramico facilities anymore. And so if that should happen, which I do not think it would happen, that obviously would be driver for oil prices to move higher. So I don’t think that geopolitical risk is factored into the market right now. The market’s pretty, being pretty relaxed about it because really no oil facilities end or no oil production has been hurt at this point, even though we are finally starting to see tankers avoid the Red Sea. But that’s kind of a new development. And then the first question was, what was the first question?

Tavi Kosta

Oil production in the US.

Tracy Shuchart

Absolutely. I think that oil production in the US, I think. Can you cut out that part until I say oil production in the US? Oil production in the US. Let me start over terrible today. And to answer to your first question, I think oil production in the US is set to slow. I think expectations are very high. I think that 2023 came as a surprise to most markets because even though we had declining ducks and we had declining rig counts, oil production continued to move higher. But what we are getting from the. So I think this is a two part thing. I think, one, what we’re getting from these wells is getting gassier and gassier. That means lighter and lighter. That means stock. That is really, you can only use for chemical production, petrochemicals and things of that nature. That’s what kind of, we’re kind of getting out. And what I think that we also saw is that with this wave of consolidation in the industry and we’re seeing all the big majors start to suck up all these smaller companies. What they’re doing is they’re sucking up production. So what we saw is these smaller companies try to produce as much as they can to look as attractive as they can for an acquisition, and as a result, we’re seeing some major big deals over the last year, and it’s expected to continue. That trend is expected to continue within 2024. And so that’s kind of what I mean by all these majors are not expected to grow production. None of them are saying we want to grow production in the US. They’re buying production growth, if that makes sense at all. I think that is part of the reason that oil production continued to rise in 2023, much to most people’s surprises, because we have these smaller companies really trying to produce as much as they possibly could to be attracted to these majors.

Tony Nash

Yeah, I mean, if these guys are disincentivized for doing capital investment, then of course they just have to buy the assets that are already developed. Right? The smaller assets. I mean, it’s a way of backing into it instead of doing it greenfield. As they’ve done in decades before. So in hindsight, it looks natural, but looking forward, it would have been kind of a hard thing to expect that thing.

Tracy Shuchart

Absolutely.

Tony Nash

I think. Okay, great. This has been fantastic, Tavi. I’m going to move on to some geopolitical issues with Albert.

Tony Nash

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Tony Nash

Albert, we saw on Tuesday, we saw that Iran launched some attacks against Pakistan.

Tony Nash

Pakistan retaliated midweek. Earlier in the week, Iran launched attacks against Syria and Iraq. So what’s happening here? Why is Iran suddenly acting so aggressively? And what outcome do they know?

Albert Marko

Honestly, it’s just theatrics, deception more than anything else. I mean, the Iranians didn’t actually attack Pakistan military installations themselves, right? And the Pakistanis also didn’t retaliate versus the IRGC directly themselves. They just threw some lobster missiles back and forth at some proxy militant organizations, nothing more. This is nothing more than hyping up the whole Houthi Red Sea issue to probably drive up oil prices at the be. There’s no threat of expanding regional war with the Pakistanis and the Iranians, which is absolutely absurd since both of them are within the sphere of influence of Moscow.

Tony Nash

And Beijing.

Albert Marko

Yeah, and Beijing to a lesser degree, though. I mean, the Beijing. Beijing is a trade partner, whereas the Soviets actually supply them with defense equipment and whatnot. Right. And advisors. And it’s a different dynamic. I would associate more influence on Moscow than I would in Beijing in this part of the. Yeah, you know, I don’t see much of anything coming of know.

Tony Nash

Zuran is kind of portrayed as kind of this puppet master in the Middle east of the Houthis and know, Syria and other places. Are they really?

Albert Marko

Well, yeah, they are. I mean, they supply arms, weapons, narcotics, trade through multiple areas of the world through the Middle east. And they fund a lot of the proxies and operations out of there. There’s no question that they’re definitely a player. Most of this is just testing the United States’ resolve, the west’s resolve in the region and to, you know, we’re don’t. To show the entire muslim world, hey, we’re know, don’t discount us. We’re not, you know, like I said, as some kind of grand scheme of undermining the entire west.

Tony Nash

I just don’t get it. I just don’t get kind of, especially this week’s tactical movements by Iran. Maybe it’s to prop up the oil price, but. I know this sounds kind of crazy, but would they coordinate that with Pakistan beforehand and say, hey, we’re going to take out these militants on your side and then you can take out these militants on our mean.

Albert Marko

Yeah, of course.

Tony Nash

In the west.

Albert Marko

You think they. Oh, yeah, of course. The IRGC and the ISI, I’m sure they have connections, you know, winking a nod. We’re going to throw missiles over here. Don’t be surprised. Yeah, we’ll respond with missiles over there. Don’t be surprised. Of course you’re going to have that communication. You’re not going to just do something surprise in the middle of the night because that can lead into a serious conflict.

Tony Nash

Okay, so there’s really nothing to see here.

Albert Marko

Not really.

Tony Nash

And we’ll get into the Red Sea in a minute. But that is really backed by Iran. That’s not really backed by Russia, is that.

Albert Marko

I mean, obviously, I’m sure the Russians would have some sort of notice about what’s going on over there, but realistically, it’s the IRGC of Iran that’s pushing the Houthis to do these sort of things. I mean, the Houthis get total funding from them, so they can’t just sit there and do something all willy-nilly without approval.

Tony Nash

Right. Okay, interesting. So that segues perfectly into Tracy’s red Sea segment, and both you guys jump in here as needed. But Tracy, you know, we’ve all seen what’s happening with the Red Sea and the Houthis and the US kind of bomb strikes and all this. You know, crude prices really haven’t budged since mid December. So why we saw European gas prices plummet this week. Why have they not budged? And what would make them spike at this point?

Tracy Shuchart

Well, I think as far, and I’ve been saying this for a week now, weeks now, this is a shipping and insurance issue. So if you were invested in container ships at the start of this, you did really well. They’re starting to back off now, but they spiked this. Oil prices did nothing. Natural gas prices did nothing. Globally, we’re oversupplied on LNG and natural gas. I don’t expect that to subside anytime soon. As far as a long term investment prospect, I think that some of these individual companies are attractive. But as far as actual futures markets, net gas is just not attractive right now. And then if we look at oil prices again, the Houthis aren’t lobbying missiles again at Aramco facilities as they once did. That spiked oil price at $7 in a day. Right. And tankers until the last week or so have been largely unaffected and have been able to traverse the Red Sea with no problem at all. And you have to understand, because Iran has ships traversing the Red Sea in oil products as well, the Saudis are staying out of this for the most part. They’re not getting involved, which means there’s not that tension between the Houthis and Saudis right now and the Emiratis. So there’s not that threat that they’re going to be lobbying this little city. So there’s oil facilities. And so I think that’s why oil has been largely ignoring this right now because there really hasn’t been a direct threat at this point.

Tony Nash

It’s really notable to me that the Saudis and the Emirates have been really quiet on this. I think it’s really fascinating, especially given that the Saudis and the Emirates were involved in Yemen for so long for over a, I mean, there’s a story, because there’s not a story there, there’s just something going on, right.

Tracy Shuchart

No, I agree, absolutely.

Albert Marko

Yeah, this is, this is what we’ve been saying, Tony. Listen, I’ll be the first one to throw up the flags, the red flags, and say, hey, there’s a real conflict happening right now. But I mean, the Saudis just completely dismissed it, right? They don’t want to get involved. The US is going to. I mean, they had to act because of the shipping lanes and whatnot. But nobody else is really taking this seriously. Listen, this was a serious problem. Oil would be at $95 right now without question. And because the market hasn’t moved on it, I don’t think anybody’s taking this seriously.

Tony Nash

Well, you’re not even seeing brentured or Dubai or any of those grades spike up.

Albert Marko

No.

Tony Nash

Nothing consumed in Europe, right?

Albert Marko

Nothing.

Tony Nash

No action in WTI. That’s not a surprise. But you’re not seeing spikes in brentured or any of the Dubai grades or anything like that. I mean, it just doesn’t really make that much sense to me given the geopolitical aspects.

Tracy Shuchart

I feel like. Can I just say, I think there’s.

Tony Nash

Absolutely. Yeah.

Tracy Shuchart

I think there’s probably some backdoor deal where the IRGC, Saudi Arabia, basically they said, you know what, we’re not going to hurt your tankers. Don’t worry about it. Everything’s going to be know. I think there’s some political backdoor deals and why. Perhaps we’ve seen the Saudis and the Emirates kind of quiet about it because I’m sure that there was a lot discussed regarding oil when this first happened and why it’s been mostly container ships again, I said up until this last week.

Tony Nash

Yeah, well, we did see that trip. I think it was the Iranian foreign minister to Riyadh about three or four weeks ago. So is a backdoor deal plausible? Yeah, it’s plausible. It’s definitely something that could be in the works or having been agreed already. Tracy, you mentioned insurers, and we saw insurers adjust Red Sea rates weeks ago, but we’re now seeing exclusions for us and UK vessels. What does that mean? 

Tracy Shuchart

Well, you know, obviously that’s not good. They don’t want to touch us, UK vessels or anything. That’s going to Israel. That’s also going to be a very big problem for Israel, which is massively importing country. They don’t produce much except for some agricultural goods and some NatGas.

Tony Nash

But a lot of software.

Tracy Shuchart

Ans cyber security. That’s going to be a huge problem for Israel as far as getting good to their country. And it’s a very concerning problem for the US and the UK, which keep poking the bear know, I think that it just doesn’t look good. It’s not going to necessarily hurt the US because they can avoid the Red Sea. Merchant ships can avoid the Red Sea. That’s not really a look, it looks bad and it will be a problem for Israel getting goods to their country.

Tony Nash

Sure. Okay. So we’re also seeing air freight companies talking about goods potentially rerouting via air to avoid the Red Sea. And you tweeted about this earlier this week. So is that a real possibility or likelihood or is that just airline CEOs kind of pitching their business?

Tracy Shuchart

Well, this was DHL. There was a DHL thing. And really, I think they were really talking about their container ships. But if I were to speculate, depending on how long this lasts and how much insurance rates go up and how long these and how big these shortages actually get on container shipping rates, I think you’re going to see air cargo do extremely well because you’re going to start diverting what would be on sea onto air eventually. But that, again, we’re not at that point yet, but it’s something to be looking forward to as this kind of drags on. We saw Maersk come out this week and said this is going to be months instead of weeks. And so the longer this drags on, the higher the wait times, the more know, container shortages you’re going to see, which we’re particularly seeing in Asia right now, which is bad news for, you know, I would kind of start looking at air power.

Tony Nash

So this plays really well into Tavi’s chart about the three waves of inflation. Right. So, Tavi, we’ve got geopolitical risk, we have potential supply chain risk and other things. So how do events like this kind of accelerate the kind of worldview that you have around those three waves of inflation?

Tavi Kosta

Well, I think the three waves of inflation is really predicated. Again, it’s figuring out, or at least trying to identify are these forces, there’s always forces in the deflationary and inflationary side, and are they cyclical, structural? I would argue that they are certainly not what we saw in the, what we saw in the 40s. But majority of people, when I show that chart, they immediately say, well, this is not like the 1970s. And when you look back in the, we did see inflation developing through waves. In fact, I just haven’t showed this charts. But if you go to other economies, Germany, France and other Argentina, Turkey, and you look at their inflationary problems, they also develop through waves. And it’s just mathematical how things work. Things get really heat up and then on a year over year basis they decelerate. It doesn’t mean prices necessarily are contracting. They’re just accelerating the growth. And then you bottom at a certain level and you’re starting to see some signs of that. I still think CPI may fall a little more and I think it’s a total lagging indicator. You may see what’s the best way of trading this sort of my view, this overall potential for too much sentiment of further deceleration of inflation, and the problem is over.

Tavi Kosta

Well, it’s the fact that if you look at the commodity price, the equal weight of commodity prices, they’ve been on a range, trading on a range for about 18 months and they haven’t done much right, basically. They also haven’t done really bad either. They’ve been kind of going sideways for a while. And so what do I think it’s going to happen? Yeah, I think we’re going to retest the levels that we saw during that Russia invasion problem and probably going to go much higher than that at some point. And that’s what creates the second wave of inflation. So looking at the housing market is probably a huge factor here. I think there’s a reason why Warren Buffett owns home builders. I don’t blame him. I think there’s a total issue with housing inventories. Sorry, I got a notification on my phone. And I actually think that plays into the long term thesis of the inflation problem. I can’t imagine that building homes are not going to create a demand for commodities overall. The reshoring of economies won’t create demand for that. And this is all long term things that will at some point start driving the prices of those assets.

Tavi Kosta

And so knowing that the fact that the chronic issues in the commodity space have not been solved, I mean, access for capital is still the same situation. Over the last three years, especially in the mining space, things have been as distressed as they can be. Every company we own that is looking for capital now to raise, it’s all these difficulty of finding investors that are savvy enough that want to put capital into this. And so it’s really hard. And how do we build the next mines and the next supply of things in general? Well, we need capital and so all the capital is going into mega caps right now. Those things have to at some point translate into the markets. And I would think that the second wave of inflation could certainly happen this year. And I would say that it’s probably high conviction that we will.

Tony Nash

It’s just interesting to me that this started because of supply chain issues, a lack of supply, and then consumers have been conditioned to these higher rates.

Albert Marko

Well.

Tony Nash

This is higher.

Albert Marko

Well, this is the problem. Right. Tavi is right about pointing out the housing market. Right. It’s a political problem also because they need housing to be affordable and the only way to do that is to lower rates. Well, the moment you lower rates, you’re going to get next secondary inflation and the housing market go berserk. I guarantee you if they cut rates this year like half, like 50 basis points, that you’ll see housing market probably go up 15% to 20% immediately.

Tony Nash

Exactly right.

Tavi Kosta

And by the way, this is an issue I have with having such a bearish view overall, is because housing market is in a way an economy as well. So I’m not that bearish on the housing market personally. If you look back in the see the ratio of house prices versus the s and P, you’re going to find the house prices actually outperformed the s and p quite significantly during that decade. And if you go back to the was also the same thing. And the interesting aspect of this is, again, it’s a hard asset that outperforms a financial asset during an inflationary era. And do I think that could happen today? Yeah, I just don’t think that within the hard assets realm, housing looks very attractive relative to other things. But I wouldn’t bet against it. I think there’s better things to do.

Tony Nash

Interesting. Guys, thank you so much for this. I really appreciate your time. All that you’ve said today and have a great weekend and have a great week ahead. Thank you.

Albert Marko

Thanks, Tony.

Tavi Kosta

Thanks, Tony.

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Welcome to another episode of the Week Ahead! Today, we’ve got a fantastic lineup with Mike Green, Tracy Shuchart, and Albert Marko getting into some of these hot topics.

🚀 Bitcoin ETFs, Inflation, and Labor Data with Mike.

Mike breaks down the recent approval of spot Bitcoin ETFs, the surge in Bitcoin prices, and contrasting views from Cathie Wood and Vanguard. We’ll discuss how these ETFs could shake up the crypto landscape.

Plus, Mike shares insights on inflation and wage growth, exploring whether inflation might take an unexpected turn this year. And of course, we’ll touch on the intricacies of US jobs data and the impact of flawed birth/death adjustments.

🛠️ Industrial Metals and Junior Miners with Tracy.

Tracy explores the recent rally and subsequent dip in prices, keeping an eye on the copper futures and the Sprott Junior Copper Miners ETF. Tracy breaks down the factors influencing these markets and what to watch out for in the near future.

💼 The Yellen Factor with Albert.

Albert discusses the Yellen factor as he explores recent developments, such as the potential end of negative rates in Japan and Lagarde’s stance on the ECB. Albert raises a thought-provoking question: Are the BOJ and ECB statements influencing the Fed’s dovishness? We’ll unpack the global economic chessboard and how it might impact the USD.

Transcript

Tony Nash

Hi everyone and welcome to Week Ahead. I’m Tony Nash. Today we’re joined by Mike Green, Tracy Shuchart and Albert Marko. We’ve got some key themes today, of course. Late this week we saw the US fire submissive of Yemen over the Red Sea issues. We’re going to jump into that a little bit in Tracy’s section on industrial metals, and we’ll talk a little bit about crude, a little bit about shipping, that sort of thing. But we’re going to first cover bitcoin ETFs, inflation, labor data with Mike. Mike covers everything. So we want to kind of jam a lot in there. With Tracy, we want to talk about industrial metals and some of the junior miners, which she’s been paying attention to. And with Albert, we want to talk about central banks and really the influence of Yellen on some of these, on, obviously the Fed and some of these other central banks.

Tony Nash

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Tony Nash

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Tony Nash

So, guys, exciting evening. There’s stuff going on in the Middle East. It seems like the punchline always ends. Earlier this week, we saw a lot about the bitcoin ETF and the approval of that. First the non approval of it, and then the approval of it. Mike, you and I first spoke about bitcoin, I think, a couple of years ago when the PLA in China was the largest miner of bitcoin. Of course, bitcoin is up, what, 75% since October, which is totally normal for an asset. Right.

Tony Nash

We have Cathie Wood saying that the base case for bitcoin is $600,000. We have vanguard and a bunch of other firms saying they won’t allow crypto ETFs on their platform. So what happens with this? Even with a spot bitcoin ETF, does it still stay this kind of fringy, exciting, volatile asset, or does it really come into being kind of a normative type of asset that people invest in? I’m not pro or anti bitcoin here. I’m just trying to really understand what’s the implication of this bitcoin ETF?

Mike Green

Well, I think what the bitcoin ETF does is exactly what the bitcoin proponents highlight is that it makes it available to more individuals at lower effort. So those who are very interested in owning bitcoin would have made the effort to put themselves onto coinbase or onto alternative exchanges to obtain it, or they would have mined it. Now, suddenly, it’s easily available in an ETF framework, right? It’s not dissimilar. A lot of people have compared it to the introduction of the GLD ETF that made gold easily available for many retail investors relative to going to a coin store and buying physical gold, or arranging for wholesale delivery in some way, shape or form, or buying miners. Right.

Mike Green

And so one of the things that we’ve already started to see is a derating of many of the proxies for bitcoin. Things like the miners, things like MicroStrategy, et cetera, have derated fairly sharply in the immediate lead up to this, even as they benefited from the appreciation of bitcoin. By the way, I think the bitcoin appreciation is more than you’re actually highlighting.

Mike Green

That underlying dynamic I think is likely to play out here as well, where if you were buying through a proxy, this now allows you to buy, theoretically direct access to bitcoin. I personally think that this is going to be more of a sell the news type framework. That certainly seems to be what’s playing out. And so it’s adverse for both things like Coinbase and MicroStrategy, as well as bitcoin itself. Candidly. People purchase in advance of an event that’s as easily available and well known as this. I gotta be honest with you. I don’t know that there’s going to be that much dramatic volume that actually transits over to bitcoin. As much enthusiasm as we see on Twitter, et cetera, for bitcoin at this point, the Google search volumes the interest in it. The actual utility of bitcoin has fallen and not substantively changed in any meaningful way over the last couple of years. And so I just kind of see this as a nothing burger. I had a joke where I was going to pull up the scene from Jerry Maguire where Cuba Gooding Jr. Says, you know, people can have the coin, but they can’t have the Quan.

Mike Green

I think bitcoin has lost the Quan. I don’t think anyone really cares or really believes that this is the future of finance.

Tony Nash

And something I was saying earlier this week is, I don’t understand. If there’s such inherent value in bitcoin, immutable inherent value, then why is everyone pumping it up pre the ETF? I just feel like there’s this expectation that because it’s an ETF, it’s going to multiple x. But if the inherent value is already there, why aren’t we already close to the inherent value?

Mike Green

Well, when you talk about the inherent value, I mean, again, it, beyond the question of what is intrinsic or inherent value actually mean.

Tony Nash

It has the intrinsic value of a cell in my excel workbook, is what I believe.

Mike Green

Yeah, that’s basically what it is. I mean, look, bitcoin itself is the token that is released as payment to the accountants on the blockchain. Bitcoin. Blockchain. That’s it. That’s all it is.

Mike Green

And everything else we’re engaged in is secondary trading of those tokens. Now, at some point, under a proof of stake type framework, people might actually value those bitcoins as a mechanism for providing collateral to prove transactions or to underwrite transactions. But that’s not the current configuration, right? I mean, that’s what’s happening in staking or other components, but that’s not what is actually happening in the bitcoin network itself. And so we’re now ten plus years in. And in contrast to something like AI that I use on a daily basis now.

Mike Green

Other than speculative trading, I still am not at all sure what anyone thinks we’re getting out of bitcoin.

Tony Nash

Yeah, it’s not a currency. I mean, we’ve talked about this before. It’s an asset. It’s not a currency. Right?

Mike Green

It is a speculative asset that, in my opinion, remains largely inflated on the basis of a flawed underlying belief system.

Tony Nash

But I think you just don’t get it, Mike.

Mike Green

Yeah, that’s it. No, well, I haven’t done the work.

Tony Nash

And you don’t get it.

Mike Green

And I’ve accepted that I’m not going to make it. So I’m just not sure what else can be thrown at me.

Tony Nash

Right? Not going to make it. Albert, jump in.

Albert Marko

Mean, I don’t even know if I want to jump in here. I’m happy for Mike to take all the blowback that’s coming from all the crypto guys because I’ve taken heat for it for years saying that things are speculative asset and not a reserve currency and all that other Ponzi nonsense that gets spouted out there. And I think Mike is absolutely correct. This is a sell the event type thing. I mean, most likely helping those big clients that hold crypto for exit event.

Mike Green

Absolutely.

Albert Marko

Yeah. But then the whole bitcoin appreciation to $1 million, like Cathie Wood is spouting out there is a belief system like who’s the next bag holder? And having an ETF takes that away completely for these people. So this is know, I can’t really add on to what Mike said. He’s spot on.

Tony Nash

Right. And until bitcoin has a global military presence, it’s really not easy to enforce.

Albert Marko

Yeah, but we can make a joke like that. But that’s actually accurate. And on top of that, bitcoin doesn’t even do anything. It needs government systems to transact, whether it’s the Internet, financial institutions, so on and so forth. So it’s not its own entity that’s living outside of the central system. It doesn’t do that.

Tony Nash

Okay, good. So again, people who are going to hate what we said about bitcoin, we’ll take it on. We’re not going to make it. We’ve already accepted that. As Mike said.

Mike Green

How can you take. Seriously anything coming from a guy who’s drinking coffee, from a little mug that has a little birdie on the handle? Come on.

Tony Nash

That’s right. Exactly. Okay, very good. Next, I want to hear a little bit about your inflation outlook, Mike. So earlier this week, you said that demand configuration for the US is not supportive of higher inflation and that wage growth presents headwinds for inflation. So do you think inflation stalls out and potentially goes negative for a short period this year? You had this great Brookings graph you sent out. So what’s your thinking? And kind of, I guess also in terms of maybe the timing, where do we hit that point where the headwinds are strongest against inflation in 24?

Mike Green

Well, so there’s a number of things that are going on in terms of the lagged components in the inflation dynamics. Right.

Mike Green

So many people have correctly highlighted the dramatic increases in insurance rates, for example, which are now basically driving all of the increase in transportation services, for example. Those are a distinctly lagged component that’s tied to the dramatically higher costs of vehicles and tied to the higher cost of parts and service.

Mike Green

So if I total my car or if I crash my car, the insurance company has to replace it with an equivalent vehicle. If the price of those vehicles is dramatically higher, guess what? The insurance policy is going to have to increase because the frequency of accidents hasn’t changed.

Mike Green

If anything, it’s increased as Americans have become nuttier and nuttier over the past few years. And candidly, watching my own Gen Z children drive, I’m terrified for the future of the roads and eagerly awaiting the self driving vehicles. So you’re looking at a situation in which what’s happening today in many of these categories reflects asset price changes that happened last year. And as I look forward to next year, what’s the rationale other than an extreme expression of market power, which candidly is likely to be reversed by a variety of regulatory decisions that basically put pressure on the insurance agencies for doing stuff that’s very distinctly unpopular right now.

Mike Green

And I’m not arguing that’s good, but I’m just acknowledging that that’s highly probable. You’re actually looking at a situation where what’s going to cause it to increase by a similar magnitude next year? I can’t really identify why that would happen.

Mike Green

In housing, we’re seeing similar components again. The frequency of burning your home down has not changed to any meaningful degree at the same price that the cost of replacing that home has gone up dramatically. We’ve also seen dynamics of concentration, et cetera, some market power components, but it becomes very hard to imagine that we’re going to see anything that looks remotely like what we saw in the past twelve months, in the next twelve months. And so all of those create headwinds. And the thing that I’m talking about in terms of the configuration for inflation is, remember, when a supply chain disruption occurs, you basically need to recover an element of the lost production, right. If I choose to not replace my car because it’s expensive, I will ultimately have to replace that car. I just want to be very clear. I’m not going to replace it one and a half times to make up for that lost component. I’ve just used my old car, or I’ve figured out how to borrow somebody else’s car over that time period. But there is an element of catching up that ultimately has to happen. The configuration I’m referring to is if you have very rapid population or labor force growth, what that means is that demand is going to rise in the interim period, right?

Mike Green

So not only are you going to have that catch up, but you’re going to have to match that next part. And that’s what was really unique in the 1970s, was every time you encountered a supply disruption, supply would fall 5%. Demand in terms of the number of people was rising in the neighborhood of three to percent five, which meant that you had to make up 10% as much production in order to just get back to the base case. And that is a very different configuration that we have today, where the population is really not growing at all. In particular, the high consumption labor force components are just not growing in any meaningful fashion. And so the headwinds are dramatically less than people are used to thinking about in terms of the dynamics of inflation. So the flip side, the counter to my argument at this point, is many of the cyclical components, things like oil, et cetera, have been under distinct pressure. Those will likely emerge. There certainly will be times over the course of the year, particularly if we’re engaged in combat with Houthi’s and the Red Sea, et cetera. As Tracy has pointed out in our pre conversation, this is going to slow the transit of oil.

Mike Green

It means that more oil needs to be in inventory, which means all else equal, we need more production, et cetera. But those, while they certainly can be a temporary influence, once you start making it around the horn or start making it around the cape instead of going through the Red Sea, once you solve that once, once that inventory is out there and there’s no shortage of OPEC production capability, as you’re well aware, you’ve resolved the problem.

Mike Green

It just doesn’t work in quite the same way. And yes, I know that there’s slightly more use of oil tankers this year, longer in transit, et cetera, but we solve supply problems very easily unless demand is taking off, and we just don’t see any signs that demand is taking off in any meaningful way.

Tony Nash

Right. Okay. So there are two components. One is the good side, which you’ve talked about with crude and manufacturing, and demand kind of more people in the workforce or whatever. I think the other side is the services side. And that seems to be moderating.

Tony Nash

That’s what you’re saying with the wages.

Mike Green

Well, you’re seeing them moderate on two fronts.

Mike Green

So one is that the unemployment rates for the least skilled in our society are beginning to rise as immigration has picked up dramatically and those jobs are increasingly, there’s increasing competition for those jobs. That’s an important component to it. The second is when you have this type of extreme move in services, you actually start something, or shortages in labor, you start something in motion that you can’t stop once it started. And the only other time, I just want to emphasize the only other time we saw a contraction in services employment. And the ISM services employment is a warning sign, in my opinion. When you see a contraction in services employment, that’s a really bad thing because that has been the underlying growth engine of the US economy for the past 70, 80 years, has been the continued share gain of services in the economy. But people forget that that’s coming off of an extremely high level of what we would call marketable activity beforehand.

Mike Green

So we talk about GDP and we think about the sale of washing machines. Well, what did we have before the sale of washing machines? We had services called washer women that would go around and do your laundry for you. What were the 1920s and 1930s all about? They were actually about the introduction of electricity and automation into the home, where many of those services that had been outsourced to low end workers were suddenly productized. And we’re seeing this same underlying dynamic.

Mike Green

How many people, I don’t know if anyone on this call has a robotic vacuum, but that’s a big innovation along the lines of something like a dishwasher.

Mike Green

They’re now incorporating mopping capabilities, et cetera. Our alarm systems are increasingly not installed by ADP or ADT. I’m sorry. You order them from Amazon and you plug them in. Right. All of these services that we have traditionally thought of as being recession resistant suddenly being replaced by products. I actually think this is a really underappreciated and important feature of the current environment.

Tony Nash

I think you’re exactly right.

Mike Green

Same thing, by the way. Walk through a McDonald’s. I mean, go to a McDonald’s, don’t eat the food, but go to a McDonald’s.

Mike Green

And actually look at the difference versus where it used to be.

Mike Green

You now go to a kiosk. You don’t even have to interact with a human being. The labor content in the kitchen, the franchises are gaining versus the local diner because there’s a shortage of workers. There’s been a relative shortage of workers that’s encouraged McDonald’s and Burger King and others to engage in labor saving devices that they can take advantage of but are very hard at this point for the local diner to take advantage of. That’s led to share gain. It’s led to relative price improvement for them versus others. And as those things filter through society, it’s no different than replacing the washer woman with the washing machine. It’s no different than replacing the 37 piece orchestra with a victrola. Right. It’s no different than the radio or the television introducing dramatically more forms of entertainment. But that can be broadcast to everybody else. These innovations roll out very quickly once they hit that threshold and the one that, candidly, everyone’s kind of poo pooing it now, but it’s getting closer and closer. Are things like self driving vehicles?

Tony Nash

Oh, yeah, that’ll be amazing once it happens. I mean, I want everyone else to go first, but viable, I think it’ll be incredible. So I hear what you’re saying on the services low end, and I think that’s fascinating in terms of a lot of those low end services workers. I do keep hearing about how, say, retail stores who’ve done self checkout, some of them are going back and not doing self checkout. That seems like a process that needs some calibration rather than a fundamental kind of reversion back to using people. I just don’t know. But I also think about, and I know this has been talked about for a year now, but when I was with larger research firms and I had to hire an entry level master’s educated, say, analyst, and I’d pay them 70 plus thousand dollars a year, most of that stuff can be done through a $20 subscription for some sort of AI platform now, right? And so it’s the low end, say, customer services jobs. It’s also, I think, a lot of the low end white collar jobs that are being innovated. Are they ready to be fully innovated and fully automated right now?

Tony Nash

Probably not. But we’re at this point, as you mentioned, where that stuff is plausible now. And it wasn’t just two or three years ago, is that right?

Mike Green

Yeah, I think that’s right. I think that’s absolutely correct. And I think, again, this is the inevitable march of technology. Once you create this type of impulse, nobody wants to change unless they’re forced to. Right?

Mike Green

And when you encounter the type of disruption that we’ve actually encouraged, it forces people to rethink business models, it forces them to redesign kitchens, it forces them to make choices that are accommodative for a shortage of labor. And they don’t reverse that when the shortage of labor reverses.

Mike Green

You don’t turn around and you’re like, oh, you know what? A very real example. The push for the invention of the horseless carriage in the 1870s. It led to the prizes to Carl Benz and others for the creation of horseless carriages was created by the great episodic plague that led to roughly a third of the horses worldwide dropping dead in the streets.

Mike Green

When you have that type of event and you end up replacing the horses that are in shortage or creating the technology to replace it, it’s not like suddenly people sat there in 1910 and like, oh, my gosh, look at all the horses around, right? We really should go back to those things, right? Let’s stop using cars and trucks and let’s go do lots of horses. I’m sure people are tempted to do that, but I have yet to see people saddled cowboys on the highways with me. I think people just forget this stuff once it happens, once it’s been sold. It applies to human labor as well as commodities. The cure for high prices is high prices.

Tony Nash

Yep, that’s right. Okay, let’s move on to jobs data and NFP and labor data. And I know this isn’t a new topic for you, Mike, you’ve been talking about it for years, but obviously NFP gets a huge amount of attention every month when it comes out. I’ve got a tweet from 2023, but I’ve seen them from you from 2020 and before commenting on, say, the accuracy or misrepresentation of things like birth death adjustments within unemployment data. Can you talk us through that? Kind of on a little bit of a novice level so that people can understand, because we’re hearing about jobs data.

Tony Nash

We’ve heard about it for the last two years about how things are amazing. And this isn’t a partisan thing because it happened before this administration, but can you talk us through that and how it impacts, say, the unemployment rate and the number of, say, new jobs created, that sort of thing?

Tony Nash

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Mike Green

Sure. So what you’re referring to is what’s called the birth death adjustment. This is an attempt by the BLS that was introduced originally, I believe, in 2000 and then reconstituted in 2012 and again in 2020. That attempts to model the new business formations that lead to employment but would not necessarily be captured by survey methodology.

Mike Green

It’s hard enough for most of us to figure out who startups are, add on a layer of government bureaucracy. There’s absolutely no chance they’re going to figure out who they are. So they make an assumption that there’s a certain pace of new business formations that’s occurring.

Mike Green

There’s all sorts of adjustments that are made. And I encourage people to just be very careful in the treatment of the data. The birth death adjustments are non seasonally adjusted. They need to be applied to the non seasonally adjusted numbers. And even when you do that, it’s not really quite as simple as everybody thinks because every month has its own unique characteristics to it. But you can be pretty safe by looking at something like the trailing twelve month contributions to the birth death adjustment. The second thing that’s really important is to remember that the birth death adjustment, this modeling of new businesses, by definition, doesn’t apply to government jobs, right. Because there are new, new governments being founded. I’m unaware of a 51st state. Puerto Rico is trying to avoid it, but there are no new governments in process. Right? So there is no element of birth death associated with it. And so all of these assumptions are tied to the private sector. And so what we’ve actually seen is we’ve seen a dramatic slowdown in hiring from the private sector. We’ve seen a dramatic decrease in new jobs coming from the private sector, with most of the jobs now coming from public or things tied to, like, medical care.

Mike Green

And as a result, it just gets crazier and crazier to be modeling that there’s a constant and continuing increase of new businesses that are happening in the private sector. And this methodology does a terrible job. I actually will just share the chart according to the BLS, right, this is the source of private sector jobs. This is the private sector payrolls numbers x birth death. This is the trailing twelve month net birth death adjustment, which gets rid of the seasonality, as you can see. And one of the features is, post Covid, we supposedly entered into a new era of entrepreneurship, et cetera. But those jobs are now accounting. Those quote unquote, made up, assumed jobs are now accounting for more than half of the private sector job creation.

Tony Nash

Everyone’s side gig while they’re working from home.

Mike Green

Yeah. And there’s also that second component you do have to be somewhat careful of, which is as an economy weakens and people face deteriorating finances in their household, they seek out a second job. And so we’ve also seen a surge in jobs that are secondary jobs, even for those with full time employment, as they effectively attempt to tap into what remains a robust labor market and improve their individual situation.

Mike Green

But as they do that, they increase the supply of labor that’s available, they begin to pressure wages. And that’s really what we’re seeing is that real wages, for all the hoopla about the fact that they turned positive, congratulations really, that’s more tied to falling inflation numbers than anything else. We’re actually seeing nominal wage gains deteriorate fairly significantly, and we’re seeing real wages on an effective basis, adjusting for reduced hours and everything else. Those are basically totally flat.

Mike Green

So there is no growth, there is no growth in employment outside of some government jobs. There is no growth in wages. And that’s stagnation. That’s creating an economy that’s heading into a recession. And I don’t think it’s a coincidence. Obviously, this is a relatively short data series, but when you see this crossover, when you see this slow moving, effectively fixed component become the majority of jobs, they’re not really happening is kind of the easiest way to put it. And I think this is a big chunk of the revisions that we’re seeing, et cetera. We also just saw the household survey, and this is actually important. The household survey just saw a dramatic change, a decrease in full time employment and jobs overall that’s tied to population adjustments. It’s not like the survey suddenly went out and like, oh, look at all these people lost their jobs in December. People tend to underappreciate that. But what that actually is, is confirmation of my concern around these components, because when you restate the household numbers or you do the household numbers, they’re not restated in the same way. The revisions are done for the NFP. It basically is just telling us that the employment gains for 2023 were largely fictitious.

Tony Nash

Okay, yeah, let’s dig into that a little bit.

Tony Nash

We have seen for the last, what, six months? Or is it the last twelve months, the previous prints revised down always. And the way it feels to me is that they’re continuing to shuffle forward, say, 20 to 30,000 jobs. They take it from the past, put it in the future, take it from the past, or take it from the past, put it in the current, take it from the past, put it in the current, and it’s this statistical shell game of moving things forward and then adjusting it down later on. Whether that’s intentional or not, that’s really the way it appears. So why is that happening? If your model doesn’t adjust after a while, you have to figure out what’s wrong with your model, right, rather than just keep continuing to move these things. So what’s going on there? I mean, honestly, to me it appears very manipulative.

Mike Green

First of all, I don’t think it’s actually, and Albert could probably comment on this as well, but I don’t actually think it’s intentional. I don’t think that there’s green eye shade accountants in the BLS who are like, boy, I’m really looking to pump up the numbers for Joseph Biden.

Mike Green

The methodology is really critical here. So the non farm payrolls is an establishment survey where effectively a form is filled out, submitted electronically by businesses saying, we created x number of jobs.

Mike Green

The response rates to that survey have plummeted. They’ve fallen from about 70% pre Covid to today. They’re running in the 30% range. Part of that’s work from home. Part of that’s the fact that people just don’t care as much. Part of that is that there’s no penalty associated with it, so why would I bother? Et cetera, et cetera, et cetera.

Mike Green

When you fail to respond to that survey, the assumption methodology is that those who fail to respond to the survey expanded in the same way that those who responded to the survey.

Mike Green

So you’re effectively taking what had been a 70% response rate and forecasting 30% to get to that 100%. Today we’re taking 30%. And assuming that everybody else is there, that naturally leads to overstatements, because I’ll just be really straightforward. Who’s more likely to respond to a survey? Somebody whose business is going well or somebody whose business is imploding? And so when you talk about the change in the model, the irony is all of these models use what’s called an ARIMA methodology, which is an autoregressive.

Tony Nash

Just a moving average.

Mike Green

Correct. It’s a rolling regression, to be very precise.

Mike Green

And that’s the equivalent of you are driving your car in a straightaway and you see the turn up ahead, you have to start adjusting for it in advance. But if you’re only using your rear view mirror and incorporating the data as it comes, you’re going to be eternally late for that time.

Tony Nash

All they use is Arima. Like, I had no idea it was that simple.

Mike Green

It’s really that simple.

Tony Nash

Oh, my. So. And for people who don’t follow Mike, I’m sure everyone does. But Mike is very good at pulling out and explaining methodologies. So I’m a nerd about methodologies. I’m less vocal about it because it’s really hard to explain. Mike is very good at understanding these methodologies and explaining them in very understandable ways. So if you’re using government data prints, and I know a lot of government data prints are kind of trade the news, but you have to understand the methodology, and you have to understand the issues associated with those methodologies, I trust very few government data prints. Unemployment, retail sales, consumer spending. These are the worst data prints globally. GDP, of course, the worst data prints globally. But if you are not following Mike, look back on his historical tweets. He’s excellent at explaining the methodological issues associated with government data, especially in the US.

Mike Green

Yeah, well, I think that’s. First, you emphasize the right part, especially in the US. The second component is that because I’m not a natural mathematician, it’s important for me to really dig into these things and make sure that I can actually understand what the hell is going on. I think this is one of the challenges. People who are naturally gifted at math, they’ll look at a series like, oh, of course, right. But they often don’t then lead themselves to the question of, well, what does this imply and how does this model differ from the real world?

Mike Green

The model becomes the territory as compared to the actual physical territory becoming it. And candidly, just, I think being old, one of the primary skills that you bring, you can no longer bring computational intensity and speed. You can basically just bring a. Yeah, no, that’s wrong. Right. That can’t possibly fit the data sets that we’re seeing properly. And it would be exactly like an ARIMA methodology, as you’re going into a turn at high speed.

Mike Green

You know, and you have to adjust, and the ARIMA is telling you it’s basically a straight road.

Tony Nash

Right.

Mike Green

No, it’s not. I’m looking at it. Right.

Mike Green

But the second thing that becomes really interesting, though, is that a lot of the tools that we use for leading indicators, things like what the stock market is doing or what the credit market spread, the credit spreads are doing, those themselves have actually been turned into lagging methodology by virtue of the way we choose to invest in them now. So it used to be that you’d have a legion of individual investors or portfolio managers that were directing most of the assets on a discretionary basis. They’d see the data sets begin to change, they’d see things begin to slow, they’d begin to rotate their portfolios into higher cash allowances and into safety.

Mike Green

That became the dominant feature in the market. And as that was occurring, as thoughtful application of those principles was being applied, the stock market was a leading indicator. Today, the dominant flows into stock markets are simply passive allocations from 401K plans. So if you have a job, which is a lagging indicator, you are investing 100% of your normal proceeds into the market, unless you’re in the very rare minority of people who are changing your allocations. And that, in turn means that the stock market has now actually turned into a lagging tool. And as a narrative species, we still haven’t made that adjustment.

Mike Green

So we keep saying, well, what is the market pricing in the market’s pricing? Nothing in it has no idea what you’re talking about. There’s nobody at vanguard paying attention to the apple earnings call. There’s nobody, you know, doing any of this stuff anymore. And candidly, the rest of us have become increasingly nihilistic and throwing up our hands. We’re like, none of it makes any sense. Well, that’s because we’re thinking about it as lagging as compared to an increasingly mechanical tool that reflects the flows that are occurring tied to lagging indicators as compared to leading indicators. This is a super challenging and interesting time period, particularly in developed markets. We’re used to thinking about China data as being garbage, but it’s unusual to think about us data as being garbage. And when it comes out, and this is the last thing I would just say on this, Tony, is your suspicion of the like, it’s an unintended consequence of over indexing on the wrong.

Tony Nash

I want to go into that for a little bit, and I wasn’t planning to talk about this, but when I was working in China, I was talking to one of the data scientists from Baidu, and he told me that they have a better idea of daily GDP readings than the Chinese government does, than the BLS does. And they were considering developing something around like a daily economic activity reading. So I just don’t understand where we have say, I’m going to hate to do this, but Google or all the people who have all of this data, we could actually have a compilation of daily activity that doesn’t take a bunch of government statisticians. This just comes up kind of automatically segmented. Albert, you’re saying, no.

Albert Marko

No, you can do it, but they don’t want it.

Tony Nash

No, they don’t.

Albert Marko

Why would they want sort of transparency like that when they can use the BLS and coal adjustments and anything else to rally the markets or make growth look like it’s positive? I think Steiner from hedge eye went through how the federal and state government single handedly turbocharged the economy in Q1 last year through cola adjustments and other nonsense like the BLS, like Mike was talking about, accounted for 80% of the growth with Yellen and the treasury being 40% of it, and the reality that growth has been negative 20 last year, and we can go through all these government statistics like Mike was talking about. And start shredding them apart. But the reality is, perception is reality with the markets and these algos and, yeah, these algos and traders are just going to take whatever face value number is thrown at them and they’re going to trade it. That’s just the reality of it. No one cares about revisions. Nobody.

Tony Nash

Right. And this is the thing that I’ll just kind of, as a side note, say all the stuff that you’re hearing about company implementation generally of things like AI and machine learning, is just reactive to some of these headline numbers. And a lot of what you’re hearing about, say, enterprises deploying AI, as Mike said with the BLS, they’re ARIMA algorithms, which is just simply a moving average. So very few of these companies you hear about kind of deploying AI are actually deploying real machine learning algorithms. They’re deploying things like ARIMA to decide what their business is going to do. And you can do that in excel. Right now, before we get off of this really bad data, want to. You are notorious for talking about API data. So can you talk to us a little bit about. Because when we talk about, say, market data, that’s market clearing data, right? When we talk about government data, that’s statistically driven fiction. But when we talk about things like API data, that’s supposed to be kind of supply and utilization data. So how is that kind of stuff developed?

Tracy Shuchart

Well, I think, well, API, first of all, if you look at API versus EIA, which is the American Petroleum Institute, which is a private entity, compared to EIA, which is obviously government, if you look at the API data, the thing with that data, that why it’s kind of hit or miss is because it’s not mandatory. So it’s just voluntary reporting to a trade union. That’s it. And so if you don’t have time to report that week, you don’t have time to report that week.

Tony Nash

Okay?

Tracy Shuchart

So that’s where you kind of sometimes get hit or miss. I mean, most people do report to it, but again, it’s not mandatory. That said, it is mandatory to report to EIA. But I’ve been talking about this since, about, since 2020, we’ve seen a huge deterioration in the data because of some of the metrics that they have changed. Right. They had this adjustment and they kept kind of, which is literally a fudge factor. This is how much we plus or minus think we’re off this week because of the increasing amount of NGLs that these wells are producing. And so that number has, and then that number has been wild. Because they really can’t keep track of it. So that fluctuation week to week really is too much of a fudge. Like it shouldn’t be 1015 million barrels a week. And then they just changed the definition again. They fudged it a little bit again in September. And then we’ve seen their demand data has been off by the time they get to their monthly reports. So, guys, I would tell you it’s two months lagging, but the 914 monthly reports are much better as far as data is concerned.

Tony Nash

Okay, so a lot of this has to do with whether it’s the establishment data on labor or whether it’s EIA or whatever has to do with response rates, right? So we’re using, say, survey based methodologies that haven’t changed in, say, 2030 years and expecting that to reflect the market today. So again, as people who watch this use government data, use industry association data, other things that are not market clearing, they have to be aware that there are huge flaws in those data sets and in those responses. Now, Tracy, when you said that EIA changed their methodology, do they then do retroactive changes on the previous data sets?

Tracy Shuchart

No.

Tony Nash

Of course. Mean on some level that makes sense. So, Mike, you were about to add.

Mike Green

I mean, I guess I would just say a couple of things, right? When we say that the data is fiction or flawed, it’s a best attempt, but we tend to forget we look at things like averages. You mentioned a moving average, et cetera, and we don’t adjust those for the standard deviations around that.

Mike Green

So one of the things you’re seeing all over the place is discussions of the presidential cycle and all these components. The reality is that the variance or the variability of outcomes dwarfs the averages.

Mike Green

I can say yes. In Democrat third year or fourth year election years, there’s been outperformance over prior years in terms of the history. But remember, you’ve only got a few of those observations over any meaningful period. When people start saying things like in the data set since 1950. Well, there’s just not that many election years where Democrats were in charge. You just get this incredibly small n, right, which is number of observations, which tells you that the data sets are basically just designed. Like, what people are trying to do is grab your attention with interesting factoids that have no statistical relevance whatsoever. And then we get upset when the data reverses, like, oh, it was manipulated, or it’s just, I’m sorry, that just doesn’t actually mean anything. We’re over indexing on stuff that has no statistical validity.

Tony Nash

Exactly. Okay, let’s move on to looking at some industrial metals. Tracy, I want to talk to you a little bit about industrial metals and what’s happening, but first, I want to have a very quick conversation about what’s happening in Yemen right now, what’s happening in terms of impact on crude price and impact on shipping. So can we cover that real quick? We saw crude prices spike overnight. What do you expect to happen in the short term with crude prices?

Tracy Shuchart

I think that this has definitely put a near term floor under it, but we have to see how the next days and weeks sort of play themselves out. But for now, it’s kind of put a floor underneath it. We haven’t, certainly didn’t see oil prices spike as much as they did. Say when Russia invaded Ukraine. I think we were up like $7 on the day. We were up $3 earlier. We’ve come back down a little bit, so certainly we’re not getting that kind of a reaction, but I think that this is going to keep at least oil prices elevated. Now, the news that did come out this morning, I think that is more interesting is that by and large, mostly tankers have been transiting the Suez and the Red Sea, and it’s mostly been the container shipping market that has been avoiding it. The big MaRisk and all the big players as far as that’s concerned. But we had INTERTANKO, which represents 70% of the world’s oil and gas tankers, has told its members, know for the first time, warn its members that they should stay out of the Red Sea. Now, of course, it’s just a warning, right now.

Tracy Shuchart

It’s not, this is what you must do, but it certainly would make a difference if we started seeing these tankers. By and large, in the amounts that we’re seeing these container ships start rerouting, that will add a whole new dynamic, as in extra fuel consumption, things of that nature that might spook the markets a little bit. And I think that’s part of the reason we’re seeing elevated prices today, not only because of the attack, but because now tankers are being told, we don’t really think you should transit this area. Right. I think that’s probably the bigger news. And again, we’re going to have to see how this all plays out. But keep your eye on the taker market. Certainly even more ships having to go around the cape, adding ten to 30 days, depending on your export hub origination, is going to matter as far as extra fuel consumption.

Tony Nash

Interesting.

Albert Marko

Yeah, but the extra fuel consumption is actually equal to the Suez Canal toll so there’s not really a cost difference, it’s just a timing. And so that’s what I’d have to add to that.

Tony Nash

And so that’s mostly fuel for Europe. Right.

Tony Nash

So could we see a midwinter spike in energy prices in Europe?

Tracy Shuchart

Well, I think the seasonality really starts about mid February anyway, as maintenance season starts. And that’s generally just this seasonal kind of trend in oil. I wouldn’t count on it since 2020 and oil prices went negative and with COVID and the world economy shut down. So seasonality hasn’t been as regular as it has been in the past. But that is kind of when seasonality does.

Albert Marko

There’s also, Tony, there’s plenty of Russian oil floating around Turkey.

Tony Nash

Yeah, there is.

Albert Marko

The Dutch can buy as much as they want.

Tony Nash

Good, good. That’s good to know. Okay, let’s move on to industrial. You know, with rate expectations in the US moderating, we saw industrial metal prices and junior miner valuations begin to rally. I’ve got a chart of copper futures and the Sprott Junior Copper Miners ETF on screen, but we’ve really seen them start to fall off coming into January. Now, of course, today they’re up a little bit, but not as much as, say, crude. When you look at things like industrial metals, what are you looking at right now and how do you look at, say, the junior miners differently than you look at the raw metals prices themselves?

Tracy Shuchart

Well, I think really when we’re talking about industrial metals, to me it’s really an h two story of this year rather than h one. I think it’s going to be a little touch and go here because I personally don’t think that they are going to cut rates in March. Right. And I think that would be probably second half of the year. I could totally be wrong on that, but I just don’t really see that happening. I think the market is getting too ahead of themselves. But generally when you see rate cuts, that’s generally better for metals and for metal miners because their projects become a little bit more affordable. You have to understand these miners borrow a lot of money to get these projects off the ground. There’s a lot of financing. There’s also cost of carry, storage, things of that nature for the middleman when you’re talking in commodity markets. So that’s a very rate sensitive environment when you’re looking at borrowing costs that are so large. And so when you start cutting rates, I think that’s going to ease a little bit of that burden and of their bottom line. Also, we likely see USD to come off a little bit that’s always supportive or tends to be supportive of metals.

Tracy Shuchart

And so I think that’s more of an h two story. That said, if we look at something like copper, I’m very bullish on copper. I think that because of the renewable energy push, because of the mining supply disruptions that are going on right now and not coming back, and because of the deficits in the market supply demand deficits, I think as soon as we see rates come down and the dollar back off a little bit, I think that will be very supportive.

Tony Nash

Okay, now how much of your bullish, say, copper story is dependent on demand in 24? Because if we look at Mike’s jobs chart and the indication that a recession is on the way, how much of that is dependent on that innate demand factor versus, say, the EV growth factor and other things.

Tracy Shuchart

I think obviously that would weigh heavily across markets. But when we look at commodities generally, even when we’ve had a recession, like take 2008 over 2020, because that was a totally different kind of environment. But if you look at 2008 and you look at the commodity sector in particular, metals and energy bounced back faster than anything else in the market.

Tracy Shuchart

Because it’s still relatively inelastic. If you look at the energy sector, people still have to go to work, people still have to take their kids to school or to get the bus, or the nation still has to run, even if you’re. So we definitely see those demand numbers bounce back faster than anything else. And the same with industrial metals because manufacturing still happens and the economy still has to run.

Tony Nash

Okay, good. So there’s a baseline there. Okay. And we also saw China PPI numbers way down last night too, or this morning. So as we see those factory gate prices, that probably put some downward pressure on industrial metals as well, I would think, at least in the short term. No? Is that a factor?

Tracy Shuchart

Yeah, absolutely. Everybody looks at China when you’re talking about industrial metals just because of the giant manufacturing hub that they are. Right. So everybody looks at iron ore, everybody looks at copper, everybody looks at all the basic industrial metals that you need for manufacturing steel, for construction and things of that nature. And so I feel like everybody counts on China to sort of save the whole complex. But we are seeing demand in other places springing up in other asian nations, for example. And in Africa they’re coming up, and in India they’re coming up. So though we’re seeing losses out of China, we are seeing gains in demand in other countries.

Tony Nash

Okay, that’s good to know. Okay, thanks for that. So speaking of potential rate rise in March, Albert, let’s talk a little bit about a very interesting topic around central banks. Let’s talk about the Yellen factor. Okay. So just to cover a couple of central banks first, and then we’ll come back to Yellen. We saw earlier this week some test balloons coming out of the bank of Japan saying they’re going to end negative rates. In Q2, the former policy director said they’re completely ready to end negative rates. So one would assume strengthen JPY, which would be, I guess, interesting. And then at the same time, we had kind of who I think is among the world’s worst central bankers. Lagarde saying that Europe is not in a serious recession, which isn’t really all that comforting since she said serious. So it’s kind of a very nothing to see here moment. And she, of course, said the ECB won’t cut rates until they’re sure that inflation is conquered and all this other stuff. And so I think there’s this assumption that the Fed is really in charge of a lot, not just in the US, but globally.

Tony Nash

And a lot of these other central banks are dependent on the Fed. But we do have a person in the background who seems quite powerful, who knows both the Fed landscape and the US treasury landscape in Janet Yellen. So can you talk us through Yellen’s role, what she’s doing and kind of the power she has not just over the Fed, but over some of these other central.

Albert Marko

You know, I like to limit the central banks to the US and Anglosphere plus Japan, because those are the only really important ones, the ECB. Yeah, sure. But right now they’re in a zombie status for their economy. Lagarde talks about a serious recession. They’re in a depression right now in Europe. But aside from, you know, Janet Yellen has dialog with all these central banks, so does Powell.

Albert Marko

They sit there and they discuss what policy actions they’re going to throw out there. They don’t surprise one another. Nobody does that, especially in today’s interconnected markets. You can’t think that they act independently anymore. Sure, something could happen overnight and they have to act, react, so on and so forth. But when you’re talking about long term policy, know, the Fed and Yellen will sit there and pick up the phone and talk. I know for a fact they do. I know for a fact that they get information and they prompt the Australian central bank to do so on and so forth with their currency, whether they devalue it or raise rates or so on. And so I mean, Yellen, her desire is to keep the US markets elevated. And right now, it’s purely a political thing. And I know Mike’s going to chime in here a little bit later, but from what I know and plenty of people I talked to, it is purely politics in her eyes. Right. So she’s looking right now to use all of the remaining reverse repo for the election, simply for the election going into Q three. Right now, she’s looking to probably do about $1.2 trillion in bills by Q three, which is absolutely massive.

Albert Marko

And the fact that you said that she knows how things work in the Fed and how things work in the treasury, well, she wants to neuter Powell and the Fed and being able to raise rates and offset any kind of market pumps that she has planned. Right now, 1.2 trillion is at least $200 billion more than even the highest estimates that I’ve seen of anybody else. Right. Because the way I understand it works, that she gets her bills Bonanza, and QT is killed because QT is going to end this year. Right. We can talk about what that happens to inflation for 2024, but Mike is right about 2025 and going onwards, that inflation is probably going to taper off in those years. But for the election, I absolutely think that Yellen double pumps this market and gets the narrative that the economy is good simply by using our reverse repo and all these other narratives that she builds through the other central banks globally.

Tony Nash

Okay, so what is she spending that $1.2 trillion on?

Albert Marko

Honestly, that’s above my pay grade. Right. That really is. I mean, I can tell you what they’re doing. When you talk about the plumbing and the mechanics. Mike probably knows way better than I know that she uses investors in the reverse repo as a prime source of liquidity. Not all of it, but a significant. That’s as much as I know about.

Mike Green

I mean, just to offer a couple of mean one, when we talk about it being all political, it’s always all political.

Mike Green

Let’s just be really clear. The treasury does not have a policy statement that mandates their behavior. And so when the treasury is pursuing something, it is explicitly pursuing something in the interests of the administration.

Albert Marko

That’s exactly right.

Mike Green

It’s actually really important for people to understand. There’s nothing nefarious about that. It’s actually very different if the Fed gets involved and begins pumping a political agenda that may or may not happen. And I’m certain that it happens to a greater degree than we’d like to acknowledge. But the simple reality is she isn’t a member of Biden’s cabinet. Her objective is to push Biden’s agenda. That includes getting Biden reelected, in part because the Biden administration sees the election of Trump as one of the most concerning possible outcomes for the US over and above a traditional election type dynamic. Whether that’s correct or not, that is actually above my pay grade.

Mike Green

Because that requires looking in the future and something that we can’t just see. The second component is when you talk about what she’s going to spend it on, I actually think we largely know what they are going to spend it on.

Mike Green

They’ve already told us the inappropriately named Inflation Reduction act is going to continue to push domestication of supply chains, the investment in critical supply chains component. And that’s been one of the key drivers of the better than expected GDP, is that the US trade deficit has deteriorated or has improved dramatically over the past year or so.

Mike Green

So it’s actually like, I do think those things are important for people to understand relative to GDP. We’ve seen an seeing, you know, largely tied to the dramatic increase in oil production in the United States. We’re seeing the know, the US is now the world’s largest oil product producer, bar none. And that’s happening under a democratic administration.

Mike Green

The whole drill, baby, drill type framework actually occurred under. So I think it’s important to kind of identify that. The last point that I think you guys are emphasizing, which is the use of the RRP or the incentive to not fully fund, effectively drawing down non bank deposit reserves in order to fund the payments that go out from the US government. That is a liquidity. And from that standpoint, I think it’s important for people to understand that when you use bills or you use RRP as your source of financing, you’re using an asset that carries effectively zero volatility weight, right? So if I use 30 year bonds and somebody goes out and buys a 30 year bond to provide financing for the US government, they have to be very cognizant that the value of that bond can vacillate fairly significantly. That creates uncertainties in terms of asset values. That reduces my incentive to go out and spend those proceeds or to continue to spend, because I’m now like, well, I’m not entirely sure what my asset value is.

Mike Green

When you use bills, there’s none of that uncertainty. It actually goes even slightly worse. You don’t even need to put out because bills are discounted mechanisms just make life simple. If I buy a one year bond, yielding one year, bill, yielding 5%. I’m paying ninety five cents, and I’m getting a dollar back in the future that is absolutely cash that is being returned into the system at a lower cost to the system than if I had to fully fund a dollar purchase of a 5% bond, for example.

Mike Green

So all of these things matter. I just think we got to be a little bit careful in, like, this is uniquely Yellen or this is uniquely Manukin or somebody else.

Mike Green

That’s always the objective of the treasury, to serve at the pleasure of the president.

Albert Marko

Yeah. Their liquidity analysis is dubious at best. But the US bubble sucks in so much capital at this point that they may be running out of sources. I don’t know. I mean, $400 trillion is a lot of money. A lot of money to jack.

Mike Green

Nobody can do.

Mike Green

Just to be clear. But 400 billion, not 400 trillion.

Albert Marko

Oh, yeah, sorry. 400 billion.

Mike Green

We’ll get there eventually, don’t worry. The Bitcoiners are telling us that

Albert Marko

Doing liquidity analysis on 430 billion is not easy.

Mike Green

Right. I agree with that. And I also think the other component is. Remember that a lot. This goes back to the narrative type dynamic.

Mike Green

When the stock market goes up, we want to explain why.

Mike Green

And so all sorts of liquidity, blah, blah, blah. Well, liquidity can be used to fund lots of things, including money under the know you like. Just be aware that it doesn’t always mean exactly what people think it means.

Tony Nash

So I want to go back to one thing you mentioned, Albert. You said QT is definitely ending this year. So what, $8 trillion on the fed balance sheet? Something like that.

Albert Marko

The fed balance, more like 12 trillion when you take in all the swaps that they got with other banks and whatnot. But on paper. Yeah. It’s 8 trillion. Yeah. You want to use the paper number? Yeah, it’s 8 trillion.

Tony Nash

Sure. Okay. I guess normally around 2 trillion, something like that. Or at least has been for the past five, six, seven years, something like that. So 8 trillion is the new norm, is that what you’re saying? On the fed balance sheet?

Albert Marko

Yeah. I mean, it’s been elevated, been going up every year. We use excuses now, like Covid and Europe in 2012 and so on and so forth. They’ll find excuses to keep the balance sheet up. I don’t even take that even seriously anymore.

Tony Nash

Okay, Mike, what’s your thought on that?

Mike Green

I’m hopeful that Albert is wrong, but.

Tony Nash

Me, too. I’m on your side.

Tony Nash

I don’t know why they couldn’t continue to siphon it off.

Albert Marko

You know why? Because this is a purely political nonsense. This is the reason why inflation stays elevated and high is because the political policies get in the way of economic common sense. That’s why. Right. There is nothing that the Biden administration has ever shown me that they are willing to do something economically logical. That’s why. Right. That’s purely my baseline of reasoning behind all this.

Tony Nash

I mean, in fairness, we could say the same thing about the last two years of the Trump.

Mike Green

Yeah. I was going to say again, to me, you don’t need to assign one party versus another. Right. They both have behaved in economically irrational manners to prosecute their objectives. Part of it is it’s just that we don’t have a good model that actually explains this. I mean, deficits don’t matter. That comes, you know, from the Reagan and Bush administration.

Mike Green

You know, when I come back, I want to be the bond market.

Mike Green

James Carville with the Clinton administration, there is no political allegiance to any of this stuff. Simple reality is sometimes it matters and sometimes it doesn’t.

Mike Green

And it all depends on where you are in a business cycle and where you are in a capacity utilization cycle, et cetera. And that’s very frustrating for people who always want to hear that two plus two equals four, right? Sometimes it does and sometimes it doesn’t.

Albert Marko

Mike, I had a question for you. One of the main thesis I had is it doesn’t matter because Asia and Europe are just non existent at the moment.

Albert Marko

If we had some kind of counterbalance. Then the United States would have some problems. Right.

Mike Green

I totally agree.

Albert Marko

Yeah. Because they’re dead. Asia is dead right now. Right. Europe is. I don’t even know what Europe is. It’s just a vacation club. Sure, Japan’s different. Japan’s a little bit different. But I’m saying China itself, China and Europe are completely dead. For that reason, we have no accountability.

Albert Marko

Right. We can do whatever we want. I’m not saying it’s good, but in the short term, we can do whatever we want. It’s probably going to bite us in the ass ten years down the line. But for today, who’s going to hold us accountable?

Mike Green

I think in general, again, I think that there’s parts of what Albert’s saying that I absolutely agree with. Right. We all know, including myself, the overweight individual, who knows that there’s consequences associated with being overweight but doesn’t want to change their behaviors.

Mike Green

You can tell them that on Tuesday. You can tell them that on Wednesday. You can tell them that on Thursday and it’s not going to change their behavior. And for that matter, they’re going to sit there and increasingly be like, stop nagging me.

Mike Green

It’s only once they have the catastrophic heart attack and they recognize that there are actually distinct consequences. But at that point, their future as an athlete is finished.

Mike Green

There is like no real opportunity there. So there will be eventually a heart attack that hits for exactly the reasons that Albert’s saying. If we continue to make bad policy and basically consume Twinkies for breakfast. But in the meantime, man, Twinkies are tasty.

Tony Nash

Yeah, they are.

Albert Marko

They’re deep fried Twinkies.

Mike Green

Particularly if you deep fry them. Right, exactly.

Tracy Shuchart

And then cover them in chocolate.

Albert Marko

Yeah, exactly.

Mike Green

Right.

Albert Marko

Because we got them.

Mike Green

And at every stage in that process, somebody’s saying, oh, that doctor doesn’t know what the hell he’s talking about. I’m totally fine. Right. There’s no different with political administrations.

Albert Marko

That’s a perfect analogy. It’s like the Twinkie, deep fried chocolate covered Twinkie. Because we have Ozempic. Yeah. That’s not going to stop the heart disease. Right. Make it look good.

Mike Green

Well, the irony is that if you combine Ozempic and the Twinkie, right. You now have increased consumption and you’ve introduced innovative new technologies that you can value richly. And if they’re paid for with government deficits, that shows up as phenomenal to GDP growth.

Tony Nash

Let me ask you, the Twinkie, Ozempic and testosterone shots since we’re goosing the defense budget.

Mike Green

Right. My gut doesn’t look nearly as bad because I’ve pumped up my upper body. Right. Congratulations.

Tony Nash

So on that Twinkie note, let’s just end it on a happy Twinkie note. Okay.

Mike Green

There we go.

Tony Nash

This is great, guys. We could go on for hours. Thank you so much for this. I really appreciate your time, all the thoughts you put into this. Have a great weekend. Have a great week ahead. Thank you very much.

Tracy Shuchart

Thank you.

Mike Green

Take care.

Welcome 2024 with this brand new episode of The Week Ahead. Joining us for the first time is Neely Tamminga with our regular guests Albert Marko and Tracy Shuchart. Key themes for this episode:

1. The US Consumer & Employment

Neely, an expert in consumer trends, joins us to explore the financial landscape with a focus on consumers being overextended, multiple jobholders, and the ability to repay debt. She provides valuable insights into the challenges that consumers face.

Also, she shares her forecasts for January and February, discussing weaker demand optics and potential layoffs, and helps us understand how the 2024 consumption dynamics might impact consumer confidence in this presidential cycle.

2. Turkey’s Geopolitical Aspirations

Albert takes us on a geopolitical journey, especially focusing on Turkey. What are the lesser-known aspects of Turkey’s influence in the Middle East and Africa?

Albert also helps us explore the impact of Turkish defense exports, and the role of Lira devaluation in geopolitical priorities, and understand Turkey’s key bilateral relationships—Russia, China, Iran, Europe, and the US.

3. Is Nuclear Overbought?

Tracy brings her expertise to the table to address the lingering question: Is nuclear overbought? Tracy discusses the long-standing fascination with nuclear investments and the recent surge in hedge funds loading up on uranium.

Tracy explores the reasons behind this bullish trend, questioning whether nuclear is overbought and what insights these funds might possess.

Transcript

Tony Nash

Today we’re joined by Neely Tamminga, Albert Marko and Tracy Shuchart. We’re starting the new year with a great episode and Neely is going to talk to us about the US consumer and employment. We had that jolts data come out yesterday and on Wednesday, actually. And I’m really interested to see what Neely expects in Q1. We’re going to talk about Turkey. Albert has a lot of experience in Turkey, so we’re going to talk through Turkey’s political aspirations and kind of some of the roles they’re playing in the Middle east with Russia and other places. And then with Tracy, we’re going to talk about nuclear. And I’m really curious. I’ve heard about nuclear for years. I’m just wondering, is nuclear overbought at this point? So I’m sure we’re going to make some enemies by having that conversation, but it’ll be a good one to have.

Tony Nash

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So, Neely, thank you for joining us. I’ve been trying to get you on our show for a while and I’m so grateful to have you here. So welcome.

Neely Tamminga

Thank you. It’s an honor to be here truly.

Tony Nash

Great. Thank you. So one of your key areas is consumer, and I see you tweet about consumers a lot. You recently posted about consumers being overextended and kind of consumers paying bills with multiple jobholder data. Can you walk us through, I’ve got the tweets up on screen. Can you walk us through how loaded up are consumers and how are you seeing the ability to repay debt in the US today?

Neely Tamminga

It’s precarious for some, it’s easy for others. And I think that’s what is going to be most revealing for this year. We’re asked all the time, how’s the consumer? And our first response is always, well, which consumer do you want to talk about? And that nuance is something that I think that we’re going to have to retrain the market to think through in 2024. Nuance is going to be where the alpha is, and that’s how we’re guiding our own corporate clients as well as some of our other clients that we advise on the investment side. One thing that immediately comes to mind is that debt level, we definitely have some consumers that feel so stretched that they choose to do buy now, pay later, or some people call buy now, pay never. Right? And it’s still an unproven mode. It’s still an unproven debt. It’s still unproven. And we’ve seen this way back in history before. Talking with another fellow Twitter friend recently, reminiscing, if you can call it reminiscing around, just like when Providian fell apart and the next card fell apart way back in the day. It kind of feels like by now, pay later might be that next wave.

Neely Tamminga

So it just depends. It depends on the consumer.

Tony Nash

Okay. So just to dig into that a little bit, so obviously, I feel like on social media, we see a lot of people who are probably doing pretty well talking about the consumer in theory, not the consumer in reality, right? And if we look at, say, some restaurant, like a chili’s or something like that, right. These were places not to pick on chili’s, but these were places that through 21 and 22, they could pass on inflation to customers, right? The job market was healthy, so kind of their target market was seeing pay rises, not passive ones, but they were enough to keep up with some of that inflation. And so now we’re seeing those pay rises. Stop. We’re seeing the job switching. Stop. We’re seeing the ability of those companies to be able to pass inflation on to their customers. Stop. And my question, we talk about this fairly regularly, is will there be margin compression coming to hurt those companies, and will there also be demand kind of diffusion, because those customers may not be able to keep up with that consumer spend, given the debt loads that you’re talking about.

Neely Tamminga

It’s a great question. And we actually are watching restaurants very closely for signs on discretionary spending here in the month of January. If you rewind, a year ago January, restaurant retail sales were off the chain. They were so strong. And we think it really contributed from two different factors. If you go back, that’s when we saw, like a high single digit cost of living increase among 66 million baby boomer retirees. That easily led to an incremental trip to get their baby back ribs right at Chili’s.

Tony Nash

Cracker barrel or whatever. Right?

Neely Tamminga

Right. The OG Olive Garden did really well last year in the first quarter, cruise bookings were really strong. I mean, things like this that are very much boomer centric. I’m sure someone’s got a boomer ETF somewhere. Right. And I’m sure it did really well. But overall, what we would say is the other thing was that it was really warm in January last year. Like really warm. So it extended a lot of the ability for those restaurants that might have had outdoor seating. They were able to extend it into that month as well. So we’re watching for the January numbers this year from a comparable perspective. The cost of living increase is closer to a low single digit this year. We all know that doesn’t totally keep up with what the cost of consumption is, right. Know at least the perceived cost of consumption. And we’re kind of curious to see if this is going to be a little bit of the breakage. There is one more thing at play that’s not boomer related per se, Tony, and that’s we’ve had this tiny little quiet, no one’s talking about it, payment pause on the student loans.

Neely Tamminga

Even over the last two months, you can see it. We’ve also tweeted about that student loan, student loan repayment. And it’s because some of the payment processors were unable to meet some of the needs and demands of restarting after, what, 43 consecutive months of not paying. We think that there’s easily eight to 9 million people that have just not been paying that might have to go back into repayment in January as well. So there’s a couple of different factors that work against consumer spending and discretionary spending specifically that we could see play out in January. So we’re watching it really closely.

Tony Nash

That’s a great point. You have another tweet. I want to talk about luxury in a minute, but you have another tweet where you talked about consumers feeling optimistic and you talk about some reasons why things might be different in the coming year. You’ve covered some of these things. The cola increases, especially in Social Security. ERTC monies were flowing freely. Consumer spending hangover is more substantial post this holiday. Interest rates, early tax refunds in February, all this other stuff. Right. So can you talk us through a little bit of that list and those things? I think each one of them on their own would, I think, cause some concern in markets. But those things accumulated, as you said, with the student loans. I’m not sure that we got like a fourth Q GDP now estimate yesterday. That was just really stellar. And I think there’s this assumption that these things are going to keep moving. I’m not a doomer, but at some point these things cause concern. Right?

Neely Tamminga

They do. And I think that’s know, I still go back to Danielle DiMartino Booth had a great interview well over a year ago, and I had the privilege of asking her a question around what is it that you would see that you don’t necessarily fully, what is it that you don’t know that worries you? And she said private credit went to places it didn’t belong or something paraphrased to that effect. And I think the same is true with consumer. You won’t see it till it kind of blows up. I mean, the consumer loves to spend. It’s a dopamine hit. Right. Even if you go back to 2008, I was recently reviewing all the retail sales data right before the Lehman crash. Right. And retail sales were robust. It was really strong the month before Lehman fell apart. And then it wasn’t until you saw the job loss that people started to pull back on spending. So I think the consumer, unfortunately, will just be spending all the way in to whatever this is.

Tony Nash

Right.

Neely Tamminga

So looking for consumer spending as an optimistic leading indicator is not necessarily historically the right way to go. But you’re right, we’re concerned about a lot of little cuts to the consumer, whether it’s the student loan payments, the lower Cola. People forget that tax refunds came a lot earlier last year in February. So a lot of people were flushed with the optics of cash in February. And they spent it.

Neely Tamminga

That’s not going to be there this February, or at least it’ll be comparable. And then heaven forbid we have to actually have higher taxes on the other side of this political season. So we haven’t even talked about what’s going on with the election.

Tony Nash

Yeah. Oh, we can talk about that for hours. Let’s talk about luxury for a minute, because Albert talks about luxury quite a lot. And I know he’s outside and it’s windy and people are going to complain about his sound quality on the show. But can you give us your view of luxury? And Albert, can you jump in here? Because know, Albert looks at watches, know luxury watch prices and all this stuff, and gives us observations on what’s happening in Florida at the different luxury stores. What are you seeing in luxury? Like, is it pretty resilient? Are things falling off? What’s happening there?

Neely Tamminga

I think I probably see Albert’s posts about it maybe is know there’s that infamous, like the Rolex watch right. Sort of indicators that you, Albert, it probably is. That’s obviously rolling over. But some of the luxury brands, even this fall, were signaling that they were starting to see kind of a slowdown in their business. And I think some people just immediately think like, oh, luxury doesn’t ever slow. And there’s some truth to that. The higher end consumer is fine. I mean, they will spend when they want to spend and how they want to spend it. It’s the aspirational, incremental customer that aspired into that brand that is now gone. And so in some ways, that slowdown of people who had maybe been flush with the employee retention tax credit money and now they don’t have it, it’s that incremental customer going away that you could start to see some things fall apart in luxury core high end consumer, truly high end people who don’t quiet luxury consumers, they’re fine. They’re absolutely fine. I don’t see any issue there. It’s the marginal customer around the brands that we would want to be on watch.

Tony Nash

And that’s really where these brands intended provide their additional value. Right. I mean, those core consumers are going to be there regardless, but it’s those aspirational ones. That’s a great point. Albert, what’s your thought on that?

Albert Marko

No, she’s absolutely right. Especially in the beginning when she started talking about the nuanced numbers of consumer spending. 10% of the consumers are spending, probably around 40% of the spending. It’s absolutely astronomical right now, and it transfers over to the luxury market. And Neely’s right, those marginal customers are gone. Those people that were flushed with money a year, two years ago, their accounts are dwindling and now they’re just trying to service their debts that they accumulated to combat that. I saw that Rolex and a couple other luxury brands like Blancpain and Brunello Cucinelli rose their prices in Europe 8%. It was just like two days ago, Rolex announced that everything in the UK now is 8% more. So they’re going to slow down their production, whether it’s watches, clothing, luxury cars, they’re going to try to slow down production and raise their prices just to offset it. But, yeah, I mean, the luxury market, although I am bullish for 2024 only because I know there’s an election and there’s going to be money flying around everywhere, but long term, it’s not pretty.

Tony Nash

So it sounds like almost a harder market segmentation than we’ve had for the last few years, like when there’s loose monetary policy market segmentation kind of blurs, but now there’s almost some hard edges coming in that segmentation. Is that fair to say?

Albert Marko

Yeah, but it transcends everything. It’s just like all the normal applications of what you would do to look at fundamental economics in the markets previously is absolutely not the case after Covid. Now that we’re in a total different time zone, total different era, things are more political than they are economic and financial at the moment.

Tony Nash

Right. Okay, great. Now before we wrap this up, I want to talk a little bit about jobs. We had some jolts. Data come out and Neely, obviously with consumption, jobs is always paired with that pretty tightly. What are your views on jobs and layoffs and other things in Q1? Are we going to see some serious slowdown there? Okay.

Neely Tamminga

Yeah, I think for. Oh, somehow.

Tony Nash

That’s all right.

Neely Tamminga

Somehow that went there. Hi.

Albert Marko

Okay.

Neely Tamminga

For us on jobs, jobs, of course, are always like the classically lagging. Right. It’s not a leading indicator, but there are some interesting things that we’ve been posting about which could be somewhat of a leading indicator. So for example, multiple job holders, some people will push back and say, we’re not insignificantly more in multiple job holders than we’ve been historically. Okay, that’s fine relative to total employed. But you might want to look at multiple job holders per continuing claims. That’s going to tell you something, right? Because it’s delightful. I actually love the consumer. I mean, having led the consumer research practice at Piper Jaffery, which is now Piper Sandler, for many, many years, took a dozen companies public, spent 20 years on the sell side. Right. I love the consumer. It has fueled and funded my future. And the consumer is extremely resilient and they care deeply about paying their bills. Sometimes I think we paint them in a picture that they don’t. They will go work multiple jobs to put food on the table for their family. And so you’ve got to look at that multiple job holders relative to where continuing claims are.

Neely Tamminga

Because if they lose that second job, they will not be able to file a claim, typically on initial claims. So initial claims isn’t what you want to look at. You want to look at continuing claims to see will we be able to reabsorb them or not into the job market. And it’s a pretty decent leading indicator, similar to jolts with the quits data. If you look at quits relative to continuing claims, it’s a similar sort of dynamic high correlation with the unemployment rate. If you look at those factors together. And again, that’s been rolling over. So multiple job holders rolling over quits per continuing claim. Rolling over. Unemployment is probably going to move higher not just because of people unable to be laid off and unable to find their job, but we actually have people who are probably coming off the sidelines and expanding that labor force denominator as they unretire in order to pay bills as well. So I think there’s a lot of little things in that, but they’re going to do it so that they can consume, which is why consumption kind of doesn’t fall apart until the economy falls apart.

Tony Nash

Right. So would you say it’s notable but not concerning yet? Something like that.

Neely Tamminga

Correct. Yeah. We’re not in a camp that’s like, oh, it’s totally tight. No, there’s actually signs that things are loosening if you look at different sort of indicators. The question is for how long and can government fiscal spending support it? A lot of job growth has come from either direct or related government spending.

Albert Marko

And that’s another question I have is now you hear the soft landing versus some saying no landing scenarios. And I can’t see that happening in 2024. I still think that the government can float it up until at least after the election. But this soft landing, no landing scenario, it’s not plausible with all this loose money that’s still sloshing around.

Neely Tamminga

Albert, I think the one thing I got wrong all last year was the political will to extend. Right? That’s what I got wrong last year. If I were to say, what did you get wrong, Neely? Because we were definitely bears because of the student loan repayment. It’s a big deal. The political will to keep people from paying their student loans is just palpable. And that’s going to continue all the way up until September 2024. It is an election issue again. Yeah.

Albert Marko

Without question. It’s not just you. I’ve been in politics for God knows how many decades. Right. And even I was taken aback about how venomly opposed they were to letting the markets show weakness. I thought, okay, for sure, we’re going to have a soft recession or some minimal recession for like a month. They are absolutely not okay with that happening on the run up to this election. That’s just the bottom line.

Tony Nash

So the political will to spend other people’s money is pretty strong, is that what you’re saying?

Albert Marko

Yeah. You can see it. Of course.

Tony Nash

Tracy, can you help us on the consumer side before we jump to the next topic in terms of gasoline consumption, airline travel, these sorts of things, are you seeing softness there? Because we’re not really going to talk much about oil prices. But are you seeing softness in gasoline consumption and crude consumption in the US? Based on some of the things that Neely’s talking about? You’re on mute.

Tracy Shuchart

Actually, if we look at oil demand in the US, we really haven’t seen a change yet. In fact, it’s even higher than 2019 levels. And everybody, even the EIA, every year when they do, their short term energy outlook has been underestimating demand. And when they go back and give their 914 report, they have to go ahead and say, we’re sorry. Demand is actually higher than we thought. And so in the US, we’re just not seeing that. But again, when you have to look at gasoline and other demand, it’s fairly resistant to even economic downturns because it’s somewhat inelastic. Yes, people will stop going on vacations and driving on vacations and things of that nature.

Tony Nash

Going to Applebee’s.

Tracy Shuchart

But you still have to get your kids to school, you still have to go to work. So some of that demand is relatively inelastic. And what we have seen in the US is that we have seen demand continue to rise. And of course, since gas prices have, even though they are higher than, say, in 2016 era, they’re still lower than they were. And so this is also helping spur demand further. So we’re just not seeing that.

Tracy Shuchart

But again, like I said, even if we look at the great financial crisis in 2008, oil demand was the first commodity to rebound out of the first of anything to rebound because people went back to work after all the markets shit the bed, pardon my french, but it was the first thing to rebound. So again, I go back to the fact that part of this demand is relatively inelastic. I mean, we’re a big country. Everybody drives to work. Everybody has to put their kids on the bus to go to school or drive them to school. Know, there are just things that we need to do to function as a society in the US.

Tony Nash

So what point in election season, if we continue to see lower gas prices, do we hear people say things like, oh, low gasoline prices are a tax cut, which is the biggest joke. Will we hear those words this year?

Tracy Shuchart

Of course you’re going to hear that. We heard that forever. That’s not new. You hear that just on interim elections. You hear that from congressmen, senators and even your local congressmen. Of course you’re going to hear that. It’s a tax break.

Tony Nash

It’s not, but it is. That’s what people. So, okay, good thanks guys. This on consumption of jobs is fantastic.

Tony Nash

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Tony Nash

Fantastic. Let’s change completely to talk about turkey. Albert, you have a lot of exposure and experience in Turkey. You wrote a piece on your cloak and dagger patron called the geopolitical roundup looking at 2024. We talk about us, politics, Turkey, the Middle East, China, multipolarity, Russia, the EU, kind of everything. One of the items that I really thought was interesting was your discussion of turkey.

Tony Nash

And I really don’t believe that turkey is well covered by western media for a lot of different reasons. So can you talk us through a few items about turkey? How big of an influence does turkey have on the Middle east and Africa? Let’s cover that one first.

Albert Marko

Well, look at a map. All roads go through Turkey, especially through that region of the world. Wheat, oil, gas, all of it goes to the phosphorus, so on and so mean. You know, the Turks and the Russians have always been at odds with one another in the Black Sea, especially the whole Iranian dynamic with smuggling roots, too, there. It’s a complex topic that. Probably not for this discussion, but the Turks are ambitious. Their economy is struggling mightily at the moment, but with cheap Russian fuel, they’re at least keeping their head afloat at the moment with Turkey. Turkey has a lot of problems, right? But their defense sales are booming. Their mission in Africa to establish trade routes is booming. Completely unopposed by Europe and the United States. Completely. And they’re actually working hand in hand with Russians and Iranians in some sectors of the continent. It’s actually quite amazing to me that no one in the media dares touch turkey at the moment. I don’t know why. I don’t know. Maybe because they’re a NATO member and the Biden administration doesn’t really want to broach that topic at the moment. Obviously, all the western countries are opposed to Erdogan, but he only has, realistically two years left before he leaves his illness.

Tony Nash

We saw, I guess, what, 1015 years ago, Qatar was putting a huge amount of money in Egypt and parts of Africa and then things that fell apart and then the UAE came in and kind of took over a lot of those investments. So is there some continuity from Qatar to UAE to Turkey? Is Turkey kind of filling in the hole maybe that the UAE had once or are they filling a different need there?

Albert Marko

Turkey is actually facilitating an anti west settlement program to incorporate Iranian trade. Right. They’re discussing on trying to stay away from the dollar and doing some little digital settlement program that’s probably going to fall apart. But you can see the ambition there in Ankara’s eyes. They want to be the dominant player. And on top of that, Qatar has been sending cash payments to Turkey. Whenever they get to the point where their economy is about to falter, plain loads of cash just ships right in through Turkey. So there’s obviously an importance there that the whole region sees.

Tony Nash

Interesting. So Qatar is helping Turkey to stabilize economically.

Albert Marko

Yeah. Because Turkey has military base there with troops in Qatar.

Tony Nash

Right.

Neely Tamminga

Can I ask Albert a question about this?

Tony Nash

Absolutely.

Neely Tamminga

If memory serves, wasn’t the big earthquake like a year ago?

Albert Marko

Yeah, it was just a year ago.

Neely Tamminga

So is that who’s been coming in and helping them rebuild or has there been some kind of natural disaster diplomacy that is not really being spoken of over here too that supports that? I mean, that was pretty disasters.

Albert Marko

Yeah. Luckily it was in a rural area of. Yeah, they had a huge amount of people lost, but it could have been a lot worse if it hit Istanbul. But yeah, there is a lot of corporations coming in that are Dubai or Qatar linked. Most likely know, white companies that are just labeled under Qatar domains. And, you know, everybody but the United States seems to want to help Turkey to gain favor. And again, it’s one of these complete failures of us foreign policy that we’ve seen for 30 years.

Tony Nash

Okay, great. So kind of moving into that a little bit, you mentioned that Turkey has a base in Qatar. The US also has a base in Qatar. Are there other bases, other major military installations in Qatar?

Albert Marko

Relevant ones? Probably not. I mean, I’m sure the Saudis have something there. Even off the top of my head, I can’t even tell you because only ones I would focus on is the US and Turkey at the moment only because Turkey. I’ve been in and out of Turkey doing business for the last few years.

Tony Nash

Okay. Interesting. Now, we’ve heard a lot about Turkish lear devaluation and lack of stability in Turkey’s economy. Can you talk to us a little bit about that? Is there hope on the horizon. Is Turkey stabilizing? It’s interesting you mentioned that Doha is sending money into Turkey, which I didn’t know about. So is there hope on the horizon for stability in Turkey?

Albert Marko

Yeah, but it’s ten years out really, because the reality is the Lira is just tanking. It’s going to be weak for the next decade. Right. But on the flip side, all business through their banks and on the street is done in dollars anyways. So what are they really hurting? Probably not a lot. I mean, obviously the bottom 75%, nobody cares about them and the government, but the top 25 and the businesses are all dealing with euros and dollars. They don’t really see lira problems.

Tony Nash

Okay. So they’re trying to facilitate. Turkey is trying to facilitate transactions in Africa, in Iranian Riyals, but they’re spending us dollars on the street in Istanbul.

Albert Marko

Yeah, of course. I mean, the Chinese do the same thing, but on the flip side, they’ll lend out Renminbi and they ask for dollars back.

Tony Nash

Okay, let’s also look at what are Turkey’s closest bilateral relationships? I know that they’ve had a troubled past with Russia, but what is that relationship, aside from kind of the oil relationship now, is there a true bilateral relationship there, or is it really just kind of an opportunistic economic relationship?

Albert Marko

It’s completely opportunistic. They have issues with Iran, Russia, and the EU and the Black Sea area. It’s all they have mentioned before. It’s always been a problem. It always will be a problem of all four of those players trying to dominate that area. So the only relationships they have, realistically are with long standing with Germany. Although contentious at times, that’s one of the biggest communities outside of Turkey.

Tony Nash

Okay. And just for the people who don’t know, you really have to look at Ottoman history and Russian history and a lot of the fighting they did to really understand why that antagonism is so deep seated. So you say Germany and Turkey has a tight bilateral relationship, is that right?

Albert Marko

Yes.

Tony Nash

Okay. And that’s largely because of the migrants that went from Turkey to Germany in the 1970s and have continued since then.

Albert Marko

Yeah. Erdogan has even visited Turkey, Turkish communities in Germany multiple times.

Tony Nash

Okay, then what about China? Does Turkey have a good relationship with China?

Albert Marko

Yes and no. They view the Chinese with skeptical eyes. I mean, obviously they’re not going to give up their key forts to Chinese outfits like the Greeks did. They’re not that desperate for money at the moment.

Tony Nash

Okay. And go ahead.

Tracy Shuchart

I have a question. We’re looking at Russia right now, wants to kind of build this very large natural gas hub in Turkey. So what, if any, do you see this being a problem with Turkey being a part of, you know, obviously Russian sanctions know all energy. So do you foresee this being a problem if Russia does decide to have kind of turkey be this big natural gas hub for them?

Albert Marko

No, I mean, let’s just be realistic. How do you replace Turkey if you want to have any kind of defense or offensive capabilities into the, this, all this chatter know we should kick Turkey out. It’s not sensical. It’s not going to happen. I don’t care how many LNG ports they build over there in the Bosphorus, whether it’s Chinese, Russian or from Pluto, nobody cares. It’s just the fact of the matter is that they’re always going to be in NATO.

Tony Nash

Speaking of that a little bit, Albert, Turkey does have quite a lot of defense exports, especially with UAVs. Do they compete with the Chinese for defense exports in places like Africa?

Albert Marko

Of course. But nobody likes the chinese stuff. It doesn’t work. It’s too cheap. It’s not been proven in combat. The Bayraktar’s, which is the turkish drones, are well proven. Great pricing. I think they run for like 20,25 million a piece and it’s hard to beat.

Tony Nash

Okay, so I remember last question on Turkey. I remember reading, I don’t know, 20 years ago or whatever, George Friedman wrote this book called the next hundred years and he said that there would be a re kind of assertion of kind of the Ottoman empire through Turkey, and Turkey would be one of the big geopolitical players in this century. Do you see that happening? Can Turkey really get it together to be a major geopolitical player this century?

Albert Marko

No, not this century or next century. Their economy is, like I said, barely afloat. Their military, although somewhat decent next to their borders. They have no logistical capabilities whatsoever and they have no leverage outside of know being geographically.

Tony Nash

Okay, interesting. Okay, very good. Thanks for that. I want to come back to Turkey occasionally because it’s so interesting. And again, I think it’s so misunderstood in the west that I think it’s a really important conversation for us to have. So thanks for that, Albert. Tracy, I want to talk to you about something that is, I think probably going to make me unpopular and may make you unpopular is nuclear. I think the nuclear guys, they’re not quite as adamant as the crypto guys, but they’re probably as adamant as gold guys. So we’ve seen nuclear push up quite a lot lately. I’ve heard people pumping nuclear for years it’s an obsession for people. I think over the past couple of years we’ve seen countries like Belgium and Japan claim that they’ll revisit plants to open nuclear plants. And we saw with the earthquake in Japan this week that because of the safety protocols that were put in post Fukushima, that the nuclear plants were safe during the earthquake, which I think is really a good sign for reopening in Japan. So this week you posted a tweet on hedge funds loading up on uranium, which is interesting, and we’ve heard this story for a long time.

Tony Nash

We’ve also got a screenshot of the uranium price. The uranium ETF obviously popped up in 21 and 22, and we recently saw a top. So I guess my question is, why are all these funds so bowled up on uranium? Like, is the near term prospect for uranium as positive as many of the people have been pumping for the last probably four years?

Tracy Shuchart

All right, well, you have to look back at the history of uranium. It’s been a very difficult trade. It’s had its ups and downs. It’s had its ins and outs over the last 30 years or so. So this is not new for uranium to see this kind of price action. That said, I do think that we’ve hit kind of a new phase or a new nuance in this particular market about that. We can cut that out. All right, let me restart. So I think we have hit this new phase or nuance in this particular area. Now, do I think that prices may in the near term have gotten away from us a little bit? Yes, perhaps. But that’s a good thing overall because what we’re going to start seeing is that a lot of these projects, we are in a deficit. Let’s start with it. We are in a deficit because even though the west has largely shunned since Fukushima and Chernobyl, we have had Asia pick up the slack. And I mean, that’s where most of this demand and most of these new nuclear facilities have been scheduled to either have been started or are under construction or plans under construction.

Tracy Shuchart

And so that really hasn’t changed. It’s really been kind of the west having this very negative thing about this. And what really changed this, I think notably this year was COP 28, when nuclear was finally brought into the fold in talking about the green transition, because we haven’t seen that. Right.

Tracy Shuchart

We saw in COP 27, we saw natural gas finally brought into the fold, and then finally we saw nuclear brought into the fold. In COP 28, we had over 25 nations kind of sign up saying we’re going to triple nuclear energy capacity by 2050. Now, I would like to remind people this is totally an impossibility, logistically speaking, but the mere fact that they have signed up for this is a very positive sign for the nuclear industry, for the west in particular. And so I think that’s very good. Looking forward. I also think that we’ve been in a deficit, even though we haven’t seen this reflected in crisis, because again, largely the west has disregarded this technology and or shut it down. Like, look at Germany, for example. So I think that we’ve seen a new turning point. Do I think that this market’s going know prices are going to continue to skyrocket higher? I do think there’s room to the upside. Do I think we’re going to see a pullback at some point? Yes, because we have had such an escalation in prices. That said, if you’re an investor, instead of kind of wanting to chase prices, uranium prices higher here, maybe wait for that pullback there, but maybe start looking into junior miners.

Tracy Shuchart

Right? Junior miners are miners that I would look at. Miners that are already permitted. Right. They don’t have to go through this hassle. They already have drilled holes, so they already know what they’re looking at. They’re ready to go. Right. As soon as these prices hit, and as soon as we started hitting above, say, 65, we started seeing junior miners say, oh, we can kind of get our projects off the ground now because we can make money at this. And so I think that’s a really underlooked area at this point because we’ve seen CCJ and all the big obvious ones explode along with uranium prices last year, and they did extremely well. But I think in this new phase of things, in these new higher prices, what you’re going to see is you’re going to see the juniors doing more well. And I’m not saying CCJ is not going to do well, but I’m saying you’re not going to see the 80% increase that you did. Probably in 2023, you’ll see a lot less increase. And I think there’ll be a lot more interest in junior minors again, but be very selective of the minors that you’re choosing.

Tracy Shuchart

You don’t want people that are. I’m just trying to get my permit now. That’s going to take ten years. It’s going to take billions of dollars. It’s going to be over. You want miners that are literally ready to go.

Tony Nash

So that’s great. Thank you for that.

Albert Marko

I have a question, Tony, I have a question, maybe a statement. I don’t expect Tracy to answer this, but how much of this investment drive for uranium nuclear is predicated off of the failure of alternative energies, renewable energies hidden lately because we’ve seen wind power fluctuate significantly, we’ve seen solar power problems and supply chain problems and the cost going up. So I’m just curious if you have any insight.

Tracy Shuchart

I don’t have exact figures, Albert, but it’s great that you brought that up because I absolutely agree. And the confirmation of this was cop 28 when we finally saw it because we’ve already seen or said this year, right, we saw demons this year and then just yesterday we saw BP and know dump out of wind. And so I think people have seen this coming again. I don’t know the exact percentage, but I would say that a lot is predicated on that. Absolutely.

Tony Nash

If nuclear capacity is going to expect it to come online at some point, who is making these nuclear plants? I would assume it’s the French, the Japanese and the Chinese, is that right? Who actually constructs nuclear.

Tracy Shuchart

Know, it depends actually South Korea, even Bangladesh, believe it or, you know, it’s a lot of Asian countries know obviously that. China of course. But I think that you’re going to see renewed interest in the US, particularly because the US is talking about banning Russian geranium imports, which accounted for about 25% of our uranium imports. And so if they are going to ban that, then where are we going to get this? So I think there’s going to be a, you can do Australia, you can do Kazakhstan, you can do their other places too. But why not get it from North America, right? Because you have some really great companies that we’re looking at not only in Canada but also in the US that have some great projects on the line.

Tony Nash

It’s interesting, over the past few months we talked about kind of the cost of debt associated with building new kind of green projects. And obviously the cost of debt associated with nuclear projects would be different or would be similar. But the lifespan of a nuclear project is quite long, right? You’re talking 50 years or something.

Tracy Shuchart

You’re talking decades. I mean, we have nuclear facilities that are 50 years old that we just expanded another 20 years. I mean, so far we haven’t really found an end to them. And those were facilities that were literally built 50 years ago. Technology has obviously advanced further at this point. And again, you have to look at companies. I just want to keep stressing this and I know I have three times already, but you want it to have companies that are already permitted, that have already drilled, that already know what, that literally are ready to go because the other ones are going to take decades really to get the projects off the ground. And that’s being realistic as far as just looking at permitting a loan is concerned.

Neely Tamminga

Yeah. I would love to ask Tracy a question about this. I am not an energy expert by any stretch, but I think we do need to bring it back to politics for just a hot minute. Right. And that is executive Order 13990, I think ultimately has been like the line in the sand against fossil fuel drilling and production that President Biden signed into. It was easily, I think, his first twelve executive orders he signed in when he took office. And what happens if we have a contender that moves over from the Democrats to the republican side? Do you think that’s going to be one of the first executive orders that gets eradicated and then all of a sudden the fossil fuel companies are back in business again? I think through from a board of directors perspective, could you green light big capital spending projects in fossil fuels if you have a political will against you? What happens when that political will is eradicated and removed? I’m just kind of curious, your perspective on the political component of that.

Tracy Shuchart

Yeah, on the political side of things, I think that nobody wants to go 100% into fossil fuels, politically speaking. Nobody’s going to do that except for, say, Senator Manchin, that he’s West Virginia pole, whatever. But I don’t think that is politically kind of a platform you want to run on. And so I don’t think that we would see a complete 180 on this and it would be all just fossil fuels again because that would be politically going against half the country. It would be politically going against what the entire world or what the entire west is kind of looking at. So I don’t think anybody’s going to run on, I mean, you know, I don’t think anybody’s politically going to run on completely. Let’s forget renewables, right?

Albert Marko

Yeah. You would need the Republicans to take majority both in the House, Senate and the White House to be able to push something like that. And even then the numbers would have to be so high that it would stop any kind of veto. So it’s going to be a while before fossil fuels will come back into favor in DC.

Tony Nash

Yeah. The other consideration we talked about is that cost of debt and almost the substitutional factor with green power generation. Right. And so as terrible as this sounds, I think it’s really interesting how interest rates have brought some kind of reason back to the alternative energy space, and we’re looking at the return on investment. So nuclear is. So for the people who hate me for what I said about nuclear earlier, nuclear does have a lifespan of decades. So there seems to be really good value for money there compared to some things like wind and some other things that have really been hyped. And I don’t hate wind, but I just am not really sure that it’s there in terms of what do you do with the used blades, all this other stuff that are just really complicated issues.

Tracy Shuchart

And the same with solar as well. Look at solar panels. And I understand that there are many companies that are trying to figure out ways to reuse and recycle these products, but ultimately, it’s very hard to separate these metals from each other after they’ve been fused together. And the big startup companies that have already started this kind of have pulled back on this even and said, well, maybe we can’t. Maybe we had two ambitious schools at the beginning. So I think the reality is just starting to set in and it’s not cheaper. If you look at the big countries, Germany, particularly in Europe, their energy prices haven’t come down even as their share of renewable have gone up in their overall energy consumption profile.

Tony Nash

Yep. Very good, guys. Thank you so much. We have covered such a range of stuff today. It’s amazing. So we got the first one for the year all done. So thank you so much. Neely, really appreciate you joining us. You’ve brought an amazing perspective on consumers. And Albert and Tracy, as always, thank you so much for your time and all your thoughts and have a great week ahead. Thank you.

Tracy Shuchart

Thanks guys.

Albert Marko

Thank you.