Author: admin

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

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

So before we get started, I want to let you know about a new free tier we have within CI Markets, our global market forecasting platform. We want to share the power of CI Markets with everyone. So we’ve made a few things for you. First, economics. We share all of our global economics forecasts for the top 50 economies.

Tony Nash

We also share our major currency forecasts as well as Nikkei 100 stocks. So you can get a look at. What do our stock forecasts look like? There is no credit card required. You can just sign up on our website and get started right away. So check it out. CI Markets free. Look at the link below and get started ASAP. Thank you.

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

Hey, I’d like to make sure you know that you can access our AI driven market forecasting tool called CI Markets for free, no strings attached, and it does not require any credit card information. Go to completeintel.com/markets to subscribe.

Tony Nash

CI Markets is the perfect addition to your analysis toolbox. This free account includes Nikkei stocks, major currency pairs, and global economics. Of course, we offer much more in our paid account, but this lets you experience CI Markets before making a financial commitment. CI Markets uses the power of AI to help you make better trading investment decisions. It’s absolutely free. Again, go to completeintel.com/markets to subscribe to CI Markets free.

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

Hey, I’d like to make sure you know that you can access our AI-driven market forecasting tool called CI Markets for free, no strings attached. And it does not require any credit card information. Go to completeintel.com/markets to subscribe. CI Markets is the perfect addition to your analysis toolbox.

This free account includes Nikkei stocks, major currency pairs and global economics. Of course, we offer much more in our paid account, but this lets you experience CI Markets before making a financial commitment. CI Markets uses the power of AI to help you make better trading investment decisions. It’s absolutely free. Again, go to completeintel.com/markets to subscribe to. CI Markets free.

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

About a new free tier we have within CI Markets, our global market forecasting platform. We want to share the power of CI markets with everyone, so we’ve made a few things free. First, economics. We share all of our global economics forecasts for the top 50 economies. We also share our major currency forecasts as well as Nikkei 100 stocks. So you can get a look at what do our stock forecasts look like? There is no credit card required. You can just sign up on our website and get started right away. So check it out. CI Markets Free. Look at the link below and get started ASAP. Thank you.

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.

Year-End Sale is here! Get 80% off CI Markets subscription at $99 per year. Promo ends Dec. 31st.

This 2023 year-end special of The Week Ahead has a lineup of great guests, discussing topics to prepare you for the upcoming 2024.

1. Brent Johnson on 2024 Growth, Disinflation, Central Banks, and the Dollar:
We tackle the Fed’s stance; frankly, it’s a bit perplexing. With various opinions floating around, from 275bp cuts to just 2, the big question is, why the urgency if everything seems fine? Brent helps us get clarity on that.

We’re hovering around 5.5%, and markets are soaring, but what’s the rush? Brent sheds light on why 2024 might be “priced for perfection” and explores potential downside risks, from Fed miscalculations to unexpected Dollar strength.

2. Tracy Shuchart on Crude Quality:
Turning our attention to shale, Tracy dismisses the Texas export buzz but gets into a more interesting topic – crude quality. Tracy and Ralph discuss on Twitter the nuances of shale and the importance of understanding crude quality, especially with recent stories about Texas exports for tax reasons. What are the secrets of gassy wells and their impact on the market?

3. Albert Marko on Yemen-Red Sea Shipping Risks:
With rockets fired by Houthis, a coalition is formed to protect vessels, leading some shipping companies to bypass the Red Sea and opt for the longer route around Africa. Albert gives us the lowdown on how long this situation might persist, its reasons, and the potential impacts on shipping.

Join us for these insightful discussions and gain a clearer perspective on the year ahead.

Transcript

Tony Nash

Our year-end sale is here. Get 80% off of CI Markets Premium Subscription for only $99 for the whole year. Get AI-powered forecast of over 1,600 assets across stocks, ETFs, forex, commodities, and economics. With 94.7% forecast accuracy, this tool helps traders and investors like you make smarter decisions and plan portfolios better. This promo ends December 31st. Go to completeintel.com/yearend to learn more. That’s 80% off CI Markets at $99 per year.

Tony Nash

Hi, everyone, welcome to the week ahead. I’m Tony Nash. Today, we’re joined by Brent Johnson, Tracy Shuchart, and Albert Marko. As we head into the end of the year, we’ve got a few things we’re going to talk about today. In 2024, obviously, we’re looking at growth, disinflation, central banks, dollar. We’ll talk with Brent about that. With Tracy, we want to talk a little bit about fracking and crude quality and the surge of exports we’ve had out of the US and Texas lately. Then with Albert, we’ll talk to you politics, and we’re looking at the Yemen, Red Sea shipping risk and what’s really happening there and how long it will last. Guys, thank you very much. I know we’re headed into a holiday weekend, so I appreciate you taking the time.

Tony Nash

Brent, and again, thanks for joining us again. I want to start with the Fed because we had this meeting last week where everything’s doveish now. I honestly don’t know what to think about the Fed. Are we higher for longer or not? I saw one bank, it’s a European bank, so that helps you to understand, but saying that we’ll have 275 basis points of cuts in the first half of the year. It seems ridiculous, but I think nobody really knows if we’re going to have five cuts in ’24 or two cuts or no cuts or whatever. Bostec was out earlier this week saying that we’ll have two cuts, but we have other Fed presidents saying other things. I think we’re in this mode where I don’t even think the Fed guys are aligned on what they do. I guess what I’m confused by is why is there so much hope for cuts when we’re told that growth is fine? We’re told that inflation is fine. We’re told that retail sales are fine. PCE in Q3 was just adjusted to 2%, so PCE is fine. We’re at a 5.5% Fed rate and markets are flying. Why the urgency now?

Tony Nash

I put this tweet up on the screen. Some of the deep sale capital, I don’t know who that is, but they basically boiled this question down and I wanted to prep you for this. So why the urgency now, Brent?

Brent Johnson

Well, it’s a very good question, and to be honest, I’m really not sure myself. It was a very fast change of tone from Powell. On late November, early December, he was hired for longer and two weeks later, he says we’re considering cutting rates, basically, and didn’t push back when people challenged him on it. There’s clearly something going on. I’m not quite sure what it is. I have a couple of theories. I think the most prominent theory right now is that it’s political, right? They don’t want to have a recession going into a presidential election. And if we had a big recession right in front of it, that could be bad for Biden, and that could be as a political move or vice versa. There’s other people on the other side are saying if he goosees the economy going into the election, that’s political, too. But I think that could be part of it. I think the other part of it is that potentially they have access to information or they see some things coming that the rest of the market doesn’t. And if they are going to be cutting after so recently saying that’s hire for longer, they must see some bad things on the horizon that nobody else sees or the rest of us don’t see.

Brent Johnson

And one thing I would say is I think the market has reacted correctly directionally to the news, but I think the magnitude of the moves have gotten way ahead of themselves. So equities rallying on a doveish pivot from the Fed makes total sense. And this goes all the way back to the previous Fed meeting because they were somewhat dove-ish in that meeting as well. And markets have gone straight up for six weeks. Yesterday was the first significant down day in a really long time. And so to me, everything is priced to perfection right now, and we just live in a very imperfect world. So I agree with the direction. I disagree with the magnitude. And for me, it’s easy to decide what to do right now, and that’s to do nothing and to, if anything, hedge the downside. Because to me, everything’s priced in to the upside already. The other thing I would say is that some of the criticism of the Fed is warranted, but some of it is not. And the thing is, regardless of what the Fed does, they’re going to get criticized. There’s a whole industry that has been created and designed to criticize the Fed regardless of what they say.

Brent Johnson

Let’s say they do see some slowdown in the economy coming. At the end of the day, the Fed wants to slow the economy. That was the whole point of the rate hikes to begin with. That is the way they thought that they could tame inflation. But while they want to slow the economy, they don’t want to crash the economy. They don’t want to have a global financial crisis that they cannot control. And so if you take that into effect and you consider how far they went in such a short period of time from 0-5.5 %, and now let’s say that they see some success, they think the economy is going to start to slow, but they don’t want to crash the economy, then it does actually make sense to start before you get to the 2%. He even said that in his press conference, If we don’t start cutting before we get to 2%, then we risk going past 2% and getting into severe deflation, which they don’t want severe deflation. If you think about it like landing a plane, you don’t want to land the plane going full speed. You do want to come in on a smooth path.

Brent Johnson

And so maybe there’s some of that going on as well. And the final thing I’d say just on this is that the people at the Fed are not stupid. Now, they may be misguided, they may be out of touch, they may be arrogant, but they’re not stupid people. And so if they are now signaling that no more hikes and probably cuts, there’s probably a reason for that. And I think people should take that into account when they’re buying the all time highs and all these assets. Oh, yeah.

Tony Nash

Go ahead, Tracy.

Tracy Shuchart

I have a question, Brent. Do you see a scenario which we’re going into an election year? Obviously, there’s a lot of political things going on. Nobody wants the recession heading into this next election. But do you see a scenario in which we have Fed cutting, you have Yellen still issuing bonds, and obviously fiscal spending is not going to stop. So do you see a situation where this could reignite inflation?

Brent Johnson

Yeah, potentially. It all depends on why they are now moving to cuts, right? If they are moving to cuts because they are trying to combat this deflation that they see on the horizon, then it just depends. If the deflationary forces outweigh the cuts that they’re doing, then you could still get deflation. But if those deflationary forces don’t show up and they start easing again, it definitely risks the possibility of a further acceleration of inflation. I think that’s the last thing that Powell wants, which is why I feel like there must be some reason that he’s risking inflation reaccelerating. I wish I knew what it was. I don’t. But it’s a very good question. And that’s what’s got me thinking the most is because nobody thought he would go to five and a half % in 12 months, but he did it. And nobody thought that he could do it without crashing the markets, but he did it. I think the reason that he did that is he didn’t want to be another Arthur Burns. I think his legacy is extremely important. He’s already got all the money in the world. He doesn’t need any more money.

Brent Johnson

The only thing he has to protect at this point is his reputation. I think that’s a big thing for him. For him to risk inflation reaccelerating, I think he must see something that perhaps the rest of the market doesn’t see.

Tony Nash

Yeah. Before Albert jumps in here, I want to say a couple of things. First, I agree with you that although I mock the Fed on occasion, I actually think they’ve done a really good job of getting us into this zone of acceptability. It’s taken longer than a lot of people wanted to, but the magnitude of their actions was actually really fast. I think they could have hugely miscalculated, and I actually don’t think they did terribly. Because these are broad policy decisions they’re making. You don’t really know where it’s going to hit. They actually, I think, did a really good job, despite a lot of their personal defects or whatever. Like you said, they are smart, and they did a pretty good job of landing us where we are. I do think, though, I hear you say the election year, but it is pretty normal to hike in an election year. If we look historically, it’s not a completely abnormal thing. Of course, we didn’t see that in 2020 because we had COVID, right? But it’s not abnormal to hike or for the Fed to adjust monetary policy in an election year. Is that right?

Brent Johnson

I don’t think it’s abnormal. I don’t think… No, I think you’re correct. I don’t think it’s abnormal. I just think we live in abnormal times where everything is managed now. From the last, let’s just call it 1980 to 2020, we lived in a world that was globalizing and getting closer and working closer together. For the last four years, we’re now in a world that is fracturing and supply chains are not getting more efficient, they’re becoming less efficient. And we’ve got geopolitical issues that we didn’t have the whole time back then. I just feel like… And as a result and the fact that the debts have gotten so big everywhere. And this is what I don’t think a lot of people realize. There’s a lot of people out there who think that inflation is here to stay and 2020 was a game changer and the government’s response ensures that we’re always going to have inflation. Listen, I can’t say that that’s not true. Maybe we will have inflation going forward. But with the type of system that we have in a debt-based monetary system, you always risk deflationary shocks. Because if the economy is not moving and money is not circulating, you will get defaults.

Brent Johnson

And when defaults happen, there’s always the risk that it becomes contagious and it jumps from one place to the other.

Tony Nash

Yeah.

Tony Nash

I want to talk about deflationary shock in a second. Albert, what have you got?

Albert Marko

I mean, I agree with Brent. 80, 90% of what he says is pretty much correct, but going… I’m one of those guys that I like to look at who’s in charge and what have they done in the past. For me, Yellen has been doing the exact same playbook as she did in 2017, where she took the VIX to 9.7%. She had 12 weeks. I looked at the chart, there was 12 weeks of up markets at that time. It was crazy.

Albert Marko

Trump at that point with Minuchin, ousted her. They just got rid of her. They didn’t reappoint her for the position, so she was done at that point. But the biggest thing that we should learn this year is the Fed wants inflation. The reserve currency guys don’t do debt jubilee, so they’re using inflation to do whatever soft landing plans that they have in the mix to cut corners off your currency. They had multiple chances to cut inflation all of last year, in which they’ve emphatically passed each time. Now we can debate whether it’s economic problems on the horizon or political strategy by certain members of the Fed and the treasury, that’s something else. But for me, US stocks love 1% GDP growth, which by definition means 65% of the rest of America is already in a recession. I mean, nobody wants to discuss those things. But going into an election year, we’re definitely going to hear more about it. I just don’t see inflation easing up. I’ve talked to quite a few people that are connected up into the Fed, and they’re looking at inflation and starting to worry once again. Cutting rates is a very dangerous game with inflation still problem, in my opinion.

Tony Nash

Okay.

Brent Johnson

Can I just follow up really quickly? The other thing, again, I think the markets have reacted correctly directionally, but just the magnitude is way too big because you got to remember these dot plans. It’s just what each person thinks at that time. They can change their mind. It’s not a unanimous thing. They don’t all agree on the dots. Again, it is true that if you don’t want to crash into 2% and you want to glide into 2%, then you probably want to start cutting as you get closer to it. But if we don’t see continued movement towards 2% inflation, we’re not going to get all these cuts. In other words, all these cuts are not guaranteed. That’s where I think the market has just gotten way ahead of themselves. I think that while they haven’t necessarily misinterpreted the Fed, I think they have misinterpreted the Fed’s intention to not let inflation just totally run away again. Now, again, it doesn’t mean that that won’t happen. It doesn’t mean it won’t get away from them. But I don’t think that they have just all just pivoted and said, We’re cutting rates no matter what, inflation be damned and we’ll just deal with the consequences later.

Brent Johnson

I think they’re trying to get this off landing is what they’re trying to do.

Albert Marko

Without question, they’ve said that over and over and over again for two years. There’s no question they’re trying to do that. I think the magnitude of this mood, this is a question for you, Brent, is that you think a lot of it is to do with just the liquidity of the market in this time. Right now is the holidays, nobody’s really there, things can move quickly.

Brent Johnson

I think it’s that, but it’s also, again, directionally, I think it makes sense, but the dollar has sold off a lot. And as the dollar sells off, that provides liquidity to the whole world. And that’s why you’ve seen financial conditions ease so much. And part of it is also that everybody’s just front running the Fed. They’re not front running the ECP. They’re not front running the other central banks. And the idea that the Europe, which is already basically in a recession, is going to outhawk the Fed over the next year to me just doesn’t make a lot of sense. And so if we get a bunch of cuts, then what the dollar has done and what the equities has done makes sense. But again, these are all priced in, but they’re not guaranteed. And we could very well be in a situation where Europe is cutting aggressively in order to fight their recession, in which case the dollar probably rises versus the euro. Again, I think 2024 is going to be much more challenging than 2023. And in fact, I think could look a lot like 2022. I think we could have a lot of volatility in the first half of the year.

Brent Johnson

And then as we go in towards the second half of the year and the election, things perhaps calm down a little bit. But I think the first six months are going to be very volatile.

Tony Nash

Yeah. One of the things that whenever we talk about the Fed and what the rate intentions are is Powell and the Fed have said they want to normalize rates. We had ZERP and NERP and all this other stuff. Five and a half %, to be honest, historically, is not a high rate. If we’re normalizing rates, if we see cuts coming, what is that normal rate? Is it two and a half? We don’t really know the answer to this, but we don’t have, let’s say, the demographic issues that Japan has where they have to have NERC to make up for productivity. We don’t have the demographic issues that Europe has where they have to have low interest rates to make up for a lack of productivity. Similar argument could be said for Korea, China, at least in the next year or so. Five and a half %. I hear people act like these interest rates are extremely high, but really from a historical perspective, are they?

Brent Johnson

They’re not high from a historical perspective, but what’s different from previous times in history, where they were at this level, is the level of debt and the level of debt that was taken on at very low rates. What I mean by that is there’s a lot of debt that let’s just say, that was issued sometime in the last 10 years, 5-10 years. It was issued when rates were zero to one and a half %. Now that they’re getting reset with interest rates at five and a half %, perhaps their car payment is going, I’m just making something up. Or their mortgage goes up from a $500 payment to an $1,800 payment or whatever it is. The speed with which rates went up and the speed and the magnitude of the difference of where the debt was initially taken on and where it’s being rolled, I think, is much different than in previous points in history where interest rates are at these same levels.

Tony Nash

Right. Okay, that’s fair. Before we get. Into the next-

Brent Johnson

I’m going to jump up and turn these shades down because the sun is still coming right in my eyes.

Tony Nash

Okay.

Albert Marko

That’s something that I don’t see in Nebraska very often.

Tony Nash

That’s right.

Brent Johnson

That’s right.

Tony Nash

Brent, while you’re doing that, I want to ask a question about Japan. Okay. We’ve had all sorts of discussion about the Bank of Japan and them potentially tightening, taking on different tightening activities. But why would the BOJ tighten if we have a Fed that’s loosening? Because that effectively makes them uncompetitive in terms of exports. We’d see the Yen jump dramatically in value. From an export perspective, their competitors are Taiwan, Korea, and China. Those guys are not putting on tighter. They’re not tightening at all. So it doesn’t make sense to me that Japan would start tightening right now. Does that make sense to you? I hear the chatter every day, but I can’t quite put it together why they would start doing that.

Brent Johnson

Well, I think part of the reason that they were doing it was the currency fell 30 % in two years, which that’s an absolutely enormous move for a major currency. It’s not totally unheard of for an emerging market currency, but for the let’s call it the second or third biggest currency in the world, that’s a massive move. And then for the first time in literally decades, they were starting to get inflationary pressures in Japan. And so I think there was some pressure. The currency just kept falling, starting to get inflationary pressures. I think there was some political pressure internally to get off of zero and get somewhat… I mean, again, if you even go to half a %, that’s nowhere near normalization, but that’s a big move for Japan. I think that is part of it. But I agree with you, Tony, is that they can’t really strengthen their currency a lot. If they raise rates too much, their entire banking system comes under pressure because their banks, their pension funds, their endowments, all these different local insurance companies, they own trillions of dollars of zero and negative yielding GBs. They would face the same thing.

Brent Johnson

They would potentially face the same thing in Japan that the US banks faced last March. Rates go up, the bonds fall. If the banks then have to start liquidating those bonds, those JJBs that are now completely underwater, they could have… They can not out-hawk. They can out-hawk the Fed or some other on a short term relative basis, but they are not going to get to a point where their interest rates are higher than these other central banks because it would just decimate their economy.

Tony Nash

We’d have BTFP to the 10th power or something like that.

Brent Johnson

Right, exactly.

Tony Nash

Okay, so I want to take a look and all of you guys jump in here. But Brent, you say that 2024 is priced to perfection. What do you see as the biggest potential downside risks, and I’ll name a few, but let me just name a few things. Fed miscalculation, unexpectedly strong dollar, which you mentioned in a tweet, I don’t know, last week or something, US commercial real estate, US election related volatility. By that I mean fiscal overspending, political overreaction, that thing. Bank of Japan changing really anything. China real estate, CCP miscalculation, German de-industrialization, Middle East geopolitical risk, oil prices. There’s a lot out there.

Brent Johnson

That can- All that stuff. All of that stuff. And that’s the thing is I don’t know what it’s going to be. I just know that there’s all these potential things that you just rattled off. I mean, there’s a couple of dozen right there, and yet the markets are priced as if everything’s beautiful and there’s no potential problems on the horizon. Markets do, they climb a wall of worry. I’m not saying we’re going to have a collapse next year. I’m just saying that everything is priced as if all these cuts are for sure, as if Europe is not going to start cutting rates, as if there’s not going to be any problems in China or Japan, and as if geopolitics is all going to just take a rest and have no more blowups. And I just don’t think that’s the world we live in anymore. And I think it’s more likely than not that we’re going to have some an outbreak of volatility. Now, whether that takes place in the Middle East, which I think Albert is going to talk about, whether it takes place in Japan because they’re messing around their interest rates, whether it happens in the US due to commercial real estate, I’m not smart enough to know that.

Brent Johnson

What I do know is assets are all the way back to where they were two years ago. They’re back at their highs. Volatility is almost as low as it’s been, not quite as low as what Albert was talking about with the Ellen five or six years ago, but very low historically. History has taught me when everybody is doing the same thing, that’s about the time that they’re going to get hit upside the head. To me, it just makes sense to be prudent right now. Again, this is not advice, but just as an example. Right now, basically, every asset class is within 10% of where it was January first, 2022. And the VIX is very low. Now we’ve got interest rates at five and a half %. We’ve got geopolitical problems, all these things that you mentioned. You can buy a put on the S&P 500 that is 1% out of the money through June. Six months duration, 1% out of the money, and it will cost you 2% of your portfolio. Let’s pretend that I’m wrong. There’s no volatility in the first half of the year and markets rip another 15, 16%. Okay, so now you’re up 13 while everybody else is up 15 or 16.

Brent Johnson

That’s not horrible, right? You still made money. But if we do get some volatility and we don’t have this perfect market that everybody seems to think we’re going to get, and we have a repeat of the first half of 2022 and 2024, and equities are down 10%, 15%, 20%. Now you’re down one or two. I mean, to me, that’s a pretty good risk reward. With assets the way they are right now, I’m much more inclined to buy protection than to put on leverage.

Tony Nash

Great. Tracy, of those things that I mentioned, what are you… Or other things, what are you looking at as risks for ’24?

Tracy Shuchart

I think commercial real estate is definitely a risk. How that pans out in the market and does that cause a contagion in other areas? I think everybody sees that right now. That’s been an ongoing saga. But how that plays out will be very interesting. Will the treasury or the Fed have to get involved again? As they did in March with SPV Bank failing, are they going to let the commercial real estate market fail entirely? Or these banks that are backing the loans, I should say. I think that’s definitely something to watch out for, but I think that’s a freight train everybody’s already watching, to be honest. I do think that if the government or the Federal Reserve has to get involved on the banking side of the issue, they definitely will. But again, does that cause a contagion in other markets? We’ll have to see.

Tony Nash

I just saw a story. I mean, this is pretty common everyday. Some building in L. A, the value is like 50 % of the loan value. And so this is common, right?And so-

Brent Johnson

Well, Tony, I’ll give you a good real world. I’m back in San Francisco now for the holidays, and this is a hilarious story. The office that I used to work in when I lived here was in the old Federal Reserve Building in downtown San Francisco. Right. And it was privatized years ago. And in January of 2020, when I was still working there, the landlord of the building or the owner of the building sold literally January of 2020. Think about the timing on that, right? Perfect. And so he timed that perfectly. And now the owner, a couple of months ago, turned the keys back into the bank, just not making any money, can’t meet the mortgage, gave the keys back to the bank. I was going to go into the office, but I didn’t because the bank is now running the building and the heater blew up and they haven’t fixed the heater. So there’s no heat in the bulding.

Tony Nash

It’s always HVAC and stuff like that that these guys skimp on.

Brent Johnson

Yeah. That’s just one example. Now, does that mean that’s happening to every building? No, but I’m sure it’s not the only one either. My colleagues have already said that when their lease is up, I don’t know if it’s this year or next year, they’re not planning to renew it because they’re mainly working from home anyway or they’re working remotely, and the bank is not doing a great job of managing the building while they have it. Anyway, I just wanted to give that little anecdote.

Tony Nash

Yeah. No, this is what we’re seeing. A lot of this has happened because of work from home and people just aren’t filling these buildings to capacity or close to capacity like they had. Albert, what are you looking at for risks in ’24? You’ve been talking particularly about banks, US banks for a month or two. What are you worried about within US banks and what else are you worried about?

Albert Marko

A little bit of what Tracy was talking about the commercial real estate and the loans and whatnot. I think from what I hear, Bank of America is in pretty deep trouble. Whether they’re in Solomon or not is quite a question that probably we’re going to have to look at in 2024. Now, do I think they’ll fail? No, because Powell likes to bail everybody out. But any rumors or murmurs of Bank of America, insolvent would definitely cause the market to take notice.

Tony Nash

Right. Between big banks like B of A, between the regional banks, between commercial real estate, these are probably the things that you guys are looking at.

Albert Marko

Yeah. As layoffs kick in, loans start defaulting, debt starts going higher, credit card debt goes up. I mean, it’s just it’s snowballs at that point.

Tony Nash

Well, the other thing is we don’t have the perpetual noise every day of inflation is rising. Companies can’t go out and put a 5% price rise or 10% price rise or whatever like they were doing in ’21 and ’22 and even early ’23. I think I was looking at General Mills. There was something, so announcement from General Mills yesterday, and they were saying, Hey, we can’t change the price by volume anymore because consumers won’t take it.

Albert Marko

They had those tailwinds of inflation that helped earnings, but that’s certainly gone. Earnings in the first two quarters of 2024 are going to probably be really bad.

Tony Nash

Right. This brings me to a tweet that Brent that you sent out earlier. You said, One thing to remember is you don’t need a flood of new sellers or buyers for the stock prices to begin to fall or rise. You just need an absence of new buyers or sellers to show up. Whether that’s products for General Mills or whether that’s equities, if buyers don’t show up because of these risks or because we’re not getting this perpetual noise that we need to be afraid of inflation, we could see things change pretty quickly, right?

Brent Johnson

Yeah. Again, this is why when markets get to an extreme, whether an extreme high or an extreme low, that’s why they typically reverse, right? Markets don’t move in a straight line. I actually believe that we’re going to see equity, much higher equity prices in the years ahead, but I don’t think that we’re going straight higher from here because markets pendulum swing, and it’s when you get to clear to one side, that’s what provides the energy to then swing it back the other way. At the end of October, we do a weekly show with my friend John, and we were talking about how sentiment had gotten pretty low. It wasn’t totally low, but it was close. It wasn’t extreme, but it was getting pretty close to extreme negative. We said it wouldn’t surprise us if the market bounced a few weeks coming out of the Fed meeting because markets don’t go in a straight line. Now, since then, and so we got the two weeks, which I was expecting I was not expecting the subsequent three or four weeks that we have now got. But now markets are up until yesterday. Everything switched yesterday and we’ll see what happens over the next week.

Brent Johnson

But markets had gotten more extreme to the upside than they were to the downside as far as sentiment and relative strength and all these different ways to measure where you’re at on the positive or negative had gotten even more positive than they were negative back in October. And so the speed with which things move now, that’s something else that’s a little different. Over the last four years, the speed with which we swing from positives and negatives, I think, has increased dramatically from where we were 20 years ago. Yeah. Everything moves in unison. It used to be that you’d have a sell-off and maybe you’d stay down for two or three months, and then it might take six months to build all that back up. But now you get huge 10 % swings. It’s not that common to have 10 % months in equities. It happens at either. But typically, though, it typically happens in big bear markets because you’re rallying from oversold levels. I just feel like that the swings that we’ve had over the last four years, if you go back and look at the charts, they’re just like big Vs and Ws. There’s not a lot of use in there.

Brent Johnson

There’s not a lot of ends and use. I think that’s the world we live in because, again, we’ve gotten to the super debt cycle where the debts are so big that if the central banks and the monetary authorities and the governments don’t react quickly, you’re going to get some very, very bad things happen. I don’t know if that helps move the conversation at all, but I just think that that’s, again, where we’re different now than we were maybe 20 years ago.

Tony Nash

Yeah, absolutely.

Albert Marko

We’re seeing that in everything, even like oil. I’ve been watching oil a lot lately.

Brent Johnson

Yeah, perfect example. Perfect example.

Albert Marko

I’m like. How are we having 5% moves on day-to-day basis? This is crazy.

Tony Nash

Right. Albert, that is a perfect segue to move to Tracy. Tracy, let’s talk about crude quality and shale. I saw some stories earlier this week about how Texas is exporting a bunch of shale this month for tax reasons or whatever. You said it’s boring, which is fine, but it’s interesting to see those levels. I’m curious about shale and the quality of crude that we can get or that we’re getting from shale. On the screen, we’ve got an exchange between you and Ralph, who comes on the show pretty regularly on crude quality and gassy wells and this thing. Can you talk to us about that and why it’s happening and why it’s important?

Tracy Shuchart

Yeah, absolutely. When we’re talking about US shale right now, and we’re seeing all these rig declines, but we’re seeing US shale volumes increase because of better technology and whatnot. I won’t go into the minutiae of how they’re drilling these wells. But what happens is when you do that, yeah, you’re producing more, but what is happening is that what you are getting out of these wells is gas here and gas here. What I mean by that is that you’re producing more natural gas liquids, which is technically not oil. Those are things like natural gas, propane, and other things that you can use for chemicals, but you can’t use that as an oil substitute. Over time, what is happening, because we’re trying to stretch these wells out, these well productivity out, is that what we’re getting out of these wells just happens to be lighter and lighter and can’t be used for necessarily the same things that oil could be used for. In other words, you can’t use it to refine gasoline out of, but you can use it at a chemical company to refine chemicals out of. It’s a different makeup of what these wells are producing.

Tracy Shuchart

As they try to stretch this, we’re getting more and more of this type of product.

Tony Nash

Okay, so why does that matter? How much of what comes out of a well is used for gasoline versus other chemical products?

Tracy Shuchart

I mean, that’s a very loading question because it depends on, is it oil sands? Is it US Shell? Is it deep water? That’s totally going to matter because they’re totally different crew quality. But what that matters is that when we’re looking at these numbers, Shell is a 13 million barrels a day plus right now. Everybody’s like, Oh, Shell is back. They’re producing more than ever. But again, it’s not actual product that you can use for traditional oil-producing products and other. I mean, it’s great for the chemical industry because that means they can buy more and it’s cheap. It’s great for that industry.

Tony Nash

I just want to go back. You said if we see that, say, Texas is producing 13 million barrels a day, those barrels are not necessarily… It’s not necessarily oil.

Tracy Shuchart

Correct. They count NGLs, which are natural gas liquids, into the entire food production. This is what some people had a problem with EIA and how they were reporting it. They made a little bit of change that just came into effect this last month that basically they segue out the difference between what is actually an NGL and what is traditional oil, so to speak, within the weekly reports now. You can see that number even just over the last month has grown.

Tony Nash

Okay. What does that mean for these upstream companies in terms of profitability? If there’s more crude in those barrels, do they make more money?

Tracy Shuchart

Well, I think-

Tony Nash

Sorry to be so basic.

Tracy Shuchart

I just want to know. No, I think how you have to look at this is that… Really, I think it comes down to mergers and acquisitions right now, to be honest with you. If we look at this, we have a ton of big deals that went on this year. I think if you look at the Dallas Fed survey just released yesterday, 77% of all of those producers surveyed said, Yeah, we’re going to expect to see more M&A. You can see this. If you look at what’s the survey of how much do you want to produce, you see all these smaller companies are planning to produce as much as they can. All the majors don’t want to produce anything and are just looking for acquisitions. I think that’s really the dynamic we’re seeing right now is we’re having all these smaller to mid companies trying to produce the heck out of these wells, so they look productful so that they get bought out by the majors. I think that’s what’s happening in the industry as far as production is concerned. I think it all boils down to business right now.

Tony Nash

Okay. Why are they pushing to be acquired? Are they largely debt-funded as companies?

Tracy Shuchart

Not necessarily, but the deals that are going down right now are huge and way more than you’re making if you’re a small company that’s basically just producing NGLs at this point. If you make your wells look more productive, you get these billion-dollar deals going on. That’s very attractive to you.

Tony Nash

Okay.

Tony Nash

But there’s no bond- Go ahead.

Brent Johnson

The majors are buying them.

Tony Nash

Go ahead, Brent.

Brent Johnson

Sorry to interrupt. But the majors are buying them. They’re basically buying new revenue, right? Correct. Because they’re not growing themselves, so that’s why they’re okay.

Tracy Shuchart

Exactly.

Brent Johnson

Yeah.

Tony Nash

Great. Okay, that’s good. Thank you for that. I think it’s a lot more complicated than I’m used to seeing. I’m not an energy expert like you are. Sorry for the dumb questions, but I just need to make sure that this is happening.

Tracy Shuchart

No dumb questions.

Brent Johnson

Can I ask you a question? Can I ask you a question related to that? Is there a… I’m sure there is somewhere… Are you familiar with estimates of how long these shale companies can pump at this magnitude? Is it two years? Is it three years? Is it seven years?

Tracy Shuchart

I mean, those estimates used to be a lot shorter, but with new technology, they’re pushing that. It’s like energy, what is it? Gasoline efficiency. We’re just pushing out the miles. But you have to realize most of the tier one acreage is gone. We don’t have… We don’t have a new auction after yesterday until after 2025 because that’s gone. So as far as federal lands are concerned, and so basically, they’re pushing… It’s the pedal to the metal right now. It’s like, let’s get out everything when we can. How long that can last? I can’t tell you for sure, but I can say that it’s not forever.

Brent Johnson

In general, it’s lasted longer than a lot of people expect it. Is that right?

Tracy Shuchart

Absolutely.

Tracy Shuchart

Yeah, absolutely. That’s because of a lot of the new technologies that have come within the industry as well. You have to factor that technology in when you’re looking at these wells. Five years ago, we probably wouldn’t have been where we are today had it not been for… Probably would have already seen a decline in other words.

Tony Nash

Tracy, in the state of Texas, where I live, there really isn’t much federal land. It’s almost all private. There’s a small amount of federal land. When you talk about the federal auctions, how much does that impact a place like Texas where there’s a lot of fracking?

Tracy Shuchart

Well, it doesn’t necessarily. Most of your federal auctions are going to be in New Mexico, Wyoming.

Tony Nash

Colorado.

Tracy Shuchart

Colorado, Gulf of Mexico, offshore. That’s where most of your federal lands are coming from.

Tony Nash

Okay, very good. Okay, thanks for that. It was hugely informative. Thank you so much for that. Let’s move on to geopolitics. Albert. Okay, everyone’s a –

Albert Marko

Boring.

Tony Nash

Sorry.

Albert Marko

Boring, boring geopolitics.

Tony Nash

No, not at all.

Brent Johnson

Nothing going on there at all.

Tony Nash

There’s nothing going on here.

Tony Nash

Everyone’s a Red Sea expert this week, of course. Houthis fired rockets and vessels. You guys know the story. Now the US has a coalition that will protect ships in the area, supposedly. Several shipping companies, particularly Europeans, have opted to go around the Horn of Africa instead of transiting through the Red Sea to go through the Suez Canal. What’s going on here? I’ve heard some ideas that this coalition of European vessel owners is really trying to strong-arm DOD to do some things they don’t want to do, that thing. What’s really happening there and what are the impacts?

Albert Marko

Well, I mean, the Houthis, because of the Israeli-Gaza conflict, decided to enter the fray and show the world that they’re an actual force. I mean, realistically, they’re not. They couldn’t really hit Israel as much as they are yapping like dogs that they were going to destroy parts of Israel. So they started taking aim at ships that were destined for Israel. But they don’t really know which ships are going where. You’d have to be an expert with the-.

Tony Nash

Or just aim at Zim.

Albert Marko

Yeah, exactly. It’s just… It’s one of those things where the Iranians wanted to influence the area, and they used the Houthis as a proxy. I mean, it’s an age-old problem, going back 50, 60 years, where Yemen has been a launch pad for communist insurgencies within Saudi Arabia. So this is nothing new, right? The problem is these ships have insurance requirements, right? And once you enter a conflict zone, those insurance coverages evaporate. So for the ship owners, one, it’s not very safe to try to go through there and God forbid, a ship gets sunk and then you lose everything. And your insurance doesn’t cover it, you’re completely out of business at that point. Realistically, the cost of the Suez Canal passage versus the diesel that they’re using is pretty much even. It’s just a time factor at that point. There’s issues if you’re carrying oil to Rotterdam from the Middle East that the price can sway significantly in that time frame. Those issues are to be assessed by the ship owners. Now, I have a fear that the US might get a little bit brave and start attacking some of the Houthis positions with drones or missile strikes or so on and so forth, which would probably affect the price of oil going into the market.

Albert Marko

And the markets would probably sell off new US war. It was quote-unquote. But I don’t really give that more than a 50, 60% chance, but it’s still there. Certainly there.

Tony Nash

Their Air Force is like F-4s made in the ’60s or something, right?

Albert Marko

I mean, it’s a joke. I saw that tweet and I’m just like, They’re like, Bring it on, America. I mean, we can send some kids to PlayStations, hooked up to DJI drones to take those out. I mean, that’s a joke. Yeah.

Tony Nash

Right. So I remember this close friend going around for the past day or so where it’s George Bush from 2001 or whatever talking about the coalition. And then he says, Now watch my golf drive, or something like that, right?

Brent Johnson

Yeah.

Tony Nash

And it was like the perfect early 21st century American moment. And at that time, a lot of these countries jumped into the coalition, whether they felt forced to or supporting America or whatever. But the sense I’m getting is that the Europeans, although they have claimed to be part of the coalition, they’re not really doing that much.

Albert Marko

This is a perfect example of a unipolar world where the dominant superpower of the United States conducts maritime security globally. Nobody else can do that. And you can see that from the-

Brent Johnson

I’m glad you brought this up. I’m so glad you brought this up.

Tracy Shuchart

Seychelles jumped on this.

Tony Nash

Seychelles are the difference-maker in this coalition, right? They are going to-

Albert Marko

Yeah. This is why the US is a reserve currency. This is why we are a unipolar world still and for the foreseeable future. There is nobody else that can send ships and rockets and the helicopters and manpower globally to choke points that trade flows through. This is the United States’s world and we’re seeing it right now.

Tony Nash

Yeah, but the PLA has thousands of ships, 94 % of which are small fishing boats, right?

Albert Marko

Oh, yeah. tonnage matters at some point. Whenever you talk to a real military expert, tonnage matters. When you have 21 aircraft carriers versus 5,000 fishing boats, they’re not going to matter much.

Tony Nash

Right.

Brent Johnson

Well, I think this is important, I think, for people to think about because I obviously get in a lot of these debates regarding the US hegemony and still a unit of polar power and the US dollar. And I’ll often get the comment that aircraft carriers and Navy Forces are no longer important due to hypersonic missiles and all this nonsense. But here’s the thing. Number one, I don’t believe that that’s true, but let’s just pretend that it is. Let’s just give those people who say that the benefit of the doubt and let’s say that is true and some a large war scenario, they’re sitting ducks. Well, there’s a lot of stuff that goes on that’s not a large war scenario. And the fact is that the US Navy for several decades has kept the shipping lines open from things like the. Remember 10 years ago, Captain Phillips and the Ethiopian pirates? That has helped keep prices down for everyone, not just for the United States. Now, does it benefit the United States? It absolutely benefits the United States. They’re not altruistic in this, but it helps the rest of the world, too. And if the US was not the hegemon and was not doing this, prices would be higher everywhere.

Brent Johnson

Insurance rates would be higher everywhere. The lead time to get shipments from around the world would be much longer. And so I think that’s one-.

Tony Nash

And insurance would be higher, right?

Brent Johnson

The insurance would be dramatically higher. And so that has inflationary effects, right? And so this whole thing that Albert is talking about with the Red Sea, this has the potential to keep rates higher for longer with the Fed. This is how potentially Fed rate cuts might not happen as quickly as are forecasted, or even if the Fed cuts do come, may not have as significant impact on the markets because of what’s going on. In other words, they may have to be cutting in order to protect against deflation-based monetary forces as a result of market selling off because oil spiking and there’s more geopolitical conflict in the Red Sea and the greater Middle East. And so this is just another part of what I was saying earlier is that markets are priced to perfection based on monetary policy, but there’s a lot more going on than just monetary policy. And there’s so many different ways that this can go wrong. It doesn’t mean it will go wrong. It just means I think markets move on expectations and they are now fully expecting the markets are fully expecting several cuts. And if those several cuts don’t show up, markets are not going to be at the same levels they are right now.

Albert Marko

They’ve been wrong for two years on this pivot, pause, cut, so on and so forth. So I have no trust on these five, six Fed cut stories out there.

Tony Nash

275, basically.

Albert Marko

Okay, sure.

Tony Nash

Okay. Guys, I want to talk more broadly about geopolitical risk, okay? Because I don’t know that a lot of people understand. When the 2008 financial crisis hit, investment banks just gutted their geopolitical risk desks. Since then, I don’t know of really any major banks that have, maybe credible is too strong of a word, but credible geopolitical risk analysis. A lot of that’s been outsourced to relatively small firms. Am I wrong on this? I don’t feel like we really get a lot of credible geopolitical risk analysis from the banks, from the guys who should be able to price risk. Am I off there?

Albert Marko

They don’t. Goldman Sachs has a new geopolitical division. I really haven’t talked to them or seen what they’ve written, but just going on from previous interactions with the financial industry and geopolitical analysis, it’s been truly awful. It stems from them being so polar opposite, where finance guys absolutely do not believe that geopolitics makes a difference up until about six months ago. And now they’re flipping because they’ve gotten blown out in their portfolios and they have to blame something and it’s geopolitical. So now they’re all going towards the geopolitical analysis, but they’re not good. Still not good.

Brent Johnson

Well, not only that. You got to remember the investment banks that put out research and the big commercial banks, they’re basically sales pieces. It’s very hard for an analyst at a major firm to come out and say something very negative. It’s not impossible, but it’s not easy. And even when they do try to put out something negative, their higher ups will say, hey, can you smooth this out a little bit? Can you say this a little bit softer? Because at the end of the day, they want people invested. They want people buying things. They don’t want people to hunker down and do nothing, right? And so I tend to agree with your point, Tony. They don’t really have these groups to begin with. But even when they do, you’re not going to get the same unvarnished truth that you would at perhaps an independent geopolitical firm.

Tony Nash

And so we’ve got small geopolitical firms largely based in New York or DC or London. I used to be with one of them, and these are not people who have field experience, none. They’re basically, it’s secondary research. They’re largely reading, and I just want to make sure that our viewers understand this, they’re largely reading English language publications in these countries to come up with their assessments. They don’t really know what’s going on. It’s filtered through English language, whether it’s Reuters or some local newspaper or something like that. That’s really what geopolitical risk is today with the geopolitical risk firms that you know that can come out. We don’t need to name names, but the ones that come off your tip of your tongue.

Tracy Shuchart

Or even worse, the big think tanks.

Tony Nash

In the US. Sorry?

Tracy Shuchart

I said, Or even worse, the big think tanks in the US, and I’ll just say that and I won’t name names.

Tony Nash

Well, no. I mean, look, the big think tanks in the US, there are not a small number of their leadership who are boards of Chinese companies. They’re government funded as well.

Albert Marko

They’re just so bad, Tony. I just had a discussion this morning with a finance guy at a firm up in New York. And he’s furiously texted me because I think they were trying to make a bond position. They’re like, Oh, Lavrov’s plane landed in the United States. The Russian diplomat, the foreign minister. The war is over in Ukraine. I’m like, What the hell are you talking about, man? That’s most likely a taxi ride for the diplomats to go back for the holidays to Russia. That’s not some bond move. You’re completely mispricing everything and making assumptions where you don’t have expertise on doing, and they do that often, and that’s why they’re so bad.

Tony Nash

Right. Now, I want to bring us back to crude, Tracy. If we have geopolitical risk rising in the Middle East why are we seeing that in crude prices right now?

Tracy Shuchart

Well, first of all, this whole episode is a shipping move. I’ve reiterated that over and over and over again in Twitter because everybody said, Why isn’t oil moving? Because there’s no risk to oil. Unless you see the Houthis lobbying missiles at a Ramco again, there’s no risk to oil. Production is fine in the Middle East. Production is not interrupted. This is not an oil issue. Now, if you want to talk shipping and you want to talk, yes, now we have a shipping issue with not only containers, but also shipping with the tanker in oil and oil products market as well as they’re being diverted around Africa instead. In fact, we’re seeing tankers have been having to be diverted from Panama Canal for months now because of the things that are happening. It’s a shipping issue. You’re seeing shipping rates increase, and that you’re seeing a bounce in the container and the tanker markets. Right now.

Albert Marko

This goes back to what Brent was saying, though, with these outsized market moves, and this is what we’ve been seeing, any headline, geopolitical, economic, so on and so forth gets so blown out of proportion. And Tracy is right. This Hutho thing is not a risk to oil. This is ridiculous. They’re not going to start blowing up Iranian and Russian ships and Chinese ships. The Huthis rely on those people. So these outsized moves based on wacky headlines is here to stay, and it’s not definitely help.

Tony Nash

To my earlier point, people don’t know how to price this risk because geopolitical risk analysis is so bad. People don’t know how to price risks. You have all of this volatility around these items. Either they underprice and dismiss it, or they overprice it because people are sitting in suburban New Jersey or whatever. They have never been to the region, they have no idea what’s going on, and so they overreact. I know we need to wrap this up, but let’s just get into real nitty gritty on the Middle East for a minute, Albert, on this Yemen issue. The their allies are Iran, Qatar and really Oman, right? I mean, Qatar and Oman are Iranian allies. Is that fair to say?

Albert Marko

Yeah, the Russian. Well, yes, for the most part, but they’ve also had long-standing links with the Chinese and the Russians. I’ve even tweeted out that the Chinese have barges sitting offshore that sells arms to the Houthis, and nobody says anything about it.

Tony Nash

Right. Then the sitting on the other side of that is really the Saudi’s and the Emirates, right? Just in terms of Middle East dynamics, right?

Albert Marko

Yeah, and the israelis, yes.

Tony Nash

And the Israelis. Okay. But I doubt the Emirates and the Saudi’s would really say that Israel is their ally. They don’t really say that out loud, do they?

Albert Marko

No, it’s common knowledge. The Saudi’s and the Israelis have been defense partners for 30, 40 years. This is nothing new.

Tony Nash

Right. And so I think on one side of that, we have chaos, right? Iran and other stuff. And then we have order on one side, which is Saudi and UAE, very orderly societies, Israel, very orderly. So the one I can’t figure out, Albert, is Qatar, okay? Because very orderly place. There’s a massive US base in Qatar. So why are they allied with Iran?

Albert Marko

They’re not just allied with Iran, but they’re allied with Turkey on top of that. The little troika there sitting in the Middle East is because they see the Saudi as a threat to their monarchy. So they need to counterbalance that with the Iranians, the same way that the Indians counterbalance China with Russia. That’s just the basic layman’s terms of reason of why they’re aligned with the Iranians. They need a counterbalance.

Tony Nash

It’s just balancing out. It’s not that the countries are super empathetic to Iran. They’re just worried about Saudi. They’re enemy, my enemy, that thing.

Albert Marko

Yeah, exactly. That and the Iranians are also right across the street there. I mean, it’s not that far away. It’s just down through away. Their gas fields and the water are Yeah, exactly.

Tony Nash

Yeah. Okay, very good. Guys, this has been fantastic. Thank you so much for this. We’ve got a lot to think about going into 2024. Have great holidays and have a great week ahead and see you in the new year. Thank you very much.

Tracy Shuchart

Happy holidays.

Albert Marko

Merry Christmas, everybody. Happy holidays.

Brent Johnson

Happy holidays.

🚨TODAY ONLY: 12.16 Flash Sale🚨 EXCLUSIVE FOR THE WEEK AHEAD: 80% OFF CI Markets. Subscribe for $99/year: https://completeintel.com/1216flash.

This Dec. 18th episode of The Week Ahead is hosted as usual by Tony Nash, with first-time guest Anthony Crudele, joining Michael Belkin and Tracy Shuchart. In this episode, the panel discuss:

1. Year-End Market Temptations with Anthony: Anthony walks us through the intriguing observation that more traders encounter challenges during the year-end period than at any other time. We dissect the dynamics behind this trend, offering keen insights into market behavior during this crucial period.

2. Rotation Dynamics in the Market with Michael: Michael takes center stage, discussing the ongoing rotation within the market. Starting with the Dollar’s significant post-Fed meeting decline, Michael provides insights into the depth of this fall. We then explore the current sentiment toward the tech sector and potential factors that might redirect investor focus. For those with an eye on gold miners, Michael explores potential advantages amid the declining Dollar, spotlighting $CDE. He articulates the thesis behind this potential opportunity and discusses the factors that make it compelling.

3. COP28 and the Market’s Take on Fossil Fuels with Tracy: Tracy leads a discussion on COP28, shedding light on the market’s interpretation of the climate talks. Despite positive sentiments surrounding the event, Tracy provides an alternative perspective based on the wording of the final resolution. Discover how the markets are responding and the implications for investors.

This episode offers a focused exploration of these three key themes, featuring expert insights and candid discussions. Join us for a deep dive into the forces shaping the weeks ahead. Stay informed and stay ahead of the curve.

Transcript

Tony Nash

Hi. Everyone. For today only, we have an exclusive offer for our week ahead audience. That’s our 12.16 flat sale. It’s 80 % off of a CI Markets Premium subscription. That’s $99 for the whole year. Access AI-powered forecasts for over 1,600 assets across stocks, ETFs, forex, commodities, and economics. Updates every Monday morning with a 94.7 % forecast accuracy, this tool is helping traders and investors like you to make smarter decisions and plan portfolios better. Visit completeintel.com/1216flash to get this deal. That’s 80 % off CI Markets, $99 a year, today only. Thank you.

Tony Nash

Hi, everyone, and welcome to the week ahead. I’m Tony Nash, and today we’re joined by Anthony Crudele, Michael Belkin, and Tracy Shuchart. We’re talking through a number of key themes today. The first is year-end market temptations. Anthony had some really interesting thoughts about things that happen this time of year in market. I want to really dive into that a little bit. Michael Belkin has been telling us for months about a market rotation. I want to talk about that and see is that still on? Then with Tracy, we’ll jump into COP28 and their love of fossil fuels as we found out this week.

Tony Nash

Guys, thanks so much for joining us. I really appreciate the time you take. Anthony, it’s great to have you on. Obviously, I’ve watched you for years. I want to talk about markets with you. But first, you had a great tweet this week where you said more traders blow up during this time of year than any other time. I think that’s super important to be aware of. Can you talk us through that?

Anthony Crudele

It’s the psychology shift. It’s the mindset changes. It’s the I have to do something mindset versus I want to do something. Patients, a lot of times, gets away from traitors during this time of the year. I’m talking specifically, when I talk about traders blowing up, my background, independent traders, I’m talking a lot about the traders out there trying to go out there and make it as an independent trader. Not talking about traitors in their books, just a different world for me. But I think because those traders have that type of pressure on themselves. I remember my first panic attack, anxiety attack was Christmas morning. I woke up and I didn’t have gifts. I was in my early 20s, independent trader, and I didn’t have any gifts for anybody. I just felt this immense amount of pressure come over me. I remember during that month, leading up to that time, I’m trying to make things happen. I think that’s just a consistent theme when you look at independent traders, investors, that they tend to try and do things that maybe they wouldn’t try and do because they try and turn a buck. Everyone feels the pressure.

Anthony Crudele

We have had a year where regardless of what the data may say, inflation is still pretty high out there, I think, for everybody in the mainstream. I think that it’s just important to understand that you don’t have to do anything. I think we put majority of the pressure on ourselves as traders. We’re competitors. We want to go out there. We want to do well. We want to perform well. When you also get into this time of the year and why I think a lot of traders blow up, I think not only because of the psychology, but it’s really a different market. I mean, look at this past week. We had biggest options exploration of the year. You’ve got triple witching. We had an FOMC meeting. We had CPI, PPI. We have all of these cross winds coming in at once. You have end of the year flows, seasonality. That really, a lot of times, is going to cause a lot of either one-directional moves and I think a lot of random volatility, I call it, where all of a sudden bigger players come into the marketplace because they have to do something and they have to do something on a different reason than what I talked about with independent traders having to do something.

Anthony Crudele

They have to move money around. You’ve got, like I said, all the expirations between the futures markets, options markets. That’s why I think that this time of the year is really unique psychologically, and also in terms of just in trading in general.

Tony Nash

Right. It’s interesting you use the word saying that traders are trying to make things happen. I think over the last couple of years, it’s been pretty easy for people to feel like they can make things happen. I’m not sure if that is… I almost feel like we’re at the end of that to some extent. That magic that we had in ’21 and ’22, this year has been a lot harder. As people end this year, I think what you mentioned about having money for gifts or whatever at the end of the year, that’s a real pressure that everyone feels. I think a lot of traders feel like they set their own destiny to some extent. Not really, but I think a little bit of that feeling is there. How do you see people trying to make things happen? What are some of the biggest mistakes people make?

Anthony Crudele

I think people just think too much. I think that’s really what it comes down to. I think the mistake that they make in terms of actually going out and trading is that they’re just thinking too much about all these different things I mentioned that are happening in the marketplace right now, and they don’t really take it down to a level of execution. You’ve got so many financial experts out there talking about what’s happening in the market, macro flows versus options flows. I just did a big podcast on this and just all these different cross winds, like I mentioned. I think that traders get overwhelmed by it. Then when they get to the screen, they have all these hidden underlying biases that get in the way of them just trading what’s in front of them. A lot of people will fight the tape because maybe a move is happening. Look how much we’ve rallied and the Dow and Russell. I know the Nasdaq and S&P have rallied as well, but look at those markets. You easily can see people stepping in trying to fade them if they didn’t catch a move or just trying to go in and trying to make a couple of ticks and get in front of a steam train and they give away a lot more money than they really anticipated to.

Anthony Crudele

I think the mistake is just overthinking the environments instead of just simplifying and saying, Okay, look, there’s a lot that I don’t understand what’s happening right now, and that’s okay, and come in and just be small and smart. I keep telling our traders and my free Discord, small and smart don’t ruin Christmas.

Tony Nash

Yeah. Tracy, you’re in the trenches on this stuff. Talk to us about how do you feel at this time of year? Do you feel additional pressure?

Tracy Shuchart

I think mainly because my main focus is energy, generally tends to be pretty predictable as far as seasonality is concerned. Usually, we see a low in oil markets, the second to third week in December, and then we see a rally to the end of the year because of tax purposes, because oil companies’ tax assessment date is on the 31st of December. They try to get rid of as many barrels as possible. It also correlates to when refinery maintenance season is over, so they’re able to ramp up refining. That works out. We see big draws generally from the EIA report, which generally leads to a bias to the upside. I think looking at the energy industry, it’s just a very seasonal market. If I were trading equities, I probably, especially in the futures markets, I think it gets more and more difficult. When you start having the notional value increase every year. I mean, we have what, $4.9 trillion of notional value, notional expiring today. It’s true. That number keeps growing. I think that gets more and more difficult to trade. I think that when you get into these passive flows that just keep growing, it gets more and more difficult because you just have computers and buying because that’s what they’re told to do.

Tracy Shuchart

That’s my take on that, mark, on that.

Tony Nash

Once like Michael.

Michael Belkin

Calculating stuff.

Tony Nash

Enabling these computers. Okay, that’s good. Thanks for that. I think obviously be careful, think twice. I like what you say about staying small and all that stuff, Anthony. It’s really good to think about it this time of year. Let’s talk a little about what happened with central banks this week. The Fed, obviously, everyone knows the news about the Fed. The BOJ is obviously a big consideration. The ECB, does whatever they do to enable the hollowing out of European economy. But we saw on Wednesday, Powell presented a very doveish look for it, very doveish. Equities, accept the Nasdaq, equities loved it, small caps loved it, commodities loved it. Is this and all three of you guys, Anthony, let’s start with you, but all three of you guys, is this the end of cuts? Are rates just flat for the next months or whatever? On screen, I have a survey I’ve done looking at when the first rate cut is expected. Half the respondents, more than half the respondents, believe it’ll happen in the second half of ’24 or later. That’s changed. Obviously, shifted a little bit earlier since the Wednesday meeting.

Tony Nash

Is this the end of rate cuts? Are we going to see dramatic doveishness with the Fed? Anthony, let’s start with you.

Anthony Crudele

You think it’s the end of rate hikes, right?

Tony Nash

Sorry, rate hikes. Oh, my gosh. Yes, rate hikes.

Anthony Crudele

I know because our minds are already on cuts, right? To be clear, I’m not a macro trader, but what I look at is an overall theme. This was a shift, bottom line. I mean, the dot plots taking for what they’re worth are showing three next year. I immediately went to CME’s Fedwatch tool and I looked to see what they were going to be pricing in through the Fed Fund futures, and they’re looking at six rate cuts heading into next year, I think starting obviously in Q1. Do I think this is the end of rate hikes? If we take the Fed for their word, I think that’s what we’re looking at. The market took that statement and things changed. Market environment changed. Now they rattled the cage. Yeah, I think that we’re at the end of rate hikes.

Tony Nash

Okay. Michael, what are your thoughts?

Michael Belkin

I remember when I was a kid going to Disneyland, there’s this ride called Mr. Toad’s Wild Ride, where you’re smashing into walls and stuff. To me, that’s like the Fed steering the economy. It’s out of control. It’s blowback. They’re always doing the wrong thing at the wrong time for too long. So if you go back a couple of steps, so we had COVID, they threw an insane amount of stimulus at the economy. Then they said inflation is not a problem, it’s transitory. Then they raised interest rates by 500 or something days of points. And now they say everything’s okay. And maybe asor all of a sudden. Yes, so there was a change, but my work says we’re headed into a recession. And interest rates are going to drop sharply, the economy. So all my economic stuff… I do forecasting, time series analysis, forecast, direction, position, intensity, looking for turning points and things. Industrial production, capacity utilization, retail sales, even though the numbers should look a little bit stronger lately, I think this is a major inflection point and that goes as well for corporate earnings. Basically, I think the Fed is going to be… They’re usually the caboos.

Michael Belkin

They decide to change too late after everything’s changed. I think this is incredibly bearish. If you go back to me, this is a moment like 2000, March 2000, or after that. But nothing is ever exactly like anything else. But this is a major inflection point in the economy, similar to late 2007, early 2008 or 2000, 2001. I think there’s going to be big surprises coming from the private sector. Let me put this in perspective. So the Fed started tightening March 2022. So that’s 21 months or something now. The average lag in monetary policy hitting the economy is like 18 months. It’s not brain surgery, but we get a major downturn. Steve Hank, he’s really great on this. He’s a monetary economist at Johns Hopkins. And I don’t follow him real closely, but I totally agree with everything he’s saying. So I don’t think this is a soft landing. I think we’re headed into something more like a crash landing. Not this afternoon or this week or before the end of the year, but generally things are turning down. Interest rates go down. Right now, the market is perceiving that as bullish. Short term traders, Oh, the Fed’s done hiking.

Michael Belkin

It’s time for me to buy stocks. That’s so ingrained. It’s like one factor model. But you’ve go back and look at 2000 to 2002, 2003 or 2007, 2009, Fed was cutting rates aggressively. The economy crashed in stocks, the S&P went down by 50 %. So I think the psychology in the market is completely wrong. And I’m collecting all these press clips. One of the things I do in the Belkin Report is press clips. It’s all disastrous. Like recession in Germany, recession in Japan, China, nothing’s working. We get these numbers that they always revised down. They look great in the US at first, then they revised them down a couple of months later. Anyways, I think the Fed is going to be cutting rates, but I think the psychology doesn’t yet reflect that that’s bearish. So there’s going to be this, I think, mental change coming for investors, maybe not before the end of the year, but I just have the opposite read on this that the market is getting at the moment.

Anthony Crudele

Can I ask Michael something real quick?

Tony Nash

Absolutely.

Anthony Crudele

I appreciate your thoughts on this. I do agree with you that at some point this is probably something that turns into a bearish situation. I think when you see what happens at the end of a bull market or a big rally, you see this type of news that accelerates it. I think that’s what we’re seeing here. It almost creates a scenario for a blow-off top. Obviously, with seasonality, end of the year going into the beginning of January where it creates this bullishness. I think that this news is just accelerating that flow, which almost is like a capitulation type top. Part of me thinks, Is this inverted yield curve actually starting to come into play where people are starting to see that… Everybody was talking about how this was going to cause a recession. My question to you is, is that playing a role? Do you think that played a role in what the Fed was looking at? Maybe we’ve overtightened, this yield curve inversion is still there and ultimately there is some fear behind this. That’s why you’re thinking that it could be eventually a bearish signal to the market?

Michael Belkin

Yeah, I was actually surprised to see Powell capitulate. I agree. So the market has been saying the yield curve and a lot of this economic data, you can’t read this stuff and not understand that the global economy is headed down. So back to your point about the market making a blow off top. So before each recession, of those major recessions I mentioned in the early 2000s and then 2008 area, the market had made a high right before that. It didn’t make any sense. So it went up and went up for no reason whether news was bad, then it reversed sharply. So I think that’s what we’re setting up for. I think it’s really… So if you’re buying the market here, you believe in buying high. It’s buy high, and I think they’re going to end up selling low. So my model is looking for turning points. I looked for things like buy low, the health maximum, buy low, sell high. So to me, this is a sell high moment. And that’s just for the indexes. But if you look, let me just talk for a second about what’s going on beneath the surface. Okay, so hang on.

Michael Belkin

So my top sectors, I do a lot of. Work on the sectors.

Tony Nash

Hold on, Michael. Can we get into that in just a minute?

Michael Belkin

Okay, in a second.

Tony Nash

I want to do that in the next segment, if you don’t mind.

Michael Belkin

Sure, no problem.

Tony Nash

I do want to continue this Fed discussion, just in terms of things like your process, flexibility and rigidity and your duration. How do those change when we’re in inflection points like this? Tracy, let’s start with you. How does your process change or does it change when you’re in situations like this? Does your duration change when we’re in time frames like this?

Tracy Shuchart

Absolutely. Well, first of all, I wouldn’t go back and say that Powell’s 180 and doveish dance scared me, to be honest, because that made me think, What is the Fed seeing that we’re not seeing in the data? Clearly, there is a deterioration of the data, but not enough to literally do a 180 and start being that dumbish. That frightened me right away. I also have to agree with Michael that I think we do see some blow-off top. To me, this looks like the end of 1999, heading into 2000, and then when we had that huge drop-off, like starting, say, November 1999, it looks like right now where we may see a little bit of pullback, we may see a little bit of volatility, then we see this blow-off top, and then this market has a real problem to say, starting end of Q1, beginning of Q2. That’s what this market feels like to me. I also think we’re going to have a huge problem because if we look at the inflation situation, I think we are in stagflation. I don’t care what anybody says because inflation is still very persistent. I think that this looks like a 1970s scenario.

Tracy Shuchart

What’s going to happen is Powell is going to be faced with a situation where he may have to cut rates, but that’s going to send inflation out the door again, in my opinion. I think that’s what I’m looking at in the market, let’s say, over the next two quarters.

Tony Nash

Okay, great. Does-

Tracy Shuchart

Great. Thanks.

Tony Nash

No, that’s good. I don’t know.

Tracy Shuchart

If that answers your question, but that’s really what I’m looking at.

Tony Nash

No, I think that definitely addresses. Certainly what Michael said, that we’re going from this… Well, first of all, the Fed isn’t telling us what they’re seeing, I think. There’s something that they’re seeing that really has shocked the leadership and they’re conveying that. That’s a weird 180. It’s a great point. That should worry us. As we see interest rate cuts, obviously, that reduces margins that company… The record margins we’ve had over the last couple of years, that reduces margins for companies as well. Earnings are probably going to be scary, especially for some of these retailers or casual dining or even tech as some of these, say, budgets are pulled in, that thing. It could be scary. But I guess just going back to my last question about your process, when you see what you saw on Wednesday with Powell changing his tone dramatically, how does that change your process? Does your duration get shorter? Does your process change? How do you, Tracy, adjust when you see things like this?

Tracy Shuchart

Well, my first thought was this market is going to love this, which it does. My first thought was I need to start buying some protection in February or March because I think that a blow-off top could come. The market’s taking this along the wrong way initially. Atman protection is very cheap right now. That was my first go-to is let’s look at some puts in February, March, and see what’s going on there.

Tony Nash

Great. You’re looking at a two-month horizon for something like this to happen.

Tracy Shuchart

I would say Q1, Q2. I think that’s going to be a pivotal point. I think that we’ll know by the end of Q2. Being that it’s so cheap right now, so I have protection against a long portfolio, I’m fine with that. If I take a loss on that then.

Tony Nash

That’s great. Anthony, how about you? How does your process and duration change, if at all, when something like this happens?

Anthony Crudele

Well, for me, I’m primarily a short-term swing trader, day trader. When it comes to that process, it’s really just understanding what is the current environment. Obviously, that has shifted underlying bid in bonds and treasuries, underlying bid in gold, a favor trading the Russell to the long side more than Nasdaq and S&P because of the impact of interest rates, I think, is going to let the Russell outperform those indexes going forward. You have that shift. I also manage my own longer term portfolio, a portion of it, not all of it, because I don’t want it all in my hands because I could sometimes get a little aggressive. But I think overall, I’ve already been in IWM, so I’ve been long, small caps just because I felt that this whole year was really a bull market. I didn’t know eventually that they would catch up. They’ve now caught up dramatically and I own a bunch of tech stocks. I think for my longer term duration stuff, I use this strength to start taking my risk down. I think if you’ve already been long, I think you start taking risk down. It’s funny, this whole year, nobody wanted to call it a bull market and go back to what Michael said.

Anthony Crudele

It’s like people are buying high and that’s what happens at the end of big rallies of bull markets. It’s funny, those that have not participated are now in a rush to participate. I always look at that from a long term investor, the stuff that I’ve been in, and like I said, I own a bunch of tech stocks, I own the small caps. I’m going to start peeling that stuff off into the next quarter and just reduce my risk. Because it’s my long term portfolio, I probably won’t be out of everything. But then we’ll wait and see and I’ll let price dictate that. I don’t know when this all of a sudden shifts, but it just feels like right now the momentum is so strong technically. We can argue whether or not fundamentally it makes sense to be buying stocks now because interest rates are coming down. That’s what the market thinks. As a trader, as an investor, I look at it and go, Maybe I ride this tail a little bit, but there will start to be signs when you start to see things start to soften up, and then I adjust from there.

Tracy Shuchart

Yeah. We had this article this morning that everybody’s been talking about, there’s a $6 trillion cash word that could fuel more stock gain as the Fed pivots. We’re talking basically they’re saying, buy the high. When you get into this, this reminds me of the mania. Eventually, that mania always reversed the mean, in my opinion.

Anthony Crudele

When has that ever worked? When everyone told you it’s now time to buy because all the paths are clear and we’re at all time highs, right? Yeah, it’s going to work for a period of time, most likely, but that period of time, as fast as we come up in price, as fast as we come.

Tracy Shuchart

Wise spends.

Tony Nash

It’s like twice as fast. Right. That’s why duration is important, right? Anyway, we’re in the middle of a Santa Claus rally, so it’s just let’s-

Tracy Shuchart

Yay!

Anthony Crudele

I would not be fading it now.

Tracy Shuchart

I definitely wouldn’t step in front of this market.

Tony Nash

Yeah. Let’s move to Michael. Michael, you’ve talked about rotation for quite some time, and you’ve talked about getting out of tech, getting into things like financials. With the Fed devishness, I’d like to look at a few different things. I’d like to really start looking at the dollar. We saw the dollar start to pull back pretty dramatically on Wednesday, and we’ve got a chartup showing your dollar direction. Can you talk to us about that? Where and why do you expect the dollar to move and over what duration do you expect the dollar to pull back?

Michael Belkin

Okay. So this backward segue into what you’re talking about a second ago, how did the Fed pivot change my feelings or my forecast? So not really too much. So the Belkin report have been saying short the dollar, be long bonds for months. Okay, so that’s been working. And believe me, I’ve been wrong on other stuff, so I’m not boasting here by any stretch of the imagination.

Tony Nash

It’s a bit of boast.

Michael Belkin

To me, it was like, Oh, hello, where have you been? If you look at the sentiment stuff, so people were buying the dollar against the Yen. They were shorting the Yen like crazy right before this whole thing happened. And then the Yen all of a sudden rallies like crazy. And same thing with bonds. So bonds are up enormously now from the bottom. So the bond market bottom on October 19th. It’s just a couple of months ago, November, December. Right now it’s almost a two-month anniversary, and it’s up enormously. And if I could just go over a couple of what’s happened this week. So let’s just forget about what the indexes are doing, but a lot of what I do is focused on sector rotation.

Michael Belkin

So the bank’s KBE ETF is up 8% this week. So the S&P is up a little over 2% at the moment. Gold stocks, GDX, up 5.1%. TLT, that’s the T-bond, is up 5%. So bonds are up twice as much as the S&P. To me, that’s really a key, super critical thing here. Another comparison I’d like to make is from 1987. I’ve been hired into Solomon in 1986. Solomon Brothers, I was in market analysis. I ended up in proprietary trading, being the quantitative strategist for a man unit running the house account on the equity side. I remember in the summer of ’87, seeing the market go up, up, up, up, up, up, up. Greenspan had come in and was raising interest rates and the market went up for no good reason except for algorithmic buying portfolio insurance in those days. Then it peaked in August, sold off in September, came back, rolled over again. And the critical issue there was bonds relative to stocks. So that’s one of the… What I do is I do relative value trade. So ratio things. So long TLT, short S&P 500. So in ETFs that’s TLT SPY. That has outperformed by two % this week.

Michael Belkin

And that might not sound to an individual investor, but if you’re a big pension fund or something… So what happened to tie this back into what happened in ’87, we had a huge pension fund, General Motors pension fund, dumped all its stocks going into the ’87 crash and shifted to bonds. A lot of other institutions were shifting their bonds. So the shift by asset allocators out of stocks, which look overvalued into bonds, which look undervalued, that’s happening in slow motion. But just to flesh this out a little bit further. So again, the Belkin model looks to buy low and sell high. And that’s not just in absolute terms, but relative terms. So one of the biggest advances this week is solar stocks. Tam is the ETF. And some of these stocks are up enormously. So these are down… This ties into what Nathan was saying about the Russell 2000. Smaller stocks, some of those have been really depressed and left behind by the market. Those are going up way more than tech. So the biggest declining sector this week is communication services. That’s fang. That’s bag seven. That’s Google and Meta. That’s underperformed the index by almost two % this week.

Tony Nash

Let’s talk about that for a minute. Sorry, just to pause there because you have a good chart on that showing basically that you think we’ve hit… We’re pushing down there. I want to put that chart on screen as you’re talking through it. Can you talk through Mag Seven a little bit and where that’s going?

Michael Belkin

Yeah. Sentiment and positioning is critically important. What I do is time series analysis, but I look very closely at sentiment. Some of my hedge fund clients, that’s the biggest thing, they want to know where people are positioned. They’re overly positioned. So they’ll run to the one side of the boat, the boat’s tipping over, and they run to the other side. Mag Seven is obviously the most over-owned thing out there. Everybody and his brother, they’re allowing these things. It looks bulletproof. All the stock analysts, Oh, they’re so great. The earnings are good. So you’ve got to own them. So that’s what everybody owns. And if you look at the top Goldman Sachs, the top longs of hedge funds versus their top shorts, are getting crucified this week. So their top longs are underperforming the market, all these Mag Seven stocks, and their shorts are going up. So there’s this huge squeeze going on beneath the surface. I also like to talk about gold. Is that okay?

Tony Nash

Yeah. You have this gold CDE versus 200 average. Can we talk through that as well?

Michael Belkin

Okay, yeah. So gold is the flip side of the dollar. Okay, dollar goes down, gold goes up. So Belkin Report has been saying, Sell the dollar, buy gold. And gold has been in the doldrums. Nobody wanted to touch it with a 10-foot pole. Went from the penthouse to the shithouse, pardon my French. So all of a sudden it’s starting to come back and it’s really depressed. So I do a retail gold stock report which covers every investable gold stock, not Moose Pasture, not Vancouver, but Hope in a dream stocks, but stocks that have revenues, production reserves. And my number one pick this week and number two in previous weeks was core mining, CDE. That stocks up 20 % this week. So that’s the number one stock recommendation in the Belkin report. And again, I’m not boasting because the market is going up and I’m fighting it. So the things that are going beneath the service of the market is not what you’d think. So bonds outperforming, GDX up five % versus S&P two %. TAN, solar stocks up 12 %. What’s that? Five times as much as the S&P. Bank stocks up 8 %. That’s three times as much as the S&P.

Michael Belkin

And then things that are underperforming… Oh, by the way, real estate. So here’s another… I didn’t really mention that, but real estate is up six %, this XLRE ETF. That’s the REIT ETF. It’s up almost three times as much as the S&P this week. So things that are really depressed I think people are rotating out of… And again, back to the idea of asset allocators rotating out of stocks into bonds, I think that’s just starting. And that can be really convulsive. As we witnessed in ’87, our trading floor at Solomon Brothers was convulsed. We didn’t know in going into the ’87 crash, it was the days of paper tickets, order tickets that wasn’t or anything. It wasn’t digital anything. And it was just frozen. Nobody knew that it was… Nobody knew that we were getting filled or what. The whole thing was in a state of suspended animation. I’m not saying we’re going into a… The market is going to go down 20 % in a day or something. But I disagree with the other panelists here saying looking for a top, further out end of first quarter or something. I think we’re in a reversal zone here and the tech stuff…

Michael Belkin

You got to remember these Mag Seven stocks are about 30 % of the S&P 500 and about 50 % of the Nasdaq 100. And if these things start going down, this other stuff could go up. But you get this great rotation. But if you’re an index player, forget about it. The indexes are going to be heavy if people rotate out of these big name, high cap tech stocks and they start going down and this other stuff starts going up. So this gets back to like 2,000 rotation. Back when the tech bubble peaked, there was a wonderful rotation into financials and utilities, real estate, consumer staples, defensive high yielding stocks. While tech went down, the Nasdaq went down almost 90 % or something over the next couple of years, and all this other stuff went up for a year or two. I think there’s a great opportunity in rotation, but not in the stuff… It’s the exact opposite of what people have been doing for the last few months, just reflexively buying Magseven stocks over and over and over every morning.

Tony Nash

They haven’t lost on it, so it’s not terrible. They haven’t lost on it yet. But Michael, let’s talk. You mentioned financial sector, so let’s talk a little bit about that. You have a chart on the financial sector to the S&P 500 ratio. Keep in mind, the charts that people are seeing, they came out on Monday, I think. The Fed meeting happened on Wednesday. What you’re putting out, pretty prescient given the things that the Fed said.

Michael Belkin

Right. So the financial XLF is up three and a half % that so far this week, it’s one % more than the S&P. That doesn’t sound like a lot. So what my model is time series analysis gives direction, position, intensity. I’m looking at a 12-period forward forecast. Right now we’re only in about the first, second inning of financials outperforming the S&P. And if you get the sentiment, people don’t want banks, the banks are failing, regional banks and so on. They got such big losses on their bonds. But now the bonds are rallying. So that’s mitigating the things. I’m not saying buy the world’s worst banks, but generally -.

Tony Nash

Helps that duration risk a little bit, right?

Michael Belkin

Yeah. But again, the the the bank ETF, up up 8 this this Hello? Am I the only one to even notice that? My clients are big asset asset for the most part. Some huge, almost trillion dollar companies, some of them. And these guys, they have to be fully invested or maybe they can raise a certain amount of cash. So I talk to them and they say, Well, if I’m going to sell something, what do I buy? If I have to buy, I always think they’re So what do I sell or what do I buy? That’s what the Belkin Report tries to do. I’ve been telling them get out of this Mag Seven stuff, rotate into things that are down in relative terms, which is the XLRE, real estate, banks, XLF, KBE, gold stocks, GDX, and also utilities and and staples. Nobody likes.

Tony Nash

Great. Okay. It sounds interesting. It sounds like we’re definitely moving away from where we’ve been since, say, 2021, which it’s about time, right? I think a little bit of this stuff is a little bit tired. Glad to see that. What do you guys think about this rotation at the Etrace here? Do you see the same? Maybe not exactly, but we seem to be at the cusp of a rotation. Is that fair to say?

Tracy Shuchart

Yeah, I think it’s very interesting. We’re seeing value bid over, say, tech, which I call the pep loves dog bid. Everybody, every time there’s a dip, somebody wants to buy tech. But I think it’s very interesting that we are seeing depressed value stocks to get a bid, coincided with the dubbish fed. What are money money What are these big guys really saying? How will I have them spooked? I don’t don’t know. The money. When you see these rallies in particularly the hard assets, obviously that’s my area of focus. But when you see them in industrial metals, precious metals, energy sector, things of that nature, that generally tells me that there is being a shift and that people with a lot more money than we we do forcing something that the Fed is doing or saying that they’re uncomfortable with at this stage. It also tells me a lot about inflation because what that says says to to is that with these six rate cuts factored into the market from the the CME, that tool, I know that the dot plot’s at three, I think. By the way, what this says to me is inflation is not done done by stretch of the imagination and people are buying into inflationary tending assets such as energy, metals, and whatnot.

Tracy Shuchart

Because I think what I fear is that you’ll have rate cuts and it’s too early, it’s too soon, and then we have inflation inflation back like the 1970s.

Tony Nash

Yep. Anthony, in terms of are you in terms of rotation? Are you.

Anthony Crudele

On board? Well, when I look at tech, like like I said, my longer term portfolio stuff, I own a few of the Magnificent Seven. I’m very heavily weighted right now on Russell, and I just think that the rotation has already begun. You’re seeing everybody rotating into small caps. I thought it was interesting that Michael talked about the solar. I might follow up a question with him on that because I’m curious about it. But I also look at it from a seasonality time of year. I look at where the markets are from a technical basis. Tracy talked about how much on the sidelines sidelines could come in, in, Tracy. You say six trillion, something like that?

Tracy Shuchart

Ridiculous. Yes.

Anthony Crudele

Yeah. I look at that and go momentum is on the side of the bulls right now. I think that rotation is beginning, but but just don’t see a fallout in these major tech stocks right now. I think that it’s going to take take time, I think that that’s why I’m looking at it more as we rally. I’ll be peeling off risk, not adding adding risk, I’m talking about my longer term stuff over the next quarter just because I think momentum carries through because of time of year and because of just like I said, that money that comes in now because we go back to where we started.

Anthony Crudele

This is a sentiment shift, right? Everybody’s fighting that this is a bear market. Not everybody, but a lot of people, a lot of the year. It’s now a bull market. It’s now in the headlines. You’ve now got a lot of retail money coming in. Just in my experience as we’re making highs, highs, all-time highs some of the indexes, it’s hard to see a rotation right now. I’m still in the camp that we will see some blow-off-top, capitulation-isk type move just because the flows are so one-dimensional right now. I I think that don’t see a reason to change my mind, but the tape will prove me right or wrong, nonetheless. I think it’s a time thing is more of the way I look at it.

Tony Nash

That’s why we have markets because we have differences of opinion. It’s great. I love that.

Anthony Crudele

Can I ask Michael a question real quick about the solar? I’m just curious about it because I think it’s interesting. Michael, from your research when it comes to why the solar stocks are doing well right right I mean, it’s not like oil is is and I know that we’re in an election year, so I’m not necessarily sure how much that plays into the solar as well. But is it really just because maybe interest rates are coming coming because a lot of these solar companies are borrowing from banks banks and that’s just a lower interest rate? Is that what’s triggering it? I’m just curious why that maybe that solar space is something that’s doing so well right now.

Michael Belkin

Possibly that’s one influence. I suspect it’s caught up in shorts. It might be a short squeeze because they’re not the greatest companies, right?

Anthony Crudele

That’s why. Yeah.

Michael Belkin

Yeah. I’m saying buy solar stocks, hold your nose. But these things are up enormously this week. They’re in the Belkin Report. Report. So SPWR, SEDGRUNNOVA, HASI, things like this. I used to be part of this short selling group that would get together every year. I’m still invited, but I haven’t been able to go in the last few years. But these are the companies that stock analysts probably hate. Even though Biden has been throwing enormous amounts of money, solar energy subsidies. So I think maybe that it’s just a a sell-high thing. Things that hedge funds hate that they’ve been selling and shorting that have been been By the way, this is a new position for me, goes back about two or three weeks. These were on my sell and shortlist. The Belkin report is not a broken clock. These were previously sell and underperform recommendations in the Belkin report until a month or so ago. Now they’re working as longs. I think it’s more just like a buy-low, sell-high rotation. It’s looking for things things that down. That’s a normal end of the year thing. So if you’re looking for a fundamental reason, might be hard to find, but it’s just order flow, sentiment, positioning, direction, position, intensity.

Michael Belkin

That’s what I do.

Anthony Crudele

Yeah. Sorry, Tony. It’s interesting to me because I’m thinking about this. If this is happening overall in the market, I’m just curious what Michael and Tracy think, isn’t that a bullish thing? That’s why it’s hard for me to be bearish up here at all, really, really, because it’s a rotation where I’m seeing the weak stuff getting bought bought up. My experience in bull markets, I’ve seen that be a very bullish signal, at least in the short to medium term. That’s part of why I’m looking at it it This could carry that momentum into what we consider a blow-off type top-ish scenario. I’m not projecting that’s what will happen, but I just think that the action I’m seeing is bullish.

Tony Nash

Anthony, you said a lot like Tony Greer right now, and I mean that’s a compliment.

Tracy Shuchart

A Well, it’s the everything big, right now.

Anthony Crudele

My guy.

Tracy Shuchart

Everything’s big right right now. If you look relatively speaking, we are seeing value start to outperform, at least this week, outperform traditional tech tech I think that is just a shift in investor sentiment or money manager manager or a big player sentiment.

Michael Belkin

Can I hop in there?

Tony Nash

Absolutely.

Michael Belkin

With the Magseven being 50 % of the Nasdaq, I think that’s negative for the market. To me, I said this before, but I’ll just repeat, I don’t know if you were around in 2000, but the rotation then was… The S&P held in 2000 after the tech bubble top, but it was all held up by these defensive stocks, the big portfolio manager’s role while tech was crashing. So the Nasdaq was going down while the held held the Nasdaq underperformed. I hate overlaying one chart over another chart, expecting things to happen. That doesn’t usually work out. But you get similarities. There’s things rhyme. I think we’re more in a situation like that where you do not want to be in the the Nasdaq also the the VIX. Talked a little bit about it, but the VIX is insane right now. It’s so ridiculously low. It’s depressed by are funds that sell options. There are a lot of ETFs now that sell options for income. That’s part of it. I don’t know who all the different participants participants are selling volatility. To me, the VIX is a screaming buy. Buy. So means puts are cheap, even calls it.

Michael Belkin

But if the SKU is not there, it’s not then the distant ones aren’t so cheap. But basically, when the VIX starts going up, the market starts going down and you get wildish swings. I would say say temporary I’m not telling you what to do, but just in general, the forecast is for the Nasdaq to underperform. So the stuff that everybody’s been buying, I could see the Nasdaq going down while these other things, the Russell, the things you’re talking talking about. Of these other things go up for a month or two, not hugely. It’s not like a massive bull market breakout, but more of a rotation. But definitely I’m not bullish on the Nasdaq. I think it’s really overdone, over-owned. I know these hedge funds are feeling pressure because these stocks are underperforming. If you’re you’re 30 of your portfolio is in these things and you’re getting negative alpha, people are tapping on your shoulder. Your boss is saying, Well, what are we doing? What are we doing with Meta?

Michael Belkin

What are we doing with with Google?

Michael Belkin

What are we doing Alphabet? What are we doing with Microsoft? I think it’s negative for the Nasdaq.

Tony Nash

Okay, since Anthony asked about solar, we just had the COP28 meetings earlier this week, and maybe that’s why everyone’s excited about solar. Who knows? But message we got out of… We had a lot of gushing analysis of COP28 in the UAE this past past week. Seems like every climate warrior was super happy about it. But based on the wording of the final resolution, Tracy, Tracy, it like you don’t necessarily think that there’s a lot of reason for those guys to celebrate. Can you tell us what you’ve observed? I’ve got a tweet of yours on the screen. Okay. I’m sorry. Observed and how markets seem to be reading into the news.

Tracy Shuchart

Well, I think… Okay, when we have to start, and I just clipped in that that tweet. Just a clip of that specific energy section of it. It’s 28, 29, and 30. I think what you have to read in this market is this whole time, so let’s put it this this way, missed two of the lines to come to a resolution. They went over time into a third before they came to a resolution. The big-

Tony Nash

Does that usually happen? Does it usually take that much for these-

Tracy Shuchart

Well, no, actually, last COP28, it did over coal, and they decided to leave coal out of it.

Tracy Shuchart

It’s happened, but but not like is rare that it’s twice. My argument is everybody was thrilled about this because they mentioned transitioning from fossil fuels. Now, here’s my argument about this whole thing, and that was, I think, think, 28 if you look on that chart, transitioning from fossil fuels. What everybody really wanted in that, what the environmentalists environmentalists wanted that was the words phasing out—so really the oil and gas industry won on that point, even though they all cheered. There are a lot of renditions of that statement, but but it came out something much more watered down than, let’s say, the the environmentalists really wanted. Then we have to look at coal, and that was 28 B. Now, that initial wording started at, we’re going to rapidly, rapidly phasing down. What ended up was, we’re going to accelerate our efforts towards a phase down. I mean, all this language has been very much watered down. What is also really interesting is that if you look at 29, 29 recognizes that transitional fuels can play a role in facilitating energy transition. That means natural gas. Now, natural gas was a big point of contention last year, and they didn’t want that involved at all.

Tracy Shuchart

To me, this says, Oh, my God. Well, maybe people are realizing we just can’t jump from fossil fuels to nothing to solar. Sorry, my last points I just have to make is 28E, which is a big win for the the nuclear because it’s been shunned from COP throughout its history, finally got a mention as a fuel. I think that’s exciting for the new era industry.

Tony Nash

Yeah, and they talk about the low…

Tony Nash

No, it’s a great breakdown. In In they talk about low carbon hydrogen production, which again, is a nod to natural gas. It’s interesting that Anthony mentioned with the solar… His solar question to Michael, he talked about interest rates potentially falling to help out these solar firms. Do you think—and we talked about this a couple of weeks ago on the show—if we do have this 180 pivot from the Fed, well, given where interest rates are, do you think that it was an acknowledgment from COP28 that it’s tougher to transition to these green power generation approaches with interest rates, even at the level they are now, much less whether they either arise or fall, depending on where we are in a year. Do you think this is a nod to how expensive it is to deploy those technologies?

Tracy Shuchart

I think it’s a nod to how expensive it is to deploy any technology or any source of energy at interest rates that’s high, which we have to know. This has been a major theme throughout this entire year, starting from the the invasion. India decided we’re still buying Russian oil, we get it cheap. China, we’re still… But everybody was energy security is our focus. We don’t really care what the United States says, what the West says. I think what was a notable shift in this COP28 is they gave with interest rates this high because all of these energy projects are very capital intensive. They require a ton of capital at borrowing rates that are skyrocketing. And so I-

Tony Nash

And those countries are running out of fiscal power.

Tracy Shuchart

Exactly. You have emerging markets right now defaulting on debt payments. We just saw this with Ethiopia. We’ve seen this in multiple countries in Africa. This is a very tough time, skyrocketing rates, especially for emerging markets that are looking for energy security. In my opinion, this is a long way around of of saying In my opinion, when we look at COP28 this year, I think it’s very interesting that I think that they say they got what they wanted, but I would say this was a big win for the oil and gas in the nuclear industry over any other technology, to be honest with you.

Tony Nash

Okay. I also want to ask you about coal. Obviously, China and India and other places continue to build coal plants because people need cheap energy. Are emerging markets. They need need low energy and all this stuff to power their electric cars. If we look at 28 B, and it talks about the phase down of unabated coal power. What is unabated coal power?

Tracy Shuchart

What they’re saying is that we don’t want you to keep adding coal plants and using this as your backup plan, which we know China has. China hasn’t stopped building coal coal even though they have built nuclear, they have built out hydro, they have built out all these other technology, solar, wind, etc, etc, they still haven’t scaled down any sort of coal production and or coal energy, electric source of electricity, in other words.

Tony Nash

They need the coal to power the EVs.

Tracy Shuchart

Yes. I know I caught that that the first time. Yes. I just wanted to. Absolutely, I know. Know. You the same thing with India. You have growing populations. They want exactly what they see the West has. They need cheap energy. They have growing growing This makes perfect sense for them, economically speaking. Of course, they’re not going to stop, and they don’t really care what the West says. To be honest.

Tony Nash

It’s really cynical of the West to force this stuff down the emergency markets throughout when the West used this cheap energy to build build our infrastructure infrastructure our our Why are we now forcing these other places to spend huge money on green energy when a coal plant or natural gas plant or whatever is-

Tracy Shuchart

They’re using it as a carrot for we’ll give you money for this project if we can shove this renewable project down your throat.

Tony Nash

Right. Exactly.

Tracy Shuchart

This is where we’re seeing a lot of conflict in Africa right now. I I digress. That’s a whole other subject for another day, but that’s what we just saw in Niger. There’s a lot of conflict going on against the West, a lot of military military happening against Western Western nations. Throwing their views down their throats, so to speak.

Tony Nash

I want to ask you one more very specific question. I don’t want to get Anthony and Michael to come in. In 20 and H, they talk about phasing out of inefficient fossil fuel subsidies that do not address energy poverty or just transitions as soon as possible. They’re interested in phasing out fossil fuel subsidies, but there’s no mention of subsidies for, say, green fuels and EVs and all this stuff. They’re happy to continue to subsidize those fuel sources, but you can’t subsidize fossil fuels.

Tracy Shuchart

Yes. To be honest, I think that language is also pretty watery. I wouldn’t be surprised surprised to that kicked down. You have to realize this is a bunch of, pardon my language, but a bunch of blowhards that come together to decide the fate of the world. Many of these goals cannot be reached, but they all walk away, pat themselves on the back, say, Oh, we did a good job.

Tony Nash

Oh, yeah.

Tracy Shuchart

You’re saving them money.

Tony Nash

They went to a great hotel in Dubai and had some great meals.

Tracy Shuchart

Exactly. At the end of the day, I wouldn’t take any of of these from any COP28 as law. This is how it’s going to be. I expect every year it’s going to rapidly change. Again, this year, the biggest rapid change that we saw was a nod to nuclear and a nod to natural gas, which is a huge 180 from literally the last decade.

Tony Nash

Okay. Last question for for then I’ll turn over to these guys. How much of the stance on this statement had to with the fact that it was in the the Do you think because it was in the Middle East, they were more amenable to being friendly to Natgas?

Tracy Shuchart

Don’t think so. There’s been 28 COPs. We’ve had 13 of them in oil producing nations.

Tracy Shuchart

Some of them more than once. Next year is going to be in Azerbaijan, in Baku. To say that oil and gas gas got a nod just because it was in an oil-producing I would say is I think that’s what they liked. I think that’s the narrative they like to push. But in all reality, 13 other major oil-producing nations had posted this meeting before.

Tony Nash

Before. Michael, I got a couple nods out of you as I was asking some questions. What are your thoughts on this?

Michael Belkin

Okay, well, let me preface what I I saying I live on a rural island outside of Seattle, and I’m a mountain biker. I almost every day, even in the winter, or mud, rain, snow, whatever, light snow. On my way to the forest, I have to drive up the road. Luckily, a lot of people have Teslas and Rivians and stuff like that around around here. There’s still a lot of diesel trucks. So I have to breathe this stuff when I’m riding. So I’m not like a hard nose energy person. But I have to say that there’s almost a religious cult, pseudoscience about climate. I’ll just have one thing to say about it. There’s a story today that came out. Now, scientists say breathing is bad for the environment.

Tracy Shuchart

I posted that today.

Michael Belkin

The gasses we exhale contribute to what? 0.1% of the UK’s greenhouse gas emissions.

Tracy Shuchart

They want you to stop breathing now. Seriously.

Michael Belkin

These pseudoscientists, mostly hard left, they sit in Ivory Towers, and they come up with these models. I’m I’m a I’m a statistical modeler. And I was at Berkeley. I came out of the UC Berkeley Business School and Staff Department, and I was in classes with some of these people that were premed, they were taking stat classes. And so they basically know the conclusion that they want, and they come up with this data, this absurd data to support these crazy things. So I’m glad to say that’s all I have to say about it. I’m glad to see that this was watered down. And believe me, I’m not in favor of having smoked coal floured, coal fired utility plants and all that stuff. We obviously have to do something about that. But the religious pseudoscience, coal science from the hard left on this, it’s really… It’s almost… Sadly, it resembles what happened in the the pandemic where a lot of these people were modeling all these things saying hundreds of millions of people were going to die or something. So we have to lock everything down. So it’s dangerous to the economy and to the markets markets to have that have no idea what they’re talking about, they’re on some Ivy Tower academic pulpit coming out of these BS studies.

Tony Nash

I mean, for those of you who aren’t quants and aren’t modelers, both Michael and I build models. If we wanted to show Apple at a $10 stock price or a $10,000 stock price, if we went into that exercise with that final conclusion in mind, we could build that model. Very easy. And so, we have things like like breathing is bad for the the environment, can build that model and you can say that. If that’s what your preconceived outcome is, very easy to build that model. I think most of the people who watch this this that. But just to bring it back to financial markets, we can build any model we want if we know the outcome, the intended outcome. Anthony, what’s your thoughts on COP28 and energy?

Anthony Crudele

It is not my world, Tony. It is just… It was great to hear what Michael and Tracy had to say, but I know so little about it, it wouldn’t even be worth me commenting. I know to stay in my lane.

Tony Nash

Good for you. Thank you. All right, Tracy, what’s the outlook on energy prices, specifically, oil coming out of COP28? Do you believe that once this is digested, we’re going to see some upward pressure on, say, gas prices, oil prices as a result of this longer term, I would say, say, of the hard commitment on green green.

Tracy Shuchart

Yeah, absolutely. I think that definitely will and it has been ever since the decision. We have seen oil prices prices about $2. We’ve seen oil prices rather depressed considering the geopolitical issues that are going on in the Middle East right now. I think that definitely has relieved some pressure. I also think that not only fundamentally, but I look at at this market, market was very oversold. You have positioning. People are not short, they’re just not long whatsoever. Any news that is good, then you start that hop on train and then that gets the ball rolling. I look at positioning as well. If you look at the CFTC, commitment of traders, there was no interest in this market whatsoever. We were at the lows, not as low as 2020, but generally low historically for this market. Positioning is right right now. I’m not saying we can’t go lower by any means, but we had good news coming out of COP28 for the oil industry. We had positioning where it was. We have no interest in this this market. Not very surprising. Plus, if you see that, oil tends to do really well in inflationary environments. There are actually six rate cuts coming, which I don’t think that there are, but the market is pricing that in.

Tracy Shuchart

That’s very positive for the oil industry because the oil looks at it as in, I think inflation is-

Tony Nash

Interesting. Okay, last thing. Michael, what are your models telling us about energy and oil and gas?

Michael Belkin

Okay, I’m slightly different than Tracy there. This was my number one long call. I think maybe earlier when you had me me earlier in the the I was long energy, long energy stocks. That’s completely changed. I’m short. So I have them as underperformers, energy producers, energy service in in particular, it like a lot of not so great companies. So So tactically direction intensity is what I do in the model. We’re like maybe in the third inning or so in relative and absolute decline for energy and oil, also physical. Now, the only thing that scares me, I was a little bit late on putting this on because obviously in the Middle East, we’ve got missiles in the Red Sea every day, two more today, and we don’t know what’s going to come out of the blue over there. So I’m vulnerable to something stemming from the Israeli-Palestinian conflict, messing up oil supplies. But one other thought on that. So when the economy goes down, energy prices go down. Unless it’s like 1970s and oil supply is completely shut off. I’m bullish on some commodities, mainly metals. Do you see palladium yesterday? It was 10 or 12 % out of nowhere.

Michael Belkin

So I like the metals. I like gold, silver, platinum, gold stocks, silver stocks, these things. There’s hardly any of them out there and nobody even knows what they are. But energy stocks, not so great at the moment. As tactical short, under-performed, not included in the number, like in other words, stocks that went down a lot that are now bouncing. They’re not in that category in my models forecast.

Tony Nash

Great. I love it when we have disagreement on this show, guys. This is perfect. So, Anthony, thank you so much for your time. Michael, Tracy, thank you so much for your time. We really appreciate it. Have a great weekend and have a great week ahead. Thanks a lot.